Date Of Judgment 18-07-2018 I.t.a v. M/S. Netscout Systems Software India Pvt. Ltd

IN THE HIGH COURT OF KARNATAKA, BENGALURU. DATED THIS THE 18 DAY OF JULY 2ZO18 PRESENT THE HON'BLE Dr. JUSTICE VINEET KOTHARI AND THE HON’BLE Mrs.JUSTICE S.SUJATHA| I.T.A.No.328/2015 BETWEEN 1.|THE PRINCIPAL COMMISSIONBR OF|INCOME-TAX,C R BUILDINGS,QUEENS ROAD,BANGALORE — 560001..INCOME-TAX,C R BUILDINGS,QUEENS ROAD,BANGALORE — 560001.. oD THERE DBPUTY COMMISSIONER OFINCOME-TAX,CIRCLE-12(2),.BANGALORE.INCOME-TAX,CIRCLE-12(2),.BANGALORE. _. APPBLLANTS| (BY MR. E.I.SANMATHI, ADV..,) ANT M/S NETSCOUT SYSTEMSSOFTWARE INIDA PVT. LID.,EMBASSY ICON, |GROUND FLOOR,NO.3, INFANTRY ROAD,BANGALORE-560001.PAN NO.AAICSO0944E /NA-196 .. RESPONDENT (BY MR. MALLAHARAO.K ADV..,) Date of Judgment 18-07-2018 I.T.A.No. 328/2015 The Principal Commissioner of Income Tax & Anr. Vs. M/s. Netscout Systems Software India Pvt. Ltd., THIS I.T.A IS FILED UNDER SECTION 260-A OF THE!INCOME-TAX ACT, 1961 PRAYING TO (A) DECIDE THE)FOREGOING QUESTION OF LAW AND / OR SUCH OTHER,QUESTIONS OF LAW AS MAY BE FORMULATED BY THEHON’BLE COURT AS DEEMED FIT. (B) SET ASIDE THE.APPELLATE ORDER DATED: 06/02/2015 PASSED BY THE ITAT,‘A’ BENCH, BANGALORE, IN APPEAL PROCEEDINGS NO. ITANO.1127/BANG/2011 ANNEXURE-A. THIS LT.A. COMING ON FOR HEARING, THIS DAYS.SUJATHAJTY DBELIVE RED THR FOLLOWING JUDGMENT Mr. E.I.Sanmathi,Adv. for Appellants-RevenueMr. Mallaharao.K, Adv. for Respondent-Assessee This Appeal is filed by the Appellants-Revenue purportedly raising substantial questions of law arisingfrom the Order of the Income Tax Appellate Tribunal,6A? Bench, Bangalore, inIT[TPIA No.1127/Bang/2011dated|06.02.2015|relating to the Assessment Year2007-08. 2 |Thisappealhas|beenADMITTEDOTL 17.03.2016to consider the following substantial questions of law framed by the learned counsel for the Appellants-Revenue: Date of Judgment 18-07-2018 I.T.A.No. 328/2015 The Principal Commissioner of Income Tax & Anr. Vs. M/s. Netscout Systems Software India Pvt. Ltd., 3/10 1,“Whether,OF.thefactsandinthecircumstances of the case, the Tribunal ts right in|holding that the size and turnover of the companyare deciding factors for treating a company as acomparable and accordingly erred in excludingcomparables, namely, (i) Tata Elxsi Ltd (i) Sasken|Communication Technologies Ltd (ut) PersistentInformation Ltd (iw) Mindtree Ltd (uv) InfosysTechnology Ltd (vi) igate Global Solution Ltd (vit)Flextronics Software Systems Ltd in softwaresegment in the absence of turnover criterionprescribed in Rule 10B of Income Tax Rules andalso there being no correlation between turnoverand profit margin? D2Whether,OF.the factsandinthecircumstances of the case, the Tribunal erred inexcluding the comparables, namely, (it) KalsInformation Systems Ltd., (i) Accel TransmaticsLtd (ut) AVant Cimcon Technology Ltd (iv) CelestailLabs Ltd (v) e-Zest Solutions Ltd (vi) Lucidsoftware Ltd., and Quintegra Solutions Ltd., evenwhen all the companies satisfies the qualitativeand quantitative filters adopted by the TPO andthe Tribunal fails to consider the assessee’sspecificFARanalysisanderroneously considering rulings passed in other assessescasesP?” 3.|Theadditional substantial question of law suggested by the learned counsel for the appellants-Revenue today is quoted below for ready reference: “WhetherOTFthe factsandin|thecircumstances of the case, the Tribunal ts right in|law in directing the Transfer Pricing Officer toinclude Megasoft as comparable to arrive atworking capital adjustment based on its bluesally segment alone and rework the arithmeticmean of the margin of certain companies?” 4The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and Respondent-Assessee, has returned findings as under: Regarding substantial question of law No.1 3.