Date Of Judgment 24-07-2018, Ita v. M/S. Tektronix Engineering Devt. India P. Ltd

IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE: 2 DAY OF JULY 2O18| PRESENT THR HON’BLEK DR.JUSTICE VINBBT KOTHARI ANT) THR HON’BLE MRS..JUSTICK S.SUJATHA I.T.A.No.382/2015 BETWEEN : 1.THE Pr. COMMISSIONEROF INCOME TAX.CENTRAL REVENUE BUILDINGS,QUEENS ROAD,BANGALORE-560 OO1..«|THERE DEPUTLY COMMISSIONEOF INCOME TAX.CIRCLE-12(4),BANGALORE.». APPELLANTS (BY SRI E.L.SANMATHI, ADV.) AND : M/s. TEKTRONIX ENGINEERING|DEBEVT. INDIA P.LTSAMRAH PLAZA, 1[Si]FLOOR,4/2, ST.MARKS ROAD,BANGALORE -560 OO]PAN No. AAACT ‘7289R._. RESPONDENT. (BY SRI SANDEEP HUILGOL, ADV. FOR SRI T.SURYANARAYANA, ADV.) THIS INCOMB TAX APPBAL IS FILED UNDER SECTION|2600-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDERDATED 20/02/2015 PASSED IN ITA NO.1465/BANG/2010, FOR: Date of Judgment 24-07-2018, ITA No.382/2015 The Pr. Commissioner of Income Tax & Another Vs. M/s. Tektronix Engineering Devt. India P. Ltd., 2/11 THE ASSESSMENT YEAR 2006-2007, ANNEXURE-A, PRAYING|TO: (1) DECIDE THE FOREGOING QUESTION OF LAW AND / OR:SUCH OTHER QUESTIONS OF LAW As MAY BE FORMULATEDBY THE HON'BLE COURT AS DEEMED FIT. (2) SET ASIDE THE.APPELLATE ORDER DATED: 20/02/2015 PASSED BY THE ITAT,‘AC!BENCH,BENGALURU,AS|SOUGHTFOR, IN|THERESPONDENT-ASSESSEE'S CASE, IN APPEAL PROCEEDINGS IN|ITA NO.1465/BANG/2010 FOR A.Y.2006-07, ANNE XURE-A. THIS APPEAL COMING ON FOR HEARING, THIS DAY,|S. SUATHA, J., DELIVERED THE FOLLOWING: JU DGMENT Mr. E.I.Sanmathi, Adv. for Appellants — Revenue.Mr. Sandeep Huilgol,Adv. Mr. T.Suryanarayana,Adv. for Respondent — Assessee. This Appeal is filed by the Revenue purportedlyraising substantial questions of law arising from theOrder of the Income Tax Appellate Tribunal, BangaloreBench ‘A’, Bangalore, inIT[TP|A No.1465/Bang/2010dated20.02.2015, relating to the Assessment Year2006-07. 2.TheappealhasbeenadmittedOT)O1.03.2016.CO consider.the|followingsubstantial|question of law Nos.1 and 3, framed by the Appellants-Revenue in the memorandum of appeal: Date of Judgment 24-07-2018, ITA No.382/2015 The Pr. Commissioner of Income Tax & Another Vs. M/s. Tektronix Engineering Devt. India P. Ltd., aWhether on the facts and in thecircumstances of the case, the Tribunal ts right in|law in adopting turnover filter of Rs.200 Crore inabsence of turnover criteria in Rule 10B of the LT.Rules and also the size of the turnover and profitmargins are not linked in the software industryunlike intensive comparables? 3.|Whether on the facts and in thecircumstances of the case, the Tribunal ts right in|law in directing the TPO to apply RPTfilter of 15%by following earlier orders which have _ noreached finality and without appreciating thematerials quailahble on record?” 3.However, learned counsel for the Revenue seeks to consider the substantial question of law No.2.also, which is quoted hereunder: eo)Whether on the facts and in thecircumstances of the case, the Tribunal is right inlaw in holding that KALS Information SystemsLtd., Accel Transmatic Ltd., and Tata ElxsiLimited cannot be taken as comparables onspecific FAR analysis vis a vis assessee companyin contrast to the fact that these companies Date of Judgment 24-07-2018, ITA No.382/2015 The Pr. Commissioner of Income Tax & Another Vs. M/s. Tektronix Engineering Devt. India P. Ltd., 4/11 satisfy all the qualitative and quantitative filters|applied by the TPOP” 4The learned Tribunal, after discussing therival contentions of both the Appellants-Revenue andRespondent-Assessee, has returned the findings asunder: Regarding Substantial Question of Law No.1: eo)Whether on the facts and in thecircumstances of the case, the Tribunal is right inlaw in holding that KALS Information SystemsLtd., Accel Transmatic Ltd., and Tata ElxsiLimited cannot be taken as comparables onspecific FAR analysis vis a vis assessee companyin contrast to the fact that these companies Date of Judgment 24-07-2018, ITA No.382/2015 The Pr. Commissioner of Income Tax & Another Vs. M/s. Tektronix Engineering Devt. India P. Ltd., 4/11 satisfy all the qualitative and quantitative filters|applied by the TPOP” 4The learned Tribunal, after discussing therival contentions of both the Appellants-Revenue andRespondent-Assessee, has returned the findings asunder: Regarding Substantial Question of Law No.1: *6.3.1 We have heard both the learned|Authorised Representative of the assessee andthe learned Departmental Representative forrevenue and perused and carefully consideredthe material on record. In the case of Triology E-business Software India Put. Ltd. (supra), cited bythe assessee, the co-ordinate bench of thisTribunal on the issue of the application of theturnoverfilterwhileselectingcomparablecompanies for comparability analysis has held asfollows :-| XXXXX 6.3.2 Following the aforesaid decision of|the co-ordinate bench of this Tribunal in the caseof TriologyE-businesssoftwareIndia.Put.Ltd.