Date Of Judgment 02-07-2018, Ita v. M/S Arowana Consulting Pvt. Ltd

IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 2 DAY OF JULY 2018 PRESENT THR HON’BLEK DR.JUSTICE VINBBT KOTHARI ANT) THR HON’BLE MRS..JUSTICK S.SUJATHA I.T.A. No.483/2017 BETWEEN : 1.THE PR. COMMISSIONER OF INCOME| TAX CIT (A), 5[‘T]FLOOR, BMTC BUILDING, 80 FEET ROAD, KORAMANGALA, BBNGALURU-560095 «|THER INCOME -TAX OFFICKR WARD -1 (1) (2), 2 FLOOR, © BMTC BUILDING, 80 FEET ROAD,KORAMANGALA,KORAMANGALA, BBNGALURU-560095 _ APPBLLANTS| (BY SRI K.V.ARAVIND, ADV.) AND : M/s AROWANA CONSULTING PVT. LTD.,.NO.90/B, SURVEY NO.18, 2 MAIN,ELECTRONICS CITY PHASE-1 ROAD,BBNGALURU-560100 PAN: AADCM 7560P_. RESPONDENT. (BY SRI NARENDRA KUMAR J. JAIN, ADV.) THIS [TA IS FILED UNDER SECTION 260-A OF INCOME|TAX ACT 1961, ARISING OUT OF ORDER DATED 11.01.2017PASSED IN IT(TP)A NO.157/BANG/2016, FOR THE ASSESSMENTYREAR 2011-2012 ANNBEXURE-D. PRAYING TO: 1. FORMULAT Date of Judgment 02-07-2018, ITA No.483/2017 The Pr. Commissioner of Income Tax & another Vs. M/s Arowana Consulting Pvt. Ltd. THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE. 2. ALLOW THR APPBAL AND SBT ASIDE THR ORDERS PASSBD BY)THE INCOME TAX APPELLATE TRIBUNAL, BENGALURU IN.IT(TP)A NO.157/BANG/2016 DATED 11.01.2017 ANNEXURE-DAND CONFIRM THR ORDER OF THR DRP CONFIRMING THE!ORDER PASSED BY THE INCOME TAX OFFICER, WARD-1(1)(2),.BENGALURU. THIS APPEAL COMING ON FOR ADMISSION, THIS DAY,|Dr. VINEET KOTHARI, J., DELIVERED THE FOLLOWING: JU DBiGMENT Mr. K.V. Aravind, Adv. for Appellants — RevenueMr. Narendra Kumar J. Jain,Adv., for Respondent -|Assessee This Appeal is filed by the Revenue purportedlyraising substantial questions of law arising from theOrder of the Income Tax Appellate Tribunal, ‘B’ Bench, Bangalore, in|IT [TP|A No.157/Bang/2016dated| 11.01.2017, relating to the Assessment Year2011-12 ?)The proposed substantial questions of lawframed by the Revenue in the Memorandum of Appealare as under: “1. Where the Tribunal, on the facts and inthe circumstances of the case was rightin directing to include M/s. Akshay Date of Judgment 02-07-2018, ITA No.483/2017 The Pr. Commissioner of Income Tax & another Vs. M/s Arowana Consulting Pvt. Ltd. M/s Arowana Consulting Pvt. Ltd. 3/13 software Technologies Ltd., withoutappreciating the fact that the same wasexcluded by the TPO on lack ofinformation regarding RPT transactions?|appreciating the fact that the same wasexcluded by the TPO on lack ofinformation regarding RPT transactions?| 2?Whether the Tribunal, on the facts andin the circumstances of the case, wascorrect in applying onsite revenue filterwithout appreciating the fact that theTPO had applied appropriate filterrelevant to the assessee?in the circumstances of the case, wascorrect in applying onsite revenue filterwithout appreciating the fact that theTPO had applied appropriate filterrelevant to the assessee? 3Whether, the Tribunal, on the facts andin the circumstances of the case wasright in directing the Transfer PricingOfficer to exclude Infosys TechnologiesLtd., and M/s. Larsen & Toubro Ltd., as’comparable on the basis of functionaldissimilarity and has directed to includeM/s. Akshay Software TechnologiesLtd., as comparable even though theTPO has chosen the comparable inaccordance with provisions of the Act?in the circumstances of the case wasright in directing the Transfer PricingOfficer to exclude Infosys TechnologiesLtd., and M/s. Larsen & Toubro Ltd., as’comparable on the basis of functionaldissimilarity and has directed to includeM/s. Akshay Software TechnologiesLtd., as comparable even though theTPO has chosen the comparable inaccordance with provisions of the Act? Date of Judgment 02-07-2018, ITA No.483/2017 The Pr. Commissioner of Income Tax & another Vs. M/s Arowana Consulting Pvt. Ltd. 4/13 Date of Judgment 02-07-2018, ITA No.483/2017 The Pr. Commissioner of Income Tax & another Vs. M/s Arowana Consulting Pvt. Ltd. 4/13 4.Whether the Tribunal is Justified indirectingthe|assessingofficerTo recomputed the deduction under section1OA after reducing those expenses thatwere reduced only from export turnover,to reduce from the total turnover also,without appreciating that there is noprovision in section IOA to the effectthat such expenses should also bereduced from the total turnover, asclause [iv] of the Explanation to section10A provides that such expenses haveto be reduced only from the exportturnover?”directingthe|assessingofficerTo recomputed the deduction under section1OA after reducing those expenses thatwere reduced only from export turnover,to reduce from the total turnover also,without appreciating that there is noprovision in section IOA to the effectthat such expenses should also bereduced from the total turnover, asclause [iv] of the Explanation to section10A provides that such expenses haveto be reduced only from the exportturnover?” 