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.66/2016 BETWEEN : 1.Pr. COMMISSIONER OF INCOME TAX-)5 C.R.BUILDING, QUEENS ROAD, BANGALORE -560001. «|THE INCOME TAX OFFICERWARD-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.1290/BANG/2012,FORTHEASSEBESSMEBENT YBAR 2JOO9O-2010. PRAYING TO: 1. DECIDFOREGOING QUESTION OF LAW AND/OR SUCH OTHER, Date of Judgment 29-06-2018, ITA No.66/2016 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.1290/BANG/2012 FOR A.Y.2009-10 & GRANT SUCH.OTHEBR RBELIBEF AS DBEMBED F THIS APPEAL COMING ON FOR HEARING, THIS DAY,Dr. VINEET KOTHARI, J., DELIVERED THE FOLLOWING: JU DBiGMENT Mr. E.I.Sanmathi, Adv. for Appellants - RevenueMr. K.Mallaharao & Mr. Sandeep Karhail,Advs. torRespondent - Assessee 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.1290/Bang/2012dated 30.07.2015(NetScout Systems Softwawre India P.Ltd. -v- Income-tax Officer), relating to the Assessment Year2009-10. 2. The admitted substantial questions of lawframed by the Revenue in the Memorandum of Appealare as under: Date of Judgment 29-06-2018, ITA No.66/2016 Pr. Commissioner of Income Tax-5 & another Vs. M/s Net Scout Systems Software India P. Ltd. M/s Net Scout Systems Software India P. Ltd. 3/9 (1)“Whether, on the facts and circumstances ofthe case, the tribunal is right in holding that|the size and turnover of the company are|deciding factors for treating a company as a|comparableandaccordinglyerredinexcluding comparables, such as, Tata Elxs1|Ltd.,Sasken|Communicationtech|Ltd., Persistent Systems Ltd., Zylog Systems Ltd.,|Zylog Systems Ltd., Mindtree Ltd and L&Tribunal Infotech, by relying upon the|decision in the case of Genisys Integrating|systems v/s. DCIT and other cases when the|said decisions have not reached finality andfailing to consider the materials on record?|the case, the tribunal is right in holding that|the size and turnover of the company are|deciding factors for treating a company as a|comparableandaccordinglyerredinexcluding comparables, such as, Tata Elxs1|Ltd.,Sasken|Communicationtech|Ltd., Persistent Systems Ltd., Zylog Systems Ltd.,|Zylog Systems Ltd., Mindtree Ltd and L&Tribunal Infotech, by relying upon the|decision in the case of Genisys Integrating|systems v/s. DCIT and other cases when the|said decisions have not reached finality andfailing to consider the materials on record?| (2)Whether, on the facts and circumstances ofthe case, the Tribunal has erred in holding|thatthefunctionsof|taxpayer1Snotcomparable to _ the functions of KALSInformation systems Ltd, and Bodh Tree byfollowing the decision in the case of M/s.Cisco Systems India Put. Ltd., which has not|reached finality and without considering the|materials aquailahble on recordthe case, the Tribunal has erred in holding|thatthefunctionsof|taxpayer1Snotcomparable to _ the functions of KALSInformation systems Ltd, and Bodh Tree byfollowing the decision in the case of M/s.Cisco Systems India Put. Ltd., which has not|reached finality and without considering the|materials aquailahble on record (2)Whether, on the facts and circumstances ofthe case, the Tribunal has erred in holding|thatthefunctionsof|taxpayer1Snotcomparable to _ the functions of KALSInformation systems Ltd, and Bodh Tree byfollowing the decision in the case of M/s.Cisco Systems India Put. Ltd., which has not|reached finality and without considering the|materials aquailahble on recordthe case, the Tribunal has erred in holding|thatthefunctionsof|taxpayer1Snotcomparable to _ the functions of KALSInformation systems Ltd, and Bodh Tree byfollowing the decision in the case of M/s.Cisco Systems India Put. Ltd., which has not|reached finality and without considering the|materials aquailahble on record Date of Judgment 29-06-2018, ITA No.66/2016 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|uf an expense has direct nexus with Revenue,it has to be taken as operating cost and|further erred in holding that tf foreignexchange gain 1s considered as part of|operating revenue it naturally follows thatforeign exchange losses have to be considereda part of operating cost ?”the