M/S ALTAIR ENGINEERING INDIA PVT LTD V. THE DEPUTY COMMISSIONER OF INCOME TAX

ITA/224/2011

AI Insights

M/s. Altair Engineering India Pvt. Ltd. appealed against the order of the ITAT, 'B' Bench, Bangalore, which had upheld the adjustments made by the Transfer Pricing Officer (TPO) regarding the Arm's Length Price (ALP) of international transactions. The TPO had determined the ALP at 20.68% of the operating cost, which was contested by the appellant. The main legal issues revolved around the justification of the ALP determined by the TPO and the method of calculation used. The court also addressed the disallowance of a claim under section 10A, which had been previously decided in favor of the assessee in earlier assessment years. The court dismissed the appeal, stating that the questions raised did not constitute substantial questions of law under section 260-A of the Income Tax Act, 1961.

• Counselvise Citation: [2018] 140 COUNSELVISE.COM (IT) 698081 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 09-07-2018
• Assessment Year: misc
• Other Referred Cases: ITA No.536/2015 C/w ITA No.537/2015 Prl. Commissioner of Income Tax & Anr. Vs. M/s. Softbrands India Pvt. Ltd.
• Laws Referred To: Income Tax Act 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: K V ARAVIND
• Assessee Lawyers: TATA KRISHNA
• Keywords: Arms' length price; Assessment Year 2006-07; International Transactions; Transfer pricing
• Section: 92CA; 260-A

