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1/8 IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 2ND DAY OF AUGUST 2018
PRESENT
THE HON’BLE DR.JUSTICE VINEET KOTHARI
AND
THE HON’BLE MRS.JUSTICE S.SUJATHA
I.T.A. No.38/2016
BETWEEN : 1. THE PR. COMMISSIONER OF INCOME TAX 5TH FLOOR, BMTC BUILDING, 80 FEET ROAD, KORMANGALA, BANGALORE-560095
THE INCOME TAX OFFICER WARD -1(1)(2) 2ND FLOOR, BMTC BUILDING, 80 FEET ROAD, KORMANGALA, BANGALORE-560095.
...APPELLANTS
(BY SRI K.V.ARAVIND, ADV.)
AND : M/s. AROWANA CONSULTING LTD., SANSKRUTI SIGNET, No.76, 1ST CROSS, 38TH MAIN, BTM LAYOUT, BANK OFFICERS CO-OP. HOUSING SOCIETY LTD., BANGALORE-560068 PAN: AADCM7560P.
…RESPONDENT
(BY SRI NARENDRA KUMAR JAIN, ADV.)
Date of Judgment 02-08-2018, ITA No.38/2016 The Pr. Commissioner of Income-tax & Another Vs. M/s. Arowana Consulting Ltd.,
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THIS INCOME TAX APPEAL IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 29/06/2015 PASSED IN ITA No.235/BANG/2015, FOR THE ASSESSMENT YEAR 2010-2011, ANNEXURE-D, PRAYING TO: 1. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE; 2. ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE ITAT, BENGALURU IN ITA No.235/BANG/2015 DATED 29/06/2015, ANNEXURE-D AND CONFIRM THE ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE ORDER PASSED BY THE INCOME TAX OFFICER, WARD-1(1)(2), BENGALURU.
THIS APPEAL COMING ON FOR HEARING, THIS DAY, S. SUJATHA, J., DELIVERED THE FOLLOWING:
J U D G M E N T
Mr. K.V.Aravind, Adv. for Appellants – Revenue. Mr. Narendra Kumar Jain, Adv. for Respondent – Assessee.
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 ‘A’, Bangalore, in IT[TP]A No.235/Bang/2015 dated 29.06.2015, relating to the Assessment Year 2010-11.
The appeal has been admitted on 09.01.2018 to consider the following substantial question of law:
Date of Judgment 02-08-2018, ITA No.38/2016 The Pr. Commissioner of Income-tax & Another Vs. M/s. Arowana Consulting Ltd.,
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“Whether the Tribunal, on the facts and in the circumstances of the case was right in directing to include M/s. Akshay Software Technologies Ltd., without appreciating the fact that the same was excluded by the TPO on lack of information regarding RPT transactions?”
The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and Respondent-Assessee, has returned the findings as under: “08. What is left for consideration is assessee’s grievance regarding M/s. Akshay Software Technologies Ltd. DRP directed exclusion of the said company for a reason that its employee cost was more than 89% of its total operating expenditure. We find that assessee had employee cost in excess of 90% of its operating expenditure. In our opinion, it is normal to have a high percentage of employee cost in a software development company, especially so, when the company is involved in development of software for clients at the site of the clients. Reason given by the DRP, in our opinion, was not correct. Higher employee cost is a normal feature for a software development company for the simple
Date of Judgment 02-08-2018, ITA No.38/2016 The Pr. Commissioner of Income-tax & Another Vs. M/s. Arowana Consulting Ltd.,
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reason that it is a skill oriented business. The skill-set required for the employees in the case of the assessee, required knowledge of Arabic also, making it all the more scarce. In any case, for A.Y. 2009-10, M/s. Akshay Software Technologies Ltd., was considered as a proper comparable and not excluded. In his order dated 07.01.2015 for A.Y. 2009-10, after applying the onsite revenue filter of 50%, TPO himself had considered M/s. Akshay Software Technologies Ltd., as a proper comparable. As to the argument of the Ld. DR that Related Party Transaction, volume of M/s. Akshay Software Technologies was not provided by the assessee, leading to its rejection, we find that assessee had at para 5.172 and 5.173 of its objections before DRP, submitted that RPT of the said company was 4.33% only, compiling the figures from previous years’ data available in Annual Report of Financial Year 2010-11 of the said company. This working stands unrebutted. We are, therefore of the opinion that the assessee has to succeed in its claim that M/s. Akshay Software Technologies Ltd., is a proper comparable. We direct the TPO to include the said company as a comparable along with the two comparables, namely, M/s. R. S. Software [India] Ltd., and M/s. Thinksoft Global
Date of Judgment 02-08-2018, ITA No.38/2016 The Pr. Commissioner of Income-tax & Another Vs. M/s. Arowana Consulting Ltd.,
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Services Ltd., and rework the mean PLI. ALP adjustment, if any, required shall be based on such mean PLI, after considering the working capital adjusted. Ordered accordingly. Ground 12 of the assessee is allowed.”
The controversy involved herein is no more res integra in view of the decision of this Court in I.T.A. Nos.536/2015 c/w 537/2015 dated 25.06.2018 [Prl. Commissioner of Income Tax & Anr. V/s. M/s.Softbrands India Pvt. Ltd.,] wherein it has been observed that unless the finding of the Tribunal is found ex facie perverse, the Appeal u/s. 260-A of the Act, is not maintainable. The relevant portion of the 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
Date of Judgment 02-08-2018, ITA No.38/2016 The Pr. Commissioner of Income-tax & Another Vs. M/s. Arowana Consulting Ltd.,
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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.
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
Date of Judgment 02-08-2018, ITA No.38/2016 The Pr. Commissioner of Income-tax & Another Vs. M/s. Arowana Consulting Ltd.,
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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 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.”
Date of Judgment 02-08-2018, ITA No.38/2016 The Pr. Commissioner of Income-tax & Another Vs. M/s. Arowana Consulting Ltd.,
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In the circumstances, having heard the learned Counsel appearing for both the sides, we are of the considered opinion that no substantial question of law arises for consideration in the present case.
Hence, the Appeal filed by the Appellants- Revenue is liable to be dismissed and is accordingly dismissed. No costs.
Sd/- JUDGE
Sd/- JUDGE
NC.