Date Of Judgment 30-07-2018, Ita v. M/S Arm Embedded Technologies Pvt. Ltd

IN THE HIGH COURT OF KARNATAKA, BENGALURUDATED THIS THR 30 DAY OF JULY 2O18| PRESENT THR HON’BLEK DR.JUSTICE VINBBT KOTHARI ANT) THERE HON’BLE MRS.JUSTICEHK S.SUJA I.T.A. No.457/2016 BETWEEN : 1.|THE Pr. COMMISSIONBR OF INCOMBE-TAX#[‘T]FLOOR, BMTC BUILDING,80 FEET ROAD, KORAMANGALA,BBENGALURU 560 095.#[‘T]FLOOR, BMTC BUILDING,80 FEET ROAD, KORAMANGALA,BBENGALURU 560 095. «|THERE DBPUTY COMMISSIONER OFINCOME-TAX, CIRCLE-11(1),PRESENT ADDRES.CIRCLE-1(1)(1), 2[()]FLOOR, ~BMTC BUILDING, 80 FEET ROAD, |KORAMANGALA,BBENGALURU-560 O48. _ APPBLLANTS| (BY SRI K.V.ARAVIND, ADV.) AND : M/s ARM EMBEDDEDTECHNOLOGIES PVT. LTD.,BAGMANB WORLD THCHNOLOGY|CENTER-SEZ, CITRINE BLOCK,#[‘T]Ce 6[‘L]KLOOR.MARATHAHALLI OUTER RING ROAD,DODDANAKUNDI VILALGE, MAHADEVAPURA,| Date of Judgment 30-07-2018, ITA No.457/2016 The Pr. Commissioner of Income Tax & another Vs. M/s ARM Embedded Technologies Pvt. Ltd. 2/10 BBENGALURU-560 O48.PAN: AABCA 1582E _. RESPONDENT. (BY SRI SANDEEP HUILGOL, ADV. FOR SRI T.SURYANARAYANA, ADV.) THIS [TA IS FILED UNDER SECTION 260-A OF INCOME|TAX ACT 1961, ARISING OUT OF ORDER DATED 01/12/2015.PASSED IN ITA NO.1161/BANG/2011, FOR THE ASSESSMENTYREAR 2007-2008 ANNBEXURE-D. PRAYING TO: 1. FORMULATTHE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE. 2. ALLOW THR APPBAL AND SBT ASIDE THR ORDERS PASSBD BY)THE ITAT, BENGALURU IN IT(TP)A NO.1161/BANG/2011 DATED)01/12/2015 ANNEXURE-D AND CONFIRM THE ORDER OF THE.DRP CONFIRMING THR ORDER PASSEBKD BY THR DEBPUCOMMISSIONER OF INCOME TAX, CIRCLE-1(1)(1), BENGALURU.| THIS APPEAL COMING ON FOR HEARING, THIS DAY,|S. SUJATHA, J., DELIVERED THE FOLLOWING: JU DBiGMENT Mr. K.V.Aravind,Adv. for Appellants — Revenue.Mr. Sandeep Huilgol,Adv. for.Mr. T.Suryanarayana, Adv. Respondent — Assessee. | This Appeal is filed by the Revenue purportedlyraising substantial questions of law arising from theOrder of the Income Tax Appellate Tribunal,6A?Bench,Bangalore, inIT A No.1161/Bang/2011dated 1.132.2015relating to the Assessment Year2007-08. Date of Judgment 30-07-2018, ITA No.457/2016 The Pr. Commissioner of Income Tax & another Vs. M/s ARM Embedded Technologies Pvt. Ltd. 3/10 2. This Appeal has been admitted on|19.04.2018 to consider the following substantial questions of law: Hl..WhetherOF|the factsandin|the circumstances of the case, the Tribunal erred indirecting the TPO to exclude comparables such asKALSInformationsystems,AvantCimconTechnologies, Infosys Technologies Ltd., CelestialLabs Ltd., M/s Lucid Software Ltd., Tata ElxsiLtd., Wipro Ltd., Ishir Infotech Ltd., Megasoft Ltd.by relying on its earlier decisions which have notreached finality and moreover the TPO has rightlychosen the said comparables considering thefunctions and as the said comparables satisfiesall the required tests? D2 WhetherOnlthe factsandin|thecircumstances of the case, the Tribunal erred indirecting the TPO to exclude comparables havingRPT transactions of more than 15% ignoring toTPO’s observation that the basis for determiningthe threshold limit for eliminating companieshaving RPT transactions more than 25% wasthrough the determination of Indian Companieswith foreign shareholding greater than 26% andtherefore had its basis in the provisions of the[T.Act?” Date of Judgment 30-07-2018, ITA No.457/2016 The Pr. Commissioner of Income Tax & another Vs. M/s ARM Embedded Technologies Pvt. Ltd. 4/10 3. The learned Tribunal, after discussing the rivalcontentionsoT|boththeAppellant-RevenueandRespondent-Assessee, has returned the findings asunder: Regarding Substantial Question of Law No.1: “ 18. Respectfully following the coordinate Benchdecision of this Tribunal in the case of Cypresssemiconductor India P. Ltd (Supra), we direct that the 4companies viz., Infosys Ltd, KALS infosystems lItd., TataEBlxs1(seg), andAccelTransmatics|Ltd.,beingfunctionally dissimilar be excluded from the final list ofcomparables selected by the TPO.| Date of Judgment 30-07-2018, ITA No.457/2016 The Pr. Commissioner of Income Tax & another Vs. M/s ARM Embedded Technologies Pvt. Ltd. 4/10 3. The learned Tribunal, after discussing the rivalcontentionsoT|boththeAppellant-RevenueandRespondent-Assessee, has returned the findings asunder: Regarding Substantial Question of Law No.1: “ 18. Respectfully following the coordinate Benchdecision of this Tribunal in the case of Cypresssemiconductor India P. Ltd (Supra), we direct that the 4companies viz., Infosys Ltd, KALS infosystems lItd., TataEBlxs1(seg), andAccelTransmatics|Ltd.,beingfunctionally dissimilar be excluded from the final list ofcomparables selected by the TPO.