Date Of Judgment 29-06-2018, Ita v. M/S Net Scout Systems Software India P. Ltd

IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 29 DAY OF JUNE 2018 PRESENT THR HON’BLEK DR.JUSTICE VINBBT KOTHARI ANT) THR HON’BLE MRS..JUSTICK S.SUJATHA I.T.A. No.65/2016 BETWEEN : 1.Pr. COMMISSIONER OF INCOME TAX-)5 C.R.BUILDING, QUEENS ROAD, BANGALORE -560001. «|THE INCOME TAX OFFICER WARD-12(1), BANGALORE. . APPELLANTS| (BY SRI E.I.SANMATHI, ADV.) AND : M/s NET SCOUT SYSTEMS|SOFTWARE INDIA P. LTD.,.MANYATA EMBASSY BUSINESS PARK,SILVER FLR, BLOCK Lo-WING B, 7 FLOOR,RACHENAHALLI NAGAWARA VILLAGE, RANG ROAD, OUTER RING ROAD,BANGALORE -560045.PAN: AAICSOO44E._. RESPONDENT. (BY SRI K.MALLAHARAO & SRI SANDEEP KARHAIL, ADVS.) THIS [TA IS FILED UNDER SECTION 260-A OF INCOME|TAX ACT 1961, ARISING OUT OF ORDER DATED 30.07.2015)PASSEDIN|IT(TP)ANO.1312/BANG/2012,FORTHEASSEKBSSMEBENT YRBAR 2009-2010. PRAYING TO DECIDEFOREGOING QUESTION OF LAW AND/OR SUCH OTHER, Date of Judgment 29-06-2018, ITA No.65/2016 Pr. Commissioner of Income Tax-5 & another Vs. M/s Net Scout Systems Software India P. Ltd. 2/9 QUESTIONS OF LAW AS MAY BE FORMULATED BY THE)HON'BLKE COURT AS DEBEBMBD FIT AND SHBT ASIDE APPELLATE ORDER DATED 30.07.2019 PASSED BY THE ITAT,'C']BENCH,BENGALURU,AS|SOUGHTFOR,IN|THERESPONDENT-ASSESSEE'S CASE, IN APPEAL PROCEEDINGS IN|IT(TP)A NO.1312/BANG/2012 FOR A.Y.2009-10 & GRANT SUCH)OTHEBR RBELIBEF AS DBEMBED F Dr. VINEET KOTHARI, J., DELIVERED THE FOLLOWING: THIS APPEAL COMING ON FOR HEARING, THIS DAY, JU DBiGMENT Mr. E.I.Sanmathi, Adv. for Appellants - | Mr. K.Mallaharao & Mr. Sandeep Karhail,Advs. torRespondent - This Appeal is filed by the Revenue purportedlyraising substantial questions of law arising from theOrder of the Income Tax Appellate Tribunal, &'(Bench, Bangalore, inIT A. No.1312/Bang/2012dated 30.07.2015(NetScout Systems Softwawre India P.Ltd. -v- Income-tax Officer), relating to the Assessment Year2009-10. 2. The proposed substantial questions of law framed by the Revenue in the Memorandum of Appealare as under: Date of Judgment 29-06-2018, ITA No.65/2016 Pr. Commissioner of Income Tax-5 & another Vs. M/s Net Scout Systems Software India P. Ltd. 3/9 H1.Whether on the facts and circumstances of thecase, the Tribunal ts right in holding that the sizeand turnover of the company are decidingfactors for treating a company as a comparableand accordingly erred in excluding comparables,such as, Tata Elxsi Ltd., Sasken CommunicationTech|Ltd.,PersistantoystemsLtd., Zylogsystems Ltd., Mindtree Ltd. and L & T Infotech,by relying upon the decision in the case ofGenisys Integrating Systems v/s DCIT and othercases when the sqid decisions have not reachedfinality and failing to consider the materials onrecord? 2. Whether, on the facts and circumstances ofthe case, the Tribunal has erred in holding thatthe functions of taxpayer is not comparable tothe functions of KALS Information Systems Ltd.and Bodh Tree by following the decision in thecase of M/s Cisco Systems India Put. Ltd., whichhas not reached finality and without consideringthe materials available on record?| Date of Judgment 29-06-2018, ITA No.65/2016 Pr. Commissioner of Income Tax-5 & another Vs. M/s Net Scout Systems Software India P. Ltd. 4/9 3. Whether, on the facts and circumstances ofthe case, the Tribunal is right in holding that ifan expense has direct nexus with Revenue, ithas to be taken as operating cost and furthererred in holding that ifforeign exchange gain isconsidered as part of operating revenue itnaturally follows that foreign exchange losseshave to be considered a part of operating cost?” a2The learned Tribunal, after discussing therival contentions of both the Appellant-Revenue and Respondent-Assessee, has returned a finding as under:| Date of Judgment 29-06-2018, ITA No.65/2016 Pr. Commissioner of Income Tax-5 & another Vs. M/s Net Scout Systems Software India P. Ltd. 4/9 3. Whether, on the facts and circumstances ofthe case, the Tribunal is right in holding that ifan expense has direct nexus with Revenue, ithas to be taken as operating cost and furthererred in holding that ifforeign exchange gain isconsidered as part of operating revenue itnaturally follows that foreign exchange losseshave to be considered a part of operating cost?” a2The learned Tribunal, after discussing therival contentions of both the Appellant-Revenue and Respondent-Assessee, has returned a finding as under:| H14.