Date Of Judgment 31-07-2018, Ita v. Tesco Hindusthan Service Centre Pvt. Ltd

IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 31 DAY OF JULY 2O18| PRESENT THR HON’BLEK DR.JUSTICE VINBBT KOTHARI ANT) THR HON’BLE MRS..JUSTICK S.SUJATHA I.T.A. No.60/2016 BETWEEN : 1.THE PR. COMMISSIONER OF INCOMB TAX C.R. BUILDINGS BANGALORE. 2.THE DEPUTY COMMISSIONER OF INCOME TAX,|CIRCLE 12(4),CIRCLE 12(4), BANGALORE. _. APPBLLANTS| (BY SRI.E. I. SANMATHI, ADV.) AND: TESCO HINDUSTHAN SERVICE CENTRE PVT. LTD., NO.81 & 82, EPIP AREA,WHIEFIELD, BANGALORE - 660PAN: AABCTS8915B _. RESPONDENT (BY SRI.S SANKARA NARAYANAN, ADV.) THIS INCOME TAX APPEAL IS FILED UNDER SEC.260-A|OF INCOME TAX ACT 1961, ARISING OUT OF ORDERDATED:26/05/2015 PASSED IN I[IT(TP)A NO.1317/BANG/2010HOR THR ASSESSMENT YEAR 2JOOO-JOO/ ANNEXURE - A.PRAYING TO: 1. DECIDE THE FOREGOING QUESTION OF LAWAND / OR SUCH OTHER QUESTIONS OF LAW AS MAY BE Date of Judgment 31-07-2018, ITA No.60/2016 The Pr. Commissioner of Income Tax & another Vs. Tesco Hindusthan Service Centre Pvt. Ltd. 2/11 FORMULATED BY THR HON'BLE COURT AS DEEMED FIT. 2..SETASIDE.TH EAPPELLATE|ORDERDATED:26/05/2015PASSED IN IT(TP)A NO. 1317/BANG/2010 FOR A.Y.2006-07—ANNEXURE-A, BY THE ITAT, ‘A’ BENCH, BENGALURU ASSOUGHT FOR, IN THE ABOVE CASE. 3. GRANT SUCH OTHER|RELIEF AS DEEMED FIT, INTEREST OF JUSTICE. THIS APPEAL COMING ON FOR HEARING, THIS DAY,|S. SUJATHA, J., DELIVERED THE FOLLOWING: JU DBiGMENT Mr. E.I.Sanmathi,Adv. for Appellants — Revenue.Mr. S.Sankara Narayanan,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,6A?Bench,Bangalore, inIT A No.1317/Bang/2010dated26.05.2015.relating to the Assessment Year2006-07. 2.ThisAppealhas|beenadmitted|OTL12.09.2017to consider the following substantialquestions of law: Date of Judgment 31-07-2018, ITA No.60/2016 The Pr. Commissioner of Income Tax & another Vs. Tesco Hindusthan Service Centre Pvt. Ltd. 3/11 ae1) Whether, the Tribunal, on the’facts and in the circumstances of the casewas right in excluding Flextronics Software,IgateGlobal solutions,MindtreeLtd,PersistentoystemsLtd,SaskenCommunication Technologies Ltd, InfosysTechnologies Ltd, Tata Elxi, Kals Informationsystems Ltd from the list of comparablesholding that this company is functionallydifferent and by relying on its earlierdecision.withoutappreciatingthatthecomparable satisfy all the qualitative andquantitative filters applied by the TPO andthat selection of comparable in a casedependsON.aASSCSSCEspecificFARanalysis. ? 2) Whether, the Tribunal, on the facts|and in the circumstances of the case wasright in excluding Geometric Software LtdandMappleEsolution|Ltd,DatamaticsFinancial Services Ltd, Vishal InformationTechnologicalServices,AsitCc.Mehta|Financial Services Ltd and Gold StoneInfratech Ltd by relying on its_ earlierdecision when selection of the comparable in Date of Judgment 31-07-2018, ITA No.60/2016 The Pr. Commissioner of Income Tax & another Vs. Tesco Hindusthan Service Centre Pvt. Ltd. 4/11 each case depends on the basis of specificfacts brought on record by the TPOP| 3) Whether on the facts and in the|circumstances of the case, the Tribunal isright in law in excluding comparable such asKalsInformationoystemsLtd,AccelTransmission Ltd and Megasoft Ltd byrelyingItsearlier|decision.withoutconsidering the facts of the instant case?”