MMODAL GLOBAL SERVICES P LTD V. THE INCOME TAX OFFICER

ITA/640/2016

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MModal Global Services P. Ltd., formerly known as C Bay Systems (Ind.) Pvt. Ltd., appealed against the orders of the Income-tax Appellate Tribunal (ITAT), Bangalore, concerning transfer pricing issues for the Assessment Year 2005-2006. The ITAT had excluded certain companies from the final set of comparables based on Related Party Transactions (RPT) exceeding 15% of revenues. The appellant contested the exclusion and the functional differentiality of the comparables, which was not addressed during the initial hearings. The High Court found no substantial questions of law but allowed the appellant to file a fresh Miscellaneous Application to address the specific issues raised.

• Counselvise Citation: [2018] 140 COUNSELVISE.COM (IT) 758700 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 02-07-2018
• Assessment Year: misc
• Other Referred Cases: 24/7 Customer.com Pvt. Ltd. in ITA No.227/Bang/2010, Shri Rajendra M Vyas and Manubhai P Vyas Vs DCIT in MA No. 88 & 89/Ahd/2012, Rahulkumar Bajaj Vs ITO as reported in 69 ITD 1(Nagpur)
• Laws Referred To: Income Tax Act 1961
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Department Lawyers: K V ARAVIND
• Assessee Lawyers: TANMAYEE RAJKUMAR; PARAS SAVLA
• Keywords: Comparable Companies; Miscellaneous Application; RPT Filter; Transfer pricing
• Section: 260-A

Judgement Text

" 1/15 IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE DAY 2ND OF JULY 2018 PRESENT THE HON'BLE Dr.JUSTICE VINEET KOTHARI AND THE HON’BLE Mrs.JUSTICE S.SUJATHA I.T.A.Nos.640/2016 & 18/2018 BETWEEN: MModal Global Services P. Ltd. (Formerly C Bay Systems (Ind.) Pvt. Ltd.) (As A Successor to Spheris India Pvt. Ltd.) Anjaneya Techno Park, 147 4th Floor, Kodihalli, Airport Road Bengaluru-560 008 Represened herein by its Director Mr. Agnelo Rodrigues …Appellant (By Ms. Tanmayee Rajkumar & Mr. Paras Savla, Advocate) AND: 1. The Income-tax Officer Ward 12 (2), Bangalore BMTC Building 80 ft Road, Koramangala, Bangalore-560095 2. The Commissioner OF Income-tax (Appeals)-IV, Bangalore, Date of Judgment 02-07-2018 I.T.A.Nos.640 /2016 & 18/2018 MModal Global Services P. Ltd. Vs. The Income-tax Officer & Ors 2/15 BMTC Building, 80 ft Road, Koramangala, Bangalore-560095 3. The Commissioner of Income-tax Bangalore BMTC Building 80 ft Road, Koramangala Bangalore-560095 ... Respondents (By Mr. K.V. Aravind, Advocate) These I.T.A.s are filed Under Section 260-A of Income Tax Act 1961, arising out of order dated:29/05/2015 passed in IT(TP)A Nos.176 and 196/Bang/2012 Annexure-D, for the Assessment Year 2005-2006, praying to (a) formulate the substantial questions of law stated above; (b) allow the appeal and set-aside the order dated 29.05.2015 (Annexure “D”) passed by the Tribunal in IT(TP)A Nos. 176 and 196/Bang/2012 Annexure-D to extent questioned herein and to the extent it relates to the Transfer Pricing issues which were not argued during the hearing, which is Para 7, Para 8, Para 12, Para 13, Para 14 and Para 15 & etc. These I.T.A.s coming on for Orders, this day Dr. VINEET KOTHARI J. delivered the following:- Date of Judgment 02-07-2018 I.T.A.Nos.640 /2016 & 18/2018 MModal Global Services P. Ltd. Vs. The Income-tax Officer & Ors 3/15 JUDGMENT Ms. Tanmayee Rajkumar & Mr. Paras Savla, Adv. for Appellant-Assessee Mr. K.V. Aravind, Adv. for Respondents-Revenue The appellant-assessee aggrieved by the order passed by the learned ITAT, Bangalore ‘B’ Bench, Bangalore, disposing of its M.A.Nos.49 & 50(B)/2016 on 22.07.2016 arising in IT (TP)A No.176 and 196/B./2012 for the A.Y.2005-06. 2. The appellant-assessee had filed appeal (I.T.(T.P) A.No.196/Bang/2012 and the Respondent- Revenue had filed I.T.(T.P) A.No.176/2012) for the A.Y.2005-06 before the learned Tribunal, which originally came to be disposed of by the learned Tribunal on 29.05.2015. 3. The relevant findings of the learned Tribunal in para 7.3.1 relating to exclusion of filter on the basis of RPT are quoted below for ready reference: “7.1. In Ground No.3. Revenue challenges the decision of the learned CIT(A) in holding that Date of Judgment 02-07-2018 I.T.A.Nos.640 /2016 & 18/2018 MModal Global Services P. Ltd. Vs. The Income-tax Officer & Ors 4/15 companies having any RPT have to be excluded from the final set of comparables. 