Date Of Judgment 28-06-2018, Ita v. M/S. Magma Design Automation India Pvt. Ltd

IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 28 DAY OF JUNE 2018 PRESENT THR HON’BLEK DR.JUSTICE VINBBT KOTHARI ANT) THR HON’BLE MRS..JUSTICK S.SUJATHA I.T.A. No.96/2017 BETWEEN : 1.Pr. COMMISSIONER OF INCOME TAX-2 BMTC COMPLEX, KORAMANGALA BENGALURU © «|ASSISTANT COMMISSIONER OFINCOME TAX, CIRCLE 12 (1)INCOME TAX, CIRCLE 12 (1) MANGALORECORRECT ONE IS CIRCLE,CORRECT ONE IS CIRCLE, 4(1)(2), BMTC COMPLEX, © KORAMANGALA, BENGALURU _ APPBLLANTS| (BY SRI E.I.SANMATHI, ADV.) AND : M/s MAGMA DESIGN AUTOMATION INDIA PVT. LTD.,(NOW M/s SYNPOSIS INDIA PVT. LTD..,)JUPITER (2A) BLOCK, 2 FLOOR, ~PRESTIGE TECH PARK, SARAJAPUR, |MARATHAHALLI RING ROAD,KADABEBBSANAHALLI VILLAGEBANGALORE, PAN NO : __. RESPONDENT. (BY SRI MALLAHARAO K., & SRI SANDEEP 8. KARHAIL, ADVS.) THIS TTA IS FILED UNDER SECIION 2J6O0-A OF INCOMTAX ACT 1961, ARISING OUT OF ORDER DATED 29.08.2016) Date of Judgment 28-06-2018, ITA No.96/2017 Pr. Commissioner of Income Tax – 2 & another Vs. M/s. Magma Design Automation India Pvt. Ltd., 2/10 PASSEDIN|ITA(TP)NO.1214/BANG/2011,KORTHEASSEHKSSMENT YBAR 2007-2008. PRAYING TO: 1. DECIDE THFOREGOING QUESTION OF LAW AND/OR SUCH OTHER,QUESTIONS OF LAW AS MAY BE FORMULATED BY THEHON'BLE COURT AS DEEMED FIT. 2. TO SET ASIDE THE.APPELLATE ORDER DATED 29.08.2016 PASSED BY THE ITAT,|'B’'BENCH,BENGALURU,AS|SOUGHTFOR, IN|THERESPONDENT-ASSESSEE'S CASE, IN APPEAL PROCEEDINGSNO. ITA(TP) NO.1214/BANG/2011 FOR AY 2007-08 GRANT SUCH.OTHEBR RBELIBEF AS DBEMBED F THIS APPEAL COMING ON FOR ADMISSION, THIS DAY,|Dr. VINEET KOTHARI, J., DELIVERED THE FOLLOWING: JU DBiGMENT Mr. E.I. Sanmathi, Adv. for Appellants — RevenueMr. K. Mallaharao K., & Mr. Sandeep S. Karhail>.Advs., for Respondent - Assessee This Appeal is filed by the Revenue purportedlyraising substantial questions of law arising from theOrder of the Income Tax Appellate Tribunal, Bangalore Bench ‘B’, Bangalore, in.ITA No.1214/Bang/2011dated|29.08.2016, relating to the Assessment Year2007-08. a2The proposed substantial questions of law|framed by the Revenue in the Memorandum of Appeal is"as under: Date of Judgment 28-06-2018, ITA No.96/2017 Pr. Commissioner of Income Tax – 2 & another Vs. M/s. Magma Design Automation India Pvt. Ltd., M/s. Magma Design Automation India Pvt. Ltd., 3/10 aWhether on the facts and in thecircumstances of the case, the Tribunal wasjustified in law in directing the TPO to exclude 14)comparable out of 26 comparable selected by theTPOforcalculatingthe transferpricingadjustment in software development servicessegment of the company by relying upon its owndecision in case of M/s Marvel India Pvt. Ltd.,which has not yet reached finality and evenwhen the TPO has chosen proper comparableconsidering all the aspects? D2 Whether on the facts and in thecircumstances of the case, the Tribunal wasjustified in law directing the TPO to exclude 15comparable out of 27 comparable selected by theTPOjorcalculatingthe transferpricingadjustment by relying upon its own decision incase of M/s AOL Online India Out Ltd. which hasnot yet reached finality and even when the TPOhas chosen proper comparable considering all theaspects? 3.|Whether on the facts and in thecircumstances of the case, the Tribunal wasjustified in law directing the TPO to exclude Megasoft Ltd. and should be considered for inclusion Date of Judgment 28-06-2018, ITA No.96/2017 Pr. Commissioner of Income Tax – 2 & another Vs. M/s. Magma Design Automation India Pvt. Ltd., 4/10 for segmental results only as the assessee 1s @|pure service provider by following its own|decision in the case of M/s First Advantage offShore services Put. Ltd. which has not yetreached finality and even when the TPO has.chosen proper comparable considering all theaspects?” 3.The learned Tribunal, after discussing therival contentions of both the Appellants-Revenue andRespondent-Assessee, has returned a finding as under:| 3.|Whether on the facts and in thecircumstances of the case, the Tribunal wasjustified in law directing the TPO to exclude Megasoft Ltd. and should be considered for inclusion Date of Judgment 28-06-2018, ITA No.96/2017 Pr. Commissioner of Income Tax – 2 & another Vs. M/s. Magma Design Automation India Pvt. Ltd., 4/10 for segmental results only as the assessee 1s @|pure service provider by following its own|decision in the case of M/s First Advantage offShore services Put. Ltd. which has not yetreached finality and even when the TPO has.chosen proper comparable considering all theaspects?” 