Date Of Judgment 21-08-2018, Ita v. M/S. Arowana Consulting Pvt. Ltd

IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 21 DAY OF AUGUST 2018 PRESENT THR HON’BLEK DR.JUSTICE VINBBT KOTHARI ANT) THR HON’BLE MRS.JUSTICEK S.SUJATHA I.T.A. No.482/2017 BETWEEN : 1.THE PR. COMMISSIONER OF INCOME-ITAX ![‘T]FLOOR, BMTC BUILDING 80 FEET ROAD, KORMANGALA| BENGALURU-560095.. «|THE INCOME-TAX OFFICER WARD-1]1]/2], 2 FLOOR, © BMTC BUILDING, 80 FEET ROAD, KORMANGALA BBENGALURU-560095. _ APPBLLANTS| (BY SRI ARAVIND.K.V., ADV.) AND ; M/s. AROWANA CONSULTING PVT. LTD., No.90/B, SURVEY No.18, 2 MAINBLBECTRONICS CITY PHASE-1 ROADBENGALURU-560100 PAN: AADCM 7560P._. RESPONDENT. (BY SRI NARENDRAKUMAR JAIN, ADV.) THIS INCOMB TAX APPBAL IS FILED UNDER SECTION|2600-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDERDATED 11.01.2017, PASSED IN IT|TP|JA No.434/BANG/2016, Date of Judgment 21-08-2018, ITA No.482/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Arowana Consulting Pvt. Ltd., FOR THE ASSESSMENT YEAR 2011/2012 VIDE ANNEXURE-D,.PRAYING TO: 1]. FORMULATE THE SUBSTANTIAL QUESTIONS.OF LAW STATED ABOVE; 11}. ALLOW THE APPEAL AND SET.ASIDE THR ORDERS PASSED BY THR INCOMBEB-TAX APPELATTRIBUNAL, BENGALURU IN IT/TPJA No.434/BANG/2016 DATED)11.01.2017 VIDE ANNEXURE-D CONFIRMING THERE ORDER OTHER DRP AND CONFIRM THE ORDER PASSBD BY THE [INCOMTAX OFFICER, WARD-1]1][2], BENGALURU. THIS APPEAL COMING ON FOR ORDERS, THIS DAY,|S. SUATHA, J., DELIVERED THE FOLLOWING: JU DGMENT Mr. K.V.Aravind,Adv. for Appellants — Revenue. Mr. Narendrakumar 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, Bangalore Bench ‘C’, Bangalore, inIT[TP|A No.434/Bang/2016 dated11.01.2017, relating to the Assessment Year2011-12. 2.The substantial questions of law framed by the Revenue in the Memorandum of Appeal are asunder: aWhether the Tribunal, on the factsand in the circumstances of the case was right in Date of Judgment 21-08-2018, ITA No.482/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Arowana Consulting Pvt. Ltd., 3/11 directing to include M/s. Akshay SoftwareTechnologies Ltd., without appreciating the factthat the same was excluded by the TPO on lack ofinformation regarding RPT transactions? D2 Whether the Tribunal, on the factsand in the circumstances of the case, was correctinapplyingonsiteTevenuefilterwithoutappreciating the fact that the TPO had appliedappropriate filter relevant to the assessee?| 3.|Whether, the Tribunal, on the factsand in the circumstances of the case was right indirecting the Transfer Pricing Officer to excludeInfosys Technologies Ltd., and M/s. Larsen &Tourbo Ltd., as comparable on the basis offunctional dissimilarity and has directed toinclude M/s. Akshay Software Technologies Ltd.,as comparable even though the TPO has chosen)the comparable in accordance with provisions ofthe Act? 4 |Whether the Tribunal is justified indirecting the assessing officer to recomputed thededuction under section 1OA after reducing thoseexpenses that were reduced only from exportturnover, to reduce from the total turnover also,without appreciating that there is no provision in Date of Judgment 21-08-2018, ITA No.482/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Arowana Consulting Pvt. Ltd., 4/11 section IOA to the effect that such expensesShould also be reduced from the total turnover, asclause /[iv]/ of the Explanation to section IOprovides that such expenses have to be reducedonly from the export turnover?”| Regarding Substantial Question of Law No.4: 3.The issue is covered by the decision of theHon’ble Supreme Court in the case ofCommissioner of Income-tax, Central -— III vs. HCL Technologies Ltd.,[2018] 93 Taxmann.com 33(SC). 4The relevant portion of the judgment of theHon ’bleSupremeCourt1nthe.CASEoT HCLTechnologies Ltd. (supra),is quoted below for readyreference:-. Date of Judgment 21-08-2018, ITA No.482/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Arowana Consulting Pvt. Ltd., 4/11 section IOA to the effect that such expensesShould also be reduced from the total turnover, asclause /[iv]/ of the Explanation to section IOprovides that such expenses have to be reducedonly from the export turnover?”