THE PR COMMISSIONER OF INCOME TAX vs. M/S ENCHANTING TRAVELS PVT LTD

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ITA/149/2019HC KarnatakaKAHC01035166201930 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 Revenue's counsel sought liberty to revive the appeal if the matter fell within the exceptions of Circular No. 09/2024 and Circular No. 5/2024. The Court granted this liberty. Consequently, the appeal was disposed of without a decision on the merits of the substantial questions of law. The Court explicitly stated that the questions of law were kept open to be adjudicated in an appropriate proceeding. No specific findings were made on any of the six issues raised by the Revenue, nor was any relief granted or denied on the substantive grounds of appeal.

What were the facts?

The Revenue, represented by the Principal Commissioner of Income Tax and the Income-Tax Officer, filed an appeal under Section 260-A of the Income Tax Act, 1961, against an order dated September 14, 2018, passed by the Income Tax Appellate Tribunal (ITAT), Bengaluru. The appeal pertains to the assessment year 2012-13 and concerns the transfer pricing adjustment made by the Transfer Pricing Officer (TPO) and confirmed by the Dispute Resolution Panel (DRP). The assessee is M/s Enchanting Travels Pvt Ltd. The ITAT's order is under challenge. The appeal was filed before the High Court of Karnataka.

What were the issues?

The Tribunal had to decide six substantial questions of law raised by the Revenue. The primary questions revolve around the determination of the Arm's Length Price (ALP) under the Transfer Pricing Regulations. The Revenue contended that the Tribunal erred by seeking exact comparables rather than similar ones, imposing conditions beyond the law, and failing to acknowledge that comparability analysis is an art, not an exact science. The Revenue also questioned the Tribunal's exclusion of specific comparables (Cox and Kings Kerala Travels Interserve Ltd) without proper adjustment or remand. A further issue concerned the Tribunal's decision to set aside the disallowance of employees' contribution amounting to Rs. 4,91,148/-, by following a High Court decision that had not reached finality, despite the assessee failing to remit the amount before the prescribed due date under Section 36(1)(va) of the Act. 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.

Which sections of the Income-tax Act were involved?

Section 260-A,Section 36(1)(va),Section 10B(3)

AI-generated summary — verify with the full judgment below

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NC: 2024:KHC:41693-DB ITA No. 149 of 2019

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. 149 OF 2019 BETWEEN:

1.

THE PR. COMMISSIONER OF INCOME TAX 5TH FLOOR, BMTC BUILDING 80 FEET ROAD, KORMANGALA BENGALURU 560 095.

2.

THE INCOME-TAX OFFICER, WARD-2(1)(4), 2ND FLOOR, BMTC BUILDING, 80 FEET ROAD, KORMANGALA, BENGALURU 560 095. …APPELLANTS (BY SRI.SUSHAL TIWARI N., ADVOCATE)

AND:

M/S ENCHANTING TRAVELS PVT LTD NO.660/1, "AKSHAYA", 100FT. RAOD, INDIRANAGAWR BENGALURU 560 038. PAN: AABCE 3501A. …RESPONDENT (BY SRI. NARENDRA KUMAR J JAIN., ADVOCATE)

THIS ITA / INCOME TAX APPEAL IS FILED UNDER SEC.260-A OF 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. 444/BANG/2017 DATED14/09/2018 ASSESSMENT YEAR 2012-2013 ANNEXURE-D AND CONFIRM THE ORDER OF THE DRP CONFIRMING THE ORDER PASSED

Digitally signed by B LAVANYA Location: HIGH COURT OF KARNATAKA

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NC: 2024:KHC:41693-DB ITA No. 149 of 2019

BY THE INCOME TAX OFFICER, WARD-2(1)(4), 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. Sushal Tiwari. N., for appellants/Revenue and learned counsel Sri. Narendra Kumar. J. Jain., 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 14.09.2018 passed by the Income Tax Appellate Tribunal, ‘B’ Bench, Bengaluru (for short, ‘Appellate Authority’) in IT(TP)A No.444/Bang/2017 for the assessment year 2012- 13, raising the following substantial questions of law: “1. Whether on the facts and in the circumstances of the case, the Tribunal was right in law in seeking exact comparability,

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NC: 2024:KHC:41693-DB ITA No. 149 of 2019

which searching for comparable companies of the assessee under TNMM whereas the requirement of law and international jurisprudence require seeking similar comparables companies? 2. Whether on the facts and circumstances of the case, the Tribunal was right in law in seeking the exact comparability in imposing condition beyond law whereas the requirement of law is to acknowledge only those differences that are likely to materially affect the margin? 3. Whether on the facts and in the circumstances of the case, the Tribunal was right in law in not acknowledging that determination of ALP by carrying out comparability analysis of the comparable companies is an art and not exact science as no two companies are exactly same? 4. Whether on the facts and in the circumstances of the case, the Tribunal was right in law in demanding comparability standards that may itself defeat the purpose of law relating to determination of ALP under the Act? 5. Whether on the facts and in the circumstances of the case, the Tribunal is right in excluding comparable’s namely, Cox

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NC: 2024:KHC:41693-DB ITA No. 149 of 2019

and Kings Kerala Travels Interserve Ltd by without appreciating that as per Rule 10B(3), the Tribunal ought to have suggested a reasonable accurate adjustment on account of the brand value or should have set aside the matter back to Transfer Pricing Officer and therefore the order passed by Tribunal can be said as perverse in nature? 6. Whether on the facts and in the circumstances of the case, the Tribunal was right in law in setting aside the disallowance made by assessing authority in respect of employees contribution amounting to `4,91,148/- by following the decision of this Hon’ble Court in case of M/s.Essai Teraoka Pvt. Ltd even though the said decision has not reached finality and when assessee had failed to remit same with concerned authority well before prescribed date under the respective Act which is stipulated in section 36(1)(va) of the Act?”

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

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NC: 2024:KHC:41693-DB ITA No. 149 of 2019

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.

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.: 23

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