Ita/622/2017 Of Principal Commissioner Of Income Tax - 6 v. M/S. Samsung R & D Institute Bangalore Pvt Ltd

IN THE HIGH COURT OF KARNATAKA AT BENGALURUDATED THIS THE 30 DAY OF NOVEMBER 2070.PRESENT| THE HON’BLE MR. JUSTICE ALOK ARADHE AND| THE HON’BLE MR. JUSTICE H.T.NARENDRA PRASADLT.A. NCO.622 OF 2017 BETWEEN: 1.|PRINCIPAL COMMISSIONER OF INCOME TAX-6. BMTC COMPLEX, KORAMANGALA BENGALURU. 2.|THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-6(1)(1), BMTC COMPLEX KORAMANGALA, BENGALURU. .., APPELLANTS~ (BY SRI. E.I. SANMATHI, ADV.,)- AND* M/S. SAMSUNG R & DINSTITUTE BANGALORE PVT. LID.,NO.2870, PHONEIX BUILDING.BAGMANE CONSTELLATIONBUSINESS PARK, OUTER RING ROADDODDANEKUNDI CIRCLEBANGALORE-5600 3/PAN: ; . (BY SRI. T. SURYANARAYANA, ADV.) .., RESPONDENT THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT,|1961L ARISING OUT OF ORDER DATED O0O3.03.201/7 PASSED IT(TP)A NO.60/BANG/2015 FOR THE ASSESSMENT YEAR 2009-10,VIDE ANNEXURE-A, PRAYING TO: (1) DECIDE THE FOREGOING QUESTION OF LAW AND/OR|SUCH OTHER QUESTIONS OF LAW MAY BE FORMULTED BY THEHON BLE COURT AS DEEMD FIT. (11) SET ASIDE THE APPELLATE ORDER DATED 03-03-2017PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, B BENCH,BANGALORE,IN|APPEAL|PROCEEDINGSNO.IT(TP)ANo.60/BANG/2015 FOR THE ASSESSMENT YEAR 2009-10 VIDE.ANNEXURE-A AS SOUGHT FO IN THIS APPEAL AND TO GRANT.SUCH OTHER RELIEF AS DEEMED FIT, IN THE INTEREST OF.JUSTICE. THIS ITA COMING ON FOR HEARING, THIS’ DAY, | ALOK ARADHE J.,DELIVERED THE FOLLOWING: | JUDGMENT This appeal under Section 260A of the Income TaxAct, 1961 (hereinafter referred to as the Act for short)has been preferred by the revenue. The subject matter|of the appeal pertains to the Assessment year 2009-10.The appeal was admitted by a bench of this Court videorder dated 08.04.2019 on the following substantialquestion of law: (1)WhetherIn.thefactsandcircumstances of the case and in law, theTribunal was Justified in removing certaincomparable from the list of comparable’s onthe basis of functional dissimilarity whicn—satisfied all filters applied by the Transfer Pricing and without doing any FAR analysis.of the tax payer with those other cases? (i1) WhetherIn|thefacts|and|circumstances of the case and in law, theTribunal assessee Is entitled for claim ofdepreciation on goodwill by relying on the.decision which is not applicable to facts ofthe case even with appreciating that theassessee had not shown the good will asfixed asset in first year f.e. for 2006-07 andNas snown it as miscellaneous expenditure?| 2. The factual background in which the aforesaid|substantial questions of law arise for our consideration inthis appeal need mention. Tne assessee is a whollyowned subsidiary of Samsung Electronics Co. Ltd. and isprimarily engaged in rendering software developmentservices to its associate enterprises. The assessee in theAssessment Year 2009-10 realised net profit margin of15.45% in respect of international transactions with its.associate enterprises. The assessee filed the return ofincome for Assessment Year 2009-10 In which income of Rs.67,94,36,842/- was declared which included theincome|from.otherSOUrCeESCO.theextent ofRs.14,34,08,185/-. The assessee later on filed a revisedreturn on 30.03.2011. The assessee had internationaltransactions with its associate enterprises. Therefore,the Assessing Officer referred the case of the assesseeto the Transfer Pricing Officer to determine the Arms.Length price. | 3. The Transfer Pricing Officer, after examining the|details furnished by the assessee, passed an order underSection 92-CA of the Act by making an adjustment in.respect.ofsoftwaredevelopmentservices. Tne.AssessingOfficerthereafterpassed|an|order|ofassessmentgincorporatingthetransferpricingadjustment. The assessee thereupon filed an appeal.before the Commissioner of Income Tax (Appeals) inwhich selection of Infosys Ltd. as comparable waschallenged. The Commissioner of Income Tax (Appeals) 3. The Transfer Pricing Officer, after examining the|details furnished by the assessee, passed an order underSection 92-CA of the Act by making an adjustment in.respect.ofsoftwaredevelopmentservices. Tne.AssessingOfficerthereafterpassed|an|order|ofassessmentgincorporatingthetransferpricingadjustment. The assessee thereupon filed an appeal.before the Commissioner of Income Tax (Appeals) inwhich selection of Infosys Ltd. as comparable waschallenged. The Commissioner of Income Tax (Appeals) by an order dated 14.11.2011, excluded Infosys Ltd. onaccount of its enormous size and bulk and partly allowed.the appeal. The assessee as well as the revenuethereafter filed appeals before the Income Tax AppellateTribunal (hereinafter referred to as ‘the Tribunal’). TheTribunal, by an order dated 03.03.2017, inter aliadirected transfer pricing officer to exclude certaincompanies as comparable on the basis of functionaldissimilarity. The TridDunal also neld tnat assessee isentitled to depreciation on goodwill. In the aforesaid.factual background, the revenue Nas filed this appeal. 