Date Of Judgment 23-07-2018, Ita v. M/S Meritor Lvs India (P) Ltd

IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 23 DAY OF JULY 2018 PRESENT THR HON’BLEK DR.JUSTICE VINBBT KOTHARI ANT) THR HON’BLE MRS..JUSTICK S.SUJATHA I.T.A. No.350/2016 BETWEEN : 1.THE Pr. COMMISSIONER OF INCOME TAX| "[‘T]FLOOR, BMTC BUILDING 80 FEET ROAD, KORMANGALA| BANGALORBE-560 095 «|THE ASST. COMMISSIONER OFINCOME-TAX, CIRCLE -3(1)(1),INCOME-TAX, CIRCLE -3(1)(1), ~ FLOOR, BMTC BUILDING 80 FEET ROAD, KORMANGALA| BANGALORE-560 O95 . APPELLANTS| (BY SRI K.V.ARAVIND, ADV.) AND : M/s MERITOR LVS INDIA (P) LTD.,NO.69, Al-AMEEN TOWERS.3 FLOOR, HOSUR ROAD,NEAR LALBAGH MAIN ROAD,BANGALORE-5b60 O27PAN: AABCM 9623K_. RESPONDENT. (BY SMT.D.SUJATHA, ADV. FOR SRI MALLAHA RAO K., ADV.) THIS TTA IS FILED UNDER SECIION 2J6O0-A OF INCOMTAX ACT 1961, ARISING OUT OF ORDER DATED 16/10/2015.PASSEDIN|IT(TP)ANO.1231/BANG/2011,KOR.THE Date of Judgment 23-07-2018, ITA No.350/2016 The Pr. Commissioner of Income Tax & another Vs. M/s Meritor LVS India (P) Ltd. 2/10 ASSEHKSSMENT YEAR 2007-2008 ANNEXURE-D. PRAYING TO: 1FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED|ABOVE. 2. ALLOW THER APPEAL AND SEI ASIDE THE ORDERSPASSEDBY|THREITAT,BBRENGALURINIT(TP)ANO.1231/BANG/2011 DATED 16/10/2015 ANNEXURE-D ANDCONFIRM THR ORDER OF THR DRP CONFIRMING THR ORDER|PASSED BY THE ASST. COMMISSIONER OF INCOME TAX,|CIRCLE-3(1)(1), BENGALURU. THIS APPEAL COMING ON FOR ADMISSION, THIS DAY, S. SUATHA, J., DELIVERED THE FOLLOWING: JU DGMENT Mr. K.V.Aravind,Adv. for Appellants — Revenue. ©Mrs. D.Sujatha,Adv. for.Mr. Mallaha Rao K.,Ady.Respondent — Assessee. This Appeal is filed by the Revenue purportedly raising substantial questions of law arising from theOrder of the Income Tax Appellate Tribunal, BangaloreBench ‘A’, Bangalore in.IT|TPIA No.1231/Bang/2011 dated16.10.2015, relating to the Assessment Year2007-08. ? The substantial questions of law suggestedby the Revenue in the Memorandum of Appeal are asunder. Date of Judgment 23-07-2018, ITA No.350/2016 The Pr. Commissioner of Income Tax & another Vs. M/s Meritor LVS India (P) Ltd. 3/10 aWhether on the facts and circumstances ofthe case, the Tribunal is right in law in holdingthat assessee can claim set of losses from 10Aunits and non 10A units by following the decisionof this Hon’ble Court in case of CIT v. Yokogowawhen said decision has not reached finality? D2 WhetherOF|the factsandin|the circumstances of the case, the Tribunal is right indirecting the TPO to exclude comparables such asAvant Cimcon Technology Lt.d, Celestail Biolabs,KalsInformationoystemsLtd.,InfosysTechnologies Ltd., Tata Elxsi, Wipro Ltd., E-estsolutions Ltd., Persistent Systems & SolutionsLtd., Thirdware Solutions by following its earlierorder which has been challenged before thisHon'ble Court by holding that the companies arefunctionally different when the TPO has clearlybrought on record that all the qualitative andquantitative filters/tests are satisfied in case ofassessee to consider the said comparables and)when selection of comparable companies in TPstudy depends on specific FAR analysis?| 3.|Whether adjustment can be made on the|basis of advance received from AEs in absence of Date of Judgment 23-07-2018, ITA No.350/2016 The Pr. Commissioner of Income Tax & another Vs. M/s Meritor LVS India (P) Ltd. 4/10 debtors and inventory in the case of the taxpayer? 