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1/9 IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 31ST DAY OF AUGUST 2018
PRESENT
THE HON’BLE DR.JUSTICE VINEET KOTHARI
AND
THE HON’BLE MRS.JUSTICE S.SUJATHA
I.T.A. No.374/2018
BETWEEN :
THE PR. COMMISSIONER OF INCOME TAX 5TH FLOOR, BMTC BUILDING 80 FEET ROAD, KORAMANGALA BENGALURU – 560 095.
THE INCOME-TAX OFFICER WARD 1 (1) 4, 2ND FLOOR BMTC BUILDING, 80 FEET ROAD KOARAMANGALA, BENGALURU – 560 095. ... APPELLANTS
(BY SRI.DILIP, ADV. FOR SRI. K.V. ARAVIND, ADV. )
AND:
M/S. AROWANA CONSULTING LTD., NO 90/B, SURVEY NO 18 2ND MAIN, ELECTRONIC CITY PHASE - 1 BENGALURU – 560 100. ... RESPONDENT
THIS INCOME TAX APPEAL IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED:23/10/2017 PASSED IN IT(TP)A NO.52/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.,
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ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, BENGALURU IN IT(TP)A NO. 52/BANG/2017 DATED:23/10/2017 AND CONFIRM THE ORDER OF THE DRP CONFIRMING THE 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, S. SUJATHA, J., DELIVERED THE FOLLOWING:
J U D G M E N T
Mr. Dilip, Adv.for Mr. K.V.Aravind, Adv. for Appellants – Revenue.
This Appeal is filed by the Revenue purportedly raising substantial questions of law arising from the Order of the Income Tax Appellate Tribunal, Bangalore Bench ‘C’, Bangalore, in IT[TP]A No.52/Bang/2017 dated 23.10.2017, (M/s Arowana Consulting Ltd., Vs. The Income-Tax Officer) for AY 2012-13.
The proposed substantial question of law framed in the Memorandum of Appeal by the Appellant/s Revenue is quoted below for 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.,
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“1. Whether, the Tribunal, on the facts and in the circumstances of the case was right in excluding certain comparables from the list of comparables holding that they are functionally different without appreciating that the comparables satisfy all the qualitative and quantitative filters applied by the TPO and that selection of Comparables in a case depends on assessee specific FAR analysis ?”
The learned Tribunal, after discussing the rival contentions of both the Appellants/Revenue and the Respondent-Assessee, has given the following findings:
Regarding Substantial Question of Law No.1:
“8. As regards the issue of rejection of M/s Akshay Software Technology Limited, we find that this company was accepted by the Tribunal as a comparable for the Assessment Year 2009-10 and again for the Assessment Year 2011-12. The Tribunal for the Assessment 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.,
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11.01.2017 in IT(TP)A No.157/Bang/2016 has considered this issue in Para 9 as under:
xxxxxxx xxxxxxxxx xxxxxxxx
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 view of the above facts and circumstances of the case and following the decisions of this Tribunal in assessee’s own case, we set aside the entire TP issue to the record of the TPO/A.O. for considering the comparability of Akshay Software Techonology Limited in the light of the decisions of this Tribunal as well as the functional comparability of companies selected by the TPO and particularly 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.,
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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 is directed to carry out a fresh search and also applied the on site revenue filter. We further note that though the assessee has shown the international transactions 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 region and outsourced its software development services to its AE to be provided at on site of the 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 a payment of supply of man power.
The learned Authorised Representative has submitted that the TPO while computing the Arm’s Length Price (ALP) and consequential 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.,
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revenue. Because the operating cost itself is in 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 entire TP issue to the record of the TPO therefore, the TPO is directed to consider this contention of the assessee while determining the ALP.”
However, this Court in a recent judgment in I.T.A. Nos.536/2015 c/w 537/2015 delivered on 25.06.2018 (Prl. Commissioner of Income Tax & Anr. –v- M/s Softbrands India Pvt. Ltd.,) has held that in these type of cases, unless an ex-facie perversity in the findings of the learned Income Tax Appellate Tribunal is established by the appellant, the appeal at the instance of an assessee or the Revenue under Section 260-A of the Act is not maintainable.
Date of Judgment 31-08-2018, ITA No.374/2018 The Pr. Commissioner of Income Tax & Another Vs. M/s. Arowan Consulting Ltd.,
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The relevant portion of the said judgment is quoted below for ready reference:
“Conclusion: 55.
A substantial quantum of international trade and transactions depends upon the fair and quick judicial dispensation in such cases. Had it been a case of substantial question of interpretation of provisions of Double Taxation Avoidance Treaties (DTAA), interpretation of provisions of the Income Tax Act or Overriding Effect of the Treaties over the Domestic Legislations or the questions like Treaty Shopping, Base Erosion and Profit Shifting (BEPS), Transfer of Shares in Tax Havens (like in the case of Vodafone etc.), if based on relevant facts, such substantial questions of law could be raised before the High Court under Section 260-A of the Act, the Courts could have embarked upon such exercise of framing 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
Date of Judgment 31-08-2018, ITA No.374/2018 The Pr. Commissioner of Income Tax & Another Vs. M/s. Arowan Consulting Ltd.,
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arriving at the correct list of comparables have been rightly applied or not, do not in our considered opinion, give rise to any substantial question of law.
We are therefore of the considered opinion that the present appeals filed by the Revenue do not give rise to any substantial question of law and the suggested substantial questions of law do not meet the requirements of Section 260-A of the Act and thus the appeals filed by the Revenue are found to be devoid of merit and the same are liable to be dismissed.
We make it clear that the same yardsticks and parameters will have to be applied, even if 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 ‘Arm’s Length Price’ in the case of the assessees with which the assessees may not be satisfied and have filed such appeals before this 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.,
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dissatisfaction with the findings of facts arrived at by the learned Tribunal is not at all a sufficient reason to invoke Section 260-A of the Act before this Court.
The appeals filed by the Revenue are therefore dismissed with no order as to costs.”
Having heard the learned counsel appearing for the Appellants-Revenue, we are therefore of the opinion 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.
Sd/- JUDGE
Sd/- JUDGE Psg*.