Judgement Text

" 1/9 IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 9th DAY OF JULY 2018 PRESENT THE HON'BLE Dr.JUSTICE VINEET KOTHARI AND THE HON’BLE Mrs.JUSTICE S.SUJATHA I.T.A.No.224/2011 BETWEEN: M/S. ALTAIR ENGINEERING INDIA PVT. LTD., C/O GOWTHAMA & COMPANY 23/57, 41ST CROSS, EAST END C MAIN ROAD 9TH BLOCK, JAYANAGAR, BANGALORE-560069 REPRESENTED BY ITS MANAGING DIRECTOR SRI. PAVAN KUMAR C.V. AGED ABOUT 45 YEARS S/O SRI. CHANDAGARI VENKATAKONDA REDDY. …APPELLANT (By Mr. TATA KRISHNA, ADV. FOR Mr. K.K. CHYTHANYA, ADV.,) AND: THE DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE-11(1), 5TH FLOOR R.P. BHAVAN, NRUPATHUNGA ROAD BANGALORE-560001. …RESPONDENT (By Mr. K.V. ARAVIND, ADV.) THIS I.T.A. IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN. SET ASIDE THE Date of Judgment 09-07-2018 I.T.A.No.224/2011 M/s. Altair Engineering India Pvt. Ltd., Vs. The Deputy Commissioner of Income-tax 2/9 APPELLATE ORDER DATED 14/03/2011 IN ITA No.1184/Bang/2010 ANNEXURE-A. THIS I.T.A. COMING ON FOR FINAL DISPOSAL, THIS DAY S. SUJATHA J. DELIVERED THE FOLLOWING:- JUDGMENT Mr. Tata Krishna, Adv. for Mr. K.K. Chythanya, Adv. for Appellant-Assessee Mr. K.V. Aravind, Adv. for Respondent-Revenue The Appellant-assessee has filed this appeal u/s.260A of the Income Tax Act, 1961, raising purportedly certain substantial questions of law arising from the order of the ITAT, ‘B’ Bench, Bangalore, dated 14.03.2011 passed in ITA No.1184/Bang/2010 for the A.Y.2006-07. 2. The proposed substantial questions of law framed in the Memorandum of appeal by the Appellants-Revenue are quoted below for ready reference:- “1. Whether in law, the Tribunal was justified in approving the ALP determined by the TPO and Date of Judgment 09-07-2018 I.T.A.No.224/2011 M/s. Altair Engineering India Pvt. Ltd., Vs. The Deputy Commissioner of Income-tax 3/9 approved by the DRP without giving any valid reasons through a speaking order? 2. Whether in law, the circumstances being identical and when the Revenue has accepted the ALP determined by the Appellant under CUP method in the preceding year after examination, was justified in deviating from the same by adopting TNMM method to make the impugned addition? 3. Whether in law, the DRP and Tribunal were right in ignoring the vital fact that the Appellant was exporting to the parent company only an incomplete product and in the circumstances the comparisons relied on by the TPO were inapplicable while justifying the impugned addition made on account of variance in ALP determined arbitrarily by the TPO?” 3. The learned Tribunal, after discussing the rival contentions of both the appellant-assessee and the Respondent-Revenue, has returned a finding as under: “04. We considered the contentions in the light of the details submitted by the assessee's representative, assessment order, the directions of the Disputes Resolution Panel and the order of Date of Judgment 09-07-2018 I.T.A.No.224/2011 M/s. Altair Engineering India Pvt. Ltd., Vs. The Deputy Commissioner of Income-tax 4/9 the Transfer Pricing Officer. With reference to the international transactions of software, the assessee has agreed with its associate concern's formula of cost + profit. The profit factor has been agreed to be 10%. But on a detailed study of the activities carried on by the assessee company and its working results and the results of the comparable cases, the TPO came to a finding that the operating margin (ALP margin) worked out to 20.68% of the operating cost. On the basis of the Profit Level Indicator (PLI), the TPO computed the ALP at `.5,95,33,962/- against the international transactions price shown by the assessee at `.5,48,98,928/-. Shortfall of `.46,35,034/- has been added by way of adjustment u/s.92CA. 05. On examination of the case, we find that there is no verifiable basis for determining the profit factor at 10% of the cost as embodied in the agreement entered by the assessee and its associate concern. The argument of the assessee that the services rendered by the assessee are only basic services to its holding company and therefore the prices declared by the assessee are to be treated as reasonable, as the Arms Length Price cannot be accepted as an overwhelming proposition for the reason that the assessee has Date of Judgment 09-07-2018 I.T.A.No.224/2011 M/s. Altair Engineering India Pvt. Ltd., Vs. The Deputy Commissioner of Income-tax 5/9 not placed before us any cost model and market potential of the products so as to accept or reject the bench mark profit of 10%. It is the case of the assessee that the real impact of the services rendered by the assessee would be known only after considering the value additions/contributions made by assessee's holding company. But it is to be seen that the assessee has not furnished any details of such value addition contributed by its holding company. Therefore, an effective evaluation of the market price of the final product and the share of the contribution of the assessee in that market price cannot be computed for want of details, for which the assessee alone is responsible. 07. Now regarding the quantum of addition, the Transfer Pricing Officer has worked out the operating profit at 20.68% of the operating cost. We feel that a nominal modification is called for in this rate of operating profit, accepting certain valid contentions of the learned representative regarding the competence level of its employees ; the remuneration payable to them and the effect of the safe environment in which the assessee was functioning. Therefore, as a fair measure of price difference, we modify the Arms Length Price Date of Judgment 09-07-2018 I.T.A.No.224/2011 M/s. Altair Engineering India Pvt. Ltd., Vs. The Deputy Commissioner of Income-tax 6/9 adjustment factor to 20% of the operating cost in place of 20.68% of the operating cost adopted by the lower authorities. With this nominal modification, the first issue of Transfer Pricing is disposed off. 08. The second issue raised by the assessee is that disallowance of assessee's claim of `.1,52,58,201/- made u/s.10A is not justified. The very same issue was considered in assessee's own case for assessment year 2005-06 by ITAT, 'B' Bench, Bangalore, through their order dated.21.01.2011 in ITA.762/Bang/2010. The very same issue was decided in favour of the assessee for assessment year 2004-05 as well by ITAT, Bangalore Bench. In view of that, the said disallowance of `.1,52,58,201/- is deleted and the assessing authority is directed to give consequential benefits. 4. This Court in ITA No.536/2015 C/w ITA No.537/2015 delivered on 25.06.2018 (Prl. Commissioner of Income Tax & Anr. Vs. M/s. Softbrands India Pvt. Ltd.,) has held that in these type of cases, unless an ex-facie perversity in the Date of Judgment 09-07-2018 I.T.A.No.224/2011 M/s. Altair Engineering India Pvt. Ltd., Vs. The Deputy Commissioner of Income-tax 7/9 findings of the learned Income Tax Appellate Tribunal is established by the appellant, the appeal at the instance of an assessee or the Revenue under Section 260-A of the Act is not maintainable and the relevant portion of the said judgment is quoted below for ready reference: “ 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 Date of Judgment 09-07-2018 I.T.A.No.224/2011 M/s. Altair Engineering India Pvt. Ltd., Vs. The Deputy Commissioner of Income-tax 8/9 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 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. Date of Judgment 09-07-2018 I.T.A.No.224/2011 M/s. Altair Engineering India Pvt. Ltd., Vs. The Deputy Commissioner of Income-tax 9/9 58. The appeals filed by the Revenue are therefore dismissed with no order as to costs.” 5. Having heard the learned counsel for the appellant-assessee, we are therefore of the opinion that no substantial question of law arises in the present case. The appeal filed by the appellant-assessee is liable to be dismissed and it is dismissed accordingly. No costs. Sd/- JUDGE Sd/- JUDGE TL "