THE PR. COMMISSIONER OF INCOME- TAX, vs. M/S YOKOGAWA INDIA LTD.,

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ITA/318/2023HC KarnatakaKAHC01022015202330 September 2024Bench: S.G.PANDIT,C.M. POONACHA4 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 assessee contended that the tax effect was below Rs. 2 Crores, making the appeal non-maintainable under CBDT Circular No. 09/2024. The Revenue sought liberty to revive the appeal if it fell under the exceptions of the circulars. 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 decision was made on the merits of the transfer pricing issues concerning the GSMAF and management fees being treated as operating costs or the method of determining ALP.

What were the facts?

The Revenue, comprising the Principal Commissioner of Income-Tax and the Assistant Commissioner of Income-Tax, filed an appeal under Section 260-A of the Income Tax Act, 1961, before the High Court of Karnataka. The appeal challenges an order dated 08.08.2022 passed by the Income Tax Appellate Tribunal (ITAT), Bengaluru. The ITAT's order pertains to Assessment Year 2008-2009 and was made in appeal number IT(TP)A.No.588/Bang/2020. The Revenue seeks to set aside the ITAT's order and confirm the order of the Appellate Commissioner, which in turn had confirmed the order of the Deputy Commissioner of Income-Tax.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in directing the Transfer Pricing Officer (TPO) to consider the Global Sale and Marketing Activity Fee (GSMAF) and management fee as operating costs and determine the Arm's Length Price (ALP) by considering the Transactional Net Margin Method (TNMM) at the entity level, when each transaction should be analyzed separately, and whether the Tribunal failed to follow a co-ordinate bench decision in M/s. Gemplus India Pvt. Ltd. (2010 TII 55 BANG TP) which favored the revenue as the assessee did not prove the payments were commensurate with the volume and quality of services? 2. Whether, on the facts and in the circumstances of the case, the Tribunal's order was perverse in restoring the matter for determination of ALP and transfer pricing adjustment by considering management fees and GSMAF as part of operating costs and allocating them based on turnover, similar to directions given in the taxpayer's own case for AY 2014-15? Assessee's contention: The tax effect in this appeal is less than Rs. 2 Crores, and therefore, the appeal should not be entertained by the Revenue in view of CBDT Circular No. 09/2024 dated 17.09.2024, which binds the Revenue. Revenue's contention: The Revenue requested liberty to revive the appeal if the matter falls within the exceptions under Circular No. 09/2024 and Circular No. 5/2024 dated 15.03.2024.

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:41205-DB ITA No. 318 of 2023

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. 318 OF 2023 BETWEEN:

1.

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

2.

THE ASST.COMMISSIONER OF INCOME TAX LTU, PRESENT ADDRESS DCIT, CIRCLE-7(1)(1) 2ND FLOOR, BMTC BUILDING 80 FEET ROAD,KORMANGALA BENGALURU-560095 …APPELLANTS (BY SRI. DILIP M.,ADVOCATE A/W SRI. RAVIRAJ Y V, ADVOCATE)

AND:

M/S YOKOGAWA INDIA LTD., PLOT NO.96, 3RD CROSS ELECTRONIC CITY HOSUR ROAD BENGALURU-560100 PAN AAACY 0840P …RESPONDENT (BY SRI. NAGESWAR RAO D D.,ADVOCATE THROUGH V/C)

THIS ITA / INCOME TAX APPEAL IS FILED UNDER SEC.260-A OF THE INCOME TAX ACT, 1961, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE, ALLOW THE

Digitally signed by BHARATHI S Location: HIGH COURT OF KARNATAKA

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NC: 2024:KHC:41205-DB ITA No. 318 of 2023

APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME-TAX APPELLATE TRIBUNAL, BENGALURU IN ITA NO. 588/BANG/2020 DATED 08.08.2022 FOR ASSESSMENT YEAR 2008-2009 ANNEXURE- D AND CONFIRM THE ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE-7(1)(1), 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 Dilip M along with learned counsel Sri Raviraj Y.V, for appellants/Revenue and learned counsel Sri Nageshwar Rao D.D., 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 08.08.2022 passed by the Income Tax Appellate Tribunal, ‘C’ Bench, Bengaluru (for short, ‘Appellate Authority’) in IT(TP)A.No.588/Bang/2020 for the assessment year 2008- 09, raising the following substantial questions of law:

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NC: 2024:KHC:41205-DB ITA No. 318 of 2023

“1) Whether on the facts and in the circumstances of the case, the Tribunal is right in law directing the Transfer Pricing Officer to considering the GSMAF & management fee as operating cost and determine ALP by considering TNMM at entity level when each transaction is different and should be analysed separately and Tribunal is not following the decision of co-ordinate bench in similar case, in the cases of M/s. Gemplus India Pvt. Ltd. in 2010- TII-55- BANG-TP, whereby it is has given the decision in the favour of revenue as the assessee could not prove before the TPO that the payment that were made are commensurate to the volume and quality of the services?

2) Whether on the facts and in the circumstances of the case, the Tribunal's order can be said as perverse in nature in restoring the matter for determination of Arms Length Price and TP adjustment by considering the payment in respect of management fees, global sale and marketing activity fees as aprt of operating cost and allocating the same in the ratio of the turnover of the other international transactions with similar directions given by Tribunal in taxpayer's own case for A.Y.2014- 15?”

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:41205-DB ITA No. 318 of 2023

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 question of law is 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.: 36

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