|Theadditional substantial question of law suggested by the learned counsel for the appellants-Revenue today is quoted below for ready reference: “WhetherOTFthe factsandin|thecircumstances of the case, the Tribunal ts right in|law in directing the Transfer Pricing Officer toinclude Megasoft as comparable to arrive atworking capital adjustment based on its bluesally segment alone and rework the arithmeticmean of the margin of certain companies?” 4The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and Respondent-Assessee, has returned findings as under: Regarding substantial question of law No.1 ¢18.Now coming to the exclusions soughtby the assessee from the list of comparableschosen by the TPO, a reading of the decision ofthe Co-ordinate Bench in the case of M/s Trilogy |E-Business Software India Put. Ltd.(Supra) reliedon by the learned AR, clearly show that the saidcompanyWasalsoengagedinsoftwaredevelopment services like that of the assessee. Date of Judgment 18-07-2018 I.T.A.No. 328/2015 The Principal Commissioner of Income Tax & Anr. Vs. M/s. Netscout Systems Software India Pvt. Ltd., 5/10 The profile being similar we are of the opinionthat the decision of the Co-ordinate Bench in thecase of M/s Trilogy E-Business Software IndiaPut. Ltd (Supra) which was also for assessmentyear 2007-08 can be taken as a good precedent.With reference to M/s Avant Cimcon TechnolgiesLtd., M/s Celestial Labs Ltd and M/s KALSInformation Systems Ltd (Seg.) it was held asunder in this decision. b}) Avant Cimcon Technologies Ltd XXXX c) Celestial Labs Ltd. XKXXX XKXXX XKXXX e) Accel Transmatic Ltd. XXXX XXXX XXXX 19M/sE-ZestSolutionLtd.,M/sQuintegra Solutions Ltd and M/s_ Thirdwaresolutions Ltd were comparables considered in thecase of M/s NXP Semi conductors India Put. Ltd.,(Supra) which has also been relied on by thelearned AR. We find that the profile of M/s NXPSemiconductorsIndia.Put.Ltd.,COTILPAre Date of Judgment 18-07-2018 I.T.A.No. 328/2015 The Principal Commissioner of Income Tax & Anr. Vs. M/s. Netscout Systems Software India Pvt. Ltd., 6/10 favourably with that of the assessee since both|WeredoingsoftwaredevelopmentServices.Decision of the Tribunal in the case of M/s NXP|semiconductors India Put. Ltd (Supra) was alsofor assessment year 2007-08. It was held as|under by this Tribunal in the case of M/s NXP.semiconductors India Put. Ltd., (Supra): XXXX XXXX E-Zest Solutions LTd. XKXXX Thirdware Solutions Ltd. (segment) XKXXX Quintegra Solutions Ltd. XKXXX Accordingly, we direct exclusion of the above.three companies from the comparables”. Regarding substantial question of law No.2: “90.Vis-q-visM/sHeliosA;MathersonInformation Technology Ltd, this Tribunal in thecase of M/s NXP Semiconductor India Put. Ltd(Supra) had held as under at para-28 of its order; XXXX XXXXXXXXXXXX Date of Judgment 18-07-2018 I.T.A.No. 328/2015 The Principal Commissioner of Income Tax & Anr. Vs. M/s. Netscout Systems Software India Pvt. Ltd., 7/10 XXXXXXXX Accordingly, we direct exclusion of M/s Helios|& Matherson Informatics Ltd., also from the list ofcomparables. ” Regarding additional substantial question oflaw: ¢21,Vis-d-vis the contention of the learned ARthat M/s Megasoft Ltd can be considered as acomparable only vis-a-vis its segment called blue-sally, we find that the Tribunal in the case of M/s Trilogy E-business Software India Put. Ltd (Supra)had held as under at para- to of its order. XXXX XXXX XXXXXXXXXXXX XXXX Accordingly, we direct that M/s Megasoft|case to be considered as a comparable only afterre-working the segmental results as mentionedabove.” Date of Judgment 18-07-2018 I.T.A.No. 328/2015 The Principal Commissioner of Income Tax & Anr. Vs. M/s. Netscout Systems Software India Pvt. Ltd., 8/10 5The controversy involved herein is no moreres integra)in