Date Of Judgment 25-07-2018 I.t.a v. M/S. Software Ag Bangalore Technologies Pvt. Ltd

IN THE HIGH COURT OF KARNATAKA, BENGALURU.DATED THIS THE 25[th]DAY OF JULY 2018 PRESENT THE HON'BLE Dr.JUSTICE VINEET KOTHARI AND THE HON’BLE Mrs.JUSTICE S.SUJATHA|I.T.A.No.495/2016 BETWEEN: 1.PRINCIPAL COMMISSIONBR OF INCOME TAX-6C.R. BUILDING, QUEENS ROADC.R. BUILDING, QUEENS ROAD BANGALORE -560 OO1. OoDBPUTY COMMISSIONER OF INCOME-TAX. CIRCLE-6(1)(2), BANGALORE. .. APPBLLANT (By Mr. SANMATHI E.I. ADV.) AND: M/S. SOFTWARE AG BANGALORETHCHNOLOGIES PVT. LID.BHXORA BUSINESS PARKWING B, 1 FLOOR, ELECTRAMARATHAHALLI, SARJAPURAOUTER RING ROAD, BANGALOREPAN: AAA CW 5438M.| .. RESPONDENT (By Mr. MALLAHARAO K & Mr. PARTH, ADVS.) THIS I.T.A. IS FILED UNDER SECTION 260-A OF THE IT|ACT, PRAYING TO DECIDE THE FOREGOING QUESTION OF LAWAND/OR SUCH OTHER QUESTIONS TO LAW AS MAY BE.FORMULATED BY THERE HON’BLE Court AS DEBMED FIT. SHKASIDE THE APPELLATE ORDER DATED 31/03/2016 PASSED BY Date of Judgment 25-07-2018 I.T.A.No.495/2016 Principal Commissioner of Income Tax -6 & Anr. Vs. M/s. Software AG Bangalore Technologies Pvt. Ltd., THE ITAT, “B’ BENCH, BENGALURU, IN APPEAL PROCEEDINGS|No.IT(TP)A No.1628/BANG/2014 FOR THE ASSESSMENT YEAR:A2OQO10-11 ANNEXURE-A AS SOUGHI! FORI IN THIS APPEAL TO GRANT SUCH OTHER RELIEF AS DEEMED FIT, IN THEINTKBREST OF JUSTICE. THIS LT.A. COMING ON FOR HEARING THIS DAY,S. SUJATHAJT DRBLIVERBD THE FOLLOWING : JUDGMENT Mr. Sanmathi EI.Adv. for Appellants-Revenue |Mr. Mallaharao K & Mr. Parth,Advs. tor Respondent -Assessee 1. The Appellants-Revenue have filed this appeal u/s.260Aof the Income Tax Act, 1961, raising)purportedly certain substantial questions of law arisingfrom the order of the.ITAT, ‘B’ Bench, Bangalore>.dated|301.03.201passed1nIT(TP)A No.1628/ Bang/2014(The Deputy Commissioner ofIncome tax vs. M/s.Software AG Bangalore Technologies Put. Ltd.,)forA.Y.2010-11. 2. This appeal has been admitted on|11.10.2017to consider the following substantial questions of lawframed by the learned counsel for the Appellants-Revenue:- Date of Judgment 25-07-2018 I.T.A.No.495/2016 Principal Commissioner of Income Tax -6 & Anr. Vs. M/s. Software AG Bangalore Technologies Pvt. Ltd., 3/8 aWhether, on the facts and in thecircumstances of the case, the Tribunal was rightin directing the TPO to consider the claim of riskadjustment even when there is no reliable methodTo|convertthe.qualitativedifferenceintoquantitative difference and to make adjustmenton account of risk level?. D2 Whether, on the facts and in thecircumstances of the case, the Tribunal was rightin taking different stands on adjustments tocomparables margins to make them comparableto the tested party, so that the assessee benefitsboth ways and Revenue looses both ways since itgoes against the principles of quality and naturaljustice?.” 3. In so far as the first substantial question of law raised by the Revenue is concerned, learned counsel forthe Revenue submitted that the learned JTAT in its| Order dated31.03.2016has given the findings, the|relevant portion of which is quoted below tor readyreference: - “11. We have considered the nval'Submissions as well as relevant material onrecord. There is no dispute that the assessee has Date of Judgment 25-07-2018 I.T.A.No.495/2016 Principal Commissioner of Income Tax -6 & Anr. Vs. M/s. Software AG Bangalore Technologies Pvt. Ltd., 4/8 3. In so far as the first substantial question of law raised by the Revenue is concerned, learned counsel forthe Revenue submitted that the learned JTAT in its| Order dated31.03.2016has given the findings, the|relevant portion of which is quoted below tor readyreference: - “11. We have considered the nval'Submissions as well as relevant material onrecord. There is no dispute that the assessee has Date of Judgment 25-07-2018 I.T.A.No.495/2016 Principal Commissioner of Income Tax -6 & Anr. Vs. M/s. Software AG Bangalore Technologies Pvt. Ltd., 4/8 not given the working of risk adjustment beforethe TPO. Therefore, the TPO did not work out anyrisk adjustment. On appeal, the CIT(Appeals) hasdirected