Date Of Judgment 6-8-2018, Ita v. M/S.microchip Technology (India) Pvt. Ltd

IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 6 DAY OF AUGUST 2018 PRESENT THR HON’BLEK DR.JUSTICE VINBBT KOTHARI ANT) THR HON’BLE MRS..JUSTICK S.SUJATHA I.T.A. No.239/2017 BRIWEHEN 1.PR. COMMISSIONEROF INCOME TAX-/BMTC COMPLEX KORAMANGALA, BANGALORE 2.THE ASSISTANT COMMISSIONEROF INCOME TAX|CIRCLE 12(1)BANGALORE_. APPBLLANTS| (BY SRI.SANMATHI E I, ADV.) AND: M/S. MICROCHIP TECHNOLOGY(INDIA) PVT. LTD.,NO.149-B, I PHASE, INDLAREA , WHITEFIELD |BANGALORE PAN: AABCM9Q868J _. RESPONDENT (BY SRI. SANDEEP HUILGOL, ADV. FOR, ORI. T.SURYANARAYANA, ADV.) THERE INCOME TAX APPKAL IS FILED UNDER SEC.260-OF INCOME TAX ACT 1961, ARISING OUT OF ORDER)DATED:31/10/2016, PASSED IN IT(TP)A NO.1247/BANG/2011,.KHOR THERE ASSESSMENIT YBRBAR 2ZOOS-JOO6 ANNEXURPRAYING TO: 1. DECIDE THE FOREGOING QUESTION OF LAW| Date of Judgment 6-8-2018, ITA No.239/2017 The Pr. Commissioner of Income Tax-7 & another Vs. M/s.Microchip Technology (India) Pvt. Ltd. 2/9 AND/OR SUCH OTHER QUESTIONS OF LAW AS MAY BE.FORMULATED BY THR HON'BLE COURT AS DEEMED FIT. 2..SETIASIDETHE;APPELLATE|ORDERDATED:31/10/2016|PASSED IN IT(TP)A NO. 1247/BANG/2011 FOR A.Y.2005-06.ANNEXURE -A, BY THE ITAT, 'B' BENCH, BENGALURU. 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. Sandeep Huilgol,Adv., forMr. T. Suryanarayana,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 ‘B’, inIT[TTPIA No.1247/Bang/201dated3o91L.LO0., relating to the Assessment Year2005-06 a2ThisAppealhas|beenadmitted|OTL17.01.2018|to consider the following substantial|questions of law, “(1) Whether, the Tribunal, on the facts andin the circumstances of the case, the Tribunal isright in law in rejecting the comparables such asBodhtree Consulting Ltd, Exensys Softwaresolutions Ltd, Sankhya Infotech Ltd, Foursoft Ltd, Date of Judgment 6-8-2018, ITA No.239/2017 The Pr. Commissioner of Income Tax-7 & another Vs. M/s.Microchip Technology (India) Pvt. Ltd. 3/9 Thirdware Solution Ltd and other comparables onthe ground offunctions dissimilarity by relying onits earlier orders which has been challengedbefore this Hon'ble Court and even when the TPOhad rightly chosen the said comparison afterapplying all the required tests in accordance withthe provisions of the actP (2) Whether on the facts and in thecircumstances of the case, the Tribunal ts right in|law in excluding certain comparable on basis ofturnover filter by following its earlier orders whichhas not reached finality even when TransferPricing Order has chosen the comparable as pernorms prescribed under the provisions of the Act.” 3.The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue andRespondent-Assessee, has returned findings as under: Regarding Substantial Question of law No.1: “9Q_|Havingconsideredtherivalsubmissions, we note that the co-ordinate benchof this Tribunal in the case of McAfee SoftwareIndia Put. Ltd. Vs. ITO (supra) has considered thefunctional comparability of the five companies asunder: Date of Judgment 6-8-2018, ITA No.239/2017 The Pr. Commissioner of Income Tax-7 & another Vs. M/s.Microchip Technology (India) Pvt. Ltd. 4/9 XNXXXXXX By following the order of the co- ordinate|bench, we direct the A.P./TPO to exclude thesefive companies namely (i) Bodhtree ConsultingLtd., (i) Exensys Software Solutions Ltd., (iit)sankhya Infotech Ltd., (iv) Four Soft Ltd., and (v)Third ware Solutions Ltd. After exclusion of 10companies on the ground of having turnover morethan 10 titmes than the assessee and 5companies as functionally not comparable onlytwo companies are left which are as under: yLanco Global Systems Ltd. i)Sasken Communication Technologies Ltd. (seg) Date of Judgment 6-8-2018, ITA No.239/2017 The Pr. Commissioner of Income Tax-7 & another Vs. M/s.Microchip Technology (India) Pvt. Ltd. 4/9 XNXXXXXX By following the order of the co- ordinate|bench, we direct the A.P./TPO to exclude thesefive companies namely (i) Bodhtree ConsultingLtd., (i) Exensys Software Solutions Ltd., (iit)sankhya Infotech Ltd., (iv) Four Soft Ltd., and (v)Third ware Solutions Ltd. After exclusion of 10companies on the ground of having turnover morethan 10 titmes than the assessee and 5companies as functionally not comparable onlytwo companies are left which are as under: yLanco Global Systems Ltd. i)Sasken Communication Technologies Ltd. (seg) Accordingly, the TPO/A.O. is