Date Of Judgment 30-08-2018, Ita v. M/S Novo Nordisk India Pvt. Ltd

IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 30 DAY OF AUGUST 2018. PRESENT THR HON’BLEK DR.JUSTICE VINBBT KOTHARI ANT) THR HON’BLE MRS.JUSTICEK S.SUJATHA I.T.A. No.133/2018 BETWEEN : 1.PR. COMMISSIONER OF INCOME TAX-) BMTC COMPLEX. KORAMANGALA> BBENGALURU. oD DBPUTY COMMISSIONBR OF INCOME TAX CIRCLE-95(1)(1) BANGALORE. _ APPBRLLANTS) (BY SRI. SANMATHI E.I., ADV.) AND ; M/S NOVO NORDISK INDIA PVT. LTD., PLOT No.32, 47-50EPIP AREA, WHITEFIELDBANGALORBE-560 066PAN No.AAACN7/425M. _ RESPONDENT (BY SRI. MALLAHARAO K, ADV. FOR NAGESWAR RAO, ADV..,) Date of Judgment 30-08-2018, ITA No.133/2018 Pr. Commissioner of Income Tax-5 & Another Vs. M/s Novo Nordisk India Pvt. Ltd., THIS INCOMB TAX APPBAL IS FILED UNDER SECTION|260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER|DATED 31.08.2017 PASSED IN IT(TP)A No.525/BANG/2016, FOR:THE ASSESSMENT YEAR: 2011-2012, PRAYING TO 1) DECIDE.THE FOREGOING QUESTION OF LAW AND/OR SUCH OTHER,QUESTIONS OF LAW AS MAY BE FORMULATED BY THE)HON’BLE COURT AS DEEMED FIT. 2) SET ASIDE THEAPPBERELLATK ORDER DATBD: 31.08.2017 PASSBD BY TINCOME TAX APPELLATE TRIBUNAL, ‘A’ BENCH, BANGALORE,|IN APPEAL PROCEEDINGS No.IT(TP)A No.525/BANG/2016 FOR,ASSESSMENT YEAR: 2011-2012, AS SOUGHT FOR IN THIS)APPEAL. THIS APPEAL COMING ON FOR ORDERS, THIS DAY,|S. SUATHA, J., DELIVERED THE FOLLOWING: JU DBiGMENT Mr. Sanmathi E.L,,Adv. for Appellants — Revenue. Mr. Mallaharao K,Adv. forMr. Nageswar Rao,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, Bangalore Bench ‘A’, Bangalore, inIT[TP|A No.525/Bang/2016 dated01.08.2017, relating to the Assessment Year 2011-12. Date of Judgment 30-08-2018, ITA No.133/2018 Pr. Commissioner of Income Tax-5 & Another Vs. M/s Novo Nordisk India Pvt. Ltd., 3/11 a2The substantial questions of law framed by the Revenue in the Memorandum of Appeal are asunder: Whether,OF.thefactsandinthecircumstances of the case and in law, theTribunalWaSjustifiedin|seekingexact.comparability, which searching for comparablecompanies of the assessee under TNMM whereastherequirementof|lawandinternational jurisprudence require seeking similar comparablelesP compan 2)Whether,OF.the factsandinthecircumstances of the case and in law, theTribunal was right in seeking comparability inimposing condition beyond law whereas therequirement of law is to acknowledge only thosedifferences that are likely to materially affect themargin? 3)Whether,OF.the factsandinthecircumstances of the case and in law, theTribunal was justified in not acknowledging thatdeterminationofALPbycarryingOUT.comparabilityanalysisofthecomparablecompanies is an art and not exact science as notwo companies are exactly sameP Date of Judgment 30-08-2018, ITA No.133/2018 Pr. Commissioner of Income Tax-5 & Another Vs. M/s Novo Nordisk India Pvt. Ltd., 4/11 4)Whether,OF.the factsandinthecircumstances of the case and in law, theTribunalWasjustifiedindemandingcomparability standards that may itself defeatthe purpose of law relating to determination ofALP under the Act? 5) Whether, on the facts and in the circumstancesof the case and in law, the Tribunal was justifiedin deciding Accentia Technologies Ltd., andAcropetal Technologies Put. Ltd., as functionallynot comparable by demanding comparabilityStandards that may itself defeat the purpose oflaw relating to determination of ALP under theAct? 6) Whether, on the facts and in the circumstancesof the case and in law, the Tribunal was justifiedin directing the TPO to grant the assessee riskadjustment on actual basis even when theassessee has not justified its claim for any suchadjustment?” 3.The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and Respondent-Assessee, has returned the findings asunder: 5) Whether, on the facts and in the circumstancesof the case and in law, the Tribunal was justifiedin deciding Accentia Technologies Ltd., andAcropetal Technologies Put. Ltd., as functionallynot comparable by demanding comparabilityStandards that may itself defeat the purpose oflaw relating to determination of ALP under theAct? 6) Whether, on the facts and in the circumstancesof the case and in law, the Tribunal was justifiedin directing the TPO to grant the assessee riskadjustment on actual basis even when theassessee has not justified its claim for any suchadjustment?” 3.The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and Respondent-Assessee, has returned the findings asunder: Date of Judgment 30-08-2018, ITA No.133/2018 Pr. Commissioner of Income Tax-5 & Another Vs. M/s Novo Nordisk India Pvt. Ltd., 5/11 Regarding Substantial Question of Law Nos.1 to 5: is 7Accentia Technologies Ltd., {iAccentia>, 7.3.1.We have heard the rival contentions andperused and carefully considered the material onrecord, including the judicial pronouncementcited. We find that a coordinate bench of theTribunal in the case of Swiss Re Shared Services(India) Put. Ltd., (Supra) for asst. year 2011-12(ue., the year under consideration in the case onhand also) has examined in detail the issue ofcomparabilityof“Accentia’,|andheldthtscompany is functionally dissimilar and not a goodcomparable to an assessee engaged purely inITES. At paras 9 to 20 of its order (Supra) thecoordinate bench held as under:-| XXXXXXXXXX 7.9.2. On a careful consideration of the aforesaidorder of the co-ordinate bench for asst. year2011-12 (Supra), we find that it squarely appliesto the facts of the case on hand. Therefore,respectfully following the aforesaid decision inthe case of Swiss RE Shared Services (India) Put.Ltd., (Supra), we hold that this company, AccentiaTechnologies Ltd., is functionally dissimilar and Date of Judgment 30-08-2018, ITA No.133/2018 Pr. Commissioner of Income Tax-5 & Another Vs. M/s Novo Nordisk India Pvt. Ltd., therefore not a good comparable to the assesseein the case on hand who merely renders ITES toits AE’s and therefore direct the AO/TPO toexclude this company from the final set ofcomparables. 