(supra), we hold the aforesaid 6 companies Date of Judgment 24-07-2018, ITA No.382/2015 The Pr. Commissioner of Income Tax & Another Vs. M/s. Tektronix Engineering Devt. India P. Ltd., 5/11 listed at para 6.1 of thts order should be excludedfrom the list of comparable companies as theirturnover is in excess of Rs.200 Crores. TheAssessing Officer ts accordingly directed to re-compute the arithmetic mean of the comparablecompanies|after excludingtheaforesaid6companies from the list of comparables. ” Regarding Substantial Question of Law No.2: “87 1].We|haveheardtherivalcontentions of both the learned AuthorisedRepresentative and the learned DepartmentalRepresentative, perused and carefully consideredthe material on record; including the judicialdecision cited and placed reliance upon by theassessee. On a perusal of the decision of the co-ordinate bench of the Tribunal in the case ofAgilesoftwareEnterprisesPut.Ltd.(Supra)forAssessment Year 2006-07, relied upon by theassessee, we find that the following threecompanies were excluded from the TPO’s list ofcomparables as they were held to be functionallydifferent from the assessee, who was into puresoftware development services :- uyKALS Information Systems Ltd.,ufTata Elxsi Ltd. [Seg./utAccel Transmatics Ltd., [Seg./ and| Date of Judgment 24-07-2018, ITA No.382/2015 The Pr. Commissioner of Income Tax & Another Vs. M/s. Tektronix Engineering Devt. India P. Ltd., 6/11 58.2.2In|thiscontext,the relevant.observations and findings of the _ co-ordinatbench in the case of Agile Software EnterprisesPut. Ltd. (supra) at para 8.7 to 8.9.3 thereof areextracted hereunder :- XXXXX 8.2.3 Following the aforesaid decision of)the co-ordinate bench of this Tribunal in the caseof Agile Software Enterprises Put. Ltd. forAssessment Year 2006-07 (supra), we hold thatthe above mentioned three companies te. i) KALSInformation Systems Ltd. u) Tata Elxsi Ltd. (Seg).and ut) Accel Transmatics Ltd. (Seg.) should beexcluded from the TPO’s final list of comparables.The Assessing Officer is directed to re-computetheALP|Of|the|assessee'sinternationaltransactionsafterexcludingthesethreecompanies.” Regarding Substantial Question of Law No.3: 67. 1In|respectofthe|following 3comparable companies selected by the TPO, thelearnedAuthorisedRepresentativeofthe|assessee has objected to their inclusion in the list Date of Judgment 24-07-2018, ITA No.382/2015 The Pr. Commissioner of Income Tax & Another Vs. M/s. Tektronix Engineering Devt. India P. Ltd., 7/11 of comparables on the grounds of that their RPT is in excess of 15%. The three comparables are — | Regarding Substantial Question of Law No.3: 67. 1In|respectofthe|following 3comparable companies selected by the TPO, thelearnedAuthorisedRepresentativeofthe|assessee has objected to their inclusion in the list Date of Judgment 24-07-2018, ITA No.382/2015 The Pr. Commissioner of Income Tax & Another Vs. M/s. Tektronix Engineering Devt. India P. Ltd., 7/11 of comparables on the grounds of that their RPT is in excess of 15%. The three comparables are — | In support of their exclusion, the learnedAuthorised Representative has placed reliance on)the decision of the co-ordinate bench of thisTribunal in the case ofAgile Software EnterprisesPut.Ltd.inIT(TP)ANo.1172/ Bang/ 201dt.26.9.2014; which is also for Assessment Year2006-07; the period under consideration. Thelearned Authorised Representative prayed that inview of the above, these three comparables beexcluded from the list of comparable companies tothe assessee. 