7.2 In the impugned order the learned CIT (Appeals) has held that there is no need for inclusion of the companies which have RPT in the final set of comparable companies and consequently directed that the following companies which have RPT, be excluded. 7.3.1. We have considered the rival submissions put forth and perused and carefully considered the material on record. In the course of proceedings, it was brought to our attention that a co-ordinate bench of this Tribunal in the case of 24/7 Customer.com Pvt. Ltd. in ITA No.227/Bang/2010 dt.9.11.2012 had held that companies with RPT or controlled transactions in excess of 15% of revenues are to be excluded from the final set of comparables. It was submitted that similar view has been taken by S.No. Name of the Company 1. Allsec Technologies Ltd. 2. Transworks Information Services Ltd. 3. Wipro BPO Solutions Ltd. 4. Ace Software Exports. 5. Nucleus Netsoft & GIS Ltd. Date of Judgment 02-07-2018 I.T.A.Nos.640 /2016 & 18/2018 MModal Global Services P. Ltd. Vs. The Income-tax Officer & Ors 5/15 other co-ordinate benches of this Tribunal in many other cases relying on the aforesaid decision. The operative portion at para 13 of the decision in the case of 24/7 Customer.com Pvt.Ltd. is extracted hereunder:-” 3. The appellant-assessee filed two Miscellaneous Application before the learned Tribunal, which came to be rejected by the learned Tribunal with the following observations: “2. In the course of hearing before us, the Id. AR of the assessee submitted that the relevant decision of the Tribunal is as per para 7.3.1 of the Tribunal order. He also placed reliance on the Tribunal order rendered in the case of Shri Rajendra M Vyas and Manubhai P Vyas Vs DCIT in MA No. 88 & 89/Ahd/2012 dated 23-07-2013, copy available on pages 1-4 of the legal paper book. He also placed reliance on the judgment of the Hon’ble Gujarat High Court rendered in the same case as reported in 33 Taxmann.com 345(Guj.) Copy available on pages 5-7 of the legal paper book. He also placed reliance on the Tribunal order rendered in the case of Rahulkumar Bajaj Vs ITO as reported in 69 ITD Date of Judgment 02-07-2018 I.T.A.Nos.640 /2016 & 18/2018 MModal Global Services P. Ltd. Vs. The Income-tax Officer & Ors 6/15 1(Nagpur). `Thereafter, he submitted that in para- 13 of the M.P., it is submitted by the assessee that for other grounds of appeal in connection with the TP issues, both parties has not argued on this basis that additional evidence should be admitted and thereafter, the issues will be academic and in the course of hearing, the Id, DR of the revenue also accepted that the other issues had become academic. He submitted that in the light of these facts and as per judicial pronouncements cited by him, the impugned Tribunal order should be recalled. The Id. DR of the revenue submitted that there is not mistake in the impugned Tribunal order. 3.We have considered rival submissions. Regarding the factual aspect that in connection with the grounds of appeal in respect of TP issues, no argument was made by any of the two sides, we find that in the impugned Tribunal order, in respect of all the issues, it is noted by the Tribunal that the rival contentions were heard. Therefore, it does not come out from the impugned Tribunal order that on TP issues, no argument was advanced by any of the two sides. We also find that as per the following para on page-23 of the impugned Tribunal order, the Date of Judgment 02-07-2018 I.T.A.Nos.640 /2016 & 18/2018 MModal Global Services P. Ltd. Vs. The Income-tax Officer & Ors 7/15 Tribunal has restored the matter back to the file of the AO to refer the question of determining of ALP including the question of determination of MAM to the TPO. This para from page-23 of the Tribunal order is reproduced herein below; “In the light of the decision rendered by the Tribunal in assessee’s own case (Supra) under identical facts and circumstances, we are of the view that it would be just and appropriate to set aside the order of the AO on this issue and direct the AO to refer the question of determination of ALPO including the question of determination of ALPO including the question of determination of MAM to the TPO. We also make it clear that in the event of TNMM being considered as MAM, the other direction given in this order regarding determination of ALP will hold good”. As per the above para, it is seen that the Tribunal has restored the TP issue to the AO/TPO in the light of the Tribunal decision in assessee’s own case for AY:2004-05. Now, in the light of these facts, we examine and