Date Of Judgment 23-07-2018 I.t.a v. M/S.financial Objects Software (India) Pvt. Ltd

IN THE HIGH COURT OF KARNATAKA, BENGALURU. DATED THIS THE 23 DAY OF JULY 2ZO18 PRESENT THE HON'BLE Dr. JUSTICE VINEET KOTHARI AND THE HON’BLE Mrs.JUSTICE S.SUJATHA| I.T.A.No.81/2016 BETWEEN: 1.PR.COMMISSIONER OF INCOME TAX, | C.R.BUILDINGS, QUEENS ROAD, © BANGALORE. 2.INCOME TAX OFFICER,WARD-11(2),BANGALORE.»WARD-11(2),BANGALORE.» .. APPBLLANT (By Mr. E.I. SANMATHI, ADV.) AND: M/s. FINANCIAL OBJECTS|SOFTWARE (INDIA) PVT.LTD.,NO.412, 2 FLOOR,JINDAL BUILDING, 100’ ROAD.$[‘T]BLOCK, KORAMANGALA, |BANGALORE - 560 034.PAN: AAACHKH 9SOQO _ RBSPONDENT THIS I.T.A. IS FILED UNDER SECTION 260-A OF INCOME|TAX ACT 1961, PRAYING TO DECIDE THE FOREGOING| Date of Judgment 23-07-2018 I.T.A.No.81/2016 Pr.Commissioner of Income Tax & Anr., Vs. M/s.Financial Objects Software (India) Pvt. Ltd., 2/10 QUESTION OF LAW AND / OR SUCH OTHER QUESTIONS OF.LAW AS MAY BR FORMULATBED BY THR HON’BLE COURT ASDEEMED HIT AND SEI ASIDE THE APPELLATE ORDER DATED|05/06/2015 PASSED BY THE ITAT, ‘B’ BENCH, BENGALURU, INAPPEAL PROCEEDINGS NO.ITA NO.1472/BANG/2012 DATED)05/06/2015 FOR ASSESSMENT PERIOD 2008-09, ANNEXURE-A. THIS I.T.A. COMING ON FOR ORDERS, THIS DAY |S. SUJATHA JT DRBLIVERBD THE FOLLOWING : JUDGMENT Mr. E.I.Sanmathi,Adv. for Appellants-Revenue The appellants-Revenuehave filed this appealu/s. 260Aot the.Income Tax Act, 1961(for short ‘Act’) raising purportedly certain substantial questions of lawarising from the order of theIncome Tax Appellate. Tribunal, Bangalore Bench ‘B’(for short ‘Tribunal’|18:6105.06.2015passed in I.T(TP)A No.1472/Bang/2012for theA.Y.2008-09 2.|ThisappealhasbeenADMITTED4916.06.2016to consider the following substantialquestions of law: 3) 4. Date of Judgment 23-07-2018 I.T.A.No.81/2016 Pr.Commissioner of Income Tax & Anr., Vs. M/s.Financial Objects Software (India) Pvt. Ltd., 3/10 “1.WhetherON.thefactsandin|thecircumstances of the case, the Tribunal was rightin seeking exact comparability while searching forcomparable companies of the assessee underTransactionNetMarginMethodwhereas requirementoflawandinternational|jurisprudence require seeking similar companies? aDWhetherON.thefactsandin|thecircumstances of the case, while seeking the exactcomparability as mentioned above the Tribunalwas right in fact and in law in imposing conditionbeyond law where the requirement of law is toacknowledge only those differences that are likelyto materially affect the margin? WhetherON.the.factsandin|circumstances of the case, the Tribunal was rightin not acknowledging that determination of ALPby carrying out comparability analysis of thecompanies is an art and not exact sclence as notwo companies are exactly same? the “Whether on the facts and in the circumstances ofthe case, the Tribunal was right in law indemanding comparability standards that mayitself defeat the purpose of law relating todetermination ofALP under the Income Tax ActP” Date of Judgment 23-07-2018 I.T.A.No.81/2016 Pr.Commissioner of Income Tax & Anr., Vs. M/s.Financial Objects Software (India) Pvt. Ltd., 4/10 3.|The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and Respondent-Assessee, has returned the findings asunder: é8&.4.We have heard the nval'contentionsandperusedandcarefullyconsidered the material on record, including|the judicial decision cited. We find that the co-ordinate bench of this Tribunal in the case of|ODPLM Software Solutions Ltd. (supra) forAssessment Year JVOO8-O09 had excluded thicompany from the list of comparables, holding|that this company is into rendering ofproduct|development services and high end technical|services in the category of KPO services andthereforecannotbe|consideredLS|(Ocomparable to an assessee rendering purely|software development services. The relevantportion of this order of the co-ordinate bench.at para 14.4 thereof is extracted hereunder:-| XXXXXXXX rival contentions of both the Appellants-Revenue and Respondent-Assessee, has returned the findings asunder: é8&.4.We have heard the nval'contentionsandperusedandcarefullyconsidered the material on record, including|the judicial decision cited. We find that the co-ordinate bench of this Tribunal in the case of|ODPLM Software Solutions Ltd. (supra) forAssessment Year JVOO8-O09 had excluded thicompany from the list of comparables, holding|that this company is into rendering ofproduct|development services and high end technical|services in the category of KPO services andthereforecannotbe|consideredLS|(Ocomparable to an assessee rendering purely|software development services. The relevantportion of this order of the co-ordinate bench.at para 14.4 thereof is extracted hereunder:-| XXXXXXXX Date of Judgment 23-07-2018 I.T.A.No.81/2016 Pr.Commissioner of Income Tax & Anr., Vs. M/s.Financial Objects Software (India) Pvt. Ltd., 5/10 g.