Ita/273/2022 Of The Pr Commissioner Of Income Tax v. M/S Arista Networks India Pvt Ltd

NC: 2024:KHC:39425-DB ITA No. 273 of 2022 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 23 DAY OF SEPTEMBER, 2024 PRESENT THE HON'BLE MR JUSTICE S.G.PANDIT AND THE HON'BLE MR JUSTICE C.M. POONACHA INCOME TAX APPEAL NO. 273 OF 2022 BETWEEN: 1. THE PR. COMMISSIONER OF INCOME TAX 5TH FLOOR BMTC BUILDING 80 FEET ROAD KORMANGALA BENGALURU - 560095 2. THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE -1(1) (1) 2ND FLOOR, BMTC BUILDING 80 FEET ROAD, KORAMANGALA BENGALURU - 560095 …APPELLANTS (BY SRI. RAVI RAJ Y V.,ADVOCATE A/W SRI. DILIP M, ADVOCATE) Digitallysigned byBHARATHI SAND:Location:HIGH COURTM/S ARISTA NETWORKS INDIA PVT LTD OFKARNATAKAGLOBAL TECHNOLOGY PARK TOWER A AND B 11TH FLOOR, MARATHAHALLI OUTER RING ROAD DEVARABESSANAHALLI, VARTHUR HOBLI BENGALURU - 560103 PAN …RESPONDENT (BY SMT. TANMAYEE RAJKUMAR.,ADVOCATE) THIS ITA / INCOME TAX APPEAL IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN, ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, BENGLAURU IN IT(TP)A NO. 2440/BANG/2019 DATED 05/10/2021 FOR ASSESSMENT YEAR 2015-2016 ANNEXURE-D AND CONFIRM THE ORDER OF THE DRP CONFIRMING THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1(1)(1), BENGALURU AND ETC. THIS APPEAL, COMING ON FOR FINAL HEARING, THIS DAY, JUDGMENT WAS DELIVERED THEREIN AS UNDER: CORAM: HON'BLE MR JUSTICE S.G.PANDIT and HON'BLE MR JUSTICE C.M. POONACHA ORAL JUDGMENT (PER: HON'BLE MR JUSTICE S.G.PANDIT) Heard the learned counsel Sri.Raviraj Y.V, along with learned counsel Sri Dilip M, for appellants/Revenue and learned counsel Smt.Tanmayee Rajkumar, for the respondent/assessee. 2. The Revenue is in appeal under Section 260-A of the Income Tax Act, 1961 (for short, ‘the Act’) questioning the correctness and legality of order dated 5.10.2021 passed by the Income Tax Appellate Tribunal, ‘B’ Bench, Bengaluru (for short, ‘Appellate Authority’) in IT(TP)A.No.2440/Bang/2019 for the assessment year 2015-16, raising the following substantial questions of law: “1. 'Whether on the facts and in the circumstances of the case, the Tribunal is right in law in directing the Transfer Pricing Officer to exclude comparables namely, M/s.Sasken Communication Technologies Ltd, M/s.Tata Elxsi Ltd, M/s.Mindtree Ltd, M/s.Larsen & Tourbo Ltd, M/s.R.S.Software (India) Ltd, M/s. Persistent Systems Ltd, M/s.Nihlent Technologies Ltd, M/s.Cybage Software Pvt Ltd, from list of comparables on basis of turnover filter even when the said comparable satisfies qualitative and quantitative filters and as per Rule 10B of I.T.Rules and ignoring its earlier decision in case of M/s. Societe Generale Global Solution Centre Pvt Ltd and M/s.Vmoksha Technologies Pvt Ltd whereby it is held that turnover is not a relevant criteria for deciding the comparability?" 2. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in directing the Transfer Pricing Officer to exclude comparables even when the TPO had considered the said comparables after satisfying all the required tests and ignoring the reasoning's assigned by Transfer Pricing Officer ?" 3. Whether on the facts and in the circumstances of the case, the Tribunal's order can be said as perverse in nature in directing Transfer Pricing Officer to exclude comparables when same is chosen by said authority on basis of data available in public domain and also materials on record"? 4. "Whether on the facts and in the circumstances of the case, the Tribunal is right in holding that there is no basis for the Transfer Pricing Officer to grant working capital adjustments after verification of claim made by assessee when the Transfer Pricing Officer has rightly verified and examined all the materials on record"? 3. Whether on the facts and in the circumstances of the case, the Tribunal's order can be said as perverse in nature in directing Transfer Pricing Officer to exclude comparables when same is chosen by said authority on basis of data available in public domain and also materials on record"? 4. "Whether on the facts and in the circumstances of the case, the Tribunal is right in holding that there is no basis for the Transfer Pricing Officer to grant working capital adjustments after verification of claim made by assessee when the Transfer Pricing Officer has rightly verified and examined all the materials on record"? 5. Whether on the facts and in the circumstances of the case and in law, the Tribunal was right in holding that M/s. Infosys Ltd cannot be taken as a comparable as the Company is having turnover of Rs.43,300 crores exceeding Rs.200 Crores without appreciating the fact that the higher turnover does not necessarily mean that it would increase the profit margin"? 6. Whether on the facts and in the circumstance's of the case and in law, the Tribunal was right in holding that Transfer Pricing Officer is required to include comparables namely, M/s.Kals Information Systems and M/s.E-Zest Solutions td on the basis that these were accepted during the Transfer Pricing proceedings whereas, the Transfer Pricing Officer in his under section 92CA dated 29/10/2018 has not considered companies in the final set of comparables"? 3. Learned counsel for the assessee submits that the tax effect in this appeal is less than Rs.2 Crores and therefore, the appeal should not be entertained at the instance of the revenue in view of the Circular No.09/2024 dated 17.09.2024 issued by the Central Board of Direct Taxes. It is also submitted that the aforesaid Circular binds the revenue. 4. On the other hand, learned counsel for the revenue submits that he be granted liberty to revive the appeal in case the matter falls within the exceptions under the aforesaid Circular dated 17.09.2024 and Circular No.5/2024 dated 15.03.2024. 5. In view of the aforesaid submissions, the appeal is disposed of with liberty as prayed for by the learned counsel for the revenue. However, the questions of law are kept open to be adjudicated in an appropriate proceeding. Sd/- (S.G.PANDIT) JUDGE Sd/- (C.M. POONACHA) JUDGE ND List No.: 3 Sl No.: 35