| 4. The learned Tribunal, after discussing the rival contentionsoT|boththeAppellant-RevenueandRespondent-Assessee, has returned the findings as.under: Regarding Substantial Question of Law No.1: “9, We have considered the submission ofthe learned counsel for the Assessee and thelearned DR. In the case of Trilogy E-Businesssoftware India (P) Ltd. (supra), this Tribunal onapplication of the turnover filter while selectingcomparable companies for comparability analysisheld as follows: AXXKXXKXKK 3) Whether on the facts and in the|circumstances of the case, the Tribunal isright in law in excluding comparable such asKalsInformationoystemsLtd,AccelTransmission Ltd and Megasoft Ltd byrelyingItsearlier|decision.withoutconsidering the facts of the instant case?”| 4. The learned Tribunal, after discussing the rival contentionsoT|boththeAppellant-RevenueandRespondent-Assessee, has returned the findings as.under: Regarding Substantial Question of Law No.1: “9, We have considered the submission ofthe learned counsel for the Assessee and thelearned DR. In the case of Trilogy E-Businesssoftware India (P) Ltd. (supra), this Tribunal onapplication of the turnover filter while selectingcomparable companies for comparability analysisheld as follows: AXXKXXKXKK Date of Judgment 31-07-2018, ITA No.60/2016 The Pr. Commissioner of Income Tax & another Vs. Tesco Hindusthan Service Centre Pvt. Ltd. 5/11 10. Respectfully following the aforesaid decisionof the Tribunal in the case of Trilogy E-Businesssoftware India Pvt.Ltd. (supra) and Assessee'scase for AY 06-07, we hold that the aforesaidcompanies should be excluded from the list ofcomparable companies. The AO is directed tocompute the Arithmetic mean by excluding theaforesaid companies from the list of comparable.” Regarding Substantial Question of Law No.2: “14. As far as comparable company UiZ.,|Geometric Software Ltd. (Seg.) & Aztech SoftwareLtd., are concerned, it is not in dispute before usthat the related party transaction in the case ofthis company exceeds 15% ( 19.98 % in the caseof Geometric Software Ltd. & 17.78% in the caseof Aztech Software Ltd.) and in view of thedecision of the Tribunal in the case of 24 xX 7Customer.Com.Put.Ltd.in|ITANo.227/ Bang/ 2010, followed by this Tribunal ithe case of Logica Private Ltd. (supra) wherein itwas held that where the RPT exceeds 15%, suchcompanies should not be taken as comparable|companies. Following the said decision, we holdthat said companies referred to above be Date of Judgment 31-07-2018, ITA No.60/2016 The Pr. Commissioner of Income Tax & another Vs. Tesco Hindusthan Service Centre Pvt. Ltd. 6/11 excluded from the list of comparable companieswhile working out the ALP. YS.We|have.consideredthe.rivalSubmissions. As far as comparable companieschosen by the TPO at S.No.1,3,6,7 & 8 viz., MapleESolution Ltd., Datamatics Financial ServicesLtd., Vishal Information Technological ServicesLtd., Asit C.Mehta Financial Services Ltd., andGoldStoneInfratechLtd.,inthelistofcomparable companies chosen by the TPO, wefind that the Hyderabad Bench of the ITAT in the|case of HSBC Electronic Data Processing IndiaLtd. Vs. ACIT, ITA No.1624/Hyd/2010 by orderdarted 28.6.2013 considered comparability ofthese companies in the case of a companyengaged in rendering IT enabled services to itsAE similar to that of the Assessee in the presentcase. The tribunal held that the aforesaidcompanies are not comparable. The followingwere the relevant observations of the Tribunal. NXXXXKXKXXX 24. The facts and circumstances and the|Assessmentyearforwhichtheaforesaidcompanies were not considered as comparableare identical to the case decided by _ th Date of Judgment 31-07-2018, ITA No.60/2016 The Pr. Commissioner of Income Tax & another Vs. Tesco