4 |WhetherOnlthe factsandin|thecircumstances of the case, the Tribunal ts right in|not upholding the TPOs decision in not allowingthe Working Capital Adjustments in the givencase based on the facts of the case as anyadjustment1SprovidedToIncrease|thecomparability and not the profitability of the taxpayer?” Regarding Substantial Question No.1: 3.Learned counsel for the appellants-Revenue| Mr.K.V.Aravind has.submitted that|theHon'bleSupreme Court has settled the controversy in the case OT Commiuisstoner of Income-tax V/s. Yokogawa Indi Date of Judgment 23-07-2018, ITA No.350/2016 The Pr. Commissioner of Income Tax & another Vs. M/s Meritor LVS India (P) Ltd. 4/10 debtors and inventory in the case of the taxpayer? 4 |WhetherOnlthe factsandin|thecircumstances of the case, the Tribunal ts right in|not upholding the TPOs decision in not allowingthe Working Capital Adjustments in the givencase based on the facts of the case as anyadjustment1SprovidedToIncrease|thecomparability and not the profitability of the taxpayer?” Regarding Substantial Question No.1: 3.Learned counsel for the appellants-Revenue| Mr.K.V.Aravind has.submitted that|theHon'bleSupreme Court has settled the controversy in the case OT Commiuisstoner of Income-tax V/s. Yokogawa Indi Ltd., [((2017) 77 taxmann.com 41 (SC)' and thereforethe said controversy is covered by the decision of theHon'ble Supreme Court. The question is accordinglyanswered in the same terms. Date of Judgment 23-07-2018, ITA No.350/2016 The Pr. Commissioner of Income Tax & another Vs. M/s Meritor LVS India (P) Ltd. 5/10 Regarding Substantial Question Nos.2, 3 & 4: 4.The learned Tribunal, after discussing therival contentions of both the Appellants-Revenue andRespondent-Assessee, has returned a finding as under: “12. We have perused the orders andheard the rival contentions. AsSsessee 1Sseeking exclusion of 16 comparables out of 26)companies selected by the TPO. For this it hasplaced reliance on the decision of coordinatebench in the case of Hewlett- Packard (India)Globalsoft P. Ltd, (supra). We find that issuesbeforethisTribunal|inthe|CAaASof|HewlettPackard (India) Globalsoft P. Ltd,(supra) was also with regard to software|development services segment, that too for|the very same assessment year. Services|rendered by both the assessee as well as|HPIGPL fell within the software developmentservices segment, and therefore in our opinion Date of Judgment 23-07-2018, ITA No.350/2016 The Pr. Commissioner of Income Tax & another Vs. M/s Meritor LVS India (P) Ltd. the decision of the coordinate bench in|Hewlett- Packard (India) Globalsoft P. Ltd,Supra) can be taken as a good precedent.Findings of the Tribunal in the case Hevwlett-Packard (India) Globalsoft P. Ltd, (supra) in so.far as the comparables sought to be excludedby the assessee were as under: | 13. In so far as Megasoft Ltd, is concerned,|findings of the Tribunal in the above case.were as under : 14. Accordingly, following the above order wedirect exclusion of Celestial Labs Ltd, E-Zestsolutions Ltd, Infosys Technologies Ltd, KalsInformation Systems Ltde (seg), Lucid SoftwareLtd, Wipro Ltd (seg), Accel Transmatic Ltd (seg),AvantCimconTechnologiesLtd,Flextronicssoftware Systems Ltd (seg), Helios & MathesonInformation Technology Ltd, Ishir Infotech Ltd,Persistent Systems Ltd, Sasken CommunicationTechnologies Ltd (Seg), Tata Elxsi Ltd (seg) and Date of Judgment 23-07-2018, ITA No.350/2016 The Pr. Commissioner of Income Tax & another Vs. M/s Meritor LVS India (P) Ltd. 7/10 Thirdware Solutions Ltd. In so far as MegasoftSolutions Ltd is concerned, we direct the AO /TPO to rework its segmental results and considerits comparability only with regard to the softwaredevelopmentServicessegment.Orderedaccordingly. 