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IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 18TH DAY OF JULY 2018
PRESENT
THE HON'BLE Dr.JUSTICE VINEET KOTHARI
AND
THE HON’BLE Mrs.JUSTICE S.SUJATHA
I.T.A.No.328/2015
BETWEEN
THE PRINCIPAL COMMISSIONER OF INCOME-TAX, C R BUILDINGS, QUEENS ROAD, BANGALORE – 560001.
THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-12(2), BANGALORE.
... APPELLANTS
(BY MR. E.I.SANMATHI, ADV.,)
AND
M/S NETSCOUT SYSTEMS SOFTWARE INIDA PVT. LTD., EMBASSY ICON, GROUND FLOOR, NO.3, INFANTRY ROAD, BANGALORE-560001. PAN NO.AAICS0944E/NA-196.
... RESPONDENT
(BY MR. MALLAHARAO.K ADV.,)
Date of Judgment 18-07-2018 I.T.A.No. 328/2015
The Principal Commissioner of Income Tax & Anr.
Vs. M/s. Netscout Systems Software India Pvt. Ltd.,
2/10
THIS I.T.A IS FILED UNDER SECTION 260-A OF THE INCOME-TAX ACT, 1961 PRAYING TO (A) DECIDE THE FOREGOING QUESTION OF LAW AND / OR SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BY THE HON’BLE COURT AS DEEMED FIT. (B) SET ASIDE THE APPELLATE ORDER DATED: 06/02/2015 PASSED BY THE ITAT, ‘A’ BENCH, BANGALORE, IN APPEAL PROCEEDINGS NO. ITA NO.1127/BANG/2011 ANNEXURE-A.
THIS I.T.A. COMING ON FOR HEARING, THIS DAY S.SUJATHA J. DELIVERED THE FOLLOWING:-
JUDGMENT
Mr. E.I.Sanmathi, Adv. for Appellants-Revenue Mr. Mallaharao.K, Adv. for Respondent-Assessee
This Appeal is filed by the Appellants-Revenue purportedly raising substantial questions of law arising from the Order of the Income Tax Appellate Tribunal, ‘A’ Bench, Bangalore, in IT[TP]A No.1127/Bang/2011 dated 06.02.2015 relating to the Assessment Year 2007-08.
This appeal has been ADMITTED on 17.03.2016 to consider the following substantial questions of law framed by the learned counsel for the Appellants-Revenue:
Date of Judgment 18-07-2018 I.T.A.No. 328/2015
The Principal Commissioner of Income Tax & Anr.
Vs. M/s. Netscout Systems Software India Pvt. Ltd.,
3/10
“Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that the size and turnover of the company are deciding factors for treating a company as a comparable and accordingly erred in excluding comparables, namely, (i) Tata Elxsi Ltd (ii) Sasken Communication Technologies Ltd (iii) Persistent Information Ltd (iv) Mindtree Ltd (v) Infosys Technology Ltd (vi) igate Global Solution Ltd (vii) Flextronics Software Systems Ltd in software segment in the absence of turnover criterion prescribed in Rule 10B of Income Tax Rules and also there being no correlation between turnover and profit margin?
Whether, on the facts and in the circumstances of the case, the Tribunal erred in excluding the comparables, namely, (i) Kals Information Systems Ltd., (ii) Accel Transmatics Ltd (iii) Avani Cimcon Technology Ltd (iv) Celestail Labs Ltd (v) e-Zest Solutions Ltd (vi) Lucid Software Ltd., and Quintegra Solutions Ltd., even when all the companies satisfies the qualitative and quantitative filters adopted by the TPO and the Tribunal fails to consider the assessee’s specific FAR analysis and erroneously considering rulings passed in other assesses cases?”
Date of Judgment 18-07-2018 I.T.A.No. 328/2015
The Principal Commissioner of Income Tax & Anr.
Vs. M/s. Netscout Systems Software India Pvt. Ltd.,
4/10
The additional substantial question of law suggested by the learned counsel for the appellants- Revenue today is quoted below for ready reference:
“Whether on the facts and in the circumstances of the case, the Tribunal is right in law in directing the Transfer Pricing Officer to include Megasoft as comparable to arrive at working capital adjustment based on its blue sally segment alone and rework the arithmetic mean of the margin of certain companies?”