the IPO to consider the case of riskadjustment if the working capital adjustment isfound to be negative. We find that when the TPOhas worked out the working capital adjustmenton her own and not accepted the claim of theassessee, then by applying the principle ofconsistency, the risk adjustment of the assesseewas also required to be considered by the TPO,though the assessee might have been asked tofurnish the relevant details and working. Since inthis case, the TPO herself has worked out theworking capital adjustment, therefore, we directthe TPO to consider the claim of risk adjustmentsubject to filing of details by the assessee.Accordingly, we modify the finding of theCIT(Appeals), qua the decision. 4. In so far as the second substantial question oflaw raised by the Revenue is concerned, learned counsel for the Revenue submitted that the learned ITAT in its|Order dated|01.03.2016has given the findings, the| Date of Judgment 25-07-2018 I.T.A.No.495/2016 Principal Commissioner of Income Tax -6 & Anr. Vs. M/s. Software AG Bangalore Technologies Pvt. Ltd., relevant portion of which is quoted below tor ready reference: - ey1S.|Havingconsideredthe rivalsubmissions and on careful perusal of the record,we find that the Hyderabad Bench of the Tribunalin the case of Adaptec (India) P. Ltd. (supra) hasconsidered identical issue in paras 10 & 11 asunder:- XNXXXXXXXXXXXXX 16. There is no allegation in the case of the|assessee that the assessee has used anyborrowed fund for working capital or there is anyrisk of money lost in credit time provided to thecustomers. Accordingly, following the order of thecoordinate Bench of the Tribunal cited above, wehold that negative working capital adjustment isnotjustified in the case of the assessee. 17. In the result, the appeal and the CrossObjection are partly allowed”. Oo. However, this Court in a recent judgment in ITA No.536/2015 C/w ITA No.537/2015delivered on 25.06.2018 (Pri. Commissioner of Income Tax &Anr. Vs. M/s. Softbrands India Pvt. Ltd.,)1 has held Date of Judgment 25-07-2018 I.T.A.No.495/2016 Principal Commissioner of Income Tax -6 & Anr. Vs. M/s. Software AG Bangalore Technologies Pvt. Ltd., 6/8 that in these type of cases, unless anex-facleperversityin the findings of the learned Income Tax AppellateTribunal is established by the appellant, the appeal atthe instance of an assessee or the Revenue under|Section 260-Aot the Act is not maintainable. The relevant portion of the said judgment is.quoted below for ready reference: § Conclusion: oo. A substantial quantum of internationaltrade and transactions depends upon the fair andquick judicial dispensation in such cases. Had itbeen|OmCaASeofsubstantialquestionof|interpretation of provisions of Double TaxationAvoidance Treaties (DTAA), 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 and) The relevant portion of the said judgment is.quoted below for ready reference: § Conclusion: oo. A substantial quantum of internationaltrade and transactions depends upon the fair andquick judicial dispensation in such cases. Had itbeen|OmCaASeofsubstantialquestionof|interpretation of provisions of Double TaxationAvoidance Treaties (DTAA), 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 and) Date of Judgment 25-07-2018 I.T.A.No.495/2016 Principal Commissioner of Income Tax -6 & Anr. Vs. M/s. Software AG Bangalore Technologies Pvt. Ltd., 7/8 answering 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. | 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 Date of Judgment 25-07-2018 I.T.A.No.495/2016 Principal Commissioner of Income Tax -6 & Anr. Vs. M/s. Software AG Bangalore Technologies Pvt. Ltd., 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.” 6. Having heard the learned counsels for theparties, we are therefore of the opinion that nosubstantial question of law arises in the present case also. The appeal filed by the Appellants-Revenue isliable to be dismissed and it is>/$./$$0>accordinglyaccordinglyNo costs. liable to be dismissed and it is>/$./$$0>accordinglyaccordingly Sd/-. JUDGE| Sd/-|JUDGE JUDGE