THE PR COMMISSIONER OF INCOME TAX vs. M/S BOSTIK INDIA PVT LTD

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ITA/104/2023HC KarnatakaKAHC01012733202330 September 2024Bench: S.G.PANDIT,C.M. POONACHA5 pages
AI SummaryWithdrawn

What did the High Court hold?

The High Court disposed of the appeal based on the submissions made by both parties. The Court noted the assessee's submission regarding the tax effect being below the threshold stipulated in CBDT Circular No. 09/2024, which limits the Revenue's right to appeal. The Revenue sought liberty to revive the appeal if the case fell under the exceptions mentioned in the circulars. The Court granted this liberty to the Revenue. Consequently, the appeal was disposed of with the liberty as prayed for by the Revenue. The substantial questions of law were kept open to be adjudicated in an appropriate proceeding. No decision was made on the merits of the transfer pricing method dispute.

What were the facts?

The Revenue, comprising the Principal Commissioner of Income Tax and the Deputy Commissioner of Income Tax, filed an appeal under Section 260-A of the Income Tax Act, 1961, before the High Court of Karnataka. The appeal challenges an order dated 10.05.2022 passed by the Income Tax Appellate Tribunal (ITAT), Bengaluru. The ITAT's order was in relation to IT(TP)A No.837/Bang/2016 for the assessment year 2011-12. The appeal seeks to set aside the ITAT's order and confirm the order of the Dispute Resolution Panel (DRP), which in turn had confirmed the order of the Assistant Commissioner of Income-Tax. The core dispute revolves around the appropriate method for determining the arm's length price for intra-group transactions.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Tribunal erred in law by directing the Assessing Officer/Transfer Pricing Officer to adopt the Transaction Net Margin Method (TNMM) as the most appropriate method for ascertaining the Arm's Length Price (ALP), instead of the Comparable Uncontrolled Price (CUP) method chosen by the Transfer Pricing Officer, considering that the transactions were based on independent agreements and could not be aggregated with manufacturing activity under TNMM, especially when no payments were made in earlier years? (Question of law and fact, concerning Section 92C and related rules). 2. Whether, on the facts and in the circumstances of the case, the Tribunal's order is perverse in law by directing the Assessing Officer/Transfer Pricing Officer to adopt TNMM as the most appropriate method for ascertaining ALP, overriding the CUP method selected by the TPO, despite the TPO having rightly chosen the CUP method based on the factual matrix and parameters set out in Section 92C and the Rules framed thereunder? (Question of law and fact, concerning Section 92C and related rules). Assessee's Contention: The tax effect in this appeal is less than Rs. 2 Crores, and therefore, the appeal should not be entertained by the Revenue in view of CBDT Circular No. 09/2024 dated 17.09.2024, which binds the Revenue. Revenue's Contention: The Revenue sought liberty to revive the appeal if the matter falls within the exceptions under Circular No. 09/2024 dated 17.09.2024 and Circular No. 5/2024 dated 15.03.2024.

Which sections of the Income-tax Act were involved?

Section 260-A,Section 92C

AI-generated summary — verify with the full judgment below

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NC: 2024:KHC:41833-DB ITA No. 104 of 2023

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 30TH DAY OF SEPTEMBER, 2024 PRESENT THE HON'BLE MR JUSTICE S.G.PANDIT AND THE HON'BLE MR JUSTICE C.M. POONACHA INCOME TAX APPEAL NO. 104 OF 2023 BETWEEN:

1.

THE PR. COMMISSIONER OF INCOME TAX 5TH FLOOR, BMTC BUILDING 80 FEET ROAD, KORAMANGALA BENGALURU 560095

2.

THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 1(1)(2) PRESENT ADDRESS ACIT CIRCLE -1(1)(1), 2ND FLOOR BMTC BUILDING, 80 FEET ROAD KORMANGALA BENGALURU 560095 …APPELLANTS (BY SRI. DILIP M.,ADVOCATE A/W SRI. RAVIRAJ Y V, ADVOCATE)

AND:

M/S BOSTIK INDIA PVT LTD NO 124/4 AND 124/4A KACHANAYAKANAHALLI OFF HOSUR ROAD, BOMMASANDRA POST ANEKAL TALUK BENGALURU 560099 PAN AABCB 4627N …RESPONDENT (BY SRI. RAVI RAGHAVAN.,ADVOCATE)

Digitally signed by B LAVANYA Location: HIGH COURT OF KARNATAKA

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NC: 2024:KHC:41833-DB ITA No. 104 of 2023

THIS ITA / INCOME TAX APPEAL IS FILED UNDER SEC.260-A OF THE INCOME TAX ACT, 1961, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE, ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME-TAX APPELLATE TRIBUNAL, BENGALURU IN IT(TP)A NO. 837/BANG/2016 DATED 10/05/2022 FOR ASSESSMENT YEAR 2011-2012 ANNEXURE- D AND CONFIRM THE ORDER OF THE DRP CONFIRMING THE ORDER PASSED BY THE ASST. COMMISSIONER OF INCOME-TAX, CIRCLE- 1(1)(1), BENGALURU AND ETC.

THIS APPEAL, COMING ON FOR HEARING, THIS DAY, JUDGMENT WAS DELIVERED THEREIN AS UNDER:

CORAM: HON'BLE MR JUSTICE S.G.PANDIT and HON'BLE MR JUSTICE C.M. POONACHA

ORAL JUDGMENT (PER: HON'BLE MR JUSTICE S.G.PANDIT)

Heard the learned counsel Sri. Dilip. M., along with Sri. Raviraj. Y.V., for appellants/Revenue and learned counsel Sri. Ravi Raghavan., learned counsel for the respondent/assessee.

2.

The Revenue is in appeal under Section 260-A of the Income Tax Act, 1961 (for short, ‘the Act’) questioning the correctness and legality of order dated 10.05.2022 passed by the Income Tax Appellate Tribunal, ‘C’ Bench, Bengaluru (for short, ‘Appellate Authority’) in

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NC: 2024:KHC:41833-DB ITA No. 104 of 2023

IT(TP)A No.837/Bang/2016 for the assessment year 2011- 12, raising the following substantial questions of law: “1. Whether on the facts and in the circumstances of the case, the Tribunal in law directing the Assessing Officer/Transfer Pricing Officer to adopt Transaction Net Margin Method as most appropriate method for ascertaining Arm’s Length Price as against CUP method adopted by Transfer Pricing Officer for intra group transaction by not appreciating that the said transactions were entered by the assesse by way of independent agreements and which cannot be aggregated with manufacturing activity under TNMM and that to when no payments were made in earlier years also?

2.

Whether on the facts and in the circumstances of the case, the Tribunal’s order can be said as perverse in nature in law directing the Assessing Officer/Transfer Pricing Officer to adopt Transaction Net Margin Method as most

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NC: 2024:KHC:41833-DB ITA No. 104 of 2023

appropriate method for ascertaining Arm’s Length Price as against CUP method adopted by Transfer Pricing Officer ignoring that when TPO had rightly chosen CUP method considering factual matrix of the case and parameters set out in Section 92C and Rules framed there under.”

3.

Learned counsel for the assessee submits that the tax effect in this appeal is less than Rs.2 Crores and therefore, the appeal should not be entertained at the instance of the revenue in view of the Circular No.09/2024 dated 17.09.2024 issued by the Central Board of Direct Taxes. It is also submitted that the aforesaid Circular binds the revenue.

4.

On the other hand, learned counsel for the revenue submits that he be granted liberty to revive the appeal in case the matter falls within the exceptions under the aforesaid Circular dated 17.09.2024 and Circular No.5/2024 dated 15.03.2024.

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NC: 2024:KHC:41833-DB ITA No. 104 of 2023

5.

In view of the aforesaid submissions, the appeal is disposed of with liberty as prayed for by the learned counsel for the revenue. However, the questions of law are kept open to be adjudicated in an appropriate proceeding.

Sd/- (S.G.PANDIT) JUDGE

Sd/- (C.M. POONACHA) JUDGE

BS List No.: 4 Sl No.: 0

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