5.The controversy involved herein is no moreres integrain view oft the decision of this Court inI1.T.A.Nos.536/2015 c/w 537/2015dated25.06.2018[Prl. Commissioner of Income Tax & Anr. V/s.M/s.Softbrands India Pvt. Ltd.,]wherein it has beenobserved that unless the finding of the Tribunal is foundex facie perverse, the Appeal u/s. 260-A of the Act, isnot maintainable. The relevant portion of the Judgment is quoted below for ready reference: “Conclusion: oo. A substantial quantum of international tradeand transactions depends upon the fair and quickjudicial dispensation in such cases. Had it beena case of substantial question of interpretation ofprovisions of Double Taxation Avoidance Treaties(DTAA), interpretation of provisions of the Income 5.The controversy involved herein is no moreres integrain view oft the decision of this Court inI1.T.A.Nos.536/2015 c/w 537/2015dated25.06.2018[Prl. Commissioner of Income Tax & Anr. V/s.M/s.Softbrands India Pvt. Ltd.,]wherein it has beenobserved that unless the finding of the Tribunal is foundex facie perverse, the Appeal u/s. 260-A of the Act, isnot maintainable. The relevant portion of the Judgment is quoted below for ready reference: “Conclusion: oo. A substantial quantum of international tradeand transactions depends upon the fair and quickjudicial dispensation in such cases. Had it beena case of substantial question of interpretation ofprovisions of Double Taxation Avoidance Treaties(DTAA), interpretation of provisions of the Income Date of Judgment 23-07-2018, ITA No.350/2016 The Pr. Commissioner of Income Tax & another Vs. M/s Meritor LVS India (P) Ltd. Tax Act or Overriding Effect of the Treaties overthe Domestic Legislations or the questions likeTreaty Shopping, Base Erosion and Profit Shifting(BEPS), Transfer of Shares in Tax Havens (like inthe case of Vodafone etc.), if based on relevantfacts, such substantial questions of law couldbe raised before the High Court underSection 260-A|of the Act, the Courts could haveembarked upon such exercise of framing andanswering such substantial question of law. Onthe other hand, the appeals of the present tenoras to whether the comparables have been rightlypicked up or not, Filters for arriving at the correctlist of comparables have been rightly applied ornot, do not in our considered opinion, give rise toany substantial question of law. 56. We are therefore of the consideredopinion that the present appeals filed by theRevenue do not give rise to any substantialquestion of law and the suggested substantialquestions of law do not meet the requirements ofSection 260-A.of the Act and thus the appealsfiled by the Revenue are found to be devoid ofmerit and the same are liable to be dismissed. | Date of Judgment 23-07-2018, ITA No.350/2016 The Pr. Commissioner of Income Tax & another Vs. M/s Meritor LVS India (P) Ltd. 9/10 57. We make it clear that the same'|yardsticks and parameters will have to beapplied, even tf such appeals are filed by theAssessees, because, there may be cases where)the Tribunal giving its own reasons and findingshas found certain comparables to be goodcomparables to arrive at an‘Arm’s LengthPrice“ in the case of the assessees with whichthe assessees may not be satisfied and have filedsuch appeals before this Court. Therefore weclarify that mere dissatisfaction with the findingsoffacts arrived at by the learned Tribunal is notat all a sufficient reason to invokeSection 260-Aof the Act before this Court. 58 The appeals filed by the Revenue aretherefore dismissed with no order as to costs.” 6.In the circumstances, having heard the learned Counsel appearing for the Appellants-Revenue,We are of the considered opinion that no substantialquestion of law arises for consideration in the presentCase. | Date of Judgment 23-07-2018, ITA No.350/2016 The Pr. Commissioner of Income Tax & another Vs. M/s Meritor LVS India (P) Ltd. 10/10 T.Hence, the Appeal filed by the Appellants- Revenue is liable to be dismissed and is accordinglydismissed. Nocosts. AN /- Sd/-.JUDGE. Sd/-.JUDGE.