THE PR COMMISSIONER OF INCOME TAX V. M/S CYPRESS SEMICONDUCTORS

ITA/400/2017

AI Insights

The case involves an appeal by the Pr. Commissioner of Income-Tax and the Deputy Commissioner of Income-Tax against M/s. Cypress Semiconductors Technology India Pvt. Ltd. The appeal was filed under Section 260-A of the Income Tax Act, challenging the decision of the ITAT, which had excluded certain comparables in a transfer pricing dispute for the assessment year 2005-06. The main legal questions revolved around the exclusion of comparables on grounds of functional dissimilarity and the application of filters in selecting comparables. The High Court dismissed the appeal, referencing a recent judgment that restricts the scope of appeals under Section 260-A to cases exhibiting ex-facie perversity in Tribunal findings.

• Counselvise Citation: [2018] 140 COUNSELVISE.COM (IT) 742813 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 09-08-2018
• Assessment Year: misc
• Other Referred Cases: The Deputy Commissioner of Income Tax vs. M/s.Cypress Semiconductors Technology India Pvt. Ltd., Syassaris Software P.Ltd. v. DCIT, Kodiak Networks India Pvt.Ltd. [IT(TP)A No.532/Bang/2015 & CO 119/Bang/2015], M/s. Softbrands India Pvt. Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: MANASA ANANTHAN
• Assessee Lawyers: K V ARAVIND
• Keywords: Arm's Length Price; Comparables exclusion; Transfer pricing; Functional Disparity
• Section: 260-A

