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

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ITA/109/2023HC KarnatakaKAHC01012778202330 September 2024Bench: S.G.PANDIT,C.M. POONACHA5 pages
AI SummaryWithdrawn

What did the High Court hold?

The High Court of Karnataka disposed of the appeal with liberty granted to the Revenue to revive it as prayed for by its counsel. The Court noted the submission by the assessee's counsel that the tax effect was less than Rs. 2 Crores, referencing CBDT Circular No. 09/2024. The Revenue's counsel sought liberty to revive the appeal in case the matter fell within the exceptions of the said circular and Circular No. 5/2024. In light of these submissions, the appeal was disposed of without adjudicating on the substantial questions of law. The Court explicitly stated that the questions of law are kept open to be adjudicated in an appropriate proceeding. No specific finding was given on the appropriateness of TNMM versus CUP, nor was there any direction for deletion or remand on the merits of the transfer pricing issue.

What were the facts?

The Revenue, represented by 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, Bengaluru. The assessment year in question is 2013-14. The dispute concerns the appropriate method for determining the Arm's Length Price (ALP) for intra-group transactions. The Tribunal had directed the adoption of the Transaction Net Margin Method (TNMM) over the Comparable Uncontrolled Price (CUP) method, which was initially adopted by the Transfer Pricing Officer (TPO). The amount in dispute is not explicitly stated, but the tax effect is mentioned as less than Rs. 2 Crores.

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), as against the Comparable Uncontrolled Price (CUP) method adopted by the TPO for intra-group transactions, considering that these transactions were entered into via independent agreements, cannot be aggregated with manufacturing activity under TNMM, and no payments were made in earlier years? 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 the Transaction Net Margin Method (TNMM) as the most appropriate method for ascertaining the Arm's Length Price (ALP), as against the CUP method adopted by the TPO, when the TPO had rightly chosen the CUP method considering the factual matrix and parameters set out in Section 92C and the Rules framed thereunder? 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 provided under Circular No. 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:41835-DB ITA No. 109 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. 109 OF 2023 BETWEEN:

1.

THE PR.COMMISSIONER OF INCOME TAX 5TH FLOOR, BMTC BUILDING 80 FEET ROAD, KORMANGALA 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)

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

Digitally signed by B LAVANYA Location: HIGH COURT OF KARNATAKA

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NC: 2024:KHC:41835-DB ITA No. 109 of 2023

APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME-TAX APPELLATE TRIBUNAL, BENGALURU IN IT(TP)A NO. 2031/BANG/2017 DATED 10/05/2022 FOR ASSESSMENT YEAR 2013-2014 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 ADMISSION, 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 IT(TP)A No.2031/Bang/2017 for the assessment year

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NC: 2024:KHC:41835-DB ITA No. 109 of 2023

2013-14, 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:41835-DB ITA No. 109 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:41835-DB ITA No. 109 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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