Date Of Judgment 31-08-2018, Ita v. M/S. Arowan Consulting Ltd

IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 31 DAY OF AUGUST 2018 PRESENT THR HON’BLEK DR.JUSTICE VINBBT KOTHARI ANT) THR HON’BLE MRS.JUSTICEK S.SUJATHA I.T.A. No.374/2018 BETWEEN : 1.THE PR. COMMISSIONER OF INCOME TAX![‘T]FLOOR, BMTC BUILDING ~![‘T]FLOOR, BMTC BUILDING ~ 80 FEET ROAD, KORAMANGALA~ BBNGALURU — 560 095. «|THER INCOME-TAX OFFICER WARD 1 (1) 4, 2 KFLOOR|WARD 1 (1) 4, 2 KFLOOR| BMTC BUILDING, 80 FEET ROADKOARAMANGALA, BENGALURU —- 560 O95.KOARAMANGALA, BENGALURU —- 560 O95. ... APPELLANTS (BY SRI.DILIP, ADV. FOR SRI. K.V. ARAVIND, ADV. ) AND: M/S. AROWANA CONSULTING LTD.,NO 90/B, SURVEY NO 18~ MAIN, ELECTRONIC CITY PHASE - 1 |BBNGALURU — 560 100. _. RESPONDENT THIS INCOME TAX APPEAL IS FILED UNDER SECTION|2600-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDERDATED:23/10/2017 PASSED IN IT(TP)A NO.92/BANG/2017, FOR:THE ASSESSMENT YEAR 2012-2013 (VIDE ANNEXURE-D).PRAYING TO: 1. FORMULATE THE SUBSTANTIAL QUESTIONS|OF LAW STATED ABOVE.| Date of Judgment 31-08-2018, ITA No.374/2018 The Pr. Commissioner of Income Tax & Another Vs. M/s. Arowan Consulting Ltd., 2. ALLOW THER APPEAL AND SET ASIDE THE ORDERS PASSEDBY THE INCOME TAX APPELLATE TRIBUNAL, BENGALURU IN|IT(TPJA NO. 92/BANG/2017 DATED:23/10/2017 AND CONFIRM.THE ORDER OF THR DRP CONFIRMING THR ORDER PASSED BY)THE INCOME TAX OFFICER, WARD-1(1)(4), BENGALURU.(VIDE.ANNEXURE-D) AND ETC. | THIS APPEAL COMING ON FOR ORDERS, THIS DAY, |Ss. SUJATHA, », DELIVERED THE FOLLOWING: JU DBiGMENT Mr. Dilip, Adv.for Mr. K.V.Aravind,Adv. for Appellants|— Revenue.| This Appeal is filed by the Revenue purportedlyraising substantial questions of law arising from theOrder of the Income Tax Appellate Tribunal, Bangalore Bench ‘C’, Bangalore, inIT[TP|A No.52/Bang/2017dated|23.10.2017, (M/s Arowana Consulting Ltd., Vs.| The Income-Tax Officer) forAY 2012-13 2. The proposed substantial question of lawframedin.theMemorandumoT|Appealby|theAppellant/sRevenue1S.quotedbelowfor.ready|reference: _ Date of Judgment 31-08-2018, ITA No.374/2018 The Pr. Commissioner of Income Tax & Another Vs. M/s. Arowan Consulting Ltd., 3/9 “1.Whether, the Tribunal, on_ thefacts and in the circumstances of the case.was right in excluding certain comparables|from the list of comparables holding that theyare functionally different without appreciating|thatthe|comparablesSatisfy|allthequalitative and quantitative filters applied bythe TPO and that selection of Comparables in|a case depends on assessee specific FAR|analysis ?~ 3. The learned Tribunal, after discussing the rival contentions of both the Appellants/Revenue and theRespondent-Assessee, has given the following findings: Regarding Substantial Question of Law No.1: F5.As regards the issue of rejection of M/sAkshay Software Technology Limited, we findthat this company was accepted by the|Tribunal as a comparable for the Assessment|Year 2009-10 and again for the AssessmentYearQO! 1-12.TheTribunalfortheAssessment Year 2011-12 vide order dated| Date of Judgment 31-08-2018, ITA No.374/2018 The Pr. Commissioner of Income Tax & Another Vs. M/s. Arowan Consulting Ltd., 4/9 11.01.2017 in IT(TPJA No.157/ Bang/ 201has considered this issue in Para 9 as under: | XXXXXXX KXXXXKXXX KXXXXXXXK Though the functional comparability of this|company has to be examined for each|assessment year separately however, the|decision of the tribunal in assessee’s own|case are relevant guidelines which cannot be|ignored on some of the aspects of the|functional comparability. Accordingly, in viewof the above facts and circumstances of the|case and following the decisions of this|Tribunal in assessee’s own case, we setaside the entire TP issue to the record of the|TPO/A.O. for considering the comparability of Date of Judgment 31-08-2018, ITA No.374/2018 The Pr. Commissioner of Income Tax & Another Vs. M/s. Arowan Consulting Ltd., 4/9 11.01.2017 in IT(TPJA No.157/ Bang/ 201has considered this issue in Para 9 as under: | XXXXXXX KXXXXKXXX KXXXXXXXK Though the functional comparability of this|company has to be examined for each|assessment year separately however, the|decision of the tribunal in assessee’s own|case are relevant guidelines which cannot be|ignored on some of the aspects of the|functional comparability. Accordingly, in viewof the above facts and circumstances of the|case and following the decisions of this|Tribunal in assessee’s own case, we setaside the entire TP issue to the