3.The learned Tribunal, after discussing therival contentions of both the Appellants-Revenue andRespondent-Assessee, has returned a finding as under:| C7|We.haveconsideredrivalsubmissions. First, we take up _ softwarservices segment. In this segment the TPOhad adopted 26 comparables out of which the|assessee is seeking exclusion of 14 MarvelIndia|Put.|Ltd.Vs.ACITin.IT(IPJANo.1033(B)/ 2011 dated 17.06.2016. Copy ofthis order is furnished along with the chart|and it has been pointed out that Para 5 to 7 of|this Tribunal order on pages 6 to 9 of this|Tribunal order are relevant for exclusion of|this comparable. Hence, for the sake of ready| Pr. Commissioner of Income Tax – 2 & another Vs. M/s. Magma Design Automation India Pvt. Ltd., M/s. Magma Design Automation India Pvt. Ltd., 5/10 reference, we reproduce para-5 to 7 of this|Tribunal order as under: XXXXX| From the above paras reproduced fromthe Tribunal order rendered in the case of|M/s Marvel India Put. Ltd. (Supra), it is seen|that in that case, the company was engaged|in software services and it was held by the|Tribunal in that case that following 14|comparables should be excluded and for one|comparable t.e., M/s Megasoft Ltd. it was|directedthatthisCOmMmpanshouldbeconsidered for inclusion as per its segmental|results only. Theses 14 companies for which|exclusion was directed in that case which are|as follows: XXXXX After exclusion of these 14 comparablescompanies and after considering the correctoperative margin of M/s Megasoft Ltd. (Seg.),net margin of the remaining 13 comparables|Should be worked out and TP adjustment Date of Judgment 28-06-2018, ITA No.96/2017 Pr. Commissioner of Income Tax – 2 & another Vs. M/s. Magma Design Automation India Pvt. Ltd., M/s. Magma Design Automation India Pvt. Ltd., 6/10 Should be made if required as per law aftergranting benefit as per law in respect of +-5%_benefit as per law in respect of software|service segment. 5.Now we take up the’ secondsegment1.é.,CustomersupportSeCTUICEsegment. For this segment, the assessee is.seeking exclusion of 15 comparables out of 27comparables selected by the TPO on the basis|of Tribunal order t.e., M/s AOL Online India|Put. Ltd. (supra) in IT(TP)A No.1036(B)/ 2011dated 18.03.2016, copy available on pages|2362 to 2381 of the paper book. As per thisTribunal Order, it was held by the Tribunal|that the following companies should beexcluded from the list offinal comparables. XXXXX| RespectfullyfollowingthisTribunalorder, because the Id. DR of the revenue could|not point out any difference in facts, we hold|that these 14 companies should not be|considered in the final list of comparables.” Date of Judgment 28-06-2018, ITA No.96/2017 Pr. Commissioner of Income Tax – 2 & another Vs. M/s. Magma Design Automation India Pvt. Ltd., 7/10 4The controversy involved herein is no moreres integrain view of the decision of this Court in.1.T.A.Nos.536/2015 c/w 537/2015dated25.06.2018iPrl.Commissioner.of|Income.TaxOQAnr.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: Date of Judgment 28-06-2018, ITA No.96/2017 Pr. Commissioner of Income Tax – 2 & another Vs. M/s. Magma Design Automation India Pvt. Ltd., 7/10 4The controversy involved herein is no moreres integrain view of the decision of this Court in.1.T.A.Nos.536/2015 c/w 537/2015dated25.06.2018iPrl.Commissioner.of|Income.TaxOQAnr.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.|ASubstantialquantumof|international trade and transactions depends|upon the fair and quick judicial dispensation|in such cases. Had it been a case of|substantial questionof|interpretationof|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| Date of Judgment 28-06-2018, ITA No.96/2017 Pr. Commissioner of Income Tax – 2 & another Vs. M/s. Magma Design Automation India Pvt. Ltd., M/s. Magma Design Automation India Pvt. Ltd., 8/10 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|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. Date of Judgment 28-06-2018, ITA No.96/2017 Pr. Commissioner of Income Tax – 2 & another Vs. M/s. Magma Design Automation India Pvt. Ltd., M/s. Magma Design Automation India Pvt. 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 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 “ArmLength 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|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 Revenue are|therefore dismissed with no order as_ tocosts.” 5.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. _ Date of Judgment 28-06-2018, ITA No.96/2017 Pr. Commissioner of Income Tax – 2 & another Vs. M/s. Magma Design Automation India Pvt. Ltd., M/s. Magma Design Automation India Pvt. Ltd., 10/10 6.Hence, the Appeal filed by the Appellants-Revenue is liable to be dismissed and is accordinglydismissed. Nocosts. — A copy of this Order shall be sent to the.Respondent-Assessee. | AN /- Sd/-.JU DGESd/-.JUDGE.