Date Of Judgment 13-8-2018, Ita v. M/S Arcot R & D Software Pvt. Ltd

IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 13 DAY OF AUGUST 2018. PRESENT THR HON’BLEK DR.JUSTICE VINBBT KOTHARI ANT) THR HON’BLE MRS.JUSTICEK S.SUJATHA I.T.A. No.1012/2017 BETWEEN: 1.THE PR. COMMISSIONER OF INCOME TAX! FLOOR, BMTC BUILDING80 FEET ROAD, KORMANGALA|BBENGALURU — 560 095! FLOOR, BMTC BUILDING80 FEET ROAD, KORMANGALA|BBENGALURU — 560 095 2.THR INCOME-TAX OFFICERWARD-11(1)|PRESENT ADDRESS WARD -1(1)(2)2 FLOOR, BMTC BUILDING80 FEET ROAD, KORMANGALA|BENGALURU — 560 O95.. APPELLANTS| (BY SRI. ARAVIND K V, ADV.) AND:| M/s ARCOT R & D SOFTWARE PVT. LTD.,RMZ TITANIUM BUILDING135, OLD AIRPORT ROADKODIHALLIBBENGALURU — 560 O17PAN:AADCA 436/7L _. RESPONDENT THIS [TA IS FILED UNDER SEHKC.260-A OF INCOME TAACT 1961, ARISING OUT OF ORDER DATED:17.03.2017 PASSEDIN ITA NO. 134/BANG/2014, FOR THE ASSESSMENT YEAR-2009-2010 ANNEXURE -D, PRAYING TO: I. FORMULATE THE| Date of Judgment 13-8-2018, ITA No.1012 /2017 The Pr. Commissioner of Income Tax & Another vs. M/s Arcot R & D Software Pvt. Ltd., SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE. II. ALLOWTHR APPBAL AND SET ASIDE THR ORDERS PASSBED BY THEINCOME-TAX APPELLATE TRIBUNAL, BENGALURU IN IT(TP)A.NO. 1384/BANG/2014 DATED: 17.03.2017 VIDE ANNEXURE —- AND CONFIRM THR ORDER OF THR DRP CONFIRMING THE!ORDER PASSED BY THE INCOME TAX OFFICER, WARD-1(1)(2),.BBENGALURU. THIS APPEAL COMING ON FOR ORDERS, THIS DAY,|S. SUJATHA, J., DELIVERED THE FOLLOWING: JU DGMENT Mr. K.V. Aravind,Adv. for Appellants - Revenue. This Appeal is filed by the Revenue purportedlyraising the substantial questions of law arising from theOrder of the Income Tax Appellate Tribunal, BangaloreBench ‘B’, inIT |[TPJA No.134/Bang/201dated17.03.2017, relating to the Assessment Year2009-10. 2.The substantial questions of law framed bythe Revenue in the Memorandum of Appeal are asunder: “1. Whether on the facts and in the circumstancesof the case, the Tribunal is right in law inexcluding certain comparables on the basis of Date of Judgment 13-8-2018, ITA No.1012 /2017 The Pr. Commissioner of Income Tax & Another vs. M/s Arcot R & D Software Pvt. Ltd., 3/8 functional dissimilarity by following its earlierjudgments which has not reached finality andeven when the Transfer Pricing Officer hasconsidered the comparables on the basis ofqualitative and quantitative filters?| 2. Whether on the facts and circumstances of the.case, the Tribunal erred in directing the assessingauthority/ transferpricingofficertoexcludesasken Communication Tech Ltd as comparableby following its earlier order passed in case of|assessee which has not reached finality?’| 3.The learned Tribunal, after discussing therival contentions of both the Appellants-Revenue andRespondent-Assessee, has returned findings as under: “8. We have considered the rival submissions aswell as relevant material on record. At the outset,we note that the functional comparability offourcompanies namely M/s.Bodhtree Consulting Ltd.,Tata Elxsi Ltd., Persistent systems Ltd. andInfosys Technology Ltd. has been considered bythe coordinate bench of this Tribunal in the caseof Infinera India Put. Ltd. Vs. ITO (supra) in paras12 to 17 as under:| XXXXXXXXXXNX Date of Judgment 13-8-2018, ITA No.1012 /2017 The Pr. Commissioner of Income Tax & Another vs. M/s Arcot R & D Software Pvt. Ltd., Following the earlier order of this Tribunal, wedirect the A.O./TPO to exclude these fourcompanies from the set of comparables. g.AS|regards SaskenCommunicationTechnology Ltd., we find that this Tribunal inassessee’s own case for the A.Y. 2010-11 hasconsidered in para as under:XXXXXXXXX| since no material or significant difference hasbeen pointed out in the facts as well as nature ofbusiness of the assessee and the businessactivity of the Sasken Communication TechnologyLtd. in comparison to the A.Y. 2011-12 thereforeby following the earlier order of this Tribunal inassessee’s own case, we direct the A.O./TPO toexcludethisCOTTLDPAfromtheSef|Of|comparables. XXXXXXXXXXNX Date of Judgment 13-8-2018, ITA No.1012 /2017 The Pr. Commissioner of Income Tax & Another vs. M/s Arcot R & D Software Pvt. Ltd., Following the earlier order of this Tribunal, wedirect the A.O./TPO to exclude these fourcompanies from the set of comparables. g.AS|regards SaskenCommunicationTechnology Ltd., we find that this Tribunal inassessee’s own case for the A.Y. 2010-11 hasconsidered in para as under:XXXXXXXXX| since no material or significant difference hasbeen pointed out in the facts as well as nature ofbusiness of the assessee and the businessactivity of the Sasken Communication TechnologyLtd. in comparison to the A.Y. 2011-12 thereforeby following the earlier order of this Tribunal inassessee’s own case, we direct the A.O./TPO toexcludethisCOTTLDPAfromtheSef|Of|comparables. 10. As regards L & Tribunal Infotech Ltd., thefunctional comparability of this company hasbeen considered by the co-ordinate bench of thisTribunal in the case of Broadcom India Put. Ltd.Vs. DCIT (supra) in paras 19 & 22 as under:XXXXXXXXXXXNK Following the order of the co-ordinate bench ofthis Tribunal we direct the A.O./TPO to exclude Date of Judgment 13-8-2018, ITA No.1012 /2017 The Pr. Commissioner of Income Tax & Another vs. M/s Arcot R & D Software Pvt. Ltd., this company from the set of comparables. —Accordingly the AO/ TPO is directed to recompurte the arm’s length by considering the remainingcomparable companies. Needless to say thebenefit of 2[na]proviso to section 92C(2) beconsidered.” 4However, this Court in a recent judgment inI.T.A. Nos.536/2015 c/w 537/2015delivered on 25.06.2018 (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 instanceof an assessee or the Revenue under Section J60-A otthe Act is not maintainable. The relevant portion of thesaid judgment is quoted below for ready reference: “Conclusion: 55.Asubstantial quantumof|international trade and transactions depends| 6/8 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.), 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. 7/8 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. 7/8 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 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|7¢§ “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. Date of Judgment 13-8-2018, ITA No.1012 /2017 The Pr. Commissioner of Income Tax & Another vs. M/s Arcot R & D Software Pvt. Ltd., 8/8 o8. The appeals filed by the Revenue are|therefore dismissed with no order as_ tocosts.” 5.Having heard the learned counsel appearing for the Appellants-Revenue, we are therefore of theopinion that no 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. Copy of this order be sent to the Respondent-Assessee, forthwith. AN /- Sd/-.JUDGE. Sd/-.JUDGE|