Date Of Judgment 27-08-2018, Ita v. M/S. Aol Online India Pvt. Ltd

IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 27 DAY OF AUGUST 2018. PRESENT THR HON’BLEK DR.JUSTICE VINBBT KOTHARI ANT) THR HON’BLE MRS.JUSTICEK S.SUJATHA I.T.A. No.998/2017 BETWEEN : 1.THE PR. COMMISSIONER OF INCOME-ITAX "[‘T]FLOOR, BMTC BUILDING 80 FEET ROAD, KORMANGALA| BENGALURU-560095.. «|THERE DEPUTLY COMMISSIONOF INCOME-TAX.OF INCOME-TAX. CIRCLE-11]1], PRESENT ADDRESS—CIRCLE-1]1]}1], 2 KLOOR,BMTC BUILDING, 80 FEET ROADCIRCLE-1]1]}1], 2 KLOOR,BMTC BUILDING, 80 FEET ROAD KORMANGALA BBENGALURU-560095._ APPBLLANTS| (BY SRI DILIP, ADV. FOR SRI K.V.ARAVIND, ADV.) AND ; M/s. AOL ONLINE INDIA PVT. LTD.,RMZ BKCOSPACEHK CAMPUS OUTER RING ROAD, BELLANDUR,BBNGALURU-560013PAN: AABCN 2578G. _. RESPONDENT. (BY SRI B.S.BALACHANDRAN, ADV.) THIS INCOMB TAX APPBAL IS FILED UNDER SECTION|260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER| Date of Judgment 27-08-2018, ITA No.998/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. AOL Online India Pvt. Ltd., DATED 09.06.2017, PASSED IN IT/TPJA No.54/BANG/2014, FOR:THE ASSESSMENT YEAR 2009-2010 VIDE ANNEXURE-D,|PRAYING TO: i] FORMULATE THE SUBSTANTIAL QUESTIONS OF)LAW STATED ABOVE; 1i] ALLOW THE APPEAL AND SET ASIDE.THR ORDERS PASSED BY THR [NCOMB-TAX APPELLATE|TRIBUNAL, BENGALURU IN IT/TP|A No.54/BANG/2014 DATED)09.06.2017 VIDE ANNEBEXURE-D CONFIRMING THR ORDER OTHER DRP AND CONFIRM THR ORDER PASSBD BY THE DEBPUTCOMMISSIONER OF INCOME TAX, CIRCLE-1[1][1], BENGALURU|AND BIC. THIS APPEAL COMING ON FOR ORDERS, THIS DAY,|S. SUJATHA, J., DELIVERED THE FOLLOWING: JU DBiGMENT Mr. Dilip,Adv. forMr. K.V.Aravind,Adv. for’Appellants — Revenue.Mr. B.S.Balachandran,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 ‘B’, Bangalore, inIT[TP|A No.54/Bang/2014 dated|09.06.2017, relating to the Assessment Year2009-10. a2The substantial questions of law framed bythe Revenue in the Memorandum of Appeal are asunder: Date of Judgment 27-08-2018, ITA No.998/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. AOL Online India Pvt. Ltd., 3/11 aWhether on the facts and in thecircumstances of the case and in law, theTribunal1Srightinholding thatcertaincomparable’s cannot be taken as comparablebeing functionally different when it satisfies allthe qualitatie and quantative filters applied bythe.TPOandwithoutacknowledgingthatdetermination of Arms Length Price by carryingout comparability analysis of the comparablecompanies is an art and not exact science as notwo companies are exactly same? D2 Whether on the facts and in thecircumstances of the case, the Tribunal ts right in|law in setting aside the re-computation of 10Adeduction made by assessing authority byfollowing the judgment of this Hon’ble High Courtin the case of CIT v/s. Tata Elxi even though thesaid decision has not reached finality and theassessingauthority recomputedtheLOAdeduction as per the provisions of the Act?”| Regarding Substantial Question of Law No.2: 3.The issue is covered by the decision of theHon’ble Supreme Court in the case of|Commissioner of Date of Judgment 27-08-2018, ITA No.998/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. AOL Online India Pvt. Ltd., 4/11 Income-tax, Central -— III vs. HCL Technologies Ltd.,[2018] 93 Taxmann.com 33(SC). 4The relevant portion of the judgment of theHon'blesupremeCourtin.theCaSE€oT|HCL|Technologies Ltd. (supra),is quoted below for readyreference:-. Regarding Substantial Question of Law No.2: 3.The issue is covered by the decision of theHon’ble Supreme Court in the case of|Commissioner of Date of Judgment 27-08-2018, ITA No.998/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. AOL Online India Pvt. Ltd., 4/11 Income-tax, Central -— III vs. HCL Technologies Ltd.,[2018] 93 Taxmann.com 33(SC). 4The relevant portion of the judgment of theHon'blesupremeCourtin.theCaSE€oT|HCL|Technologies Ltd. (supra),is quoted below for readyreference:-. “17. The similar nature of controversy, akinthis 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 beexcluded from the total turnover tf the same are.reduced from the export turnoverPr 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 is tobe attributed to it, the said ordinary meaning is tobe in conformity with the context in which it is.used. Hence, what is excluded from ‘exportturnover’ must also be excluded from ‘totalturnover’, since one of the components of ‘total| Date of Judgment 27-08-2018, ITA No.998/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. AOL Online India Pvt. Ltd., 5/11 turnover’1S|exportTurnover,Anyother|interpretation 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. 