Hindusthan Service Centre Pvt. Ltd. 7/11 Hyderabad Bench of ITAT and that of the case ofthe Assessee. Respectfully following the decisionof the Hyderabad Bench of ITAT, we direct theTPO to exclude the aforesaid companies from thelust of comparable while arriving at the arithmeticmean of comparable. The relevant grounds ofappeal of the Assessee are allowed.” Regarding Substantial Question of Law No.3: “12. The following were the_ relevantobservations of the Tribunal on the aforesaidcomparable companies in the case of Trilogy E-Business Software India Put.Ltd.(supra), whichwas followed by the ITAT Bangalore Bench in thecase of SDPLM Software Solutions Ltd. IT(TPJA.No.1109/ Bang/ 2010 for AY 2006-07 ordedated 10.5.2013: XXXXXXXXXX 7/11 Hyderabad Bench of ITAT and that of the case ofthe Assessee. Respectfully following the decisionof the Hyderabad Bench of ITAT, we direct theTPO to exclude the aforesaid companies from thelust of comparable while arriving at the arithmeticmean of comparable. The relevant grounds ofappeal of the Assessee are allowed.” Regarding Substantial Question of Law No.3: “12. The following were the_ relevantobservations of the Tribunal on the aforesaidcomparable companies in the case of Trilogy E-Business Software India Put.Ltd.(supra), whichwas followed by the ITAT Bangalore Bench in thecase of SDPLM Software Solutions Ltd. IT(TPJA.No.1109/ Bang/ 2010 for AY 2006-07 ordedated 10.5.2013: XXXXXXXXXX 13. The facts and circumstances under|which the aforesaid companies were consideredas comparable is identical in the case of theAssessee as well as in the case of Trilogy E-BusinesssoftwareIndia|Pout. Ltd(supra).Respectfully following the decision of the Tribunalreferred to above in the case of Trilogy E-Business Software India Puvt.Ltd.(supra), we Date of Judgment 31-07-2018, ITA No.60/2016 The Pr. Commissioner of Income Tax & another Vs. Tesco Hindusthan Service Centre Pvt. Ltd. 8/11 direct that the said companies be excluded fromthe list of 22 comparable arrived at by the TPO.” 4. The controversy involved herein is no moreTeSintegrain view of 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/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.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 AvoidanceTreaties (DTAA), interpretation ofprovisions ofthe Income Tax Act or Overriding Effect of the| Date of Judgment 31-07-2018, ITA No.60/2016 The Pr. Commissioner of Income Tax & another Vs. Tesco Hindusthan Service Centre Pvt. Ltd. 9/11 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. 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| Date of Judgment 31-07-2018, ITA No.60/2016 The Pr. Commissioner of Income Tax & another Vs. Tesco Hindusthan Service Centre Pvt. Ltd. 10/11 found to be devoid of merit and the same are.liable to be dismissed. 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| Date of Judgment 31-07-2018, ITA No.60/2016 The Pr. Commissioner of Income Tax & another Vs. Tesco Hindusthan Service Centre Pvt. Ltd. 10/11 found to be devoid of merit 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 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. “ArLength 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.” o. In the circumstances, having heard the learned Counsel appearing for both the sides, We are of the Date of Judgment 31-07-2018, ITA No.60/2016 The Pr. Commissioner of Income Tax & another Vs. Tesco Hindusthan Service Centre Pvt. Ltd. 11/11 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. In. Sd/-.JUDGE. Sd/-.JUDGE.