Date Of Judgment 26-07-2018 I.t.a v. M/S. Software Ag Bangalore Technologies Pvt. Ltd

IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 26 DAY OF JULY 2O18| PRESENT THR HON’BLEK DR.JUSTICE VINBBT KOTHARI ANT) THR HON’BLE MRS..JUSTICK S.SUJATHA I.T.A. No.496/2016 BETWEEN : 1.PRINCIPAL COMMISSIONER OF INCOME TAX-6 C.R. BUILDING, QUEENS ROAD BANGALORE -560 OO1. 2.DEPUTY COMMISSIONER OF INCOME-ITAXCIRCLE-6(1)(2), BANGALORE.CIRCLE-6(1)(2), BANGALORE. .. APPBLLANT (By Mr. SANMATHI E..I. ADV.) AND : M/S. SOFTWARE AG BANGALORETRHCHNOLOGIES PVT. LID. HXORA BUSINESS PARKWING B, 1 FLOOR, ELECTRAMARATHAHALLI, SARJAPURAOUTER RING ROAD, BANGALOREPAN: AAA CW 5438M.| . RESPONDENT (BY SRI MALLAHARAO, ADV.) THIS [TA IS FILED UNDER SECTION 260-A OF INCOME|TAX ACT 1961, ARISING OUT OF ORDER DATED PRAYING TODECIDE THE FOREGOING QUESTION OF LAW AND/OR SUCH.OTHER QUESTIONS TO LAW AS MAY BE FORMULATED BY THEHON’BLE COURT AS DBEMED FIT. SET ASIDB THR APPELLATE Date of Judgment 26-07-2018 I.T.A.No.496/2016 Principal Commissioner of Income Tax -6 & Anr. Vs. M/s. Software AG Bangalore Technologies Pvt. Ltd. ORDER DATED 31/03/2016 PASSED BY THE ITAT, ‘B’ BENCH,BENGALURU,IN|C.O..No./2/BANG/20195IN|IT(TP)ANo.1628/BANG/2014 FOR THE ASSESSMENT YEAR 2010-11.ANNBXURE-A AS SOUGHT FOR IN THIS APPBAL AND TO GRANTSUCH OTHER RELIEF AS DEEMED FIT, IN THE INTEREST OF|JUSTICE. THIS APPEAL COMING ON FOR HEARING, THIS DAY,|S. SUJATHA, J., DELIVERED THE FOLLOWING: JU DBGMEN Ti Mr. E.I. Sanmathi,Adv. for Appellants — Revenue. ©Mr. Mallaharao. K.,,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, “‘B’ Bench,Bangalore in)C.O. No.72/Bang/2015 in IT{TPIA|No.1628/ Bang/201dated391.03.201, relating to the|Assessment Year.2010-11 a2ThisAppealhas|beenadmitted|OTL 11.10.2017to consider the following substantial|questions of law. “1.Whether, on the facts and in thecircumstances of the case, the Tribunal was right Date of Judgment 26-07-2018 I.T.A.No.496/2016 Principal Commissioner of Income Tax -6 & Anr. Vs. M/s. Software AG Bangalore Technologies Pvt. Ltd. 3/8 in 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.The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and Respondent-Assessee, has returned findings as under: Regarding Substantial Question No.1: “15. 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:- XXXXXXXXXXXXXKM Date of Judgment 26-07-2018 I.T.A.No.496/2016 Principal Commissioner of Income Tax -6 & Anr. Vs. M/s. Software AG Bangalore Technologies Pvt. Ltd. 4/8 16. There is no allegation in the case of theassessee 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.” Regarding Substantial Question No.2: XXXXXXXXXXXXXKM Date of Judgment 26-07-2018 I.T.A.No.496/2016 Principal Commissioner of Income Tax -6 & Anr. Vs. M/s. Software AG Bangalore Technologies Pvt. Ltd. 4/8 16. There is no allegation in the case of theassessee 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.” Regarding Substantial Question No.2: “11. We have considered the rival submissions aswell as relevant material on record. There is nodispute that the assessee has not given theworking of risk adjustment before the TPO.Therefore, the TPO did not work out any riskadjustment. On appeal, the ClT(Appeals) hasdirected the TPO to consider the case of riskadjustment uf 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 in Date of Judgment 26-07-2018 I.T.A.No.496/2016 Principal Commissioner of Income Tax -6 & Anr. Vs. M/s. Software AG Bangalore Technologies Pvt. Ltd. 5/8 this 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 theClT(Appeals), qua the decision. 4Learned Counsel for the Appellants-Revenue submits that the appeal filed by the Revenue arising outof common order of the learned Income Tax AppellateTribunal, has been considered by this Court in ITA.No.495/2016 and the same has been dismissed on25.07.2018. 5.InVIEW|ot the aforesaid,Wefindit.appropriate to refer to the Judgment of this Court in ITANo.495/2016, whereby reliance is placed on thedecision of this Court in|I.T.A. Nos.536/2015 c/w537/2015dated25.06.2018[Prl. Commissioner of Income Tax & Anr. V/s. M/s.Softbrands India Pvt.|Ltd.,]wherein it has been observed that unless the!finding of the Tribunal is found ex facie perverse, the Date of Judgment 26-07-2018 I.T.A.No.496/2016 Principal Commissioner of Income Tax -6 & Anr. Vs. M/s. Software AG Bangalore Technologies Pvt. Ltd. 6/8 Appeal u/s. 260-A of the Act, is not maintainable. The relevant portion of the Judgment is quoted below forready 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 IncomeTax 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 underSection260-A|of the Act, the Courts could haveembarked upon such exercise of framing and)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 or not, do not in our considered opinion, give rise toany substantial question of law. not, 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 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. 8/8 o8. 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 both the parties, We are of the considered opinion that no substantial questionof law arises for consideration in the present case. _ T.Hence, the Appeal filed by the Appellants- Revenue is liable to be dismissed and is accordinglydismissed. Nocosts. — AN/- Sd/-.JUDGE| Sd/-.JUDGE|