Date Of Judgment 02-08-2018, Ita v. M/S. Arowana Consulting Ltd

IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 2 DAY OF AUGUST 2018 PRESENT THR HON’BLEK DR.JUSTICE VINBBT KOTHARI ANT) THR HON’BLE MRS.JUSTICEK S.SUJATHA I.T.A. No.38/2016 BETWEEN : 1.THE PR. COMMISSIONEROF INCOME TAX.[‘T]FLOOR, BMTC BUILDING,OF INCOME TAX.[‘T]FLOOR, BMTC BUILDING,80 FEET ROAD, KORMANGALA,BANGALORE-5600095BANGALORE-5600095 «|THE INCOME TAX OFFICERWARD -1(1)(2).~ FLOOR, BMTC BUILDING, |80 FEET ROAD, KORMANGALA,BANGALORE-560095.. APPELLANTS| (BY SRI K.V.ARAVIND, ADV.) AND ; M/s. AROWANA CONSULTING LTD.,SANSKRUTI SIGNET, No.76,1[Si]CRODSd, 33 MAIN,BIM LAYOUT, BANK OFFICERSCO-OP. HOUSING SOCIETY LID.,|BANGALORBE-560068PAN: AADCM /560P._. RESPONDENT. (BY SRI NARENDRA KUMAR JAIN, ADV.)| Date of Judgment 02-08-2018, ITA No.38/2016 The Pr. Commissioner of Income-tax & Another Vs. M/s. Arowana Consulting Ltd., THIS INCOMB TAX APPBAL IS FILED UNDER SECTION|260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER|DATED 29/06/2015 PASSED IN ITA No.235/BANG/2015, FOR:THE ASSESSMENT YEAR 2010-2011, ANNEXURE-D, PRAYINGTO: 1. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW|STATED ABOVE; 2. ALLOW THE APPEAL AND SET ASIDE THE|ORDERSPASSED)BY|TH EITAT,BENGALURU|IN|ITA|No.235/BANG/2015 DATED 29/06/2015, ANNEXURE-D ANDCONFIRM THR ORDEBR OF THR APPKRHLLATKH COMMISSIOCONFIRMING THR ORDBR PASSBD BY THR INCOMB TAX!OFFICER, WARD-1(1)(2), BENGALURU. THIS APPEAL COMING ON FOR HEARING, THIS DAY,|S. SUJATHA, J., DELIVERED THE FOLLOWING: JU DBiGMENT Mr. K.V.Aravind,Adv. for Appellants — Revenue.Mr. Narendra Kumar 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, BangaloreBench ‘A’, Bangalore, inIT[TP|A No.235/Bang/2015dated|29.06.2015, relating to the Assessment Year2010-11. a2Theappealhas|beenadmitted|OTL09.01.2018TO consider.thefollowingsubstantialquestion of law: Date of Judgment 02-08-2018, ITA No.38/2016 The Pr. Commissioner of Income-tax & Another Vs. M/s. Arowana Consulting Ltd., 3/8 “Whether the Tribunal, on the facts and in|the circumstances of the case was right indirecting to include M/s. Akshay SoftwareTechnologies Ltd., without appreciating the factthat the same was excluded by the TPO on lack ofinformation regarding RPT transactions?” 3.The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue andRespondent-Assessee, has returned the findings asunder: “08. What is left for consideration isassessee’s grievance regarding M/s. AkshaySoftwareTechnologiesLtd.DRPdirected|exclusion of the said company for a reason thatits employee cost was more than 89% of its totaloperating expenditure. We find that assessee hademployee cost in excess of 90% of its operatingexpenditure. In our opinion, it is normal to have a)high percentage of employee cost in a softwaredevelopment company, especially so, when thecompany is involved in development of softwarefor clients at the site of the clients. Reason givenby the DRP, in our opinion, was not correct.Higher employee cost is a normal feature for asoftware development company for the simple Date of Judgment 02-08-2018, ITA No.38/2016 The Pr. Commissioner of Income-tax & Another Vs. M/s. Arowana Consulting Ltd., 4/8 “08. What is left for consideration isassessee’s grievance regarding M/s. AkshaySoftwareTechnologiesLtd.DRPdirected|exclusion of the said company for a reason thatits employee cost was more than 89% of its totaloperating expenditure. We find that assessee hademployee cost in excess of 90% of its operatingexpenditure. In our opinion, it is normal to have a)high percentage of employee cost in a softwaredevelopment company, especially so, when thecompany is involved in development of softwarefor clients at the site of the clients. Reason givenby the DRP, in our opinion, was not correct.Higher employee cost is a normal feature for asoftware development company for the simple Date of Judgment 02-08-2018, ITA No.38/2016 The Pr. Commissioner of Income-tax & Another Vs. M/s. Arowana Consulting Ltd., 4/8 reason that it 1s a Skill oriented business. TheSkill-set required for the employees in the case of|the assessee, required knowledge of Arabic also,making it all the more scarce. In any case, forA. Y.2009-10,M/s.