Date Of Judgment 26-07-2018 I.t.a v. M/S. Arm Embedded Technologies Pvt.ltd

IN THE HIGH COURT OF KARNATAKA, BENGALURU. DATED THIS THE 26 DAY OF JULY ZO1L8 PRESENT THE HON'BLE Dr. JUSTICE VINEET KOTHARI AND THE HON’BLE Mrs.JUSTICE S.SUJATHA| I.T.A.No.456/2016 BETWEEN: 1.THE PR.COMMISSIONER OF INCOME TAX,k FLOOR, BMTC BUILDING,80 FEET ROAD, KORMANGALA, |BANGALORE - 560 095.k FLOOR, BMTC BUILDING,80 FEET ROAD, KORMANGALA, |BANGALORE - 560 095. 2.THE DEPUTY COMMISSIONER OF INCOME TAX,CIRCLE-11(1), PRESENT ADDRESS,CIRCLE-1(1)(1), 2 FLOOR,BMTC BUILDING, 80 FEET ROAD,KORAMANGALA, BANGALORE - 560 048.CIRCLE-11(1), PRESENT ADDRESS,CIRCLE-1(1)(1), 2 FLOOR,BMTC BUILDING, 80 FEET ROAD,KORAMANGALA, BANGALORE - 560 048. _ APPBLLANTS. (By Mr. K.V. ARAVIND, ADV.) AND: M/S. ARM EMBEDDED TECHNOLOGIES PVT.LTD.BAGMANB WORLD THCHNOLOGY|CENTER-SEZ, CITRINE BLOCK,5[‘T]Ce 6[‘L]FLOOR,MARATHAHALLI OUTER RING ROAD,DODDANAKUNDI VILLAGE, MAHADEVAPURA, BENGALURU-o60 0438.PAN: AABCA 1582E. _ RBSPONDENT (By Mr. SANDEEP HUILGOL, ADV. FOR)Mr. T. SURYANARAYANA, ADV.)Mr. T. SURYANARAYANA, ADV.) Date of Judgment 26-07-2018 I.T.A.No.456/2016 The Pr. Commissioner of Income-Tax & Anr., Vs. M/s. Arm Embedded Technologies Pvt.Ltd., 2/10 THIS I.T.A. IS FILED UNDER SECTION 260-A OF INCOME|TAX ACT 1961, PRAYING TO FORMULATE THE SUBSTANTIALQUESTIONS OF LAW STATE ABOVE AND ALLOW THE APPEALAND SET ASIDE THE ORDERS PASSED BY THE MITAT,BENGALURUIN|IT(TP)ANO.|1112/BANG/2010—DATEHD01/12/2015, ANNEXURE - D AND CONFIRM THE ORDER OF.THER DRP CONFIRMING THR ORDER PASSED BY THR DBPUTYCOMMISSIONER OF INCOME TAX, CIRCLE-1(1)(1), BENGALURU.Oo HIC. THIS LT.A. COMING ON FOR HEARING, THIS DAY | S. SUJATHA JT DRBLIVERBD THE FOLLOWING : JUDGMENT Mr. K.V. Aravind,Adv. for Appellants-RevenueMr. Sandeep Huilgol,Adv. for Mr. T.Suryanarayana,Adv. for Respondent-ASsesSsee The appellants-Revenuehave filed this appealu/s. 260Aot the.Income Tax Act, 1961(for short ‘Act’)raising purportedly certain substantial questions of lawarising from the order of theIncome Tax Appellate| Tribunal, “A” Bench, Bangalore(for short ‘Tribunal’/684/01.12.2015passed1nI.T(TP)A No.1112/Bang/2010for theA.Y.2006-07 Date of Judgment 26-07-2018 I.T.A.No.456/2016 The Pr. Commissioner of Income-Tax & Anr., Vs. M/s. Arm Embedded Technologies Pvt.Ltd., 3/10 2 |ThisappealhasbeenADMITTED27 05.06.2018to consider the following substantial questions of law: anWhether on the facts and in thecircumstances of the case, the Tribunal erred|in directing the TPO to exclude comparables|such as Kals Information Systems, Accel|Transmatics, Infosys Technologies Ltd, TataElxst Ltd, by relying on its earlier decisions|which have not reached finality and moreoverthe|TPOhasightly rchosen|the|Said.comparables considering the functions and as|the said comparables satisfies all the requiredtestsr 2.|Whether on the facts and in_ thecircumstances of the case, the Tribunal erred|in directing the TPO to exclude comparables|having RPT transactions of more than 15%)ignoring the TPO’s observation that the basis|fordeterminingthethreshold|limitforeliminatingcompanieshavingRPTtransactions more than 25% was through the|determination of Indian Companies’ with Date of Judgment 26-07-2018 I.T.A.No.456/2016 The Pr. Commissioner of Income-Tax & Anr., Vs. M/s. Arm Embedded Technologies Pvt.Ltd., 4/10 foreign shareholding greater than 26% andtherefore had its basis in the provisions of the|LT. Act?” 3.|The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue andRespondent-Assessee, has returned the findings as:7/4&, Regarding substantial question of law No.1: 17Theld.counselfortheaSsSSCS Ssubmitted that 5 comparables at Sl. Nos.4,5,10,11 & 16 of the final set of comparablesselected by the TPO may be rejected as beingfunctionally dissimilar on the basis of decisionof the Tribunal in the case of CypressSemiconductor India P. Ltd. v. DCIT, ITANo.1167/Bang/ 2010 dated 27.03.2015. Therelevant paragraphs of the Tribunal’s orderare as follows:- 4/10 foreign shareholding greater than 26% andtherefore had its basis in the provisions of the|LT. Act?” 3.