directed torecomputed the ALP by considering the benefit asper the proviso to section 92C.” Regarding Substantial Question of law No.2: “5. We have considered the rival submissionsand relevant material on record. It is pertinent to)note that the TPO has applied turnover slab ofRs.1 crore to Rs.200 crores for excluding some ofthe companies, whereas there is an inherentdifficulty in applying such a turnover slab of Rs. 1CYroOTTO Rs.200|CroresbecausetheSaid Date of Judgment 6-8-2018, ITA No.239/2017 The Pr. Commissioner of Income Tax-7 & another Vs. M/s.Microchip Technology (India) Pvt. Ltd. 5/9 classification on the basis of slab of the turnovergives unrealistic results, as an entity having Rs. 1crore turnover can be compared with any entityhaving Rs.200 crores turnover, but at the sametime an entity having Rs.200 crores turnovercannot be compared with an entity having Rs.201crores turnover. Thus, as it is clearfrom the above|illustration that it gwes ambiguous result as twoentities having difference of Rs.1 crore cannot beconsidered as comparable, whereas on the otherhanddifferenceOf|Rs. 199CroresCa?be|considered as comparable company. Therefore,such classification of comparables on the basis ofRs.1 Crore to Rs.200 Crores of turnover is notappropriate and acceptable. The turnover, no)doubt, is a relevant factor to be taken intoaccount, but there should be some proper andreasonable parameter to apply the difference ofTurnoverbetweenthe|aSSCSSCCandthecomparable which may be a reasonable multiple.This Tribunal in case of ITO Vs. Maxim IndiaIntegrated Circuit Design Put. Ltd. (supra) hastaken a similar view as under. Accordingly, byapplying the turnover filter of 10 times to theturnover of the assessee's on both sides thefollowing 10 companies are directed to beexcluded from the set of comparables as not 6/9 satisfying the turnover filter of 10 times of theturnover of the assessee. — ol. No. Name of Company 1. RS Software (India) Ltd. 2. Geometric Software Solutions Co. Ltd. | 3. Tata Elxsi Ltd. (Seg.) 4. Visual Soft Technologies Ltd. (Seg.) 5. Sasken Communication Technologies Ltd. (Seg.) 6. iGate Global Solutions 7. Flextronics (Seg.) 8. L&T Infotech Ltd. 9, satyam 10. Infosys” 4However, this Court in a recent judgment in I.T.A. Nos.536/2015 c/w 537/2015delivered on 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 isestablished by the appellant, the appeal at the instanceof an assessee or the Revenue under Section J60-A ot Date of Judgment 6-8-2018, ITA No.239/2017 The Pr. Commissioner of Income Tax-7 & another Vs. M/s.Microchip Technology (India) Pvt. Ltd. 7/9 the Act is not maintainable. The relevant portion of thesaid judgment is quoted below for ready reference: “Conclusion: 6. iGate Global Solutions 7. Flextronics (Seg.) 8. L&T Infotech Ltd. 9, satyam 10. Infosys” 4However, this Court in a recent judgment in I.T.A. Nos.536/2015 c/w 537/2015delivered on 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 isestablished by the appellant, the appeal at the instanceof an assessee or the Revenue under Section J60-A ot Date of Judgment 6-8-2018, ITA No.239/2017 The Pr. Commissioner of Income Tax-7 & another Vs. M/s.Microchip Technology (India) Pvt. Ltd. 7/9 the Act is not maintainable. The relevant portion of thesaid judgment is quoted below for ready reference: “Conclusion: 55.Asubstantial quantumof|international trade and transactions dependsupon 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|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. Date of Judgment 6-8-2018, ITA No.239/2017 The Pr. Commissioner of Income Tax-7 & another Vs. M/s.Microchip Technology (India) Pvt. Ltd. 8/9 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 arysubstantial 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 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 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 before Date of Judgment 6-8-2018, ITA No.239/2017 The Pr. Commissioner of Income Tax-7 & another Vs. M/s.Microchip Technology (India) Pvt. Ltd. 9/9 this 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.Havingheardthelearnedcounsels. appearing for the parties, we are therefore of the opinionthat no substantial question of law arises in the presentcase also. The Appeal filed by the Appellants-Revenueis liable to be dismissed and it is dismissed accordingly. —No costs. AN/- Sd/-.JUDGE| Sd/-.JUDGE|