3.Learned Counsel for the Appellants-Revenue does not press substantial question No.2. 4.Submission is taken on record. Regarding Substantial Question No.4: 5.Learned counsel for the Appellants-RevenueMr.E.I. Sanmathi submits that the issue regardingdeduction of expenditure incurred for‘Export Turn Date of Judgment 02-07-2018, ITA No.483/2017 The Pr. Commissioner of Income Tax & another Vs. M/s Arowana Consulting Pvt. Ltd. 5/13 Over’is also required to be deducted from|‘Total Turn Over’for the purpose of computing the deduction|u/s.1OAof the Act, the controversy is no longer |res integraand is covered by the decision of the DivisionBench of this Court in the case ofM/s.Tata Elxsti Ltd.,vs. Asst. Commissioner of Income Tax,decided on/20.10.2015since reported in.(2015) 127 DTR 0327(Kar), which has been affirmed by the Hon’ble SupremeCourt in the case of|Commissioner of Income-tax,Central - III vs. HCL Technologies Ltd., [2018] 93Taxmann.com 33(SC). 6.The relevant portion of the judgment of theHon ’bleSupremeCourt1nthe.CASEoT HCL|Technologies Ltd. (supra),is quoted below for readyreference: - “17. The simular nature of controversy, akin|this case, arose before the Karnataka High CourtinCIT v. Tata Elxsi Ltd[2012] 204 Taxman321/17/taxman.com 100/349 ITR 98.The issue|before the Karnataka High Court was whether| Date of Judgment 02-07-2018, ITA No.483/2017 The Pr. Commissioner of Income Tax & another Vs. M/s Arowana Consulting Pvt. Ltd. the Tribunal was correct in holding that whilecomputing relief under Section 1OA of the IT Act,the amount of communication expenses should beexcluded from the total turnover tf the same arereduced from the export turnoverP While givingthe answer to the issue, the High Court, inter-alia,held that when a particular word is not definedby the legislature and an ordinary meaning is tobe attributed to it, the said ordinary meaning is tobe in conformity with the context in which it isused. Hence, what is excluded from ‘exportturnover’ must also be excluded from ‘totalturnover’, since one of the components of ‘totalturnover’1Sexportturnover.Anyotherinterpretation would run counter to the legislativeintent and would be impermissible. | 1S. XXXXXX 19, In the instant case, if the deductions onfreight,telecommunicationand|insuranceattributable to the delivery of computer softwareunder Section 10A of the IT Act are allowed onlyin Export Turnover but not from the TotalTurnover then, it would give rise to inadvertent,unlawful, meaningless and illogical result whichwould cause grave injustice to the Respondent which could have never been the intention of thelegislature. 1S. XXXXXX 19, In the instant case, if the deductions onfreight,telecommunicationand|insuranceattributable to the delivery of computer softwareunder Section 10A of the IT Act are allowed onlyin Export Turnover but not from the TotalTurnover then, it would give rise to inadvertent,unlawful, meaningless and illogical result whichwould cause grave injustice to the Respondent which could have never been the intention of thelegislature. 20. Even in common parlance, when theobject of the formula ts to arrive at the profit fromexport business, expenses excluded from exportturnover have to be excluded from total turnoveralso. Otherwise, any other interpretation makesthe formula unworkable and absurd. Hence, weare satisfied that such deduction shall be allowedfrom the total turnover in same proportion aswell”. Regarding Substantial Question Nos.1 & 3: T.The learned Tribunal, after discussing therival contentions of both the Appellants-Revenue and Respondent-Assessee, has returned a finding as under:| aWe|have|consideredtherivalsubmissions. We find that we are calledupon to decide exclusion of two comparables|ue./s Infosys Tech. Ltd. and M/s. L & TInfotech Ltd., and inclusion of one companyue., M/s. Akshay Software Technologies Ltd.We find that the issue regarding exclusion of Date of Judgment 02-07-2018, ITA No.483/2017 The Pr. Commissioner of Income Tax & another Vs. M/s Arowana Consulting Pvt. Ltd. M/s. Infosys Technology Ltd. We find thatthe issue regarding exclusion of M/s. Infosys|Technology Ltd. is squarely covered in favour|of the assessee by the Tribunal order|rendered in the case of M/s. Alcatel Lucent|India Ltd. [supra/ and this company _isrequired to be excluded for three reasons.