72We have heard the rival contentionsof both the learned Authorised RepresentativeandlearnedDepartmentalRepresentative,perused and carefully considered the material onrecord; including the judicial decision cited andplaced reliance upon by the assessee. The fact isthat the RPI in the case of the above threecomparable companies listed at para 7.1 (supra) Date of Judgment 24-07-2018, ITA No.382/2015 The Pr. Commissioner of Income Tax & Another Vs. M/s. Tektronix Engineering Devt. India P. Ltd., 8/11 exceed 15%. The co-ordinate bench of thisTribunal in the case ofAgile Software EnterprisesPut. Ltd. (supra) for Assessment Year 2006-07, asin many other decisions of this Tribunal, has heldthat where the RPT exceeds 15%, such companiesShould not be taken as comparables. Theoperative portion of this order of the coordinatebench (supra) in paras 8.11 and §.12 at pages 16& 17 thereof is extracted hereunder :-| XXXXX 7.9 Following the aforesaid decision of the|co-ordinate bench of this Tribunal in the case ofAgile Software Enterprises Put. Ltd. (supra), wehold that the aforesaid three companies listed atpara 7.1 of this order be excluded from the list ofcomparables.” 5.The controversy involved herein is no moreres integrain view of the decision of this Court in|1.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, is Date of Judgment 24-07-2018, ITA No.382/2015 The Pr. Commissioner of Income Tax & Another Vs. M/s. Tektronix Engineering Devt. India P. Ltd., 9/11 not maintainable. The relevant portion of the Judgment is quoted below for ready reference: “Conclusion: 55.Asubstantial quantumof|international trade and transactions depends|upon the fair and quick judicial dispensation|in such cases. Had it been a case oOf|Substantialquestionof|interpretation|of|provisions of Double Taxation AvoidanceTreaties (DTAA), interpretation ofprovisions ofthe Income Tax Act or Overriding Effect of the|Treaties over the Domestic Legislations or the |questions like Treaty Shopping, Base Erosionand Profit Shifting (BEPS), Transfer of Shares|in Tax Havens (like in the case of Vodafone|etc.), tf based on relevant facts, such|substantial questions of law could beraised before the High Court underSection260-Aof the Act, the Courts could have|embarked upon such exercise offraming and|answering such substantial question of law.On the other hand, the appeals of the present|tenor as to whether the comparables have|been rightly picked up or not, Futers for| Date of Judgment 24-07-2018, ITA No.382/2015 The Pr. Commissioner of Income Tax & Another Vs. M/s. Tektronix Engineering Devt. India P. Ltd., 10/11 arriving at the correct list of comparables|have been rightly applied or not, do not in our|consideredopinion, giveriseTo anysubstantial question of law. Date of Judgment 24-07-2018, ITA No.382/2015 The Pr. Commissioner of Income Tax & Another Vs. M/s. Tektronix Engineering Devt. India P. Ltd., 10/11 arriving at the correct list of comparables|have been rightly applied or not, do not in our|consideredopinion, giveriseTo anysubstantial question of law. 06. Weare therefore of the consideredopinion that the present appeals filed by the|Revenue do not give rise to any substantialquestionof|law.andthe|Suggested|substantial questions of law do not meet therequirements ofSection 260-A|of the Act andthus the appeals filed by the Revenue are|found to be devoid of merit 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 the|Assessees, because, there may be cases.where the Tribunal giving its own reasons|and findings has found certain comparables|to be good comparables to arrive at an|7s | “ALength Price“in the case of the assesseeswith which the assessees may not be|satisfied and have filed such appeals beforethis Court. Therefore we clarify that mere| Date of Judgment 24-07-2018, ITA No.382/2015 The Pr. Commissioner of Income Tax & Another Vs. M/s. Tektronix Engineering Devt. India P. Ltd., 11/11 dissatisfaction with the findings of facts|arrived at by the learned Tribunal ts not at all|a sufficient reason to invoke.Section 260-Aof the Act before this Court. o8. The appeals filed by the Revenueare therefore dismissed with no order as to|costs.” 6.In the circumstances, having heard thelearned Counsel appearing for both the sides, we are ofthe considered opinion that no substantial question oflaw arises for consideration in the present case. T.Hence, the Appeal filed by the Appellants-Revenue is liable to be dismissed and is accordinglydismissed. No costs. | NC. Sd/-.JU DGE Sd/-.JU DGE