4. Learned counsel! for the revenue submitted tnatthe Tribunal grossly erred in directing transfer pricingofficer to exclude Infosys Ltd as comparable from the listof comparables chosen by the transfer pricing officer byrelying on its earlier decision and the Tribunal hasselectively rejected comparability criteria. It is furtnersuDmitted tnat the Tribunal snoulad nave remitted tne issue to the transfer pricing officer with its ownfunctional criteria to rework the whole transfer pricingstudy again. It is also argued that selective weeding out.of comparables lead to distortion since the Tribunal didnot deliberate over low margin comparables which maynot need functional criteria set by the _ Tribunaltherefore, the order passed by the Tribunal is perverse. —It is also pointed out that the Tribunal has failed toconsider the reasons assigned by the transfer pricingofficer and therefore, the matter deserves to be remittedto the Tribunal for decision afresh. 5. On the otner hand, learned counsel for tne|assessee has taken us througn the order passed by theCommissioner of Income Tax (Appeals) as well as theTribunal and has submitted that the Tribunal has upheldthe order passed by the Commissioner of Income Tax(Appeals) by placing reliance on decision of tne Co-ordinate Bench of the Tribunal in-"McAfee SOFTWARE(INDIA) (P)LID.Vs.DCIT(2015)58| TAXMANN.COM 14 (Bangalore - Trib).It is furtherSubmitted that the Commissioner of Income Tax!(Appeals) as well as the tribunal have recorded findingsof fact that profile of McAfee supra is similar to assesseeand therefore, Infosys Ltd. is required to remainexcluded. It is also pointed out that the decision of thetribunal in McAfee supra has been affirmed by this courtvidejudgmentdated|24.07.7018.passed|InI.T.A.No.470/2015. It is also urged that the findingrecorded by the tribunal that the Infosys Ltd. isfunctionally not comparable to assessee is a finding offact and the revenue has neither the challenged theSame as perverse nor has brought on record anymaterial to demonstrate the perversity in the aforesaidconcurrent findings of fact and therefore, no substantialquestion of law arises for consideration in this appeal.In support of aforesaid submissions, reliance has beenplaced on the decisions in|‘CIT VS. AGNITY INDIATECHNOLOGIES(P.)LTD,(2013)36. TAXMANN.COM 289 (DELHI), ‘PCIT VS. FISERVINDIA.PVT.LTD,ITANO.17/2016|DATED|06.01.4016and|"'PCIT VS. ZTE TELECOM INDIA PVT,LTD.', ITA NO.388/2018 DATED 09.03.2019. TAXMANN.COM 289 (DELHI), ‘PCIT VS. FISERVINDIA.PVT.LTD,ITANO.17/2016|DATED|06.01.4016and|"'PCIT VS. ZTE TELECOM INDIA PVT,LTD.', ITA NO.388/2018 DATED 09.03.2019. 6.We have considered the submissions made.by learned counsel for the parties and have perused therecord. It is the cardinal principle of law that tribunal is.fact finding authority and a decision on facts on the|tribunal can be gone into by the High Court only if a.question has been referred to it, which says the finding|of the tribunal is perverse.[SEE: "SUDARSHAN SILKS& SAREES VS. CIT’, 300 ITR 205 SCC @ 211 and“MANGALORE GANESH BEEDI WORKS VS. CIT’, 378|ITR 640 (SC) @ 648].The issue whether Infosys Ltdis comparable to theassessee and is. functionallydissimilar is a finding of fact. From _ perusal oparagraphs 12 to 13.2.8 of the order passed by theCommissioner of Income Tax (Appeals) as well as para.21 and 22 of the order of the tribunal, it is evident that the Commissioner of Income Tax (Appeals) has dealtwith the findings recorded by the transfer pricing officerand the same has been approved by the tribunal byassigning cogent reasons. The aforesaid findings are|finding of fact. Even in substantial questions of law, no/element of perversity has either been pleaded or.demonstrated before this court. In view of preceding analysis, the substantialquestions of law framed by a bench of this court areanswered against the revenue and in favour of the.assessee. In the result, we do not find any merit in thisappeal, the same falls and is nereby dismissed. Sd/-JUDGE. SS| Sd/-—JUDGE.