decide the contention of the assessee in the MP and the Date of Judgment 02-07-2018 I.T.A.Nos.640 /2016 & 18/2018 MModal Global Services P. Ltd. Vs. The Income-tax Officer & Ors 8/15 arguments of the Id.AR of the assessee in the course of hearing before us. 4. In the MP the stand of the assessee is that regarding other grounds of appeal in connection with the TP issues, both parties has not argued on the basis that the additional evidence should be admitted and the issues have become academic. We have seen that is it noted by the Tribunal in the impugned order that rival contentions were heard in respect of all the issues and hence, it is seen that this contention of the assessee that no argument was raised by any side is not supported by any evidence. Since the Tribunal has followed the Tribunal order in assessee’s own case for AY: 2004-05 in restoring the matter back to the file of the AO/TPO in respect of determination of ALP and MAM, it cannot be said or accepted that there is any mistake in the impugned Tribunal order. Regarding the Tribunal decision in the case of Rajendra M Vyas (Supra) and subsequent judgment of the Hon’ble Gujarat High Court in the same case, it was held that no argument on the merits had taken place before the Tribunal. It is noted by the Tribunal in para-4 of the M.A in that case that on recalling the arguments of the Id. AR of the assessee us on the earlier occasion Date of Judgment 02-07-2018 I.T.A.Nos.640 /2016 & 18/2018 MModal Global Services P. Ltd. Vs. The Income-tax Officer & Ors 9/15 (constitution of Bench being same), the Tribunal agreed that the assessee was prevented from arguing the case on merit at the time of hearing on the earlier occasion before the Tribunal having same constitution. In the present case, the constitution of the Tribunal Bench which heard the appeal was different consisting of Shri N.V.Vasudeavan, JM and Shri Jason O Boaz, AM and constitution in hearing the MP is A.K.Garodia AM & Vijay Pal Rao, JM. Because of this difference, the Bench hearing the MP cannot recall or come to know as to what happened in the course of hearing of the main appeals and therefore, this Tribunal order and subsequent judgment of Hon’ble Gujarat High Court is of no help to the assessee in the present case. 5. Now we consider the applicability of the Tribunal order rendered in the case of Rahulkumar Bajaj Vs ITO (Supra). This Tribunal order is not applicable in the present case because in that case, the Tribunal has decided the issue regarding validity of re-opening in favour of the assessee and it was held that re- opening of the proceedings by the AO was bad in law and therefore, the re-assessment order is quashed. Thereafter, the Tribunal decided the issue on merit also and the issue on merit was Date of Judgment 02-07-2018 I.T.A.Nos.640 /2016 & 18/2018 MModal Global Services P. Ltd. Vs. The Income-tax Officer & Ors 10/15 decided against the assessee, Under these facts, the MA was filed by the assessee and it was held by the Special Bench of the Tribunal in that case that once validity issue was decided in favour of the assessee, there was no requirement/necessity to decide the other issues. In the present case, it is not that the validity of the assessment order issue has been decided by the Tribunal in favour of the assessee and the assessment order is quashed and therefore, there is no need to decide any issue on merit. Hencee, this Tribunal order is not applicable in the present case. 6. As per above discussion, we have seen that none of the judgments cited by the Id. AR of the assessee is rendering any help to the assessee in the present case. We have also seen that the assessee could not support its contention that no argument was made by any side on TP issue because the Tribunal has noted in the order that ‘rival submissions were considered’. The assessee has not even filed an affidavit of Ms. Karishma R Phatarphekar, CA, who appeared before the Tribunal during the appellate proceedings as AR of the assessee in support of assessee’s contention that no argument was raised by any side on TP issue. Date of Judgment 02-07-2018 I.T.A.Nos.640 /2016 & 18/2018 MModal Global Services P. Ltd. Vs. The Income-tax Officer & Ors 11/15 7. The assessee has also has not submitted any affidavit of any Director or Officer of the assessee company in support of this contention. Considering all these facts and in view of the above discussion, we hold that there is no apparent mistake in the Tribunal order. 