view of the decision of this Court in | Regarding additional substantial question oflaw: ¢21,Vis-d-vis the contention of the learned ARthat M/s Megasoft Ltd can be considered as acomparable only vis-a-vis its segment called blue-sally, we find that the Tribunal in the case of M/s Trilogy E-business Software India Put. Ltd (Supra)had held as under at para- to of its order. XXXX XXXX XXXXXXXXXXXX XXXX Accordingly, we direct that M/s Megasoft|case to be considered as a comparable only afterre-working the segmental results as mentionedabove.” Date of Judgment 18-07-2018 I.T.A.No. 328/2015 The Principal Commissioner of Income Tax & Anr. Vs. M/s. Netscout Systems Software India Pvt. Ltd., 8/10 5The controversy involved herein is no moreres integra)in view of the decision of this Court in | I.T.A.Nos.536/2015c/w5537/201dated25.06.2018[Prl. Commissioner of Income Tax &|Anr. V/s. M/s.Softbrands India Pvt. Ltd.,|wherein ithas been observed that unless the finding of theTribunal is found ex facie perverse, the Appeal u/s.2600-A of the Act, is not maintainable. The relevantportion of the Judgment is quoted below for ready13/3136B3* “§ Conclusion: 038. A substantial quantum of internationaltrade and transactions depends upon the fair andquick judicial dispensation in such cases. Had itbeen|OmCaASeofSubstantialquestionofinterpretation of provisions of Double TaxationAvoidance Treaties (DIAA), interpretation ofprovisions of the Income Tax Act or OverridingEffectofthe TreatiesOVEeCtheDomestic.Legislations or _ the questions like TreatyShopping, Base Erosion and Profit Shifting(BEPS), Transfer of Shares in Tax Havens (like in Date of Judgment 18-07-2018 I.T.A.No. 328/2015 The Principal Commissioner of Income Tax & Anr. Vs. M/s. Netscout Systems Software India Pvt. Ltd., 9/10 the case of Vodafone etc.), if based on relevantfacts, such substantial questions of law couldbe raised before the High Court underSection260-A|of the Act, the Courts could haveembarked upon such exercise of framing and)answering such substantial question of law. Onthe other hand, the appeals of the present tenoras to whether the comparables have been rightlypicked up or not, Filters for arriving at the correctlist of comparables have been rightly applied ornot, do not in our considered opinion, give rise toany substantial question of law. 56. We are therefore of the consideredopinion that the present appeals filed by theRevenue do not give rise to any substantialquestion of law and the suggested substantialquestions of law do not meet the requirements ofSection 260-A.of the Act and thus the appealsfiled by the Revenue are found to be devoid ofmerit 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 theAssessees, because, there may be cases wherethe Tribunal giving its own reasons and findingshas found certain comparables to be good Date of Judgment 18-07-2018 I.T.A.No. 328/2015 The Principal Commissioner of Income Tax & Anr. Vs. M/s. Netscout Systems Software India Pvt. Ltd., 10/10 comparables to arrive at an‘Arm’s LengthPrice“in the case of the assessees with whichthe assessees may not be satisfied and have filedsuch appeals before this Court. Therefore weclarify that mere dissatisfaction with the findings|offacts arrived at by the learned Tribunal is notat all a sufficient reason to invokeSection 260-Aof the Act before this Court. o8. The appeals filed by the Revenue aretherefore dismissed with no order as to costs.” 6. In the circumstances, having heard the learned Counsel appearing for both the sides, We are ofthe considered opinion that no substantial question oflaw arises for consideration in the present case. _ TS|Hence, the Appeal filed by the Appellants- Revenue is liable to be dismissed and is accordinglydismissed.No costs. | TTL Sd/-. JUDGE Sd/-| JUDGE