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1/10 IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 26TH DAY OF JULY 2018
PRESENT
THE HON'BLE Dr.JUSTICE VINEET KOTHARI
AND
THE HON’BLE Mrs.JUSTICE S.SUJATHA
I.T.A.No.456/2016
BETWEEN:
THE PR.COMMISSIONER OF INCOME TAX, 5TH FLOOR, BMTC BUILDING, 80 FEET ROAD, KORMANGALA, BANGALORE - 560 095.
THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-11(1), PRESENT ADDRESS, CIRCLE-1(1)(1), 2ND FLOOR, BMTC BUILDING, 80 FEET ROAD, KORAMANGALA, BANGALORE - 560 048.
…APPELLANTS (By Mr. K.V. ARAVIND, ADV.)
AND:
M/S. ARM EMBEDDED TECHNOLOGIES PVT.LTD. BAGMANE WORLD TECHNOLOGY CENTER-SEZ, CITRINE BLOCK, 5TH & 6TH FLOOR, MARATHAHALLI OUTER RING ROAD, DODDANAKUNDI VILLAGE, MAHADEVAPURA, BENGALURU-560 048. PAN: AAECA 1582E.
…RESPONDENT (By Mr. SANDEEP HUILGOL, ADV. FOR) Mr. T. SURYANARAYANA, ADV.)
Date of Judgment 26-07-2018 I.T.A.No.456/2016 The Pr. Commissioner of Income-Tax & Anr., Vs. M/s. Arm Embedded Technologies Pvt.Ltd.,
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THIS I.T.A. IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATE ABOVE AND ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE ITAT, BENGALURU IN IT(TP)A NO. 1112/BANG/2010 DATED 01/12/2015, 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 & 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
The appellants-Revenue have filed this appeal u/s. 260A of the Income Tax Act, 1961 (for short ‘Act’) raising purportedly certain substantial questions of law arising from the order of the Income Tax Appellate Tribunal, “A” Bench, Bangalore (for short ‘Tribunal’) dated 01.12.2015 passed in I.T(TP)A No.1112/Bang/2010 for the A.Y.2006-07.
Date of Judgment 26-07-2018 I.T.A.No.456/2016 The Pr. Commissioner of Income-Tax & Anr., Vs. M/s. Arm Embedded Technologies Pvt.Ltd.,
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This appeal has been ADMITTED on 05.06.2018 to consider the following substantial questions of law: “1. Whether on the facts and in the circumstances of the case, the Tribunal erred in directing the TPO to exclude comparables such as Kals Information Systems, Accel Transmatics, Infosys Technologies Ltd, Tata Elxsi Ltd, by relying on its earlier decisions which have not reached finality and moreover the TPO has rightly chosen the said comparables considering the functions and as the said comparables satisfies all the required tests?
Whether on the facts and in the circumstances of the case, the Tribunal erred in directing the TPO to exclude comparables having RPT transactions of more than 15% ignoring the TPO’s observation that the basis for determining the threshold limit for eliminating companies having RPT transactions more than 25% was through the determination of Indian Companies with
Date of Judgment 26-07-2018 I.T.A.No.456/2016 The Pr. Commissioner of Income-Tax & Anr., Vs. M/s. Arm Embedded Technologies Pvt.Ltd.,
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foreign shareholding greater than 26% and therefore had its basis in the provisions of the I.T. Act?”
The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and Respondent-Assessee, has returned the findings as under: Regarding substantial question of law No.1: 17. The ld. counsel for the assessee submitted that 5 comparables at Sl. Nos. 4,5,10,11 & 16 of the final set of comparables selected by the TPO may be rejected as being functionally dissimilar on the basis of decision of the Tribunal in the case of Cypress Semiconductor India P. Ltd. v. DCIT, ITA No.1167/Bang/2010 dated 27.03.2015. The relevant paragraphs of the Tribunal’s order are as follows:- xxxx xxxx
Date of Judgment 26-07-2018 I.T.A.No.456/2016 The Pr. Commissioner of Income-Tax & Anr., Vs. M/s. Arm Embedded Technologies Pvt.Ltd.,
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KALS Information Systems Ltd.
xxxx
xxxx
Accel Transmatic Ltd. xxxx xxxx xxxx xxxx
Lucid Software Ltd.
xxxx
Infosys Technologies Ltd: xxxx
xxxx
Flextronics Software Systems Ltd: xxxx
xxxx
Tata Elxsi Limited: xxxx
Date of Judgment 26-07-2018 I.T.A.No.456/2016 The Pr. Commissioner of Income-Tax & Anr., Vs. M/s. Arm Embedded Technologies Pvt.Ltd.,
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Respectfully following the coordinate Bench decision of this Tribunal in the case of Cypress Semiconductor India P. Ltd. (supra), we direct that the 4 companies viz., Infosys Ltd., KALS Infosystems Ltd., Tata Elxsi (Seg.) and Accel Transmatic Ltd. being functionally dissimilar be excluded from the final list of comparables selected by the TPO.” Regarding substantial question of law No.2: “22. The ld. counsel for the assessee next submitted that 3 comparables at Sl.No. 1, 2 & 18 of the final comparables of the TPO having more than 15% Related Party Transactions may be rejected as held in 24/7 Customer.com v. DCIT (ITA No.227/Bang/2010) and Cypress Semiconductor India Pl. Ltd. (supra). The observations of the Tribunal at paras 22 & 23 in the case of Cypress Semiconductor India Pvt. Ltd. (supra) in this regard are as follows:- xxxx xxxx
Date of Judgment 26-07-2018 I.T.A.No.456/2016 The Pr. Commissioner of Income-Tax & Anr., Vs. M/s. Arm Embedded Technologies Pvt.Ltd.,
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Respectfully following the decision of the coordinate Bench of this Tribunal in the case of Cypress Semiconductor India P. Ltd. (supra), we direct that the companies viz., Aztech Software Ltd. and Megasoft Ltd. wherein the related party transactions exceed 15% be excluded from the list of comparables chosen by the TPO.”
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
Date of Judgment 26-07-2018 I.T.A.No.456/2016 The Pr. Commissioner of Income-Tax & Anr., Vs. M/s. Arm Embedded Technologies Pvt.Ltd.,
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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. 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
Date of Judgment 26-07-2018 I.T.A.No.456/2016 The Pr. Commissioner of Income-Tax & Anr., Vs. M/s. Arm Embedded Technologies Pvt.Ltd.,
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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. 8. The appeals filed by the Revenue are therefore dismissed with no order as to costs.” 5. 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.
Date of Judgment 26-07-2018 I.T.A.No.456/2016 The Pr. Commissioner of Income-Tax & Anr., Vs. M/s. Arm Embedded Technologies Pvt.Ltd.,
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Hence, the Appeal filed by the Appellants- Revenue is liable to be dismissed and is accordingly dismissed. No costs.
Sd/- JUDGE
Sd/-
JUDGE