PR. COMMISSIONER OF INCOME TAX-2 vs. M/S. KODIAK NETWORKS INDIA PVT. LTD.,

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ITA/190/2021HC KarnatakaKAHC01017061202124 September 2024Bench: S.G.PANDIT,C.M. POONACHA5 pages
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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, in view of the submissions made regarding CBDT Circulars No. 09/2024 and 05/2024. The Court explicitly stated that the substantial questions of law were kept open to be adjudicated in an appropriate proceeding. Therefore, no decision was rendered on the merits of the questions concerning the Tribunal's application of Rule 10B, the exclusion of comparables, the perversity of the order, or the rejection of Infosys Ltd. as a comparable. The operative direction was to dispose of the appeal with liberty to revive, leaving the substantive legal issues undecided.

What were the facts?

The Revenue, comprising the Principal Commissioner of Income Tax-2 and the Assistant Commissioner of Income Tax, Circle-4(1)(1), Bengaluru, has filed an appeal under Section 260-A of the Income Tax Act, 1961, against an order dated 30.06.2020 passed by the Income Tax Appellate Tribunal, 'C' Bench, Bengaluru. The appeal pertains to Assessment Year 2012-13 and challenges the Tribunal's decision in IT(TP)A.No.284/Bang/2017. The High Court of Karnataka admitted the appeal on 11.01.2022 to consider substantial questions of law related to the Tribunal's application of Rule 10B parameters in excluding comparables and its reasoning for such exclusions.

What were the issues?

The Tribunal had to decide the following substantial questions of law: 1. Whether the Tribunal was legally right in ignoring the parameters of analysis prescribed under Rule 10B, which are stated to be exhaustive, and whether it is permissible to bypass them partially or by implication? 2. Whether, on the facts and circumstances, the Tribunal was right in excluding comparables by ignoring the parameters of analysis under Rule 10B, and if so, whether bypassing them partially or by implication is legally permissible? 3. Whether the Tribunal's order was perverse, given that it excluded certain comparables without considering the reasons provided by the Transfer Pricing Officer? 4. Whether the Tribunal was right in rejecting Infosys Ltd. as a comparable solely on the ground of high turnover, without acknowledging that brand value does not have a direct relationship with the profit margin earned by a company, even if it generates revenue? The Revenue argued that the Tribunal erred in bypassing Rule 10B parameters. The Assessee contended that the tax effect was less than Rs. 2 Crores, making the appeal unsustainable in light of 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

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NC: 2024:KHC:39708-DB ITA No. 190 of 2021

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 24TH 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. 190 OF 2021 BETWEEN:

1.

PR. COMMISSIONER OF INCOME TAX-2, BMTC COMPLEX, KORAMANGALA, BANGALORE.

2.

THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-4(1)(1), BENGALURU. …APPELLANTS (BY SRI. SANMATHI E I.,ADVOCATE) AND:

1.

M/S. KODIAK NETWORKS INDIA PVT. LTD., 9TH FLOOR, MFAR MANYATA TECH PARK GREEN HEART, PHASE IV, NAGWARA, BANGALORE-45, PAN-AACCK0978J. …RESPONDENT (BY SRI NARENDRA KUMAR J JAIN,ADVOCATE)

THIS APPEAL IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 30/06/2020 PASSED IN IT(TP)A NO. 284/BANG/2017, FOR THE ASSESSMENT YEAR 2012-2013, PRAYING THIS HONBLE COURT TO: 1. DECIDE THE FOREGOING QUESTION OF LAW AND / OR SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BY THE HON'BLE COURT AS DEEMED FIT AND ETC.

THIS APPEAL, COMING ON FOR HEARING, THIS DAY, JUDGMENT WAS DELIVERED THEREIN AS UNDER:

Digitally signed by B LAVANYA Location: HIGH COURT OF KARNATAKA

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NC: 2024:KHC:39708-DB ITA No. 190 of 2021

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.Sanmathi.E.I., for appellants/Revenue and learned counsel Sri.Narendra Kumar Jain for 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 30.06.2020 passed by the Income Tax Appellate Tribunal, ‘C’ Bench, Bengaluru (for short, ‘Appellate Authority’) in IT(TP)A.No.284/Bang/2017 for the assessment year 2012-13.

3.

This

Court,

admitted the appeal on 11.01.2022 to consider the following substantial question of law:

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NC: 2024:KHC:39708-DB ITA No. 190 of 2021

“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?

2.

Whether on the facts and circumstances of the case and in law, the Tribunal is right in law in excluding comparable’s by 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?

3.

Whether on the facts and in the circumstances of the case, the Tribunal’s order can be said as perverse since Tribunal has excluded certain comparable’s without going into reasons assigned by Transfer Pricing Officer?

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NC: 2024:KHC:39708-DB ITA No. 190 of 2021

4.

Whether on the facts and in the circumstances of the case, the Tribunal is right in law in rejecting Infosys Ltd on ground of high turnover without acknowledging that there is no direct relationship between brand value and margin earned by the Company, brand may generate revenue of the Company but does not increase the profit margin?”

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 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

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NC: 2024:KHC:39708-DB ITA No. 190 of 2021

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

MPK CT:VN List No.: 2 Sl No.: 24

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