Karnataka High Court
The Pr. Commissioner Of Income Tax vs M/S Eds Electronics Data on 15 January, 2021
Author: Alok Aradhe Rangaswamy
1
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 15TH DAY OF JANUARY 2021
PRESENT
THE HON'BLE MR. JUSTICE ALOK ARADHE
AND
THE HON'BLE MR. JUSTICE NATARAJ RANGASWAMY
I.T.A. NO.681 OF 2015
BETWEEN:
1. THE PR. COMMISSIONER OF INCOME TAX
C.R. BUILDING, QUEENS ROAD
BANGALORE-560001.
2. THE DEPUTY COMMISSIONER OF INCOME TAX
CIRCLE-11(1), NEW DELHI.
... APPELLANTS
(BY SRI. T.N.C. SRIDHAR, ADV.,)
AND:
M/S. EDS ELECTRONICS DATA
SYSTEMS INDIA PVT. LTD.,
[NOW MERGED WITH MPHASIS LIMITED]
ABACUS SQUARE, 6TH FLOOR
BLOCK-A, BAGMANE PARIN
BAGMANE TECHNOLOGY PARK
C.V. RAMAN NAGAR
BANGALORE-560093
PAN: AAACB 6820C.
... RESPONDENT
(BY SRI. SURYANARAYANA T, ADV.)
---
THIS I.T.A. IS FILED UNDER SEC. 260-A OF INCOME TAX
ACT 1961, ARISING OUT OF ORDER DATED 23.06.2015 PASSED
IN ITA NO.5951/DEL/2010 FOR THE ASSESSMENT YEAR 2006-07,
PRAYING TO DECIDE THE FOREGOING QUESTION OF LAW AND/OR
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SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BY
THE HON'BLE COURT AS DEEMED FIT. SET ASIDE THE APPELLATE
ORDER DATED 23.06.2015 PASSED BY THE ITAT, 'C' BENCH,
BENGALURU, AS SOUGHT FOR IN THE RESPONDENT-ASSESSEE'S
CASE, IN APPEAL PROCEEDINGS IN ITA NO.5951/DEL/2010 FOR
A.Y.2006-07.
THIS I.T.A. COMING ON FOR HEARING, THIS DAY,
ALOK ARADHE J., DELIVERED THE FOLLOWING:
JUDGMENT
This appeal under Section 260A of the Income Tax
Act, 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 2006-07.
The appeal was admitted by a bench of this Court vide
order dated 24.08.2016 on the following substantial
questions of law:
"(i) Whether on the facts ad in the
circumstances of the case, the Tribunal is
right in law in excluding M/s Vishal
Information Technologies Ltd as
comparable company of ITES segment in
holding that M/s VITL outsources majority
of its work ignoring the fact that
outsourcing entails higher cost resulting in
lower operating profit.
(ii) Whether on the facts and in
the circumstances of the case, the Tribunal
is right in law in excluding M/s Nucleus
Netsoft & GIS (India) ltd., is not a
comparable brushing aside the fact that it
was taken as a comparable by the
assessee on its own TP study and the fact
that ITES is the primary business of the
company?".
2. Facts leading to filing of this appeal briefly
stated are that the assessee is a company engaged in
the business of development of computer software
through different units i.e., Software Technology Park
(STP) and Non STP units. The assessee got merged with
M/s Mphasis Ltd. The assessee was having interaction
transaction with associated enterprises. During the
financial year 2005-06, the assessee rendered IT
enabled services and had earned margin of 14.26% on
total costs. In the transfer pricing study maintained by
the assessee, it applied the transactional net mariginal
method as the most appropriate method and on
selection of certain companies as comparables whose
average margin stood at 19.67%, the assessee
concluded its international transaction as being at arms
length. The Assessing Authority referred the matter to
the Transfer Pricing Officer by an order dated
10.09.2009 determined the difference at
Rs.120,973,568/- and subsequently, on the basis of the
directions issued by the dispute resolution panel,
Assessing Authority determined the arms length price
difference at Rs.5,18,68,568/-. The assessee thereupon
filed an appeal before the Income Tax Appellate Tribunal
(hereinafter referred to as 'the tribunal' for short). The
tribunal directed exclusion of Vishal Information
Technologies Ltd. And Nucleus Netsoft and by placing
reliance on decision of the coordinate bench of the
tribunal in 'HSBC ELECTRONIC DATEA PROCESSING
INDIA LTD. VS. ACIT', (2013) 38 TAXMANN.COM
141 (HYDERABAD - TRIB) held that profile of HSBC
supra is similar to assessee and therefore, Vishal
Information Technologies Ltd. And Nucles Netsoft and
GIS India Ltd. are required to be excluded. In the
aforesaid factual background, this appeal has been filed.
