Date Of Judgment 29-06-2018, Ita v. M/S Kodiak Networks (India) Pvt. Ltd

IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 29 DAY OF JUNE 2018 PRESENT THR HON’BLEK DR.JUSTICE VINBBT KOTHARI ANT) THR HON’BLE MRS..JUSTICK S.SUJATHA I.T.A. No.68/2016 BETWEEN : 1.Pr. COMMISSIONER OF INCOME TAXC.R.BUILDING, QUEENS ROAD,C.R.BUILDING, QUEENS ROAD, BANGALORE -560001. «|THERE DEPUTLY COMMISSIONER OINCOME TAX OFFICER,CIRCLE-11(5), BANGALORE._ APPBLLANTS| (BY SRI E.I.SANMATHI, ADV.) AND : M/s KODIAK NETWORKS (INDIA) PVT.LTD .,|NO.401, 4[‘T]FLOOR,PRESTIGE SIGMA, NO.3,VITTAL MALLYA ROAD,BANGALORE -560001.PAN: AACCKO978 J._. RESPONDENT. (BY SRI TATA KRISHNA, ADV.) THIS [TA IS FILED UNDER SECTION 260-A OF INCOME|TAX ACT 1961, ARISING OUT OF ORDER DATED 30.07.2015)PASSEDIN|C.O.NO.119/BANG/20195IN|IT(TP)ANO.932/BANG/2013, FOR THE ASSESSMENT YEAR 2005-06.PRAYING TO: 1. DECIDE THE FOREGOING QUESTION OF LAWAND/OR SUCH OTHER QUESTIONS OF LAW AS MAY BE. Date of Judgment 29-06-2018, ITA No.68/2016 Pr. Commissioner of Income Tax & another Vs. M/s Kodiak Networks (India) Pvt. Ltd. 2/10 RFORMULATBED BY THE HON'BLE COURT AS DBEBMBD FIT & SASIDE THERE APPELLATE ORDER DATED 30.07.2015 PASSED BTHE ITAT, C BENCH, BENGALURU, AS SOUGHT FOR, IN THERESPONDENT-ASSESSEE'S CASE, IN APPEAL PROCEEDINGS IN-C.O.NO.119/BANG/20195 IN IT(TP)A NO. 532/BANG/2013 FORA.Y. 2005-06 & GRANT SUCH OTHER RELIEF AS DEEMED RIT. Dr. VINEET KOTHARI, J., DELIVERED THE FOLLOWING: THIS APPEAL COMING ON FOR HEARING, THIS DAY, | JU DBiGMENT Mr. E.I.Sanmathi,Adv. for Appellants -RevenueMr. Tata Krishna,Adv. for Respondent - Assessee © This Appeal is filed by the Revenue purportedly raising substantial questions of law arising from theOrder of the Income Tax Appellate Tribunal,"#$Bench,Bangalore,1n C.O.NO.119/BANG/2015inIT . A.No.532/Bang/2013dated|30.07.2015 (M/s Kodiak Networks India Pvt. Ltd. -v- Deputy Commissioner ofIncome tax }, relating to the Assessment Year2005-06. 2. The admitted substantial questions of law.framed by the Revenue in the Memorandum of Appeal is"as under: Date of Judgment 29-06-2018, ITA No.68/2016 Pr. Commissioner of Income Tax & another Vs. M/s Kodiak Networks (India) Pvt. Ltd. 3/10 “71Whether,Ortthe|facts”andcircumstances of the case, the Tribunal ts right|in law in holding that the following comparables|have to be excluded from the list of comparables|as they are functionally different forum than|that of the assessee (i) Exensys Software|solutions Ltd., (i) Thirdware Solutions Ltd (tt),Tata Elxsi (iv) Bodh tree consulting lItd., (v)Sankya Infotech Ltd. when all the companies|Satisfies the tests required for determining|qualitative and quantitative filters and whenselection of comparables in a case depends on|FAR analysis ? 2)Whether,Onthefactsandcircumstances of the case, the Tribunal ts right|in law in fixing the RPT filters at 15% of total|TeEvVeNnand|deletingFoursoftLtdandGoemetricSoftwareSolutionsLtd., as|comparable without going into the specific facts|in the case of the tax payer and _ withouadducing the basis for arriving at 15% cut offfor|RPTfilter, in the case of tax payer? 3)Whether,Ornthefactsandcircumstances of the case, the Tribunal ts right| Date of Judgment 29-06-2018, ITA No.68/2016 Pr. Commissioner of Income Tax & another Vs. M/s Kodiak Networks (India) Pvt. Ltd. 4/10 in law in holding that size, turnover, brand|value and research and development activity ofthe company are deciding factors for treating a|company as a comparable and consequently|erred in excluding the (i) Flxtronics Software|services Ltd. (iu) I Gate Global Solutions Ltd (tt),Infosys Technologies Ltd (iv) L&T Infotech Ltd (v)satyam Computer Services Ltd., as comparablesin the case of tax payer ?”| a2The learned Tribunal, after discussing the rival contentions of both the Appellant-Revenue andRespondent-Assessee, has returned a findings as under: 3)Whether,Ornthefactsandcircumstances of the case, the Tribunal ts right| Date of Judgment 29-06-2018, ITA No.68/2016 Pr. Commissioner of Income Tax & another Vs. M/s Kodiak Networks (India) Pvt. Ltd. 4/10 in law in holding that size, turnover, brand|value and research and development activity ofthe company are deciding factors for treating a|company as a comparable and consequently|erred in excluding the (i) Flxtronics Software|services Ltd. (iu) I Gate Global Solutions Ltd (tt),Infosys Technologies Ltd (iv) L&T Infotech Ltd (v)satyam Computer Services Ltd., as comparablesin the case of tax payer ?”