8. In the result, both the MP’s of the assessee are dismissed. Order pronounced in the open Court on the date mentioned on the caption page. Sd/- Sd/- (VIJAY PAL RAO) (A.K. GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER Place: Bangalore: Dated:22-07-2016” 4. The learned counsel for the appellant- assessee has submitted before us that after the exclusion of certain companies, due to the RPT Filter applied by the learned Tribunal to the extent of 15% for certain companies again became comparables and the assessee was not given an opportunity by the learned Tribunal to establish before it the functional differentiality of those comparable companies in the process of arguments and the assessee was not Date of Judgment 02-07-2018 I.T.A.Nos.640 /2016 & 18/2018 MModal Global Services P. Ltd. Vs. The Income-tax Officer & Ors 12/15 specifically heard on the said issue and even though Miscellaneous Applications (M.A.Nos.49 & 50(B)/2016) were filed before the learned Tribunal and an Affidavit of Ms.Karishma R Phatarphekar, CA, was filed before the learned Tribunal, but the learned Tribunal has wrongly noted in para-6 of the order passed in M.A.Nos.49 & 50(B)/2016 that no such Affidavit was filed. 5. Though we are satisfied that no substantial questions of law arise in these type of cases and findings of facts recorded by the Tribunal are binding on this Court, we have elaborately discussed these aspects in our judgment delivered on 25.06.2018 in ITA No.536/2015 C/w ITA No.537/2015 (Pr. Commissioner of Income Tax, Bangalore and another vs. M/s. Softbrands India Pvt. Ltd.). The conclusion portion is quoted below for ready reference: Date of Judgment 02-07-2018 I.T.A.Nos.640 /2016 & 18/2018 MModal Global Services P. Ltd. Vs. The Income-tax Officer & Ors 13/15 “ Conclusion: 55. A substantial quantum of international trade and transactions depends upon the fair and quick judicial dispensation in such cases. Had it been a case of substantial question of interpretation of provisions of Double Taxation Avoidance Treaties (DTAA), interpretation of provisions of the Income Tax Act or Overriding Effect of the Treaties over the Domestic Legislations or the questions like Treaty Shopping, Base Erosion and Profit Shifting (BEPS), Transfer of Shares in Tax Havens (like in the case of Vodafone etc.), if based on relevant facts, such substantial questions of law could be raised before the High Court under Section 260-A of the Act, the Courts could have embarked upon such exercise of framing 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, Filters for arriving at the correct list of comparables have been rightly applied or not, do not in our considered opinion, give rise to any substantial question of law. 56. We are therefore of the considered opinion that the present appeals filed by the Date of Judgment 02-07-2018 I.T.A.Nos.640 /2016 & 18/2018 MModal Global Services P. Ltd. Vs. The Income-tax Officer & Ors 14/15 Revenue do not give rise to any substantial question of law and the suggested substantial questions of law do not meet the requirements of Section 260-A of the Act and thus 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 be applied, even if 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 ‘Arm’s Length Price’ in the case of the assessees with which the assessees may not be satisfied and have filed such appeals before this Court. Therefore we clarify that mere dissatisfaction with the findings of facts arrived at by the learned Tribunal is not at all a sufficient reason to invoke Section 260-A of the Act before this Court. 58. The appeals filed by the Revenue are therefore dismissed with no order as to costs.” 6. However, since the argument made by the learned counsel for the appellant-assessee raises a Date of Judgment 02-07-2018 I.T.A.Nos.640 /2016 & 18/2018 MModal Global Services P. Ltd. Vs. The Income-tax Officer & Ors 15/15 question of fact only and it is a matter of record before the learned Tribunal only as to whether a particular Affidavit was filed or not before the learned Tribunal, we deem it appropriate to relegate the assessee back to the learned Tribunal with an opportunity to file a fresh Miscellaneous Application and if any such Miscellaneous Application is again filed by the assessee within a period of thirty days, we expect the learned Tribunal to pass appropriate orders on merits after giving an opportunity of hearing to the assessee, in accordance with law. Sd/- JUDGE Sd/- JUDGE TL "