The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and Respondent-Assessee, has returned findings as under: Regarding substantial question of law No.1
“18. Now coming to the exclusions sought by the assessee from the list of comparables chosen by the TPO, a reading of the decision of the Co-ordinate Bench in the case of M/s Trilogy E-Business Software India Pvt. Ltd.(Supra) relied on by the learned AR, clearly show that the said company was also engaged in software development services like that of the assessee.
Date of Judgment 18-07-2018 I.T.A.No. 328/2015
The Principal Commissioner of Income Tax & Anr.
Vs. M/s. Netscout Systems Software India Pvt. Ltd.,
5/10
The profile being similar we are of the opinion that the decision of the Co-ordinate Bench in the case of M/s Trilogy E-Business Software India Pvt. Ltd (Supra) which was also for assessment year 2007-08 can be taken as a good precedent. With reference to M/s Avani Cimcon Technolgies Ltd., M/s Celestial Labs Ltd and M/s KALS Information Systems Ltd (Seg.) it was held as under in this decision. b) Avani Cimcon Technologies Ltd. xxxx c) Celestial Labs Ltd. xxxx xxxx xxxx e) Accel Transmatic Ltd. xxxx xxxx xxxx
M/s E-Zest Solution Ltd., M/s Quintegra Solutions Ltd and M/s Thirdware Solutions Ltd were comparables considered in the case of M/s NXP Semi conductors India Pvt. Ltd., (Supra) which has also been relied on by the learned AR. We find that the profile of M/s NXP Semiconductors India Pvt. Ltd., compares
Date of Judgment 18-07-2018 I.T.A.No. 328/2015
The Principal Commissioner of Income Tax & Anr.
Vs. M/s. Netscout Systems Software India Pvt. Ltd.,
6/10
favourably with that of the assessee since both were doing software development services. Decision of the Tribunal in the case of M/s NXP Semiconductors India Pvt. Ltd (Supra) was also for assessment year 2007-08. It was held as under by this Tribunal in the case of M/s NXP Semiconductors India Pvt. Ltd., (Supra): xxxx xxxx
E-Zest Solutions LTd. xxxx
Thirdware Solutions Ltd. (segment) xxxx
Quintegra Solutions Ltd. xxxx Accordingly, we direct exclusion of the above three companies from the comparables”.
Regarding substantial question of law No.2:
“20. Vis-à-vis M/s Helios & Matherson Information Technology Ltd, this Tribunal in the case of M/s NXP Semiconductor India Pvt. Ltd (Supra) had held as under at para-28 of its order; xxxx
xxxx xxxx xxxx
Date of Judgment 18-07-2018 I.T.A.No. 328/2015
The Principal Commissioner of Income Tax & Anr.
Vs. M/s. Netscout Systems Software India Pvt. Ltd.,
7/10
xxxx xxxx
Accordingly, we direct exclusion of M/s Helios & Matherson Informatics Ltd., also from the list of comparables.”
Regarding additional substantial question of law:
“21. Vis-à-vis the contention of the learned AR that M/s Megasoft Ltd can be considered as a comparable only vis-à-vis its segment called blue- sally, we find that the Tribunal in the case of M/s Trilogy E-business Software India Pvt. Ltd (Supra) had held as under at para- to of its order. xxxx xxxx xxxx xxxx xxxx xxxx
Accordingly, we direct that M/s Megasoft case to be considered as a comparable only after re-working the segmental results as mentioned above.”
Date of Judgment 18-07-2018 I.T.A.No. 328/2015
The Principal Commissioner of Income Tax & Anr.
Vs. M/s. Netscout Systems Software India Pvt. Ltd.,
8/10
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 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
Date of Judgment 18-07-2018 I.T.A.No. 328/2015
The Principal Commissioner of Income Tax & Anr.
Vs. M/s. Netscout Systems Software India Pvt. Ltd.,
9/10
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 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
Date of Judgment 18-07-2018 I.T.A.No. 328/2015
The Principal Commissioner of Income Tax & Anr.
Vs. M/s. Netscout Systems Software India Pvt. Ltd.,
10/10
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.” 6. 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