THE PR COMMISSIONER OF INCOME TAX vs. M/S FIRST ADVANTAGE GLOBAL

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ITA/164/2020HC KarnatakaKAHC01005781202027 September 2024Bench: S.G.PANDIT,C.M. POONACHA5 pages
AI SummaryRemanded

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 the tax effect and the relevant CBDT circulars. The substantial questions of law were kept open to be adjudicated in an appropriate proceeding. No decision was made on the merits of the substantial questions of law raised in the appeal. The operative direction was to dispose of the appeal with liberty to revive, meaning the appeal was not decided on its substance.

What were the facts?

The Revenue has filed an appeal under Section 260-A of the Income Tax Act, 1961, against an order dated 07.08.2019 passed by the Income Tax Appellate Tribunal (ITAT), Bengaluru. The appeal pertains to the assessment year 2009-10 and challenges the ITAT's decision in IT(TP)A.No.190/Bang/2014. The High Court admitted the appeal on 16.12.2020 to consider substantial questions of law. During the hearing, the assessee's counsel pointed out that the tax effect in the appeal is less than Rs. 2 Crores, citing CBDT Circular No. 09/2024 dated 17.09.2024, which binds the Revenue. The Revenue's counsel requested liberty to revive the appeal if the matter falls within exceptions mentioned in Circular No. 09/2024 and Circular No. 5/2024 dated 15.03.2024.

What were the issues?

The High Court admitted the appeal to consider the following substantial questions of law: 1. Whether the Tribunal erred in law by requiring exact comparability when searching for comparable companies under the Transactional Net Margin Method (TNMM), instead of similar comparables as required by law and international jurisprudence? 2. Whether the Tribunal erred in law by demanding comparability standards that could defeat the purpose of determining the Arm's Length Price (ALP) under the Act? 3. Whether the Tribunal erred in law by not acknowledging the absence of a direct relationship between brand value and profit margin, as brand may generate revenue but not necessarily increase profit margins? 4. Whether the Tribunal erred in law by directing the Transfer Pricing Officer (TPO) to treat Forex gain as operating revenue, based on its earlier decisions in the cases of SAP Labs India Pvt Ltd and Triology India Pvt. Ltd., despite the TPO's exclusion of such gains as not incidental to the assessee's business? Assessee's Contention: The appeal should not be entertained due to the tax effect being less than Rs. 2 Crores, as per CBDT Circular No. 09/2024. Revenue's Contention: Liberty to revive the appeal if the matter falls within the exceptions of Circular No. 09/2024 and Circular No. 5/2024.

Which sections of the Income-tax Act were involved?

Section 260-A

AI-generated summary — verify with the full judgment below

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NC: 2024:KHC:40418-DB ITA No. 164 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.164 OF 2020

BETWEEN:

1.

THE PR. COMMISSIONER OF INCOME-TAX CIT (A), 5TH FLOOR, BMTC BUILDING, 80 FEET ROAD, KORMANGALA, BENGALURU-560095.

2.

THE DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE-11(3) PRESENT ADDRESS JCIT, SPECIAL RANGE-3, 2ND FLOOR, BMTC BUILDING, 80 FEET ROAD, KORMANGALA, BENGALURU-560095.

…APPELLANTS

(BY SRI. SUSHAL TIWARI, ADVOCATE)

Digitally signed by BHARATHI S Location: HIGH COURT OF KARNATAKA

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NC: 2024:KHC:40418-DB ITA No. 164 of 2020

AND:

M/S FIRST ADVANTAGE GLOBAL OPERATING CENTER PVT. LTD., LEVEL-1, EXPLORER BUILDING, INTERNATIONAL PARK, WHITEFIELD ROAD, BENGALURU-560066. PAN: AAACZ 1029M.

…RESPONDENT (BY SMT. M.R.VANAJA, ADVOCATE)

THIS ITA / INCOME TAX APPEAL UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 07/08/2019 PASSED IN CO NO. 39/BANG/2016 (IN IT(TP)A NO.190/BANG/2014), FOR THE ASSESSMENT YEAR 2009-2010 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

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NC: 2024:KHC:40418-DB ITA No. 164 of 2020

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

Heard the learned counsel Sri. Sushal Tiwari for the appellants/Revenue and Smt. M.R.Vanaja, 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 07.08.2019 passed by the Income Tax Appellate Tribunal, ‘B’ Bench, Bengaluru (for short, ‘Appellate Authority’) in CO.No.39/Bang/2016 (in IT(TP)A.No.190/Bang/2014) for the assessment year 2009-10.

3.

This

Court,

admitted the appeal on 16.12.2020 to consider the following substantial questions of law: "1. Whether on the facts and circumstances of the case and in law, the Tribunal was right in seeking exact comparability, while searching for comparable companies of the assessee under TNMM whereas the requirement of law and international

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NC: 2024:KHC:40418-DB ITA No. 164 of 2020

jurisprudence require seeking similar comparables companies?

2.

Whether on the facts and circumstances of the case and in law, the Tribunal was right in demanding comparability standards that may itself defeat the purpose of law relating to determination of ALP under the Act?

3.

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

4.

Whether on the facts and in the circumstances of the case, the Tribunal is right in law in directing the TPO to treat Forex gain as operating revenue based on its earlier decision in the case of SAP Labs India Pvt Ltd and Triology India Pvt. Ltd even though the same is rightly excluded by TPO considering that the same is not incidental to business of assessee?"

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 instance of the revenue in view of the Circular No.09/2024

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NC: 2024:KHC:40418-DB ITA No. 164 of 2020

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.: 30

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