Date Of Judgment 7-8-2018, Ita v. M/S.cgi Information Systems & Management Consultant Pvt. Ltd. 2/9

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.389/2017 BETWEEN: 1.THE PR. COMMISSIONER OF INCOME TAX![‘T]FLOOR, BMTC BUILDING,80 FEET ROAD, KORAMANGALA,BBNGALURU - 560095.|![‘T]FLOOR, BMTC BUILDING,80 FEET ROAD, KORAMANGALA,BBNGALURU - 560095.| 2.THR ASST. COMMISSIONBR OF INCOMBE-TAXCIRCLE -2(1) (1).2 FLOOR, BMTC BUILDING, |80 FEET ROAD,KORAMANGALA,BBNGALURU — 560 095._. APPBLLANTS|CIRCLE -2(1) (1).2 FLOOR, BMTC BUILDING, |80 FEET ROAD,KORAMANGALA,BBNGALURU — 560 095._. APPBLLANTS| (BY SRI.K V ARAVIND, ADV.) AND:M/S CGI INFORMATION SYSTEMS &MANAGEMENT CONSULTANT PVT. LTD.,95/1, 92/2, ELECTRONIC CITY, |PHASE-1(WEST)BBENGALURU — 560 100PAN: AAACI 1994C._. RESPONDENT(BY SRI.SANDEEP HUILGOL, ADV. FORSRI.T.SURYANARAYANA, ADV.) Date of Judgment 7-8-2018, ITA No.389/2017 The Pr. Commissioner of Income Tax & Another Vs. M/s.CGI Information Systems & Management Consultant Pvt. Ltd. 2/9 THIS INCOME TAX APPEAL IS FILED UNDER SEC.260-A|OF INCOME TAX ACT 1961, ARISING OUT OF ORDER :26.10.2016 PASSED IN C.O. NO.110/BANG/2015, FOR THE.ASSEHKESSMENT YEAR 2010-2011 PRAYING TO: I. FORMULATHE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE. II.ALLOW THR APPBAL AND SBT ASIDE THR ORDERS PASSBD BY)THE INCOME-TAX APPELLATE TRIBUNAL, BENGALURU IN C.O.NO.110/BANG/2015 DATED:26.10.2016 AND CONFIRM THEORDER OF THR DRP CONFIRMING THR ORDER PASSED BY THRASST.COMMISSIONEROF)INCOMETAX,|CIRCLE-2(1)(1), BRENGALURU. THIS APPEAL COMING ON FOR HEARING, THIS DAY,|S. SUATHA, J., DELIVERED THE FOLLOWING: JU DBiGMENT Mr. Aravind K.V.,,Adv. for Appellants — Revenue. |Mr. Sandeep Huilgol,Adv. for|Mr. T. Suryanarayana,|Adv., for Respondent — Assessee. | This Appeal is filed by the Revenue purportedlyraising substantial question of law arising from theOrder of the Income Tax Appellate Tribunal, ‘A’ Bench,Bangalore inC.O. No.110/Bang/2015_inIT{TP] No.346/Bang/2015dated26.10.2016, relating to the| Assessment Year.2010-11 Date of Judgment 7-8-2018, ITA No.389/2017 The Pr. Commissioner of Income Tax & Another Vs. M/s.CGI Information Systems & Management Consultant Pvt. Ltd. 3/9 a2ThisAppealhas|beenadmitted|OTL17.01.2018|to consider the following substantial| question of law. “1. Whether in the facts and circumstances of thecase, the Tribunal ts right in law in excluding thecomparables, namely Kals Information SystemsLtd., M/s. Persistent Systems Ltd., Tata Elxsi Ltd,ICRA Techno Analytics Ltd on the ground offunctional dissimilarity by following its earlierorder which has not reached finality and evenwhen the TPO had chosen the comparables as itsatisfiesqualitativeandquantitative filtersapplied by the TPO and Tribunal ought to havedecided the comparability of these companies onthe basis of specific facts brought out on recordby the TPO in the case of the assessee?P” 3.The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and Respondent-Assessee, has returned findings as under: “We heard the rival submissions and perused thematerial on record. Now it 1s settled law thatacompany which is engaged in pure servicesprovider cannot be compared with the company Date of Judgment 7-8-2018, ITA No.389/2017 The Pr. Commissioner of Income Tax & Another Vs. M/s.CGI Information Systems & Management Consultant Pvt. Ltd. 4/9 which is engaged in the development of softwareproducts. There is not dispute that this companywas engaged in the development of softwareproducts as well as software services and nosegment details were available Therefore thedecision of the coordinate bench in this case ofDCIT v. Electronics for Imaging India P. Ltd.,(2016) 7O taxmann.com 299 (Bang-Trib)/ issquarely applicable and the relevant paragraph isreproduced below: XXXXXXXXXXNX “We heard the rival submissions and perused thematerial on record. Now it 1s settled law thatacompany which is engaged in pure servicesprovider cannot be compared with the company Date of Judgment 7-8-2018, ITA No.389/2017 The Pr. Commissioner of Income Tax & Another Vs. M/s.CGI Information Systems & Management Consultant Pvt. Ltd. 4/9 which is engaged in the development of softwareproducts. There is not dispute that this companywas engaged in the development of softwareproducts as well as software services and nosegment details were available Therefore thedecision of the coordinate bench in this case