THE PR COMMISSIONER OF INCOME TAX V. M/S ARUBA NETWORKS INDIA

ITA/378/2017

AI Insights

The case involves an appeal by the Pr. Commissioner of Income Tax and the Deputy Commissioner of Income-Tax against M/s Aruba Networks India Pvt. Ltd., concerning the Income Tax Appellate Tribunal's decision on transfer pricing adjustments for the assessment year 2010-2011. The appellants challenged the exclusion of certain comparables and the treatment of foreign exchange gains or losses as operating in nature. The tribunal had previously excluded several comparables based on functional dissimilarity and directed reworking of the working capital adjustment. The High Court dismissed the appeal, referencing a recent judgment that emphasized the non-maintainability of such appeals under Section 260-A unless ex-facie perversity in the tribunal's findings is established.

• Counselvise Citation: [2018] 140 COUNSELVISE.COM (IT) 728443 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 08-08-2018
• Assessment Year: misc
• Other Referred Cases: ACIT v RGA Services India Pvt. Ltd, DCIT v M/s Electronics for Imaging India Pvt. Ltd., CSR India Pvt. Ltd. Vs ITO, ARM Embedded Technologies Pvt. Ltd. Vs. DCIT, Prl. Commissioner of Income Tax & Anr. \\u2013v- M/s Softbrands India Pvt. Ltd.
• Laws Referred To: Income Tax Act 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: SANDEEP HUILGOL
• Assessee Lawyers: ARAVIND V
• Keywords: Comparable Uncontrolled Price; Foreign Exchange Gain; Functional Dissimilarity; Income tax appeal; Transfer pricing; Working Capital Adjustment
• Section: 260-A