|Coming to the argument of Ld. AR thatKals Information Systems Ltd. and Bodhtree|Consulting Ltd. have to be excluded on the basisof functionality, we find that the issue had come|up before this Tribunal in the case of CuiscoSystems India Ltd. (supra), which also was for the|very same assessment year. Vis-a-vis Bodhtree|Consulting Ltd. it was held as under: NXXXXX Date of Judgment 29-06-2018, ITA No.65/2016 Pr. Commissioner of Income Tax-5 & another Vs. M/s Net Scout Systems Software India P. Ltd. 5/9 1S.Vis-a-vis Kals Information Systems Ltd. itwas held as under:| XXXXXX Accordingly,WE|directexclusion.of|Kals|Information Systems and Bodhtree Consulting Ltd.from the list of companies. 1] 7Now we take up appeal of the Revenue. Inthis appeal, its sole grievance raised by the.Revenue is that CIT (A) held foreign exchange|gain/loss to be operating in nature’ withoutascertaining the nexus of such income/loss with|the business activity of the assessee. Ld. DRsubmitted that establishing the business nexus oftheforexgain/ lossWas|essentialbefore|considering such gain/loss as operational in|nature. LY.We have perused the orders and heardthe rival contentions. Financials of the assesseefor the relevant assessment year has_ beenreproduced by us at para four above. Whole of therevenue earned by the assessee were on accountof exports. Hence, ground of the Revenue that the| Date of Judgment 29-06-2018, ITA No.65/2016 Pr. Commissioner of Income Tax-5 & another Vs. M/s Net Scout Systems Software India P. Ltd. 6/9 orex gain/loss would have been from some other dsource other than the business of the assessee|cannot be accepted unless such contention 1tssubstantiated. Ld. DR was unable to produce|anything before us that forex gain/loss were not|associated with expert earning of the assessee.|Especially so since assessee’s earnings were|entirely from exports. Therefore, we do not find|any merit in this ground raised by the Revenue. It|stands dismissed.” 4. The controversy involved herein is no moreTeSintegrain view of the decision of this Court inL.T.A.Nos.536/2015 c/w 537/2015dated|25.06.2018 (Prl.Commissioner of Income Tax & Anr. -v- M/s’Softbrands India Pvt. Ltd.,) Wherein it has been|observed that unless the finding of the Tribunal is foundex facie- perverse, the Appeal u/s. 260-A of the Act, is Date of Judgment 29-06-2018, ITA No.65/2016 Pr. Commissioner of Income Tax-5 & another Vs. M/s Net Scout Systems Software India P. Ltd. 7/9 maintainable. The relevant portion of the Judgment isquoted below for ready reference: “Conclusion: 4. The controversy involved herein is no moreTeSintegrain view of the decision of this Court inL.T.A.Nos.536/2015 c/w 537/2015dated|25.06.2018 (Prl.Commissioner of Income Tax & Anr. -v- M/s’Softbrands India Pvt. Ltd.,) Wherein it has been|observed that unless the finding of the Tribunal is foundex facie- perverse, the Appeal u/s. 260-A of the Act, is Date of Judgment 29-06-2018, ITA No.65/2016 Pr. Commissioner of Income Tax-5 & another Vs. M/s Net Scout Systems Software India P. Ltd. 7/9 maintainable. The relevant portion of the Judgment isquoted below for ready reference: “Conclusion: 55.Asubstantial quantumof|international trade and transactions dependsupon 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.), 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. Date of Judgment 29-06-2018, ITA No.65/2016 Pr. Commissioner of Income Tax-5 & another Vs. M/s Net Scout Systems Software India P. Ltd. 8/9 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 arysubstantial question of law. 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|7s “ArmLength Price“in the case of the assesseeswith which the assessees may not be|satisfied and have filed such appeals before Date of Judgment 29-06-2018, ITA No.65/2016 Pr. Commissioner of Income Tax-5 & another Vs. M/s Net Scout Systems Software India P. Ltd. 9/9 this 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. o8. The appeals filed by the Revenue are|therefore dismissed with no order as_ tocosts.” 4In the circumstances, having heard thelearned Counsel appearing for both the sides, We are ofthe considered opinion that no substantial question oflaw arises for consideration in the present case. | Hence, the Appeal filed by the Appellant-Revenueis liable to be dismissed and is accordingly dismissed. —No costs. In. Sd/-.JUDGE| Sd/-.JUDGE|