| a2The learned Tribunal, after discussing the rival contentions of both the Appellant-Revenue andRespondent-Assessee, has returned a findings as under: “15. Respectfully following the aforesaiddecision of the Tribunal in the case of Triology|E-business Software India Put. Ltd. (supra), wehold that the CIT(A) was justified in applying the|turnover filter and excluding companies whoseturnover was beyond Rs.200 Crores. 18. As regards ground No.7, TATA Elxs1Ltd., has to be excluded as this company was|held to be not comparable with an Assessee|such as the Assessee in the present case|providing software development services by the| Date of Judgment 29-06-2018, ITA No.68/2016 Pr. Commissioner of Income Tax & another Vs. M/s Kodiak Networks (India) Pvt. Ltd. 5/10 ITAT Hyderabad Bench in the case of CNO ITservices (India) Put. Ltd. (Formerly known as ConsecoDataServices(India)Pout.Ltd)Hyderabad Vs. DCIT, Circle 1(2) Hyderabad, in|ITANo.1280/ Hyd/ 201AssessmentYear|2005-2006 order dated 12.92.2014. The ITATHyderabad Bench on identical facts, held on|comparability of TATA Elxsi Ltd. as follows:XAXXKXK 19. In view of the aforesaid decisionrendered on identical facts and circumstances,|we of the view that TATA Elxsi Ltd., was rightly|excluded from the list of comparable companies. 22. Having heard both the parties andhaving gone through the material on record, Wwefind that the TPO at page 37 of his order has|brought out the differences between a product|company and a software development services|provider. Thus, it is clear that he is aware of|the functional dissimilarity between a product|company and a software development service|provider. Having taken not of the difference|between the two functions, the Assessing| Date of Judgment 29-06-2018, ITA No.68/2016 Pr. Commissioner of Income Tax & another Vs. M/s Kodiak Networks (India) Pvt. Ltd. 6/10 Officer ought not to have taken the companies|which are into both the product development as.well as software development service provider|as comparables unless the segmental detatls|are available. Even if he has adopted the filter|of more than 75% of the revenue from the|software services for selecting a comparable|company, he ought to have taken the segmental|results of the software services only. The|percentageof|expendituretowardsthedevelopment of software products may dzifferfrom company to company and also it may not|be proportionate to the sales from the sale of|software products. Under section 133(6) of the[..T. Act, the TPO has the power to call for theheCceSSAIYdetatllsfromthecomparablecompanies. It is seen that the Assessing|Officer/ TPO as exercised this power to call fordetails with regard to the various companies.As seen from the annual report of Foursoft|Limited which is reproduced at page 7 of the|TPO’s Order, the said company has derived|income from software licence also and AMCs.” Date of Judgment 29-06-2018, ITA No.68/2016 Pr. Commissioner of Income Tax & another Vs. M/s Kodiak Networks (India) Pvt. Ltd. 7/10 3.For the similar reasons, the Tribunal has.excluded other comparables also. 4.The controversy involved herein is no moreres integrain view oft the decision of this Court inI1.T.A.Nos.536/2015 c/w 537/2015dated|25.06.2018 (Prl. Date of Judgment 29-06-2018, ITA No.68/2016 Pr. Commissioner of Income Tax & another Vs. M/s Kodiak Networks (India) Pvt. Ltd. 7/10 3.For the similar reasons, the Tribunal has.excluded other comparables also. 4.The controversy involved herein is no moreres integrain view oft the decision of this Court inI1.T.A.Nos.536/2015 c/w 537/2015dated|25.06.2018 (Prl. Commissioner of Income Tax & Anr. -v- M/sSoftbrands India Pvt. Ltd.,) Wherein it has been|observed 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.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 Avoidance Date of Judgment 29-06-2018, ITA No.68/2016 Pr. Commissioner of Income Tax & another Vs. M/s Kodiak Networks (India) Pvt. Ltd. 8/10 Treaties (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.), uf 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|lawand.theSuggested|substantial questions of law do not meet the 9/10 requirements 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 saqme'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.” Date of Judgment 29-06-2018, ITA No.68/2016 Pr. Commissioner of Income Tax & another Vs. M/s Kodiak Networks (India) Pvt. Ltd. 5. 10/10 In the circumstances, having heard the learned Counsel appearing for both the sides, We are of the considered opinion that no substantial question of law arises for consideration in the present case. | Hence, the Appeal filed by the Appellant-Revenueis liable to be dismissed and is accordingly dismissed. —No costs. Sd/-.JU DGE Sd/-.JU DGE