|Kals Information Systems Ltd. (Seg) XXXX XXXX XXXX 9.4.]We|have|heardtherivalcontentionsandperusedandcarefullyconsidered the material on record; including|the judicial pronouncement cited and placed|reliance upon. We find that a co-ordinate|bench of this Tribunal in the case of 3DPLMsoftwareSolutionsLtd.(Supra)forAssessment year 2008-09 has excluded this.company as being comparable to a software|service provider as it was into developing ofsoftware products holding as under at para10.4 of its order:- XXXX 9.4.2- Following the above decision ofthe co-ordinate bench of this Tribunal in the|case of SDPLM Software Solutions Ltd.|(supra), we direct the Assessing Officer to|exclude this company from the final set of| 6/10 comparables as it is functionally differentfrom the assessee in the case on hand, who.is only a software service provider to it’s|AFs.” 10.Bothtree Consulting Ltd, and Lucid Software Ltd. XXXX| XXXX 10.3We have heard both partiesand.perused and carefully considered the material onrecord. Admittedly, as pointed out by the ld. D.R.,there 1s no disputing the fact that the assessee hadnever objected to the inclusion of these companiesin the set of comparables in earlier proceedings bothbefore the TPO and the CIT(A). It is also seen thateven in the grounds of appeal raised before us, theassessee has not raised any additional groundschallenging the inclusion of these two companies inthe list of comparables. In this factual matrix, sinceno cause of grievance arises to the assessee fromthe impugned order, or any of the order of theauthorities below, on the inclusion of thesecompanies as comparables, this claim of the Date of Judgment 23-07-2018 I.T.A.No.81/2016 Pr.Commissioner of Income Tax & Anr., Vs. M/s.Financial Objects Software (India) Pvt. Ltd., 7/10 assessee is not maintainable as there is no adversefinding in the tmpugned orders requiring us toadjudicate thereon. We, therefore, finding that thecontentions raised by the learned AuthorisedRepresentative of the assessee in respect of thesecompanies are not maintainable, reject the same.Consequently, the inclusion of these two companiesue. Bodhtree Consulting Ltd. and Lucid SoftwareLtd. in the final list of comparables its upheld” similarly,theTribunalhas.considered and=excluded the other comparables also. 4The controversy involved herein is no moreres integrain view of the decision of this Court in|L.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 Judgmentis quoted below for ready reference: § Conclusion: similarly,theTribunalhas.considered and=excluded the other comparables also. 4The controversy involved herein is no moreres integrain view of the decision of this Court in|L.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 Judgmentis quoted below for ready reference: § Conclusion: 55. A substantial quantum of internationaltrade and transactions depends upon the fair andquick judicial dispensation in such cases. Had itbeen|OmCaASeofSubstantialquestionofinterpretation of provisions of Double TaxationAvoidance Treaties (DIAA), interpretation ofprovisions of the Income Tax Act or OverridingEffectoftheTreatiesOVECTthe|Domestic.Legislations or _ the questions like TreatyShopping, Base Erosion and Profit Shifting(BEPS), Transfer of Shares in Tax Havens (like inthe case of Vodafone etc.), tf based on relevantfacts, such substantial questions of law could |be 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 considered|opinion that the present appeals filed by the Date of Judgment 23-07-2018 I.T.A.No.81/2016 Pr.Commissioner of Income Tax & Anr., Vs. M/s.Financial Objects Software (India) Pvt. Ltd., 9/10 Revenue 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. | 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 wherethe 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 findings|offacts arrived at by the learned Tribunal is notat all a sufficient reason to invokeSection 260-Aof the Act before this Court. o8. The appeals filed by the Revenue are)therefore dismissed with no order as to costs.” 5In the circumstances, having heard the learned Counsel appearing for the appellants-Revenue, 10/10 We are of the considered opinion that no substantialquestion of law arises for consideration in the presentCase. | 6. Hence, the Appeal filed by the Appellants- Revenue is liable to be dismissed and is accordingly dismissed.No costs. | Copy of this order be sent to the Respondent-assessee|forthwith. TL Sd/-. JUDGE Sd/-| JUDGE