20. Even in common parlance, when the|object of the formula is 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”. Date of Judgment 27-08-2018, ITA No.998/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. AOL Online India Pvt. Ltd., 6/11 5.The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and Respondent-Assessee, has returned the findings as under: Regarding Substantial Question of Law No.1: ¢[2| M/s Bodhtree Consulting Ltd., KVM 12.|Further for exclusion of BodhtreeConsulting Ltd., reliance was also placed on the|decision of the coordinate bench of the Tribunal inthe case of M/s. Sunquest Information Systems|[India]P. Ltd.,in|IT/TPJANo. 16040%1666/ Bang/ 2014, dated 27.05.2016, wherein ipara 20, it was held as under: KVM Following the above, we direct the AO/TPO|to exclude Bodhtree Consulting Ltd., from thefinal list of comparables. [3] M/s Tata Elxst Ltd., KVeVNKK” Date of Judgment 27-08-2018, ITA No.998/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. AOL Online India Pvt. Ltd., 7/11 14.since ld. DR of the revenue could notpoint out any difference in facts, respectfullyfollowing these Tribunal orders, we direct theAO/TPO to exclude this company also from thelist offinal comparables. [4] Persistent Systems Ltd., KVeVNKK” KVM Following the above, we direct the AO/TPO|to exclude Bodhtree Consulting Ltd., from thefinal list of comparables. [3] M/s Tata Elxst Ltd., KVeVNKK” Date of Judgment 27-08-2018, ITA No.998/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. AOL Online India Pvt. Ltd., 7/11 14.since ld. DR of the revenue could notpoint out any difference in facts, respectfullyfollowing these Tribunal orders, we direct theAO/TPO to exclude this company also from thelist offinal comparables. [4] Persistent Systems Ltd., KVeVNKK” 1S.We|have.consideredthe|rivalsubmissions. We find that in this case, theTribunal has followed another tribunal orderrendered in the case of Yodlee Infotech Ltd., v.ITO [IT | Appeal No.108 [Bang] of 2014]. Therelevant portion of that Tribunal order is_ reproduced above and as per the same, this’company te., M/s. Persistent Systems Ltd., wasin product designing services and into softwareproductdevelopment. Sincethe aAsSSCSSCcompany is only providing software developmentservices to the AE, therefore Persistent SystemsLtd., cannot be considered as a comparable in thepresentcase,as|(Osoftwaredevelopmentcompany can not be compared with Softwareproduct company. Since the ld. DR of the revenuecould not point out any difference in the facts, by|respectfully following this Tribunal order, we Date of Judgment 27-08-2018, ITA No.998/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. AOL Online India Pvt. Ltd., direct the AO/TPO for exclusion of this companyfrom the final list of comparable. ~| 6.Similarly,thelearnedTribunal|has considered the other comparables and excluded theSame. T.However, this Court in a recent judgment in I.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 the said judgment is quoted below for ready reference: “Conclusion: 55.Asubstantial quantumof|international trade and transactions depends| Date of Judgment 27-08-2018, ITA No.998/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. AOL Online India Pvt. Ltd., 9/11 upon the fair and quick judicial dispensation|in such cases. Had it been a case oOf|substantial questionof|interpretationof|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.On the other hand, the appeals of the present|tenor as to whether the comparables have.been rightly picked up or not, Filters for|arriving at the correct list of comparables|have been rightly applied or not, do not in our|consideredopinion,|giverisetO arysubstantial question of law. Date of Judgment 27-08-2018, ITA No.998/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. AOL Online India Pvt. Ltd., 10/11 06. Weare therefore of the consideredopinion that the present appeals filed by the|Revenue do not give rise to any substantialquestionof|law.andthe|Suggested|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. Date of Judgment 27-08-2018, ITA No.998/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. AOL Online India Pvt. Ltd., 10/11 06. Weare therefore of the consideredopinion that the present appeals filed by the|Revenue do not give rise to any substantialquestionof|law.andthe|Suggested|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 27-08-2018, ITA No.998/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. AOL Online India Pvt. Ltd., 11/11 o8. The appeals filed by the Revenueare therefore dismissed with no order as to|costs.” 8.Havingheardthelearnedcounsels. 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|