| a)|That this company fails upper turnoverfulter of 10 times. — b)That this company is functionally notcomparable as held by the Tribunal in this|case cited by the Id. AR of the assessee and Cc)That as per the finding of the Tribunalin this case, this company has products and|Substantial brand value. Hence, we hold that no interference iscalled for in the order of the DRP regarding|exclusion of M/s. Infosys Technologies Ltd. 5.Regarding exclusion of L & T InfotechLtd., we find that this company required to beexcluded for two reasons; Date of Judgment 02-07-2018, ITA No.483/2017 The Pr. Commissioner of Income Tax & another Vs. M/s Arowana Consulting Pvt. Ltd. 9/13 a)|This company fails upper turnover filterof 10 times. b)ThisCOMPA?LY1S|functionallynot.comparable as held by the Tribunal in the|case of M/s. Alcatel Lucent India Ltd., [supra].Respectfully following this Tribunal order, we.hold that this company te., L & T Infotech|Ltd. should also be excluded from the list offinal comparables. The TPO is_ directedaccordingly.| 9 |Regarding inclusion of M/s. Akshaysoftware Technologies Ltd., we find that a|categorical finding has been given by the DRP|that apart from mentioning in his order, the|TPO has not given any basis or reason for|saying that this company is functionally not comparable.ThisCOMmpanyhasbeen.accepted as a comparable in assessee’s own|case for assessment year: 2009-10 as per the|Tribunal order in IT/TP/A No.21/ Bang/ 201dated 28.08.2014, copy available on pages|218-244 of the paper book. Hence, on this. Date of Judgment 02-07-2018, ITA No.483/2017 The Pr. Commissioner of Income Tax & another Vs. M/s Arowana Consulting Pvt. Ltd. 10/13 issue also, we find no reason to interfere in|the order ofDRP and we approve the same.” | 8.The controversy involved herein is no moreres integrain view of the decision of this Court in 1.T.A.Nos.536/2015 c/w 537/2015dated25.06.2018iPrl.Commissioner.of|Income.TaxaAnr.V/s.M/s.Softbrands India Pvt. Ltd.,|wherein it has been!observed that unless the finding of the Tribunal is foundex facie perverse, the Appeal u/s. 260-A of the Act, isnot maintainable. The relevant portion of the Judgmentis quoted below for ready reference: “Conclusion: Date of Judgment 02-07-2018, ITA No.483/2017 The Pr. Commissioner of Income Tax & another Vs. M/s Arowana Consulting Pvt. Ltd. 10/13 issue also, we find no reason to interfere in|the order ofDRP and we approve the same.” | 8.The controversy involved herein is no moreres integrain view of the decision of this Court in 1.T.A.Nos.536/2015 c/w 537/2015dated25.06.2018iPrl.Commissioner.of|Income.TaxaAnr.V/s.M/s.Softbrands India Pvt. Ltd.,|wherein it has been!observed that unless the finding of the Tribunal is foundex facie perverse, the Appeal u/s. 260-A of the Act, isnot maintainable. The relevant portion of the Judgmentis 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 ofinterpretation ofprovisions of Double Taxation|Avoidance Treaties (DTAA), interpretation ofprovisions of the Income Tax Act or Overriding|Effect of the Treaties over the DomesticLegislations or the questions like Treaty Date of Judgment 02-07-2018, ITA No.483/2017 The Pr. Commissioner of Income Tax & another Vs. M/s Arowana Consulting Pvt. Ltd. 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 underSection 260-Aof the Act, theCourts could have embarked upon such.exercise of framing and answering such|substantial question of law. On the otherhand, the appeals of the present tenor as to|whether the comparables have been rightly|picked up or not, Filters for arriving at thecorrect list of comparables have been rightly|applied or not, do not in our considered|opinion, give rise to any substantial question|of law. 06. Weare therefore of the consideredopinion that the present appeals filed by the|Revenue do not give rise to any substantialquestionof|lawand.theSuggested|substantial questions of law do not meet therequirements ofSection 260-A|of the Act andthus the appeals filed by the Revenue are| Date of Judgment 02-07-2018, ITA No.483/2017 The Pr. Commissioner of Income Tax & another Vs. M/s Arowana Consulting Pvt. Ltd. 12/13 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 beapplied, even tf 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|7S. “ArLength Price“in the case of the assesseeswith which the assessees may not be|satisfied and have filed such appeals beforethis Court. Therefore we clarify that mere|dissatisfaction with the findings of facts|arrived at by the learned Tribunal ts not at all|a sufficient reason to invoke.Section 260-Aof the Act before this Court. o8. The appeals filed by the Revenue are|therefore dismissed with no order as_ tocosts.” QOIn the circumstances, having heard the learned Counsel appearing for both the sides, We are of the considered opinion that no substantial question of law arises for consideration in the present case. _ 10,Hence, the Appeal filed by the Appellants-Revenue is liable to be dismissed and is accordinglydismissed. Nocosts. — AN/-| Sd/-.JU DGE Sd/-.JU DGE