| 19. With respect to Lucid Software Ltd., since theassessee has raised additional ground before theTribunal that this company is functionally dissimilar,following the decision in case of M/s. Quark SystemsIndia (P) Ltd., (2011) 62 DTR O182 we set aside theissue to the file of the Assessing Office to examinewhether Lucid Software Ltd. is functionally dissimilar. Date of Judgment 30-07-2018, ITA No.457/2016 The Pr. Commissioner of Income Tax & another Vs. M/s ARM Embedded Technologies Pvt. Ltd. 5/10 o4. As regards the 3 companies viz., AccelTransmatics Ltd., Avani Cincom Technologies Ltd. andCelestial Labs, this Tribunal in the case of NXPsemiconductors India P. Ltd. (supra) has held asfollows: x XK XK oo. As regards Accel Transmatics Ltd. for A.Y.2006-07 we have already held in paras 17 & 18hereinabove that this company is to be excluded as acomparable. however, tor the present AY 2007-08, sincewith regard to comparability of Accel Transmatics Ltd.,as functionally dissimilar, the assessee has raisedadditional ground before the Tribunal, we therefore setaside the issue to the file of the Assessing Officer toexamine whether it is functionally dissimilar, followingthe decision in case of M/s Quark Systems India (P)Ltd., (2011) 62f DTR 0182. 06. Respectfully following the decision of theTribunal in the case of NXP Semiconductors India Pvt. Date of Judgment 30-07-2018, ITA No.457/2016 The Pr. Commissioner of Income Tax & another Vs. M/s ARM Embedded Technologies Pvt. Ltd. 6/10 Ltd. (Supra), we direct the AP/TPO to exclude the 2companies viz., Avani Cincom Technologies Ltd., andCelestial Labs. from the final list of TPO’s comparablecompanies for the purpose of determining ALP. — Regarding Substantial Question of Law No.2: 23. Respectfully following the decision of thecoordinate Bench of this Tribunal in the case of Cypress_semiconductor India P. Ltd (Supra), we direct that thecompanies viz., Aztech Soitware Ltd. and Megasoit Ltd.,wherein the related party transaction exceed 19% beexcluded from the list of comparables chosen by theTPO. O4As regards Geometric Solutions Ltd., sincethe assessee has raised additional ground before theTribunal, we set aside the issue to the file of the.AssessingOfficerTO examinewhether|(Geometricsolutions Ltd. exceeds 159% RPT, following the decisionin case of Cypress Semiconductor India P. Ltd. (supra) /— Date of Judgment 30-07-2018, ITA No.457/2016 The Pr. Commissioner of Income Tax & another Vs. M/s ARM Embedded Technologies Pvt. Ltd. 7/10 M/s Quark Systems India (P) Ltd., (2011) 602 DTR0182.” 4. For the similar reasons, the Tribunal hasexcluded other comparables also. o. The controversy involved herein is no moreTeSintegrain view of the decision of this Court inI1.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 facie perverse, the Appeal u/s. 260-A of the Act, isnot maintainable. The relevant portion of the Judgmentis quoted below for ready reference: “Conclusion: 55.Asubstantial quantumof|international trade and transactions depends|upon the fair and quick judicial dispensation|in such cases. Had it been a case oOf| M/s Quark Systems India (P) Ltd., (2011) 602 DTR0182.” 4. For the similar reasons, the Tribunal hasexcluded other comparables also. o. The controversy involved herein is no moreTeSintegrain view of the decision of this Court inI1.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 facie perverse, the Appeal u/s. 260-A of the Act, isnot maintainable. The relevant portion of the Judgmentis quoted below for ready reference: “Conclusion: 55.Asubstantial quantumof|international trade and transactions depends|upon the fair and quick judicial dispensation|in such cases. Had it been a case oOf| Date of Judgment 30-07-2018, ITA No.457/2016 The Pr. Commissioner of Income Tax & another Vs. M/s ARM Embedded Technologies Pvt. Ltd. 8/10 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.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 anysubstantial question of law. 06. Weare therefore of the consideredopinion that the present appeals filed by the|Revenue do not give rise to any substantial Date of Judgment 30-07-2018, ITA No.457/2016 The Pr. Commissioner of Income Tax & another Vs. M/s ARM Embedded Technologies Pvt. Ltd. 9/10 questionof|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 cleqr that the sameyardsticks 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 “Arm Length 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. o8. The appeals filed by the Revenue are|therefore dismissed with no order as_ tocosts.” Date of Judgment 30-07-2018, ITA No.457/2016 The Pr. Commissioner of Income Tax & another Vs. M/s ARM Embedded Technologies Pvt. Ltd. 10/10 6. In the circumstances, having heard the learnedCounsel appearing for both the sides, We are of theconsidered opinion that no substantial question of lawarises for consideration in the present case. Hence, the Appeal filed by the Appellant-Revenueis liable to be dismissed and is accordingly dismissed. —No costs. Sd/-JUDGE| Sd/-.JUDGE|