| Regarding Substantial Question of Law No.4: 3.The issue is covered by the decision of theHon’ble Supreme Court in the case ofCommissioner of Income-tax, Central -— III vs. HCL Technologies Ltd.,[2018] 93 Taxmann.com 33(SC). 4The relevant portion of the judgment of theHon ’bleSupremeCourt1nthe.CASEoT HCLTechnologies 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 Taxman|3S21/17/taxman.com 100/349 ITR 98. The issuebefore the Karnataka High Court was whetherthe Tribunal was correct in holding that whilecomputing relief under Section IOA of the IT Act,the amount of communication expenses should be Date of Judgment 21-08-2018, ITA No.482/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Arowana Consulting Pvt. Ltd., excluded 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 1s 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. | LSE, XXXXXX 19. In the instant case, if the deductions on|freight,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 Respondentwhich could have never been the intention of thelegislature. Date of Judgment 21-08-2018, ITA No.482/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Arowana Consulting Pvt. Ltd., 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”. 5.The learned Tribunal, after discussing therival contentions of both the Appellants-Revenue andRespondent-Assessee, has returned the findings asunder: Regarding Substantial Question of Law Nos.1, 2 & 3: ayWe|have.consideredthe|rivalsubmissions. We find that we are called upon todecide exclusion of two comparables t1.e., M/s.Infosys Tech. Ltd., and M/s. L & Tribunal InfotechLtd., and inclusion of one company te., M/s.Akshay Software Technologies Ltd., We find thatthe issue regarding exclusion of M/s. InfosysTechnology Ltd., ts squarely covered in favour ofthe assessee by the Tribunal order rendered inthe case of M/s. Alcatel Lucent India Ltd., /supra/ Date of Judgment 21-08-2018, ITA No.482/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Arowana Consulting Pvt. Ltd., 7/11 and this company is required to be excluded forthree reasons. al|ThatthisCOMpPay?failsturnoverfilter of 10 times b]That this company is functionally notcomparable as held by the Tribunal in this casecited by the ld. AR of the assessee and Cc]That as per the finding of theTribunal in this case, this company has productsand substantial brand value. Hence, we hold that no interference is|called for in the order of the DRP regardingexclusion of M/s. Infosys Technologies Ltd. Date of Judgment 21-08-2018, ITA No.482/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Arowana Consulting Pvt. Ltd., 7/11 and this company is required to be excluded forthree reasons. al|ThatthisCOMpPay?failsturnoverfilter of 10 times b]That this company is functionally notcomparable as held by the Tribunal in this casecited by the ld. AR of the assessee and Cc]That as per the finding of theTribunal in this case, this company has productsand substantial brand value. Hence, we hold that no interference is|called for in the order of the DRP regardingexclusion of M/s. Infosys Technologies Ltd. 5.|Regarding exclusion of L & TribunalInfotech Ltd., we find that this company requiredto be excluded for two reasons; ajThis company fails upper turnoverfilter of 10 times b]This company is functionally notcomparable as held by the Tribunal in the case ofM/s.|AlcatelLucentIndiaLtd.,[Suprayj.Respectfully following this Tribunal order, we Date of Judgment 21-08-2018, ITA No.482/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Arowana Consulting Pvt. Ltd., 8/11 hold that this company te., L & Tribunal InfotechLtd., should also be excluded from the list offinalcomparables. The TPO is directed accordingly. ”9_Regarding inclusion of M/s. Akshaysoftware Technologies Ltd., we find that acategorical finding has been given by the DRPthat apart from mentioning in his order, the TPOhas not given any basis or reason for saying thatthis company is functionally not comparable. Thiscompany has been accepted as a comparable in)assessee’s own case for assessment year : 2009-1O}aS|per|the.Tribunalorder|in|IT/ITPIANo.21/ Bang/ 201dated28.08.20 14,COPYavailable on pages 218-244 of the paper book.