Date Of Judgment 7-8-2018, Ita v. M/S.cdc Software India Pvt. Ltd

IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 7 DAY OF AUGUST 2018 PRESENT THR HON’BLEK DR.JUSTICE VINBBT KOTHARI ANT) THR HON’BLE MRS..JUSTICK S.SUJATHA I.T.A. No.388/2017 BETWEEN: 1.THE PR. COMMISSIONER OF INCOME TAX![‘T]FLOOR, BMTC BUILDING,80 FEET ROAD,KORAMANGALA,BENGALURU - 5600095.![‘T]FLOOR, BMTC BUILDING,80 FEET ROAD,KORAMANGALA,BENGALURU - 5600095. 2.THERE INCOMBE-TAX OFFIC WARD-11(1) PRESENT ADDRESS, WARD - 2(1)(1)|~ FLOOR, BMTC BUILDING,80 FEET ROAD,KORAMANGALA,BBNGALURU — 560 095._. APPBLLANTS| (BY SRI.K V ARAVIND, ADV.) AND: M/S CDC SOFTWARE INDIA PVT. LTD.# AND 7 FLOOR, CANBERRA BLOCKUP CITY 24, VITTAL MALLYA ROAD,BENGALURU — 560 O25.PAN:AACCP 7154M_. RESPONDENT (BY SRI.A SHANKAR & SRI. M LAVA, ADVS. ) Date of Judgment 7-8-2018, ITA No.388/2017 The Pr. Commissioner of Income Tax & Another Vs. M/s.CDC Software India Pvt. Ltd., 2/8 THIS INCOME TAX APPEAL IS FILED UNDER SEC.260-A|OF INCOME TAX ACT 1961, ARISING OUT OF ORDERDATED:14/10/2016 PASSED IN IT(TP)A NO.1645/BANG/2013,FOR THE ASSESSMENT YEAR 2005-2006 ANNEXURE -D,|PRAYING TO: 1. FORMULATE THE SUBSTANTIAL QUESTIONSOF LAW STATBKD ABOVE. 2. ALLOW THR APPBAL AND SBTASIDE THE ORDERS PASSED BY THE ITAT, BENGALURU IN|IT(TP)A NO. 1645/BANG/2013 DATED:14/10/2016 ANNEXURE —D,.CONFIRMING|THEORDER|OF.THEAPPBLLATEHCOMMISSIONBR AND CONFIRM THR ORDER PASSBD BY THE!DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-2(1)(1),.BBENGALURU. THIS APPEAL COMING ON FOR HEARING, THIS DAY,|S. SUJATHA, J., DELIVERED THE FOLLOWING: JU DBiGMENT Mr. K.V.Aravind,Adv. for Appellants — Revenue. ©Mr. A.Shankar & Mr. M.Lava,Advs. for Respondent -—Assessee. | This Appeal is filed by the Revenue purportedlyraising substantial questions of law arising from theOrder of the Income Tax Appellate Tribunal, ‘B’ Bench, Bangalore|1nIT[TPIANo.1645/Bang/2013dated 14.10.2016, relating to the Assessment Year2005-06 Date of Judgment 7-8-2018, ITA No.388/2017 The Pr. Commissioner of Income Tax & Another Vs. M/s.CDC Software India Pvt. Ltd., 3/8 a2ThisAppealhas|beenadmitted|OTL 05.06.2018|to consider the following substantial| questions of law, “1. Whether, on the facts and circumstances ofthe case, the Tribunal is right in law in directingAO/TPO to exclude certain comparable based onfunctional dissimilarity even when the TPO haschosenthe|saidcomparablebyapplyingqualitative and quantitative filers when cullingout comparable companies? 2. Whether on the facts and in the circumstancesof the case the Tribunal ts right in law in directing|the Transfer Pricing Officer to exclude comparablenamely, Bodhtree Consulting Ltd. on the basis ofRPT filter by following its earlier order in case ofsymbol Technologies Ltd. which has not reachedfinality and even when the TPO has _ rightlconsidered the same on the basis ofRIPfilter?” 3.The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue andRespondent-Assessee, has returned findings as under: Date of Judgment 7-8-2018, ITA No.388/2017 The Pr. Commissioner of Income Tax & Another Vs. M/s.CDC Software India Pvt. Ltd., 4/8 Gll. We have heard rival submissions andperused the material on record. In the case ofsymbol Technologies Ltd., which is also asoftware development service company, it washeld by that Bodhtree Consulting Ltd., FoursoftLtd, Thirdware Sloutions Ltd., are held to beincomparable on the grounds of functionallydissimilarity vide Para 22 which reads as under:XXXXXXXM 12. In respect of Sankya Infotech Ltd., thecoordinatebenchintheCASECofsymbolTechnologies vide para 18 held as follows:- NXXXXKXXXX 13. Similarly in respect of Tata Elxsi Ltd., thecoordinate bench vide paras 25-27 held asfollows:NXXXXXKXX Date of Judgment 7-8-2018, ITA No.388/2017 The Pr. Commissioner of Income Tax & Another Vs. M/s.CDC Software India Pvt. Ltd., 4/8 Gll. We have heard rival submissions andperused the material on record. In the case ofsymbol Technologies Ltd., which is also asoftware development service company, it washeld by that Bodhtree Consulting Ltd., FoursoftLtd, Thirdware Sloutions Ltd., are held to beincomparable on the grounds of functionallydissimilarity vide Para 22 which reads as under:XXXXXXXM 12. In respect of Sankya Infotech Ltd., thecoordinatebenchintheCASECofsymbolTechnologies vide para 18 held as follows:- NXXXXKXXXX 13. Similarly in respect of Tata Elxsi Ltd., thecoordinate bench vide paras 25-27 held asfollows:NXXXXXKXX 14. We do not find any reason to differ from thedecision of the coordinate bench in the abovecase. Therefore we direct the AO/TPO to excludethe companies (1) Bodhtree Consulting Ltd., (2)Exensys Software Solutions Ltd., (3) sankhyaInfotech Ltd., (4) Foursoft Ltd., (5) Thirdwaresolutions Ltd., (6) Tata Elxsi Ltd., (Seg) from the)list of comparable. Thus the ground No.4 isdisposed off.” Date of Judgment 7-8-2018, ITA No.388/2017 The Pr. Commissioner of Income Tax & Another Vs. M/s.CDC Software India Pvt. Ltd., 5/8 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 otthe 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 — Date of Judgment 7-8-2018, ITA No.388/2017 The Pr. Commissioner of Income Tax & Another Vs. M/s.CDC Software India Pvt. Ltd., 6/8 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 therequirements ofSection 260-A|of the Act andthus the appeals filed by the Revenue are| 7/8 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.” 7/8 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.” appearing for the parties, we are therefore of the opinion Date of Judgment 7-8-2018, ITA No.388/2017 The Pr. Commissioner of Income Tax & Another Vs. M/s.CDC Software India Pvt. Ltd., 8/8 that no substantial question of law arises in the present case also. The Appeal filed by the Appellants-Revenue is liable to be dismissed and it is dismissed accordingly. —No costs. AN /- Sd/-.JU DGE Sd/-.JU DGE