THE PR.COMMISSIONER OF INCOME TAX CIT(A) vs. M/S ANALOG DEVICES INDIA PVT LTD

PDF · subscribers
ITA/146/2020HC KarnatakaKAHC01024388202027 September 2024Bench: S.G.PANDIT,C.M. POONACHA5 pages
AI SummaryWithdrawn

What did the High Court hold?

The High Court disposed of the appeal with liberty granted to the Revenue to revive it, as prayed for by its counsel. The Court noted the submissions regarding CBDT Circular No. 09/2024, which stipulates that appeals with a tax effect below Rs. 2 Crores should not be entertained by the Revenue. The assessee relied on this circular. The Revenue sought liberty to revive the appeal if the case fell under the exceptions to the circulars. Consequently, the Court did not adjudicate on the substantial questions of law framed. The question of law was expressly kept open to be adjudicated in an appropriate proceeding. No specific findings were made on the merits of the transfer pricing issues or the applicability of Rule 10B.

What were the facts?

The Revenue, comprising the Principal Commissioner of Income-Tax and the Deputy Commissioner of Income-Tax, Circle-11(1), filed an appeal under Section 260-A of the Income Tax Act, 1961, against an order dated December 20, 2019, passed by the Income Tax Appellate Tribunal (ITAT), 'B' Bench, Bengaluru. The appeal pertains to the assessment year 2005-06 and arises from a co-ordinate bench order in IT(TP)A No. 619/Bang/2013. The High Court admitted the appeal on October 7, 2020, to consider substantial questions of law related to the ITAT's treatment of comparable companies in transfer pricing analysis and the exclusion/inclusion of comparables based on parameters under Rule 10B. The amount in dispute was not explicitly stated, but the tax effect was mentioned as less than Rs. 2 Crores.

What were the issues?

The High Court was asked to decide the following substantial questions of law: 1. Whether the Tribunal was legally correct in ignoring the exhaustive parameters prescribed under Rule 10B for analysis, and if it was permissible to bypass them partially or by implication? 2. Whether the Tribunal was correct in not acknowledging that there is no direct relationship between brand value and profit margin, and that while brand generates revenue, it does not necessarily increase profit margin? 3. Whether the Tribunal erred in excluding/including comparable companies by ignoring the parameters of analysis under Rule 10B, and if bypassing these parameters was legally permissible? 4. Whether the Tribunal's order was perverse in directing the Transfer Pricing Officer to exclude comparables based on high turnover, abnormal profit, and functional dissimilarity, despite the comparables satisfying Rule 10B tests? Assessee's Contention: The assessee argued that the appeal should not be entertained by the Revenue due to the tax effect being less than Rs. 2 Crores, citing CBDT Circular No. 09/2024 dated September 17, 2024, which binds the Revenue. Revenue's Contention: The Revenue sought liberty to revive the appeal if the matter fell within the exceptions outlined in Circular No. 09/2024 and Circular No. 5/2024 dated March 15, 2024.

Which sections of the Income-tax Act were involved?

Section 260-A,Section 10B

AI-generated summary — verify with the full judgment below

- 1 -

NC: 2024:KHC:40414-DB ITA No. 146 of 2020

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 27TH 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. 146 OF 2020

BETWEEN:

1.

THE PR. COMMISSIONER OF INCOME-TAX, CIT(A) 5TH FLOOR, BMTC BUILDING, 80 FEET ROAD, KORAMANGALA, BENGALURU-560 095.

2.

THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-11(1) PRESENT ADDRESS, DCIT, CIRCLE-1(1)(1) 2ND FLOOR, BMTC BUILDING, 80 FEET ROAD, KORAMANGALA, BENGALURU-560 095. …APPELLANTS

(BY SRI. DILIP M ., ADVOCATE A/W SRI. RAVIRAJ Y.V., ADVOCATE)

Digitally signed by BHARATHI S Location: HIGH COURT OF KARNATAKA

- 2 -

NC: 2024:KHC:40414-DB ITA No. 146 of 2020

AND:

M/S. ANALOG DEVICES INDIA PVT. LTD., RMZ INFINITY NO.3, LEVEL-6, TOWER-D OLD MADRAS ROAD, BENGALURU-560 016 PAN: AABCA 1873F …RESPONDENT

(RESPONDENT-SERVICE HELD SUFFICIENT V/O DATED 19.08.2021)

THIS ITA / INCOME TAX APPEAL IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 20/12/2019 PASSED IN C.O.NO. 155/BANG/2015 (IN IT(TP)A NO. 619/BANG/2013), FOR THE ASSESSMENT YEAR 2005-2006 PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE 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

- 3 -

NC: 2024:KHC:40414-DB ITA No. 146 of 2020

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

Heard the learned counsel Sri. Dilip.M., along with Sri. Raviraj.Y.V., learned counsel for appellants/Revenue.

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 20.12.2019 passed by the Income Tax Appellate Tribunal, ‘B’ Bench, Bengaluru (for short, ‘Appellate Authority’) in C.O.No.155/Bang/2015 (in IT(TP)A.No.619/Bang/2013) for the assessment year 2005-06.

3.

This

Court,

admitted the appeal on 07.10.2020 to consider the following substantial questions of law: 1. Whether the Tribunal was right in law to ignore the parameters of analysis prescribed under Rule 10B, which are exhaustive and if so, whether it is legally permissible to bypass the same partially or by implication?

- 4 -

NC: 2024:KHC:40414-DB ITA No. 146 of 2020

2.

Whether the Tribunal was right in fact and in law in not acknowledging that there is no direct relationship between brand value and margin earned by the company and brand may generate the revenue of the company but does not increase the profit margin?

3.

Whether on the facts and circumstances of the case and in law, the Tribunal erred in excluding/including certain comparable’s ignoring the parameters of analysis prescribed under Rule 10B, which are exhaustive and, if so, whether it is legally permissible to bypass the same partially or by implication?

4.

Whether on the facts and in the circumstances of the case, the Tribunal’s order can be said as perverse in nature as the Tribunal has directed Transfer Pricing Officer to exclude certain comparable’s on the basis of high turnover, abnormal profit and functional dissimilarity without appreciating that the comparables chosen by TPO satisfies all required tests as prescribed in the Rule 10B?

4.

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

- 5 -

NC: 2024:KHC:40414-DB ITA No. 146 of 2020

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.

5.

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.

6.

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 question of law is kept open to be adjudicated in an appropriate proceeding.

Sd/- (S.G.PANDIT) JUDGE

Sd/- (C.M. POONACHA) JUDGE

SMJ, List No.: 4 Sl No.: 26

More judgments on Section 260-A

All 2,570 judgments and leading authorities on Section 260-A →

Recent GST High Court judgments

Search GST case law →