|The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue andRespondent-Assessee, has returned the findings as:7/4&, Regarding substantial question of law No.1: 17Theld.counselfortheaSsSSCS Ssubmitted that 5 comparables at Sl. Nos.4,5,10,11 & 16 of the final set of comparablesselected by the TPO may be rejected as beingfunctionally dissimilar on the basis of decisionof the Tribunal in the case of CypressSemiconductor India P. Ltd. v. DCIT, ITANo.1167/Bang/ 2010 dated 27.03.2015. Therelevant paragraphs of the Tribunal’s orderare as follows:- XXXXXXXX Date of Judgment 26-07-2018 I.T.A.No.456/2016 The Pr. Commissioner of Income-Tax & Anr., Vs. M/s. Arm Embedded Technologies Pvt.Ltd., 5/10 KALS Information Systems Ltd. XXXX XXXX| Accel Transmatic Ltd. XXXX XXXXXXXXXXXX Lucid Software Ltd. XXXX| Infosys Technologies Ltd: XXXXXXXX| Flextronics Software Systems Ltd: XXXX XXXX| Tata Elxsi Limited: XXXX Date of Judgment 26-07-2018 I.T.A.No.456/2016 The Pr. Commissioner of Income-Tax & Anr., Vs. M/s. Arm Embedded Technologies Pvt.Ltd., 6/10 18.Respectfully following the coordinateBench decision of this Tribunal in the case ofCypress Semiconductor India P. Ltd. (Supra),we direct that the 4 companies viz., InfosysLtd., KALS Infosystems Ltd., Tata Elxs1 (Seg.)and Accel Transmatic Ltd. being functionallydissimilar be excluded from the final list ofcomparables selected by the TPO.” Regarding substantial question of law|No.2: >)). Ihe ld. counsel for the assessee nextsubmitted that 3 comparables at SLNo. 1, 2 &|1& of the final comparables of the TPO having|more than 15% Related Party Transactions|be.rejectedas|heldin|24/7Customer.comVv.DCIT|(ITANo.227/ Bang/ 2010and.CypressSemiconductor India Pl. Ltd. (supra). The|observations of the Tribunal at paras 22 &|23 in the case of Cypress SemiconductorIndia Put. Ltd. (supra) in this regard are as|follows:-| XXXXXXXX Date of Judgment 26-07-2018 I.T.A.No.456/2016 The Pr. Commissioner of Income-Tax & Anr., Vs. M/s. Arm Embedded Technologies Pvt.Ltd., 7/10 23.Respectfully following the decision ofthe coordinate Bench of this Tribunal in the|case of Cypress Semiconductor India P. Ltd.|(supra), we direct that the companies UiZz.,Aztech Software Ltd. and Megasoft Ltd.wherein the related party transactions exceed|15% be excluded from the list of comparables|chosen by the TPO.” 4The controversy involved herein is no moreres integra)in view of the decision of this Court in1.T.A.Nos.536/2015|c/w537/2015dated25.06.2018[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.260-A of the Act, is not maintainable. The relevant,portion of the Judgment is quoted below for ready&414&47>4, “§ Conclusion: 038. A substantial quantum of internationaltrade and transactions depends upon the fair and Date of Judgment 26-07-2018 I.T.A.No.456/2016 The Pr. Commissioner of Income-Tax & Anr., Vs. M/s. Arm Embedded Technologies Pvt.Ltd., 8/10 quick 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 inthe case of Vodafone etc.), | based on relevantfacts, such substantial questions of law could |be raised before the High Court underSection| “§ Conclusion: 038. A substantial quantum of internationaltrade and transactions depends upon the fair and Date of Judgment 26-07-2018 I.T.A.No.456/2016 The Pr. Commissioner of Income-Tax & Anr., Vs. M/s. Arm Embedded Technologies Pvt.Ltd., 8/10 quick 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 inthe case of Vodafone etc.), | based on relevantfacts, such substantial questions of law could |be raised before the High Court underSection| 260-A|of the Act, the Courts could haveembarked upon such exercise of framing andanswering 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 of Date of Judgment 26-07-2018 I.T.A.No.456/2016 The Pr. Commissioner of Income-Tax & Anr., Vs. M/s. Arm Embedded Technologies Pvt.Ltd., 9/10 Section 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 goodcomparables 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. &. The appeals filed by the Revenue are)therefore dismissed with no order as to costs.” 5In the circumstances, having heard the learned Counsel appearing for both the sides, We are of the considered opinion that no substantial question oflaw arises for consideration in the present case. | 10/10 6. Hence, the Appeal filed by the Appellants- Revenue is liable to be dismissed and is accordingly dismissed.No costs. | Sd/-.JUDGE Sd/-JUDGE TL