THE PR COMMISSIONER OF INCOME TAX vs. M/S ARCOT R & D SOFTWARE PVT LTD

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ITA/357/2017HC KarnatakaKAHC01033184201708 August 2018Bench: S.SUJATHA,VINEET KOTHARI7 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that appeals under Section 260-A of the IT Act are not maintainable if there is no ex-facie perversity in the ITAT's findings. Disputes regarding the selection of comparables do not typically raise substantial questions of law.

What were the facts?

The Revenue appealed against the ITAT's decision to exclude certain companies from the set of comparables for transfer pricing analysis. The ITAT had followed its earlier orders in the assessee's own case for previous assessment years.

What were the issues?

Whether the ITAT erred in excluding comparables based on functional dissimilarity, and if such disputes raise substantial questions of law for High Court appeal.

Which sections of the Income-tax Act were involved?

Section 260-A

AI-generated summary — verify with the full judgment below

1/7 IN THE HIGH COURT OF KARNATAKA, BENGALURU

DATED THIS THE 08TH DAY OF AUGUST 2018

PRESENT

THE HON'BLE Dr.JUSTICE VINEET KOTHARI

AND

THE HON’BLE Mrs.JUSTICE S.SUJATHA

I.T.A.No.357/2017

BETWEEN:

1.

THE PR. COMMISSIONER OF INCOME-TAX, 5TH FLOOR, BMTC BUILDING, 80 FEET ROAD, KORMANGALA, BENGALURU-560 095.

2.

THE INCOME-TAX OFFICER, WARD-1(1)(2), 7TH FLOOR, BMTC BUILDING, 80 FEET ROAD, KORMANGALA, BENGALURU-560 095.

…APPELLANTS (By Mr. K.V. ARAVIND, ADV.)

AND:

M/S. ARCOT R & D SOFTWARE PVT. LTD., C/O IBM INDIA PVT. LTD., LEVEL III, SUBRAMANYA ARCADE 1, BANNERGHATTA ROAD, BENGALURU-560 029. PAN: AADCA 4367L.

…RESPONDENT (By Mr. SANDEEP HUILGOL, ADV., FOR Mr. T. SURYANARAYANA, ADV.,)

Date of Judgment 08-08-2018 I.T.A.No.357/2017 The Pr. Commissioner of Income-tax & Anr. Vs. M/s. Arcot R & D Software Pvt. Ltd.,

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THIS I.T.A. IS FILED UNDER SECTION 260-A OF THE IT ACT, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW. ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME-TAX APPELLATE TRIBUNAL, BENGALURU IN C.O.No.148/BANG/2015 DATED 04/11/2016 ANNEXURE-D CONFIRMING THE ORDER OF THE DRP AND CONFIRM THE ORDER PASSED BY THE INCOME TAX OFFICER, WARD-1(1)(2), BENGALURU & ETC.

THIS I.T.A. COMING ON FOR HEARING THIS DAY, S. SUJATHA J. DELIVERED THE FOLLOWING:-

JUDGMENT

Mr. K.V. Aravind, Adv. for Appellants- Revenue Mr. Sandeep Huilgol, Adv. for Mr. T. Suryanarayana, Adv. for Respondent - Assessee

1.

The Appellants-Revenue have filed this appeal u/s.260A of the Income Tax Act, 1961, raising purportedly certain substantial questions of law arising from the order of the ITAT, Bangalore Bench ‘B’, Bangalore, dated 04.11.2016 passed in IT(TP)A No.393/Bang/2015 (C.O.No.148/Bang/2015) (Income Tax Officer vs. M/s.Arcot R & D Software Pvt. Ltd.,) for A.Y.2010-11.

2.

This appeal has been admitted on 14.11.2017 to consider the following substantial question of law

Date of Judgment 08-08-2018 I.T.A.No.357/2017 The Pr. Commissioner of Income-tax & Anr. Vs. M/s. Arcot R & D Software Pvt. Ltd.,

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framed by the learned counsel for the Appellants- Revenue:- “ Whether in the facts and circumstances of the case, the Tribunal erred in excluding the comparables, namely, Kals Information Systems Ltd., Tata Elxsi Ltd., M/s.Persistent Systems Ltd., Infosys Ltd., M/s.ICRA Techno-Analytecs and M/s.Sasken Communication Technologies Ltd., on the ground of functional dissimilarity by following its earlier order in the assessee’s own case for earlier assessment years which has not reached finality and even when the TPO had chosen the comparables as it satisfies qualitative and quantitative filters applied by the TPO and Tribunal ought to have decided the comparability of these companies on the basis of specific facts brought out on record by the TPO in the case of the assessee?.”

3.

The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and the Respondent-Assessee, has given the following findings:- “8.

Having considered the rival submissions and relevant material on record, we

Date of Judgment 08-08-2018 I.T.A.No.357/2017 The Pr. Commissioner of Income-tax & Anr. Vs. M/s. Arcot R & D Software Pvt. Ltd.,

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found that the co-ordinate bench of this Tribunal in the case of DCIT Vs. Electronics for Imaging India Pvt. Ltd. (supra) has considered the functional comparability of these companies in para 13 to 33 as under: xxxxxxxxxxxxx Following the decisions of the co-ordinate bench, we do not find any reason to interfere with the findings of the DRP in directing the A.O/TPO to exclude the 7 companies from the set of comparables”. 4. However, this Court in a recent judgment in ITA No.536/2015 C/w ITA No.537/2015 delivered on 25.06.2018 (Prl. Commissioner of Income Tax & Anr. Vs. 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 08-08-2018 I.T.A.No.357/2017 The Pr. Commissioner of Income-tax & Anr. Vs. M/s. Arcot R & D Software Pvt. 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 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.

Date of Judgment 08-08-2018 I.T.A.No.357/2017 The Pr. Commissioner of Income-tax & Anr. Vs. M/s. Arcot R & D Software Pvt. Ltd.,

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56.

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.

57.

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 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. 58. The appeals filed by the Revenue are therefore dismissed with no order as to costs.”

Date of Judgment 08-08-2018 I.T.A.No.357/2017 The Pr. Commissioner of Income-tax & Anr. Vs. M/s. Arcot R & D Software Pvt. Ltd.,

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5.

Having heard the learned counsels for the parties, 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.

Sd/- JUDGE

Sd/-

JUDGE

Srl.

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