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IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 29TH DAY OF JUNE 2018
PRESENT
THE HON’BLE DR.JUSTICE VINEET KOTHARI
AND
THE HON’BLE MRS.JUSTICE S.SUJATHA
I.T.A. No.66/2016
BETWEEN :
Pr. COMMISSIONER OF INCOME TAX-5 C.R.BUILDING, QUEENS ROAD, BANGALORE-560001.
THE INCOME TAX OFFICER WARD-12(1), BANGALORE.
...APPELLANTS
(BY SRI E.I.SANMATHI, ADV.)
AND :
M/s NET SCOUT SYSTEMS SOFTWARE INDIA P. LTD., MANYATA EMBASSY BUSINESS PARK, SILVER FLR, BLOCK L5-WING B, 7TH FLOOR, RACHENAHALLI NAGAWARA VILLAGE, RANG ROAD, OUTER RING ROAD, BANGALORE-560045. PAN:AAICSO944E.
…RESPONDENT
(BY SRI K.MALLAHARAO & SRI SANDEEP KARHAIL, ADVS.)
THIS ITA IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 30.07.2015 PASSED IN IT(TP)A NO.1290/BANG/2012, FOR THE ASSESSMENT YEAR 2009-2010. PRAYING TO: 1. DECIDE THE FOREGOING QUESTION OF LAW AND/OR SUCH OTHER
Date of Judgment 29-06-2018, ITA No.66/2016 Pr. Commissioner of Income Tax-5 & another Vs. M/s Net Scout Systems Software India P. Ltd.
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QUESTIONS OF LAW AS MAY BE FORMULATED BY THE HON'BLE COURT AS DEEMED FIT AND SET ASIDE THE APPELLATE ORDER DATED 30.07.2015 PASSED BY THE ITAT, 'C' BENCH, BENGALURU, AS SOUGHT FOR, IN THE RESPONDENT-ASSESSEE'S CASE, IN APPEAL PROCEEDINGS IN IT(TP)A NO.1290/BANG/2012 FOR A.Y.2009-10 & GRANT SUCH OTHER RELIEF AS DEEMED FIT.
THIS APPEAL COMING ON FOR HEARING, THIS DAY, Dr. VINEET KOTHARI, J., DELIVERED THE FOLLOWING:
J U D G M E N T
Mr. E.I.Sanmathi, Adv. for Appellants - Revenue Mr. K.Mallaharao & Mr. Sandeep Karhail, Advs. 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, ‘C’ Bench, Bangalore, in IT [TP] A. No.1290/Bang/2012 dated 30.07.2015 (NetScout Systems Softwawre India P.Ltd. – v- Income-tax Officer), relating to the Assessment Year 2009-10.
The admitted substantial questions of law framed by the Revenue in the Memorandum of Appeal are as under:
Date of Judgment 29-06-2018, ITA No.66/2016 Pr. Commissioner of Income Tax-5 & another Vs. M/s Net Scout Systems Software India P. Ltd.
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(1) “Whether, on the facts and 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, such as, Tata Elxsi Ltd., Sasken Communication tech Ltd., Persistent Systems Ltd., Zylog Systems Ltd., Zylog Systems Ltd., Mindtree Ltd and L &Tribunal Infotech, by relying upon the decision in the case of Genisys Integrating Systems v/s. DCIT and other cases when the said decisions have not reached finality and failing to consider the materials on record?
(2) Whether, on the facts and circumstances of the case, the Tribunal has erred in holding that the functions of taxpayer is not comparable to the functions of KALS Information systems Ltd, and Bodh Tree by following the decision in the case of M/s. Cisco Systems India Pvt. Ltd., which has not reached finality and without considering the materials available on record?
Date of Judgment 29-06-2018, ITA No.66/2016 Pr. Commissioner of Income Tax-5 & another Vs. M/s Net Scout Systems Software India P. Ltd.
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(3) Whether, on the facts and circumstances of the case, the Tribunal is right in holding that if an expense has direct nexus with Revenue, it has to be taken as operating cost and further erred in holding that if foreign exchange gain is considered as part of operating revenue it naturally follows that foreign exchange losses have to be considered a part of operating cost ?”
The learned Tribunal, after discussing the rival contentions of both the Appellant-Revenue and Respondent-Assessee, has returned a finding as under:
“14. Coming to the argument of Ld. AR that Kals Information Systems Ltd. and Bodhtree Consulting Ltd. have to be excluded on the basis of functionality, we find that the issue had come up before this Tribunal in the case of Cisco Systems India Ltd. (supra), which also was for the very same assessment year. Vis-à-vis Bodhtree Consulting Ltd. it was held as under:
Date of Judgment 29-06-2018, ITA No.66/2016 Pr. Commissioner of Income Tax-5 & another Vs. M/s Net Scout Systems Software India P. Ltd.
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xxxxxx
Vis-à-vis Kals Information Systems Ltd. it was held as under: xxxxxx
Accordingly, we direct exclusion of Kals Information Systems and Bodhtree Consulting Ltd. from the list of companies.
Now we take up appeal of the Revenue. In this appeal, its sole grievance raised by the Revenue is that CIT (A) held foreign exchange gain/loss to be operating in nature without ascertaining the nexus of such income/loss with the business activity of the assessee. Ld. DR submitted that establishing the business nexus of the forex gain/loss was essential before considering such gain/loss as operational in nature.
We have perused the orders and heard the rival contentions. Financials of the assessee for the relevant assessment year has been reproduced by us at para four above. Whole of the revenue earned by the assessee were on account of exports. Hence,
Date of Judgment 29-06-2018, ITA No.66/2016 Pr. Commissioner of Income Tax-5 & another Vs. M/s Net Scout Systems Software India P. Ltd.
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ground of the Revenue that the forex gain/loss would have been from some other source other than the business of the assessee cannot be accepted unless such contention is substantiated. Ld. DR was unable to produce anything before us that forex gain/loss were not associated with expert earning of the assessee. Especially so since assessee’s earnings were entirely from exports. Therefore, we do not find any merit in this ground raised by the Revenue. It stands dismissed.”
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- 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:
Date of Judgment 29-06-2018, ITA No.66/2016 Pr. Commissioner of Income Tax-5 & another Vs. M/s Net Scout Systems Software India P. Ltd.
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“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
Date of Judgment 29-06-2018, ITA No.66/2016 Pr. Commissioner of Income Tax-5 & another Vs. M/s Net Scout Systems Software India P. Ltd.
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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 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
Date of Judgment 29-06-2018, ITA No.66/2016 Pr. Commissioner of Income Tax-5 & another Vs. M/s Net Scout Systems Software India P. Ltd.
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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.”
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 Appellant-Revenue is liable to be dismissed and is accordingly dismissed. No costs.
Sd/- JUDGE
Sd/- JUDGE
ln.