THE PR. COMMISSIONER OF INCOME TAX vs. M/S SIGMA ALDRICH CHEMICALS PVT LTD

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ITA/129/2022HC KarnatakaKAHC01006648202223 September 2024Bench: S.G.PANDIT,C.M. POONACHA4 pages
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What did the High Court hold?

The High Court disposed of the appeal based on the submissions of both parties. The assessee contended that the tax effect was below the threshold stipulated in CBDT Circular No. 09/2024, making the appeal not maintainable at the instance of the Revenue. The Revenue requested liberty to revive the appeal if it met the exceptions outlined in the aforementioned circulars. Consequently, the Court granted the liberty as prayed for by the Revenue. The substantial questions of law were kept open to be adjudicated in an appropriate proceeding. No findings were made on the merits of the transfer pricing issues raised in the substantial questions of law.

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, against an order dated September 15, 2020, passed by the Income Tax Appellate Tribunal (ITAT), Bengaluru. The appeal pertains to Assessment Year 2009-10 and challenges the ITAT's decision concerning transfer pricing adjustments made by the Transfer Pricing Officer (TPO). The assessee is M/s Sigma Aldrich Chemicals Pvt Ltd. The High Court heard arguments from both sides regarding the substantial questions of law.

What were the issues?

The Tribunal had to decide four substantial questions of law: 1. Whether the Tribunal was correct in directing the exclusion of comparables (Cyber Medical Research Ltd, Infosys BPO Ltd, Accentia Technologies Ltd, Cosmic Global Ltd, E-Eclerx Ltd) on grounds of functional dissimilarity, despite the TPO having selected them based on qualitative and quantitative filters as per Rule 10B(e) of the IT Rules. 2. Whether the Tribunal was correct in directing the exclusion of depreciation from operating expenses when computing margins for R&D and Manufacturing Segments, considering depreciation as a direct business expense. 3. Whether the Tribunal was correct in allowing the assessee's claim regarding under-utilization for manufacturing and R&D segments, when adjustments are typically made to comparables, not the tested party. 4. Whether the Tribunal was correct in excluding comparables without appreciating the definition of ITES services and the contention that companies providing KPO services fall within the category of ITES providers. The assessee argued that the appeal should not be entertained due to the tax effect being less than Rs. 2 Crores, citing CBDT Circular No. 09/2024. The Revenue sought liberty to revive the appeal if the matter fell within exceptions under Circulars 09/2024 and 05/2024.

Which sections of the Income-tax Act were involved?

Section 260-A

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, BENGALURU IN IT(TP

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NC: 2024:KHC:39415-DB ITA No. 129 of 2022

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 23RD 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. 129 OF 2022 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-12(3), PRESENT ADDRESS, ACIT-CIRCLE -6 (1)(1) 2ND FLOOR, BMTC BUILDING, 80 FEET ROAD, KORAMANGALA, BENGALURU-560095 …APPELLANTS (BY SRI. RAVI RAJ Y V.,ADVOCATE A/W SRI. DILIP M, ADVOCATE)

AND:

M/S SIGMA ALDRICH CHEMICALS PVT LTD PLOT NO.12,BOMMASANDRA, JIGANI LINK, ANEKAL TALUK, BENGALURU-560100 PAN AAHCS1882L …RESPONDENT (BY SRI. ASHOK A KULAKARNI.,ADVOCATE)

THIS ITA / INCOME TAX APPEAL IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961 PRAYING

Digitally signed by BHARATHI S Location: HIGH COURT OF KARNATAKA

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NC: 2024:KHC:39415-DB ITA No. 129 of 2022

FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN, ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, BENGALURU IN IT(TP)A NO. 203/BANG/2014 DATED 15/09/2020 FOR ASSESSMENT YEAR 2009-2010 ANNEXURE-D AND CONFIRM THE ORDER OF THE DRP COMMISSIONER CONFIRMING THE ORDER PASSED BY THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-6(1)(1), BENGALURU AND ETC.

THIS APPEAL, COMING ON FOR FINAL 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 Raviraj Y.V, along with learned counsel Sri Dilip M, for appellants/Revenue and learned counsel Sri Ashok A.Kulkarni, 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 15.9.2020 passed by the Income Tax Appellate Tribunal, ‘B’ Bench, Bengaluru (for short, ‘Appellate Authority’) in IT(TP)A.No.203/Bang/2014 for the assessment year 2009-10, raising the following substantial questions of law:

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NC: 2024:KHC:39415-DB ITA No. 129 of 2022

“1. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in directing the Transfer Pricing Officer to exclude comparables namely, Cyber Medical Research Ltd (R & D Segment), Infosys BPO Ltd, Accentia Technologies Ltd, Cosmic Global Ltd, E-Eclerx Ltd are liable to be excluded on the ground of functional dissimilarity when the Transfer Pricing Officer has chosen the comparables as qualitative and quantitative filters are fully satisfied in the case of each comparables and when the said comparable satisfies qualitative and quantitative filters and as per Rule 10B(e) of I.T. Rules?

2.

Whether on the facts and in the circumstances of the case, the Tribunal is right in directing Transfer Pricing Officer to exclude depreciation from operating expenses for purpose of computing margin in R & D & Manufacturing Segments when the same is a direct expenses derived from the business operations?

3.

Whether on the facts and in the circumstance's of the case, the Tribunal is right in law in allowing claim of assessee relating to non-granting of under capacity utilization for manufacturing and R & D segments when the law allows any adjustment over comparables and not the tested party?

4.

Whether on the facts and in the circumstances of the case, the Tribunal is right in excluding comparable's without appreciating the fact that the definition of ITES Services and that there is no basis for the contention that the companies providing KPO services do not fall in the category of ITES providers?"

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.

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NC: 2024:KHC:39415-DB ITA No. 129 of 2022

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.

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

ND List No.: 3 Sl No.: 0

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