Date Of Judgment 06-08-2018, Ita v. M/S. Arcot R & D Software Pvt. Ltd

IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 6 DAY OF AUGUST 2018 PRESENT THR HON’BLEK DR.JUSTICE VINBBT KOTHARI ANT) THR HON’BLE MRS..JUSTICK S.SUJATHA I.T.A. No.311/2017 BETWEEN : 1.THE PR. COMMISSIONEROF INCOME-ITAX"[‘T]FLOOR, BMTC BUILDING,80 FEET ROAD, KORMANGALA,BENGALURU-560095.. «|THE INCOME TAX OFFICERWARD-1(1)(2), 7[‘T]FLOOR, ~BMTC BUILDING, 80 FEET ROAD,KORMANGALA,BBENGALURU-560095._ APPBLLANTS| (BY SRI K.V.ARAVIND, ADV.) AND ; M/s. ARCOT R & D SOFTWARE PVT. LTD.,C/O IBM INDIA PVT. LTD.,LEVEL III, SUBRAMANYA ARCADE 1,BANNERGHATTA ROAD,BENGALURU-560029,. PAN: AADCA 4306/7L.. RESPONDENT. (BY SRI SANDEEP HUILGOL, ADV. FOR SRI T.SURYANARAYANA, ADV.) THIS INCOME TAX APPEAL IS FILED UNDER SECTION|260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER| Date of Judgment 06-08-2018, ITA No.311/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Arcot R & D Software Pvt. Ltd., DATED 04/11/2016 PASSED IN IT(TP)A No.393/BANG/2015,.KOR.THR ASSBSSMBENTYEAR 2010-2011,.ANNEXURE-D,PRAYING TO: I. FORMULATE THE SUBSTANTIAL QUESTIONS OFLAW STATED THEREIN, I]. ALLOW THE APPEAL AND SET ASIDETHE ORDER PASSED BY THE ITAT, BENGALURU IN I[IT(TP)No.393/BANG/20109DATEHR04/11/2016,ANNEXURE-D,CONFIRMING THR ORDBR OF THR DRP AND CONFIRM THE!ORDER PASSED BY THE INCOME TAX OFFICER, WARD-1(1)(2),.BBENGALURU. THIS APPEAL COMING ON FOR HEARING, THIS DAY,|S. SUATHA, J., DELIVERED THE FOLLOWING: JU DGMENT Mr. K.V.Aravind,Adv. for Appellants — Revenue.Mr. Sandeep Huilgol,Adv., and Mr. T.Suryanarayana,Advs. tor Respondent— ASSeSSEe. This Appeal is filed by the Revenue purportedlyraising substantial questions of law arising from theOrder of the Income Tax Appellate Tribunal, BangaloreBench ‘B’, Bangalore, inIT[TP|A No.393/Bang/2015dated04.11.2016, relating to the Assessment Year2010-11. 2.Theappealhas|beenadmitted|OTL14.11.9017|TO consider.the|followingsubstantial|question of law formulated in the appeal memorandum: Date of Judgment 06-08-2018, ITA No.311/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Arcot R & D Software Pvt. Ltd., “Whether in the facts and circumstances ofthe case, the Tribunal erred in excluding thecomparables, namely, Kals Information SystemsLtd., Tata Elxsi Ltd., M/s. Persistent SystemsLtd., Infosys Ltd., M/s. ICRA Techno-Analytecsand M/s. Sasken Communication Technologies|Ltd., on the ground offunctional dissimilarity byfollowing its earlier order in the assessee’s owncase for earlier assessment years which has notreached finality and even when the TPO hadchosen the comparables as it satisfies qualitativeand quantitative filters applied by the TPO andTribunal ought to have decided the comparabilityof these companies on the basis of specific factsbrought out on record by the TPO in the case ofthe assessee?”| 3.The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and Respondent-Assessee, has returned the findings asunder: “8Havingconsidered|therivalsubmissions and relevant material on record, wefound that the co-ordinate bench of this Tribunalin the case ofDCIT Vs. Electronics for ImagingIndia Pvt. Ltd.,[supra] has considered the Date of Judgment 06-08-2018, ITA No.311/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Arcot R & D Software Pvt. Ltd., 4/7 functional comparability of these companies in|paras 13 to 33 as under: KVM 9 _As regards the|Persistent System& Solutions Ltd.,the co-ordinate bench of this|Tribunal in the case of Broadcom India Put. Ltd.,/Supra]hasconsideredthefunctionalcomparability in para 13.2 as under: KVeVNKK” Following the decisions of the co-ordinate|bench, we do notfind any reason to interfere withthe findings of the DRP in directing the A.O/ TPOto exclude the 7 companies from the set ofcomparables.” 4However, this Court in a recent judgment in I.T.A. Nos.536/2015 c/w 537/2015delivered on25.06.2018 (Prl. Commissioner of Income Tax & Anr. Date of Judgment 06-08-2018, ITA No.311/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Arcot R & D Software Pvt. Ltd., 4/7 functional comparability of these companies in|paras 13 to 33 as under: KVM 9 _As regards the|Persistent System& Solutions Ltd.,the co-ordinate bench of this|Tribunal in the case of Broadcom India Put. Ltd.,/Supra]hasconsideredthefunctionalcomparability in para 13.2 as under: KVeVNKK” Following the decisions of the co-ordinate|bench, we do notfind any reason to interfere withthe findings of the DRP in directing the A.O/ TPOto exclude the 7 companies from the set ofcomparables.” 4However, this Court in a recent judgment in I.T.A. Nos.536/2015 c/w 537/2015delivered on25.06.2018 (Prl. Commissioner of Income Tax & Anr. -—v- M/s Softbrands India Pvt. Ltd,) has held that inthese type of cases, unless an ex-facie perversity in thefindings of the learned Income Tax Appellate Tribunal is"established by the appellant, the appeal at the instance Date of Judgment 06-08-2018, ITA No.311/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Arcot R & D Software Pvt. Ltd., 5/7 of an assessee or the Revenue under Section 260-A ot the Act is not maintainable. The relevant portion of the said judgment isquoted 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 AvoidanceTreaties (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.), tf 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. Date of Judgment 06-08-2018, ITA No.311/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Arcot R & D Software Pvt. Ltd., 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 arysubstantial 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|found to be devoid of merit and the same are.liable to be dismissed. 57. We make it clear that the saqme'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 “ArmLength Price“ in the case of the assessees Date of Judgment 06-08-2018, ITA No.311/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Arcot R & D Software Pvt. Ltd., 7/7 with 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.” 5.Havingheard|the.learnedcounsels. appearing for the parties, we are therefore of the opinionthat no substantial question of law arises in the presentcase also. The Appeal filed by the Appellants-Revenueis liable to be dismissed and it is dismissed accordingly. —No costs. NC. Sd/-.JUDGE| Sd/-.JUDGE|