|AkshaysoftwareTechnologies Ltd., was considered as a propercomparable and not excluded. In his order dated07.01.2015 for A.Y. 2009-10, after applying theonsite revenue filter of 50%, TPO himself hadconsidered M/s. Akshay Software TechnologiesLtd., aS a proper comparable. As to the argumentof the Ld. DR that Related Party Transaction,volume of M/s. Akshay Software Technologieswas not provided by the assessee, leading to itsrejection, we find that assessee had at para9.172 and 5.173 of its objections before DRP,submitted that RPT of the said company was4.33% only, compiling the figures from previousyears’ data available in Annual Report ofFinancial Year 2010-11 of the said company. Thisworking stands unrebutted. We are, therefore ofthe opinion that the assessee has to succeed inits claim that M/s. Akshay Software TechnologiesLtd., is a proper comparable. We direct the TPO toinclude the said company as a comparable alongwith the two comparables, namely, M/s. R. S.software [India] Ltd., and M/s. Thinksoft Global Date of Judgment 02-08-2018, ITA No.38/2016 The Pr. Commissioner of Income-tax & Another Vs. M/s. Arowana Consulting Ltd., 5/8 services Ltd., and rework the mean PLI. ALPadjustment, if any, required shall be based onsuch mean PLI, after considering the workingcapital adjusted. Ordered accordingly. Ground 12of the assessee is allowed.” 4The controversy involved herein is no moreres integrain view oft the decision of this Court inI1.T.A.Nos.536/2015 c/w 537/2015dated25.06.2018[Prl. Commissioner of Income Tax & Anr. V/s.M/s.Softbrands India Pvt. Ltd.,]wherein it has beenobserved 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.Asubstantial quantumof|international trade and transactions depends|upon the fair and quick judicial dispensation|in such cases. Had it been a case oOf|Substantialquestionof|interpretation|of|provisions of Double Taxation Avoidance Date of Judgment 02-08-2018, ITA No.38/2016 The Pr. Commissioner of Income-tax & Another Vs. M/s. Arowana Consulting Ltd., 6/8 Treaties (DTAA), interpretation ofprovisions ofthe Income Tax Act or Overriding Effect of the|Treaties over the Domestic Legislations or the |questions like Treaty Shopping, Base Erosionand Profit Shifting (BEPS), Transfer of Shares|in Tax Havens (like in the case of Vodafone|etc.), uf based on relevant facts, such|substantial questions of law could beraised before the High Court underSection260-Aof the Act, the Courts could have|embarked upon such exercise offraming 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, Futers for|arriving at the correct list of comparables|have been rightly applied or not, do not in our|consideredopinion, giveriseTo anysubstantial question of law. 6/8 Treaties (DTAA), interpretation ofprovisions ofthe Income Tax Act or Overriding Effect of the|Treaties over the Domestic Legislations or the |questions like Treaty Shopping, Base Erosionand Profit Shifting (BEPS), Transfer of Shares|in Tax Havens (like in the case of Vodafone|etc.), uf based on relevant facts, such|substantial questions of law could beraised before the High Court underSection260-Aof the Act, the Courts could have|embarked upon such exercise offraming 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, Futers for|arriving at the correct list of comparables|have been rightly applied or not, do not in our|consideredopinion, giveriseTo anysubstantial question of law. 06. Weare therefore of the consideredopinion that the present appeals filed by the|Revenue do not give rise to any substantialquestionof|law.andthe|Suggested|substantial questions of law do not meet the Date of Judgment 02-08-2018, ITA No.38/2016 The Pr. Commissioner of Income-tax & Another Vs. M/s. Arowana Consulting Ltd., 7/8 requirements ofSection 260-A|of the Act andthus 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 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 | “A Length 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 Revenueare therefore dismissed with no order as to|costs.” Date of Judgment 02-08-2018, ITA No.38/2016 The Pr. Commissioner of Income-tax & Another Vs. M/s. Arowana Consulting Ltd., 8/8 5.In 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. 6.Hence, the Appeal filed by the Appellants-Revenue is liable to be dismissed and is accordinglydismissed. No costs. NC. Sd/-.JUDGE. Sd/-.JUDGE.