Judgement Text

" 1/9 IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 09th DAY OF AUGUST 2018 PRESENT THE HON'BLE Dr.JUSTICE VINEET KOTHARI AND THE HON’BLE Mrs.JUSTICE S.SUJATHA I.T.A.No.400/2017 BETWEEN: 1. THE PR. COMMISSIONER OF INCOME-TAX, 5TH FLOOR, BMTC BUILDING, 80 FEET ROAD, KORMANGALA, BENGALURU-560 095. 2. THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-11(2), PRESENT ADDRESS, CIRCLE-2(1)(1), 2ND FLOOR, BMTC BUILDING, 80 FEET ROAD, KORMANGALA, BENGALURU-560 095. …APPELLANTS (By Mr. K.V. ARAVIND, ADV.) AND: M/S. CYPRESS SEMICONDUCTORS TECHNOLOGY INDIA PVT. LTD., 65/2, LAUREL C BLOCK, BAGMANE TECH PARK, C.V.RAMAN NAGAR, BENGALURU-560 093. PAN:AABCC 2470Q. …RESPONDENT (By Ms. MANASA ANANTHAN, ADV., FOR Mr. T.SURYANARAYANA, ADV.,) Date of Judgment 09-08-2018 I.T.A.No.400/2017 The Pr.Commissioner of Income-tax & Anr. Vs. M/s. Cypress Semiconductors Technology India Pvt. Ltd., 2/9 THIS I.T.A. IS FILED UNDER SECTION 260-A OF THE IT ACT, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED. ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE ITAT, BENGALURU IN IT(TP)A NO. 614/BANG/2013 DATED 04-11-2016 ANNEXURE-E, CONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-2(12(1), BENGALURU. THIS I.T.A. COMING ON FOR HEARING THIS DAY, S. SUJATHA J. DELIVERED THE FOLLOWING:- JUDGMENT Mr. K.V. Aravind, Adv. for Appellants- Revenue Ms. Manasa Ananthan, for Mr. T.Suryanarayan, Adv. for Respondent - Assessee 1. The Appellants-Revenue have 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, ‘A’ Bench, Bangalore, dated 04-11-2016 passed in IT(TP)A No.614/Bang/2013 (The Deputy Commissioner of Income Tax vs. M/s.Cypress Semiconductors Technology India Pvt. Ltd.,) for A.Y.2005-06. Date of Judgment 09-08-2018 I.T.A.No.400/2017 The Pr.Commissioner of Income-tax & Anr. Vs. M/s. Cypress Semiconductors Technology India Pvt. Ltd., 3/9 2. This appeal has been admitted on 24.01.2018 to consider the following substantial questions of law framed by the learned counsel for the Appellants- Revenue:- “1. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in excluding certain comparables on the ground of functional dissimilarity even when Transfer Pricing Officer has rightly chosen the same considering its functions which are similar to assessee’s and has satisfied all the required tests and without doing an FAR analysis of the taxpayer with those other cases? 2. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in excluding certain comparable Kodiak Networks India Ltd, M/s.Sysarris Software P.Ltd, Novell Software India Pvt.Ltd, M/s.Net Devices India Pvt.Ltd and another decision of Delhi Tribunal in case of M/s.Qualcomm India Pvt.Ltd, earlier order in case of assessee itself for period 2004-05 even when the said decisions have not reached finality and TPO has chosen the comparable after applying all the required tests? Date of Judgment 09-08-2018 I.T.A.No.400/2017 The Pr.Commissioner of Income-tax & Anr. Vs. M/s. Cypress Semiconductors Technology India Pvt. Ltd., 4/9 3. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in excluding certain comparable which are having filter of less than 25% by following its earlier order which has not reached finality?.” 3. The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and the Respondent-Assessee, has given the following findings:- “ 12. With respect of Bodhtree Consulting Ltd., the ld. counsel for the assessee has contended that this company’s function is different is different as it is engaged in product development and ITeS. This company was examined by the Tribunal in the case of Syassaris Software P.Ltd. v. DCIT in IT(TP)A No.1360/Bang/2011 for the AY 2005-06 by the Tribunal and the Tribunal has directed the exclusion of this company from the list of comparables, following the order of Tribunal in the case of Kodiak Networks India Pvt.Ltd. [IT(TP)A No.532/Bang/2015 & CO 119/Bang/2015. A copy of order of Kodiak Networks India Pvt.Ltd. is placed on record. The Date of Judgment 09-08-2018 I.T.A.No.400/2017 The Pr.Commissioner of Income-tax & Anr. Vs. M/s. Cypress Semiconductors Technology India Pvt. Ltd., 5/9 relevant observations of the Tribunal are extracted hereunder for the sake of reference:- xxxxxxxxxxxxxxx 13. Since the Tribunal has examined the profile and datas of Bodhtree Consulting Ltd. and has come to the conclusion that this company cannot be taken as good comparable for computing the ALP, we find no justification in re- examining the issue again. Accordingly, following the aforesaid order of Tribunal, we uphold the exclusion of Bodhtree Consulting Ltd. from the list of comparables. xxxxxxxxxxxx 17. Having carefully examined the contentions of the assessee, we find that undisputedly, Sankhya Infotech Ltd. was examined by the Tribunal and the Tribunal following the view taken in the case of Kodiak Network India Ltd. (supra) has directed the TPO to exclude this company from the list of comparables. The relevant observations of the Tribunal are extracted hereunder for the sake of reference:- Date of Judgment 09-08-2018 I.T.A.No.400/2017 The Pr.Commissioner of Income-tax & Anr. Vs. M/s. Cypress Semiconductors Technology India Pvt. Ltd., 6/9 xxxxxxxxxxxxxxx 18. Since this comparable was examined by the Tribunal in the aforesaid case, we find no justification in re-examining the case. Accordingly, we exclude Sankhya Infotech Ltd. from the list of comparables”. Similarly, the learned Tribunal has considered the other comparables and excluded the same. 4. However, this Court in a recent judgment 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 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. The relevant portion of the said judgment is quoted below for ready reference: Date of Judgment 09-08-2018 I.T.A.No.400/2017 The Pr.Commissioner of Income-tax & Anr. Vs. M/s. Cypress Semiconductors Technology India Pvt. Ltd., 7/9 “ 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 09-08-2018 I.T.A.No.400/2017 The Pr.Commissioner of Income-tax & Anr. Vs. M/s. Cypress Semiconductors Technology India Pvt. Ltd., 8/9 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.” 5. Having heard the learned counsels for the parties, we are therefore of the opinion that no Date of Judgment 09-08-2018 I.T.A.No.400/2017 The Pr.Commissioner of Income-tax & Anr. Vs. M/s. Cypress Semiconductors Technology India Pvt. Ltd., 9/9 substantial question of law arises in the present case also. The appeal filed by the Appellants-Revenue is liable to be dismissed and it is dismissed accordingly. No costs. Sd/- JUDGE Sd/- JUDGE Srl. "