|Hence, on this issue also, we find no reason tointerfere in the order of DRP and we approve theSame. ” 6.However, this Court in a recent judgment inI.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" Date of Judgment 21-08-2018, ITA No.482/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Arowana Consulting Pvt. Ltd., 9/11 established by the appellant, the appeal at the instance of an assessee or the Revenue under Section 260-A otthe Act is not maintainable. The relevant portion of the said judgment isquoted below for ready reference: “Conclusion: 55.|Asubstantialquantumof)international trade and transactions dependsupon the fair and quick judicial dispensation insuch cases. Had it been a case of substantialquestion of interpretation of provisions ofDouble Taxation Avoidance Treaties (DTAA),interpretation of provisions of the Income TaxAct or Overriding Effect of the Treaties over theDomestic Legislations or the questions likeTreaty Shopping, Base Erosion and _ Profishifting (BEPS), Transfer of Shares in TaxHavens (like in the case of Vodafone etc.),based on relevant facts, such substantialquestions of law could be raised before theHigh Court underSection 260-A of the Act, theCourtscouldhave|embarkedUPOFrsuchexercise of framing and answering such Date of Judgment 21-08-2018, ITA No.482/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Arowana Consulting Pvt. Ltd., 10/11 substantial question of law. On the other hand,the appeals of the present tenor as to whetherthe comparables have been rightly picked up ornot, Filters for arriving at the correct list ofcomparables have been rightly applied or not,do not in our considered opinion, give rise toany substantial question of law. 56. We are therefore of the considered|opinion 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 requirementsofSection 260-Aof the Act and thus theappeals filed by the Revenue are found to bedevoid of merit and the same are liable to bedismissed. Date of Judgment 21-08-2018, ITA No.482/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Arowana Consulting Pvt. Ltd., 10/11 substantial question of law. On the other hand,the appeals of the present tenor as to whetherthe comparables have been rightly picked up ornot, Filters for arriving at the correct list ofcomparables have been rightly applied or not,do not in our considered opinion, give rise toany substantial question of law. 56. We are therefore of the considered|opinion 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 requirementsofSection 260-Aof the Act and thus theappeals filed by the Revenue are found to bedevoid of merit and the same are liable to bedismissed. 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 andfindings has found certain comparables to begood comparables to arrive at an'7s| “ArLength Price“in the case of the assessees withwhich the assessees may not be satisfied and Date of Judgment 21-08-2018, ITA No.482/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Arowana Consulting Pvt. Ltd., 11/11 have filed such appeals before this Court.Therefore we clarify that mere dissatisfactionwith the findings of facts arrived at by thelearned Tribunal is not at all a sufficient reasonto invokeSection 260-Aof the Act before this|Court. 58. The appeals filed by the Revenue are|therefore dismissed with no order as to costs.” T Havingheard|the.learnedcounsels. appearing for the parties, we are therefore of the opinionthat no substantial question of law arises in the present case also. The Appeal filed by the Appellants-Revenueis liable to be dismissed and it is dismissed accordingly. —No costs. NC. Sd/-.JUDGE. Sd/-.JUDGE.