3. Learned counsel for the revenue submitted
that the tribunal without appreciating the fact that the
assessee in its transfer pricing study before the Transfer
Pricing Officer had chosen certain comparables and had
later on contended before the tribunal that the same
cannot be taken as comparables. Therefore, the
assessee could not have been permitted to take
contradictory stand and therefore, the tribunal could not
have excluded the comparables. It is further submitted
that the tribunal has failed to consider the findings of
the Transfer Pricing Officer and Dispute Resolution Panel
and has even failed to refer to the material brought on
record by the Transfer Pricing Officer. It is also urged
that when the appellate authority ignores the evidence
on record, the same gives rise to substantial question of
law. In support of aforesaid submission, reliance has
been placed on 'VIJAY KUMAR TALWAR VS.
COMMISSIONER OF INCOME TAX', 330 ITR 1.
4. On the other hand, learned counsel for the
assessee submitted that the decision of the tribunal that
Vishal Information Technologies Ltd. And Nuclues
Netsoft and GIS (India) Ltd. are functionally not
comparable is a finding of fact and the revenue has
neither challenged the same as perverse nor has
brought any material on record to demonstrate its
perversity and therefore, no substantial questions of law
arises for consideration. It is further submitted that in
any event, Vishal Information Technologies Ltd is not
comparable to the assessee and has rightly been
excluded as it is functionally dissimilar. In support of
aforesaid submissions, reliance has been placed on
SUDARSHAN SILKS & SAREES VS. CIT, 300 ITR
205 and decision of Punjab and Haryana High Court in
PCIT VS. IHG IT SERVICES (INDIA) PVT. LTD. ITA
NO.264/2016 DATED 05.12.2016 and decision of the
High Court of Delhi in CIT VS. UT STARCOM INC., ITA
NO.767/2017 DATED 25.09.2017.
5. We have considered the submissions made
by learned counsel for the parties and have perused the
record. It is trite law that tribunal is a final fact finding
authority and has to consider the material brought
before it. In the instant case, the relevant extract of the
order passed by the tribunal, reads as under:
14. We have considered the rival
submission sand are of the view that in light of
the aforesaid decision of ITAT rendered in case
of a company, which is engaged in rendering
ITES services similar to that of the assessee,
the aforesaid companies have to be excluded
as functionally not comparable with that of the
assessee. We hold and direct accordingly. The
AO is directed to compute the arithmetic mean
after excluding the aforesaid companies from
the list of comparables. The AO is also directed
to give the benefit of +/- 5% variation to the
arithmetic mean of the assessee with that of
the comparables as provided in the 2nd
proviso to Section 92CA of the Act. Other
issues raised in grounds No.1.1 to 1.5 by the
assessee do not require any adjudication in
view of the above conclusions and as conceded
by the ld. Counsel for the assessee.
6. Thus, from perusal of the relevant extract of
the order passed by the tribunal, it is evident that the
tribunal has neither considered evidence brought on
record by the Transfer Pricing Officer and has neither
considered the findings of the Transfer Pricing Officer as
well as the dispute resolution panel and in a cryptic and
cavalier manner has recorded a finding in favour of the
assessee. No cogent reasons worth the name have been
assigned by the tribunal for recording the findings.
Therefore, in the facts and circumstances of the case,
the order passed by the tribunal dated 23.06.2015 is
hereby quashed. The substantial questions of law are
answered accordingly. The matter is remitted to the
tribunal for decision afresh in accordance with law by a
speaking order.
In the result, the appeal is disposed of.
Sd/-
JUDGE
Sd/-
JUDGE
ss