5.|Acropetal Technologies Ltd., {iAcropetal>} 8.3.1. We have heard the rival contentions andperused and carefully considered the material onrecord; including the judicial pronouncementscited. We find that a co-ordinate bench of thisTribunal in the case of Swiss Re Shared Services(India) Put. Ltd., for asst. year 2011-12 (Supra)has examined in detail the comparability of thiscompany as a comparable to that of a serviceprovider ofITES services to tts AE’s and at 6 para21 to 24 thereof held as under:-| XNXXXXXXXXXXXXX 8.3.2. Taking into consideration the facts andcircumstances of the case and_ respectfullyfollowing the aforesaid decision of the co-ordinatebench of this Tribunal in the case of Swiss ReShared Services (India) Put. Ltd., for asst. year2011-12 (Supra), we hold that the engineering Date of Judgment 30-08-2018, ITA No.133/2018 Pr. Commissioner of Income Tax-5 & Another Vs. M/s Novo Nordisk India Pvt. Ltd., 7/11 designSeCYLVICEsegmentofAcropetalTechnologies Ltd., is functionally different andhence.cannotbe|consideredas|Omgoodcomparable to the assessee in the case on handwho is providing only ITES services to its AE’s.The AO/TPO are, therefore, directed to excludethis company from the list of comparables in thecase on hand ” 4similarly,thelearnedTribunal|has considered other comparables and excluded the same. Regarding Substantial Question of Law No.6: Date of Judgment 30-08-2018, ITA No.133/2018 Pr. Commissioner of Income Tax-5 & Another Vs. M/s Novo Nordisk India Pvt. Ltd., 7/11 designSeCYLVICEsegmentofAcropetalTechnologies Ltd., is functionally different andhence.cannotbe|consideredas|Omgoodcomparable to the assessee in the case on handwho is providing only ITES services to its AE’s.The AO/TPO are, therefore, directed to excludethis company from the list of comparables in thecase on hand ” 4similarly,thelearnedTribunal|has considered other comparables and excluded the same. Regarding Substantial Question of Law No.6: “22.2.2. It is accepted principle that riskadjustment may be granted, as per law, tf theassessee submits the computation thereof andsubstantiates the same. It is also an acceptedprinciple, upheld in several decisions, that theadjustment has to be granted on actuals, basedon the computation that is substantiated. Noadhoc adjustment percentage can be prescribed.In this view of the matter, we direct the TPO togrant the assessee risk adjustment, if applicable,Onlactualbasis,basedOF.computationsSubmittedbythe.aASSCSSCEwhicharesubstantiated. We hold and direct accordingly. — Date of Judgment 30-08-2018, ITA No.133/2018 Pr. Commissioner of Income Tax-5 & Another Vs. M/s Novo Nordisk India Pvt. Ltd., 8/11 Consequently ground No.3 is treated as allowedfor statistical purposes.” 5.However, this Court in a recent judgment in I.T.A. Nos.536/2015 c/w 537/2015delivered on25.06.2018 (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 isestablished 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| Date of Judgment 30-08-2018, ITA No.133/2018 Pr. Commissioner of Income Tax-5 & Another Vs. M/s Novo Nordisk India Pvt. Ltd., 9/11 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|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. 56. Weare therefore of the consideredopinion that the present appeals filed by the|Revenue do not give rise to any substantialquestionof|lawand.theSuggested| Date of Judgment 30-08-2018, ITA No.133/2018 Pr. Commissioner of Income Tax-5 & Another Vs. M/s Novo Nordisk India Pvt. Ltd., 10/11 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. 56. Weare therefore of the consideredopinion that the present appeals filed by the|Revenue do not give rise to any substantialquestionof|lawand.theSuggested| Date of Judgment 30-08-2018, ITA No.133/2018 Pr. Commissioner of Income Tax-5 & Another Vs. M/s Novo Nordisk India Pvt. Ltd., 10/11 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. 57. We make it cleqr that the sameyardsticks 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 | “ALength 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.” Date of Judgment 30-08-2018, ITA No.133/2018 Pr. Commissioner of Income Tax-5 & Another Vs. M/s Novo Nordisk India Pvt. Ltd., 11/11 6.Havingheardthelearnedcounsels. appearing for the parties, we are therefore of the opinionthat no substantial question of law arises in the present case also. The Appeal filed by the Appellants-Revenueis liable to be dismissed and it is dismissed accordingly. —No costs. PMR Sd/-.JU DGE Sd/-.JU DGE