record of the|TPO/A.O. for considering the comparability of Akshay Software Techonology LimitedInthe light of the decisions of this Tribunal as|well as the functional comparability’ ofcompaniesselectedby|theTPOandparticularly applying on site revenue filter.There is no dispute that the assessee is.earning its 90% revenue from on site services|therefore, the TPO is directed to consider the| Date of Judgment 31-08-2018, ITA No.374/2018 The Pr. Commissioner of Income Tax & Another Vs. M/s. Arowan Consulting Ltd., on site revenue filter as the relevant factor for|the purpose of selecting the comparable. Since|the entire set of comparables selected by the|TPO does not satisfy on site revenue filter|therefore, the TPO 1s directed to carry out a|fresh search and also applied the on siterevenue filter. We further note that though the|aSsSSCSSChasshowntheinternationaltransactions as payment on account of supply|of man power to its Associated Enterprises|however, as per the agreement between the|assessee and its AE, the assessee has.formed a subsidiary in the middle east regionand outsourced its software development|services to its AE to be provided at on site ofthe clients of the assessee. Thus as per the|agreement the assessee has to pay the|service fees to the AE and it is not merely apayment of supply of man power. 9 |The learned Authorised Representativehas submitted that the TPO while computing|theArm’sLength Price(ALP)andconsequential adjustment took the operating|cost into consideration instead of operating| Date of Judgment 31-08-2018, ITA No.374/2018 The Pr. Commissioner of Income Tax & Another Vs. M/s. Arowan Consulting Ltd., 6/9 revenue. Because the operating cost itself isin dispute therefore, as per the OECD|Guidelines the margin of the assessee as well|as the comparable companies should be|based on the operating revenue instead of|total cost. Since we have set aside the enttre|TP issue to the record of the TPO therefore,|the TPO 1s directed to consider this contention|of the assessee while determining the ALP.” Oo. However, this Court in a recent judgment inI.T.A. Nos.536/2015 c/w 537/2015delivered on.25.06.2018 (Pri. Commissioner of Income Tax &Anr. -—v- M/s Softbrands India Pvt. Ltd,) has held)that in these type of cases, unless an ex-facieperversity in the findings of the learned Income TaxAppellate Tribunal is established by the appellant,the appeal at the instance of an assessee or theRevenue under Section YJ60-A of the Act 1s notmaintainable. Date of Judgment 31-08-2018, ITA No.374/2018 The Pr. Commissioner of Income Tax & Another Vs. M/s. Arowan Consulting Ltd., 7/9 The relevant portion of the said judgment isquoted below for ready reference: “Conclusion: Oo. However, this Court in a recent judgment inI.T.A. Nos.536/2015 c/w 537/2015delivered on.25.06.2018 (Pri. Commissioner of Income Tax &Anr. -—v- M/s Softbrands India Pvt. Ltd,) has held)that in these type of cases, unless an ex-facieperversity in the findings of the learned Income TaxAppellate Tribunal is established by the appellant,the appeal at the instance of an assessee or theRevenue under Section YJ60-A of the Act 1s notmaintainable. Date of Judgment 31-08-2018, ITA No.374/2018 The Pr. Commissioner of Income Tax & Another Vs. M/s. Arowan Consulting Ltd., 7/9 The relevant portion of the said judgment isquoted below for ready reference: “Conclusion: 55.ASubstantialquantumof|international trade and transactions depends|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, Futers for| Date of Judgment 31-08-2018, ITA No.374/2018 The Pr. Commissioner of Income Tax & Another Vs. M/s. Arowan Consulting Ltd., 8/9 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 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 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|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| Date of Judgment 31-08-2018, ITA No.374/2018 The Pr. Commissioner of Income Tax & Another Vs. M/s. Arowan Consulting Ltd., 9/9 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 Revenueare therefore dismissed with no order as to|costs.” 6. Having heard the learned counsel appearing for the Appellants-Revenue, we are therefore of theopinion that no substantial question of law arises in the present case also. The Appeal filed by the Appellants-|Revenue is liable to be dismissed and it is dismissed|accordingly. No costs. The copy of this judgment be sent to the Respondent — Assessee forthwith. Psg* Sd/-.JUDGE. Sd/-.JUDGE.