Judgement Text

" 1/10 IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 8TH DAY OF AUGUST 2018 PRESENT THE HON’BLE DR.JUSTICE VINEET KOTHARI AND THE HON’BLE MRS.JUSTICE S.SUJATHA I.T.A. No.378/2017 BETWEEN : 1. THE PR. COMMISSIONER OF INCOME TAX 5TH FLOOR, BMTC BUILDING, 80 FEET ROAD, KORAMANGALA, BENGALURU – 560 095. 2. THE DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE -1 (1) (1), 2ND FLOOR, BMTC BUILDING, 80 FEET ROAD, KORAMANGALA, BENGALURU – 560 095. ... APPELLANTS (BY SRI.ARAVIND K V, ADV.) AND: M/S ARUBA NETWORKS INDIA PVT. LTD., SALARPURIA HALLMARK, SY.NO.15/3 & 16, BLOCK B, 3RD FLOOR, KADUBEESANAHALLI, OUTER RING ROAD, VARTHUR HOBLI, BENGALURU SOUTH TALUK, BENGALURU – 560 103. PAN:AAFCA 4556M ... RESPONDENT (BY SRI.SANDEEP HUILGOL, ADV. FOR SRI.T.SURYANARAYANA, ADV.) Date of Judgment 8-8-2018, ITA No.378/2017 The Pr. Commissioner of Income Tax & Another Vs M/s.Aruba Networks India Pvt. Ltd.. 2/10 THIS INCOME TAX APPEAL IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED:30/09/2016 PASSED IN IT(TP)A NO.57/BANG/2015, FOR THE ASSESSMENT YEAR 2010-2011 ANNEXURE –D. PRAYING TO: I. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN, II. ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE ITAT, BANGALORE IN IT(TP)A NO.57/BANG/2015 DATED:30/09/2016 ANNEXURE –D CONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1(1)(1), BENGALURU. THIS APPEAL COMING ON FOR HEARING, THIS DAY, S. SUJATHA, J., DELIVERED THE FOLLOWING: J U D G M E N T Mr. Aravind K.V., Adv. for Appellants – Revenue. Mr.Sandeep Huilgol, Adv., for Mr. T. Suryanarayana, 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, Bench ‘B’, Bangalore in IT[TP]A No.57/Bang/2015 dated 30.09.2016, relating to the Assessment Year 2010-11. Date of Judgment 8-8-2018, ITA No.378/2017 The Pr. Commissioner of Income Tax & Another Vs M/s.Aruba Networks India Pvt. Ltd.. 3/10 2. This Appeal has been admitted on 07.11.2017 to consider the following substantial questions of law. “1. Whether in the facts and circumstances of the case, the Tribunal is right in law in excluding the comparables, namely Asia Business Exhibition Conference, ICRA Techno Analysis Ltd, Kals Information Systems Ltd, HCCA Business Services, Hindusthan Housing Co. Ltd and Killick Agencies & Marketing Ltd on the ground of functional dissimilarity by following its earlier order 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? 2. Whether in the facts and circumstances of the case, the Tribunal is right in law in holding that the foreign exchange gain or loss should be considered as operating in nature by following its earlier order in case of M/s.CSR Date of Judgment 8-8-2018, ITA No.378/2017 The Pr. Commissioner of Income Tax & Another Vs M/s.Aruba Networks India Pvt. Ltd.. 4/10 India P. Ltd even though the said decision has not reached finality? 3. Whether in the facts and circumstances of the case, the Tribunal is right in law in directing the TPO to re-work the working capital adjustment by following its earlier order in case of M/s.ARM Embedded Technologies Ltd even when said order has not reached finality?” 3. 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: “31. In view of the ITAT decision in the case of ACIT v RGA Services India Pvt. Ltd TS-580- ITAT-2015(mum)-TP AY 10-11 and DCIT v M/s Electronics for Imaging India Pvt. Ltd. IT(TP)A No.212/Bang/2015-AY 10-11, wherein it is held as under:- xxxxxxxxxxx Accordingly, we direct the AO/TPO to re- compute the ALP in marketing support services segment by excluding Asian Business exhibition & Conference Ltd. from the comparables.” Date of Judgment 8-8-2018, ITA No.378/2017 The Pr. Commissioner of Income Tax & Another Vs M/s.Aruba Networks India Pvt. Ltd.. 5/10 “13. We find that the decision in the case of DCIT Vs M/s Electronics for Imaging India Pvt. Ltd., in IT(TP) No.212/Bang/2015, is held as follows: xxxxxxxxxxxxxx 14. Respectfully following the decision of the co-ordinate Bench in the case of DCIT Vs. Electronics for Imaging India Pvt. Ltd., in IT(TP) No.212/Bang/2015, we exclude ICRA Techno Analytics Ltd. (seg) from the list of comparables selected by TPO/AO” “15. With respect to KALS Information Systems Ltd., we find that the co-ordinate bench in the case DCIT Vs. M/s Electronics for Imaging India Pvt. Ltd. in ITA No.212/Bang/2015 for the assessment year 2010-2011 has held as follows: Xxxxxxxxxxxxx 16. Respectfully following the decision of the co-ordinate Bench in the case of DCIT Vs. Electronics for Imaging India Pvt. Ltd., in IT(TP) No.212/Bang/2015, we exclude ICRA Techno Date of Judgment 8-8-2018, ITA No.378/2017 The Pr. Commissioner of Income Tax & Another Vs M/s.Aruba Networks India Pvt. Ltd.. 6/10 Analytics Ltd. (seg) from the list of comparables selected by TPO/AO” Regarding Substantial Question of Law No.2: “4. Ground No.8 - relying on the decision in the case of CSR India Pvt. Ltd., Vs ITO IT (TP) No.119/Bang/2011, foreign exchange gain or loss should be considered as operating in nature for marketing support service. 44. The Appellant’s margin is within 5% range of the average margin of the comparables. Thus, the international transactions of the Appellant should be considered to be at arm’s length. With these directions, we set aside the issues to the file of the TPO to rework the ALP.” Regarding Substantial Question of Law No.3: “20. With respect to ground No.3 working capital adjustment, the CIT(A) has held that the action of the TPO in restricting working capital adjustment to 1.98% is correct. We find that 1.92% which comes out based on final list of comparables is lesser than 1.98% adopted by the TPO. The ld counsel for the assessee requested that working capital adjustment should be given at actual based on final comparables. Reliance was placed Date of Judgment 8-8-2018, ITA No.378/2017 The Pr. Commissioner of Income Tax & Another Vs M/s.Aruba Networks India Pvt. Ltd.. 7/10 on the ITAT decision in ARM Embedded Technologies Pvt. Ltd., Vs. DCIT, TS-466-ITAT- 2015(Bang)-TP. Hence, we direct the TPO to rework the working capital adjustment.” 4. For the similar reasons, the Tribunal has excluded other comparables also. 5. However, this Court in a recent judgment in I.T.A. Nos.536/2015 c/w 537/2015 delivered on 25.06.2018 (Prl. Commissioner of Income Tax & Anr. –v- 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. The relevant portion of the said judgment is quoted below for ready reference: “Conclusion: 55. A substantial quantum of international trade and transactions depends Date of Judgment 8-8-2018, ITA No.378/2017 The Pr. Commissioner of Income Tax & Another Vs M/s.Aruba Networks India Pvt. Ltd.. 8/10 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 8-8-2018, ITA No.378/2017 The Pr. Commissioner of Income Tax & Another Vs M/s.Aruba Networks India Pvt. Ltd.. 9/10 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. Date of Judgment 8-8-2018, ITA No.378/2017 The Pr. Commissioner of Income Tax & Another Vs M/s.Aruba Networks India Pvt. Ltd.. 10/10 58. The appeals filed by the Revenue are therefore dismissed with no order as to costs.” 6. Having heard the learned counsels appearing 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 AN/- "