Date Of Judgment 8-8-2018, Ita v. M/S.aruba Networks India Pvt. Ltd

IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 8 DAY OF AUGUST 2018 PRESENT THR HON’BLEK DR.JUSTICE VINBBT KOTHARI ANT) THR HON’BLE MRS..JUSTICK S.SUJATHA I.T.A. No.378/2017 BETWEEN : 1.THE PR. COMMISSIONER OF INCOME TAX [‘T]FLOOR, BMTC BUILDING, 80 FEET ROAD,KORAMANGALA,BENGALURU — 560 O95.KORAMANGALA,BENGALURU — 560 O95. 2.THR DBEPUTY COMMISSIONBR OF INCOME-TAXCIRCLE -1 (1) (1),.2 FLOOR, BMTC BUILDING, |80 FEET ROAD, KORAMANGALA,BENGALURU — 560 O95.CIRCLE -1 (1) (1),.2 FLOOR, BMTC BUILDING, |80 FEET ROAD, KORAMANGALA,BENGALURU — 560 O95. .. APPELLANTS| (BY SRI.ARAVIND K V, ADV.) AND: M/S ARUBA NETWORKS INDIA PVT. LTD.,SALARPURIA HALLMARK,SY.NO.15/3 & 16,|BLOCK B, 3 FLOOR, KADUBEESANAHALLI,OUTER RING ROAD, VARTHUR HOBLI,BENGALURU SOUTH TALUK,BBNGALURU — 560 103.PAN: AARCA 4556M_. RESPONDENT (BY SRI.SANDEEP HUILGOL, ADV. FOR |SRIT.SURYANARAYANA, ADV.) | Date of Judgment 8-8-2018, ITA No.378/2017 The Pr. Commissioner of Income Tax & Another Vs M/s.Aruba Networks India Pvt. Ltd.. THIS INCOME TAX APPEAL IS FILED UNDER SEC.260-A|OF INCOME TAX ACT 1961, ARISING OUT OF ORDERDATED:30/09/2016 PASSED IN IT(TP)A NO.97/BANG/2015, FOR.THERE ASSESSMENT YEAR 2010-2011 ANNEXURE -—-D. PRAYITO: I FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW.STATED THEREIN, I]. ALLOW THE APPEAL AND SET ASIDE THEORDER PASSED BY THE ITAT, BANGALORE IN IT(TP)A.NO.57/BANG/2015_DATED:30/09/2016|ANNEXURE—|)CONFIRMING THE ORDER OF THE APPBELLATEBE COMMISSIONANDCONEHIRMTHEORDERPASSEDBY|THEDEBPUTYCOMMISSIONER 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. Aravind K.V., Adv. for Appellants — Revenue. |Mr.Sandeep Huilgol,Adv., forMr. T. Suryanarayana,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, Bench ‘B’,Bangalore|1nIT/[TP|ANo.57/Bang/2015dated 300.09. 20, relating to the Assessment Year2010-11. Date of Judgment 8-8-2018, ITA No.378/2017 The Pr. Commissioner of Income Tax & Another Vs M/s.Aruba Networks India Pvt. Ltd.. 3/10 a2ThisAppealhas|beenadmitted|OTL 07.11.2017|to consider the following substantial| questions of law, “1. Whether in the facts and circumstancesof the case, the Tribunal is right in law inexcludingthe|comparables,namely|ASIA|Business Exhibition Conference, ICRA TechnoAnalysis Ltd, Kals Information Systems Ltd,HCCA Business Services, Hindusthan HousingCo. Ltd and Killick Agencies & Marketing Ltd onthe ground offunctional dissimilarity by followingits earlier order which has not reached finalityand even when the TPO had chosen thecomparables as it satisfies qualitative andquantitative filters applied by the TPO andTribunal ought to have decided the comparabilityof these companies on the basis of specific factsbrought out on record by the TPO in the case ofthe assessee? D2 Whetherinthe factsandcircumstances of the case, the Tribunal ts right in|law in holding that the foreign exchange gain orloss should be considered as operating in natureby following its earlier order in case of M/s.CSR 4/10 India P. Ltd even though the said decision has notreached finality? 3.|Whetherinthe factsandcircumstances of the case, the Tribunal ts right in|law in directing the TPO to re-work the workingcapital adjustment by following its earlier order in|case of M/s.ARM Embedded Technologies Ltd)even when said order has not reached finality Pr 3.The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and Respondent-Assessee, has returned findings as under: Regarding Substantial Question of Law No.1: “O31. In view of the ITAT decision in the caseof ACIT v RGA Services India Put. Ltd TS-580,ITAT-2015(mum)-TP AY 10-11 and DCIT v M/sElectronics for Imaging India Pvt. Ltd. IT(TP)ANo.212/ Bang/ 2015-AY 10-11, wherein it is helas under:- XXXXXXXXXXKX 4/10 India P. Ltd even though the said decision has notreached finality? 3.