Date Of Judgment 29-08-2018, Ita v. M/S.ni Systems (India) Pvt. Ltd

IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 29 DAY OF AUGUST 2018. PRESENT THR HON’BLEK DR.JUSTICE VINBBT KOTHARI ANT) THR HON’BLE MRS.JUSTICEK S.SUJATHA I.T.A. No.110/2018 BETWEEN: 1.PR. COMMISSIONER OF INCOME TAX - 5)BMTC COMPLEX,BMTC COMPLEX, KORAMANGALA,BANGALORE.BANGALORE. «|THE DEPUTY COMMISSIONER OF INCOME-TAX,CIRCLE-12(2),.BANGALORE.CIRCLE-12(2),.BANGALORE. _. APPBLLANTS| (BY SRI.SANMATHI E I, ADV.) AND:| M/S NI SYSTEMS (INDIA) PVT. LTD., |81/1, & 82/1,SALARPURIA SOFTZONE, WING B, 5[‘T]FLOOR, BLOCK A,BELLANDUR, VARTHUR HOBLI,BANGALORE.»PN-AABCN1159K _. RESPONDENT THIS INCOME TAX APPEAL IS FILED UNDER SEC.260-A|OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED:|13.09.2017 PASSED IN ITA NO.1049/BANG/2016, FOR THE.ASSESSMENT YEAR:2010-2011 VIDE ANNEXURE - A, PRAYINGTO: (1) DECIDE THE FOREGOING QUESTION OF LAW AND/OR, Date of Judgment 29-08-2018, ITA No.110/2018 The Pr. Commissioner of Income Tax - 5 & Another Vs. M/s.NI Systems (India) Pvt. Ltd. SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED|BY THR HON'BLE COURT AS DBEBMEBED FIT AND SKHT ASIDE APPELLATK ORDER DATED: 13.09.201/ PASSED BY THE!INCOME TAX APPELLATE TRIBUNAL, 'C’ BENCH, BENGALURU,AS|SOUGHTFOR,|IN|APPEAL.PROCHBEDINGSINITA|NO.1049/BANG/2016 FOR A.Y 2010-11 VIDE ANNEXURE - A. THIS APPEAL COMING ON FOR ADMISSION, THIS DAY,|S. SUJATHA, J., DELIVERED THE FOLLOWING: JU DBiGMENT Mr. E.I. Sanmathi, Adv. for Appellants — Revenue. This Appeal is filed by the Revenue purportedlyraising substantial questions of law arising from theOrder of the Income Tax Appellate Tribunal, BangaloreBench ‘C’, Bangalore, inIT[TP|A No.1049/Bang/2016 dated13.09.2017, (N.LSystems (India) Pvt. Ltd., Vs.TheDeputyCommissioneroT IncomeTax)forAssessment Year2010-11. 2.The proposed substantial question of lawframed1nNtheMemorandum|oT appealby theAppellants-Revenue is quoted below for ready reference: Date of Judgment 29-08-2018, ITA No.110/2018 The Pr. Commissioner of Income Tax - 5 & Another Vs. M/s.NI Systems (India) Pvt. Ltd. 3/9 “Whether, on the facts and circumstances of thecase, the Tribunal has erred in holding that thefunctions of taxpayer is not comparable to thefunctions of certain comparable’s by following thedecision’s which has not reached finality andwithout considering the materials available onrecord and FAR analysis?” 3. The learned Tribunal, after discussing the rivalcontentions of both the Appellants-Revenue and theRespondent-Assessee, has given the following findings:- | "8.3.1 We have heard the rival contentions andperused and carefully considered the material onrecord; including the judicial pronouncementscited. We find that the co-ordinate bench of thisTribunal in the case of Electronics for ImagingIndia Put. Ltd., in IT(TP)A No.212/Bang/2015dated 24.02.2016 for asst year 2010-11 hasconsidered the comparability of this company andupheld the order excluding this company as beingfunctionally dissimilar to an assessee engaged inbusiness of providing marketing support services Date of Judgment 29-08-2018, ITA No.110/2018 The Pr. Commissioner of Income Tax - 5 & Another Vs. M/s.NI Systems (India) Pvt. Ltd. and in this context at paras 44- 49 of its orderheld as under:- NXXXXKXKXXX 8.3.2 Considering the facts of the matter as laidout above and following the aforesaid decision ofthe co-ordinate bench in the case of Electronics forImaging India Put. Ltd., for asst. year 2010-11(Supra) we direct the AO/TPO to exclude thiscompany form the list of comparables on groundsof it being functionally differentfrom the assesseein the case on hand who was only providingsalesandmarketingSUPDPOTTServices. ©Consequently, the assessee’s ground in respect ofthis company is allowed. &.4 Consequently, ground No.4 raised by theassessee is partly allowed. Date of Judgment 29-08-2018, ITA No.110/2018 The Pr. Commissioner of Income Tax - 5 & Another Vs. M/s.NI Systems (India) Pvt. Ltd. and in this context at paras 44- 49 of its orderheld as under:- NXXXXKXKXXX 8.3.2 Considering the facts of the matter as laidout above and following the aforesaid decision ofthe co-ordinate bench in the case of Electronics forImaging India Put. Ltd., for asst. year 2010-11(Supra) we direct the AO/TPO to exclude thiscompany form the list of comparables on groundsof it being functionally differentfrom the assesseein the case on hand who was only providingsalesandmarketingSUPDPOTTServices. ©Consequently, the assessee’s ground in respect ofthis company is allowed. &.4 Consequently, ground No.4 raised by theassessee is partly allowed. 