case, the Tribunal is right in holding that|uf an expense has direct nexus with Revenue,it has to be taken as operating cost and|further erred in holding that tf foreignexchange gain 1s considered as part of|operating revenue it naturally follows thatforeign exchange losses have to be considereda part of operating cost ?” a2The learned Tribunal, after discussing therival contentions of both the Appellant-Revenue andRespondent-Assessee, has returned a finding as under:| H14. Coming to the argument of Ld. AR thatKals Information Systems Ltd. and BodhtreeConsulting Ltd. have to be excluded on the|basis of functionality, we find that the tissuehad come up before this Tribunal in the case|of Cisco Systems India Ltd. (supra), which|also was for the very same assessment year.Vis-a-vis Bodhtree Consulting Ltd. it was heldas under: Date of Judgment 29-06-2018, ITA No.66/2016 Pr. Commissioner of Income Tax-5 & another Vs. M/s Net Scout Systems Software India P. Ltd. 5/9 NXXXXX 15.Vis-a-vis Kals Information Systems Ltd.it was held as under:| NXXXXX Accordingly, we direct exclusion of Kals.Information Systems and Bodhtree Consulting|Ltd. from the list of companies. 17.Now we take up appeal of the Revenue.In this appeal, its sole grievance raised by theRevenue is that CIT (A) held foreign exchangegain/loss to be operating in nature withoutascertaining the nexus of such income/loss|with the business activity of the assessee. Ld.DR submitted that establishing the business.nexus of the forex gain/loss was essential|beforeconsideringsuchgain/ lossasoperational in nature. LY.We have perused the orders and heardthe rival contentions. Financials|of theassessee for the relevant assessment year|has been reproduced by us at para four|above. Whole of the revenue earned by the|assessee were on account of exports. Hence, Date of Judgment 29-06-2018, ITA No.66/2016 Pr. Commissioner of Income Tax-5 & another Vs. M/s Net Scout Systems Software India P. Ltd. 6/9 ground of theRevenuethatthe forex|gain/ loss would have been from some othersource other than the business of theassessee cannot be accepted unless such|contention iS substantiated. Ld. DR was)unable to produce anything before us that|forex gain/loss were not associated withexpert earning of the assessee. Especially so|since assessee’s earnings were entirely fromexports. 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 beenobserved that unless the finding of the Tribunal is foundex facieperverse, the Appeal u/s. 260-A of the Act, is.not maintainable. The relevant portion of the Judgmentis quoted below for ready reference: 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 beenobserved that unless the finding of the Tribunal is foundex facieperverse, the Appeal u/s. 260-A of the Act, is.not maintainable. The relevant portion of the Judgmentis quoted below for ready reference: Date of Judgment 29-06-2018, ITA No.66/2016 Pr. Commissioner of Income Tax-5 & another Vs. M/s Net Scout Systems Software India P. Ltd. 7/9 “Conclusion: 55.Asubstantial quantumof|international trade and transactions depends|upon the fair and quick judicial dispensation|in such cases. Had it been a case of|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.), uf 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, Futers for|arriving at the correct list of comparables|have been rightly applied or not, do not in our| Date of Judgment 29-06-2018, ITA No.66/2016 Pr. Commissioner of Income Tax-5 & another Vs. M/s Net Scout Systems Software India P. Ltd. 8/9 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|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|7s “ArmLength 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| Date of Judgment 29-06-2018, ITA No.66/2016 Pr. Commissioner of Income Tax-5 & another Vs. M/s Net Scout Systems Software India P. Ltd. 9/9 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 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. | Hence, the Appeal filed by the Appellant-Revenue is liable to be dismissed and is accordingly dismissed. —No costs. In. Sd/-.JUDGE. Sd/-.JU DGE