|Whetherinthe factsandcircumstances of the case, the Tribunal ts right in|law in directing the TPO to re-work the workingcapital adjustment by following its earlier order in|case of M/s.ARM Embedded Technologies Ltd)even when said order has not reached finality Pr 3.The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and Respondent-Assessee, has returned findings as under: Regarding Substantial Question of Law No.1: “O31. In view of the ITAT decision in the caseof ACIT v RGA Services India Put. Ltd TS-580,ITAT-2015(mum)-TP AY 10-11 and DCIT v M/sElectronics for Imaging India Pvt. Ltd. IT(TP)ANo.212/ Bang/ 2015-AY 10-11, wherein it is helas under:- XXXXXXXXXXKX Accordingly, we direct the AO/TPO to re-compute the ALP in marketing support servicessegment by excluding Asian Business exhibition& Conference Ltd. from the comparables.” Date of Judgment 8-8-2018, ITA No.378/2017 The Pr. Commissioner of Income Tax & Another Vs M/s.Aruba Networks India Pvt. Ltd.. 5/10 “13. We find that the decision in the caseof DCIT Vs M/s Electronics for Imaging India|Put. Ltd., in IT(TP) No.212/ Bang/ 2015, is helas follows: NMXXXXKXXXKXMXX 14. Respectfully following the decision ofthe co-ordinate Bench in the case of DCIT Vs.Electronics for Imaging India Put. Ltd., in IT(TP)|No.212/Bang/2015, we exclude ICRA Techno|Analytics Ltd. (seg) from the list of comparables|selected by TPO/AO™ “15. With respect to KALS Informationsystems Ltd., we find that the co-ordinate benchin the case DCIT Vs. M/s Electronics for ImagingIndia Put. Ltd. in ITA No.212/Bang/2015 for theassessment year 2010-2011 has held as|follows: AXXKXXNMKKKNKK 16. Respectfully following the decision ofthe co-ordinate Bench in the case of DCIT Vs.Electronics for Imaging India Put. Ltd., in IT(TP)|No.212/Bang/2015, we exclude ICRA Techno| Analytics Ltd. (seg) from the list of comparables|selected by TPO/AO™ Regarding Substantial Question of Law No.2: “4, Ground No.8 - relying on the decision|in the case of CSR India Put. Ltd., Vs ITO IT (TP)No.119/Bang/2011, foreign exchange gain orloss should be considered as operating in naturefor marketing support service. 44. The Appellant's margin is within 5%)range of the average margin of the comparables.Thus, the international transactions of theAppellant should be considered to be at arm’slength. With these directions, we set aside theissues to the file of the TPO to rework the ALP.” Regarding Substantial Question of Law No.3: “20. With respect to ground No.3 working capitaladjustment, the CIT(A) has held that the action ofthe TPO in restricting working capital adjustmentto 1.98% is correct. We find that 1.92% whichcomes out based on final list of comparables islesser than 1.98% adopted by the TPO. The ldcounsel for the assessee requested that workingcapital adjustment should be given at actualbased on final comparables. Reliance was placed Date of Judgment 8-8-2018, ITA No.378/2017 The Pr. Commissioner of Income Tax & Another Vs M/s.Aruba Networks India Pvt. Ltd.. 7/10 OnltheITATdeciSionin|ARMEmbeddedTechnologies Put. Ltd., Vs. DCIT, TS-466-ITAT-2015(Bang)-TP. Hence, we direct the TPO torework the working capital adjustment.7] 4For the similar reasons, the Tribunal has.excluded other comparables also. 5.However, this Court in a recent judgment in I.T.A. Nos.536/2015 c/w 537/2015delivered on25.06.2018 (Pri. 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 isestablished by the appellant, the appeal at the instanceof an assessee or the Revenue under Section 260-A otthe Act is not maintainable. The relevant portion of thesaid judgment is quoted below for ready reference: “Conclusion: 55.Asubstantial quantumof|international trade and transactions depends| 4For the similar reasons, the Tribunal has.excluded other comparables also. 5.However, this Court in a recent judgment in I.T.A. Nos.536/2015 c/w 537/2015delivered on25.06.2018 (Pri. 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 isestablished by the appellant, the appeal at the instanceof an assessee or the Revenue under Section 260-A otthe Act is not maintainable. The relevant portion of thesaid judgment is quoted below for ready reference: “Conclusion: 55.Asubstantial quantumof|international trade and transactions depends| Date of Judgment 8-8-2018, ITA No.378/2017 The Pr. Commissioner of Income Tax & Another Vs M/s.Aruba Networks India Pvt. Ltd.. 8/10 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 8-8-2018, ITA No.378/2017 The Pr. Commissioner of Income Tax & Another Vs M/s.Aruba Networks India Pvt. Ltd.. 9/10 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|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. Date of Judgment 8-8-2018, ITA No.378/2017 The Pr. Commissioner of Income Tax & Another Vs M/s.Aruba Networks India Pvt. Ltd.. 10/10 o8. The appeals filed by the Revenue are|therefore dismissed with no order as_ tocosts.” 6.Havingheard|the.learnedcounsels. appearing for the parties, we are therefore of the opinionthat no substantial question of law arises in the presentcase also. The Appeal filed by the Appellants-Revenueis liable to be dismissed and it is dismissed accordingly. —No costs. AN /- Sd/-.JU DGE Sd/-.JU DGE