ofDCIT v. Electronics for Imaging India P. Ltd.,(2016) 7O taxmann.com 299 (Bang-Trib)/ issquarely applicable and the relevant paragraph isreproduced below: XXXXXXXXXXNX 26. Thus respectfully following the decision of the|coordinate bench we direct the AO/TPO toexcludethiscompanyfromthelistofcomparables. ”NXXXNX XXXX XXX “28. We heard the rival submissions and perusedthe material on record. There is no dispute aboutthe business profile of this comparable that it isengaged in the software segment business of thecompany consisting of product design services(PDS), industrial design engineering (IDE) andVisual Computing Labs Division (VLC). The PDSdivision provides offerings in multiple domainssuch as broadcase, wireless, transportation, Date of Judgment 7-8-2018, ITA No.389/2017 The Pr. Commissioner of Income Tax & Another Vs. M/s.CGI Information Systems & Management Consultant Pvt. Ltd. 5/9 convergence, DSP, graphics and imaging and)semicon. The IDE segment supports Globalcorporations in the area of new brand/productintroduction from concept to market. Its expertiseliesinthe areasofCONSUMET|insights,product/service innovation, industrial design,functional prototyping and engineering. It alsoengages in brand development and retail design. ©The VLC dwision delivers 3D computer graphics,animationandspecialeffectsin|the preproduction, production and post-production ofcontent for the film, television, gaming andadvertising industry. The system integration &Support segment is involved in value-addedreselling involving systemsintegrationandsupport for a wide range of technical computinghardware and software solutions involving high-end computing platforms, mechanical designautomation tools, enterprise storage solutions,digital media and life sciences solutions throughits tie-ups with global leaders in these respectiveareas. It is now fairly settled that a productdesign company cannot be compared with thepure software services provider like that of theassessee company and therefore this company|deservesTO be|rejectedfromthelistof|comparables following the law laid down by the Date of Judgment 7-8-2018, ITA No.389/2017 The Pr. Commissioner of Income Tax & Another Vs. M/s.CGI Information Systems & Management Consultant Pvt. Ltd. 6/9 coordinate bench in the case of DCIT ov.Electronics for Imaging India P. Ltd., | (2016 ) 70)taxmann.com 299 (Bang-Trib.}) 29. We have heard the ld. DR as well as ld. ARand considered the relevant material on record. —We find that this company even in the softwaredevelopment segment is engaged in diversifiedactivities of product design services, innovationdesign, engineering services, visual computinglabs, etc. We further note that in the case ofTelcordia Technologies India (P.) Ltd. (supra), theMumbai Bench of the Tribunal vide its orderdated 11.5.2012 in para 9.7 has held under:-|_ XXKXXXXKKX 4However, this Court in a recent judgment inI.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 instance Date of Judgment 7-8-2018, ITA No.389/2017 The Pr. Commissioner of Income Tax & Another Vs. M/s.CGI Information Systems & Management Consultant Pvt. Ltd. 7/9 4However, this Court in a recent judgment inI.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 instance Date of Judgment 7-8-2018, ITA No.389/2017 The Pr. Commissioner of Income Tax & Another Vs. M/s.CGI Information Systems & Management Consultant Pvt. Ltd. 7/9 of an assessee or the Revenue under Section 260-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 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|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.), uf based on relevant facts, such|substantial questions of law could beraised before the High Court underSection260-4of 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| Date of Judgment 7-8-2018, ITA No.389/2017 The Pr. Commissioner of Income Tax & Another Vs. M/s.CGI Information Systems & Management Consultant Pvt. Ltd. 8/9 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|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| Date of Judgment 7-8-2018, ITA No.389/2017 The Pr. Commissioner of Income Tax & Another Vs. M/s.CGI Information Systems & Management Consultant Pvt. Ltd. 9/9 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.” 5.HavingheardthelearnedCounselsappearing 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. AN/- Sd/-.JUDGE| Sd/-.JUDGE|