11.3 We have heard the rival contentions andperused and carefully considered the material onrecord. From an appraisal of the facts on record,it is seen that this company, ‘Salora’ wasselected as a comparable by the assessee in itsTP study. The authorities below, TPO/CIT{(A),have excluded this company from the lst of Date of Judgment 29-08-2018, ITA No.110/2018 The Pr. Commissioner of Income Tax - 5 & Another Vs. M/s.NI Systems (India) Pvt. Ltd. 5/9 comparables for the reason that it is functionallydifferent from the assessee in the case on had.As contended by the ld DR, a perusal of theAnnual Report of the company, ‘Salora’, for theyearunderconsiderationShowsthatthis|company was engaged in the sale of mobiles,computers and computer peripherals and othertelecom products of various companies all overIndia and in this regard provided after salesservices. In our considered view we find that theassessee has failed to establish that thisCOTILDQTI‘Salora’providesmarketSupportservices to its AE’s, as does the assessee in thecase on had and has failed to controvert thefindings of the authorities below that it is to beexcluded from the list of comparables as it isfunctionally different from the assessee. In thesefactual circumstances, as narrated above, we areof the considered view that this company, SaloraInternational Ltd., is functionally different fromthe assessee in the case on hand and hastherefore been correctly excluded from the list ofcomparables by the authorities below. ” 4. However, this Court in a recent judgment in I.T.A. Nos.536/2015 c/w 537/2015delivered on Date of Judgment 29-08-2018, ITA No.110/2018 The Pr. Commissioner of Income Tax - 5 & Another Vs. M/s.NI Systems (India) Pvt. Ltd. 6/9 25.06.2018 (Prl. Commissioner of Income Tax & Anr. —v- M/s Softbrands India Pvt. Ltd.») has held that inthese type of cases, unless an ex-facie perversity in thefindings of the learned Income Tax Appellate Tribunal is"established by the appellant, the appeal at the instanceof an assessee or the Revenue under Section J60-A otthe Act is not maintainable. The relevant portion of the said judgment is. quoted below for ready reference: “Conclusion: 55.|ASubstantialquantumof|international trade and transactions dependsupon the fair and quick Judicial dispensation|in such cases. Had it been a case oOf|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 Erosion|and Profit Shifting (BEPS), Transfer of Shares Date of Judgment 29-08-2018, ITA No.110/2018 The Pr. Commissioner of Income Tax - 5 & Another Vs. M/s.NI Systems (India) Pvt. Ltd. 7/9 The relevant portion of the said judgment is. quoted below for ready reference: “Conclusion: 55.|ASubstantialquantumof|international trade and transactions dependsupon the fair and quick Judicial dispensation|in such cases. Had it been a case oOf|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 Erosion|and Profit Shifting (BEPS), Transfer of Shares Date of Judgment 29-08-2018, ITA No.110/2018 The Pr. Commissioner of Income Tax - 5 & Another Vs. M/s.NI Systems (India) Pvt. Ltd. 7/9 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 29-08-2018, ITA No.110/2018 The Pr. Commissioner of Income Tax - 5 & Another Vs. M/s.NI Systems (India) Pvt. Ltd. 8/9 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 Revenueare therefore dismissed with no order as to|costs.” oO. Having heard the learned counsel appearing for the Appellants-Revenue, we are therefore of the opinionthat no substantial question of law arises in the presentcase also. The Appeal filed by the Appellants-Revenue is Date of Judgment 29-08-2018, ITA No.110/2018 The Pr. Commissioner of Income Tax - 5 & Another Vs. M/s.NI Systems (India) Pvt. Ltd. 9/9 liable to be dismissed and it is dismissed accordingly. — No costs. Copy of this order be sent to the Respondent- Assessee forthwith. | pss, Sd/-.JU DGE Sd/-.JU DGE