PR COMMISSIONER OF INCOME TAX-2 vs. M/S EYGBS INDIA PVT LTD

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ITA/326/2021HC KarnatakaKAHC01035979202124 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 argued that the tax effect was below the threshold stipulated in CBDT Circular No. 09/2024, making the appeal not maintainable at the instance of the revenue. The revenue sought liberty to revive the appeal if the case fell under the exceptions to 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 issue regarding the exclusion of comparables.

What were the facts?

The Revenue, comprising the Pr. Commissioner of Income Tax-2 and the Deputy Commissioner of Income Tax, filed an appeal under Section 260-A of the Income Tax Act, 1961. The appeal challenges an order dated 20.05.2020 passed by the Income Tax Appellate Tribunal, ‘A’ Bench, Bengaluru, in IT(TP)A.No.218/Bang/2015. The assessment year in question is 2010-11. The High Court of Karnataka admitted the appeal on 27.01.2022 to consider substantial questions of law concerning the Tribunal's direction to exclude certain companies as comparables in a transfer pricing assessment. The assessee is M/s Eygbs India Pvt Ltd.

What were the issues?

1. Whether the Tribunal was correct in directing the Transfer Pricing Officer (TPO) to exclude M/s. Acropetal Technologies Ltd. and E-Clerx Services as comparables, despite the TPO having applied qualitative and quantitative tests and considering specific facts on record, when the selection of comparables in transfer pricing depends on assessee-specific data analysis? (Question of law turning on Section 92C and Rule 10B of the Income Tax Act, 1961). 2. Whether the Tribunal's order is perverse, as it directed the exclusion of comparables based on functional dissimilarity without examining the TPO's findings and the materials placed on record within the parameters of Rule 10B of the Act? (Question of mixed law and fact turning on Rule 10B of the Income Tax Act, 1961). Assessee's contention: The appeal should not be entertained by the revenue due to the tax effect being less than Rs. 2 Crores, citing Circular No. 09/2024 dated 17.09.2024 issued by the Central Board of Direct Taxes, which binds the revenue. Revenue's contention: The revenue sought liberty to revive the appeal if the matter falls within the exceptions provided in 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,Section 92C

AI-generated summary — verify with the full judgment below

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NC: 2024:KHC:39728-DB ITA No. 326 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. 326 OF 2021 BETWEEN:

1.

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

2.

THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE -3(1) (2), BMTC COMPLEX, KORAMANGALA, BANGALORE. …APPELLANTS (BY SRI SANMATHI E I, ADVOCATE)

AND:

1.

M/S EYGBS INDIA PVT LTD., 3RD FLOOR, TOWER C RMZ, INFINITY, OLD MADRAS ROAD, BANNIGNAHALLI, K R PURAM, BANGALORE - 560 016. …RESPONDENT (BY SMT TANMAYEE RAJKUMAR, ADVOCATE)

THIS APPEAL IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 20/05/2020 PASSED IN IT(TP)A NO.218/BANG/2015, FOR THE ASSESSMENT YEAR 2010-2011, PRAYING THIS HON’BLE COURT TO 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 MARIGANGAIAH PREMAKUMARI Location: HIGH COURT OF KARNATAKA

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NC: 2024:KHC:39728-DB ITA No. 326 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 Smt.Tanmayee Rajkumar 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 20.05.2020 passed by the Income Tax Appellate Tribunal, ‘A’ Bench, Bengaluru (for short, ‘Appellate Authority’) in IT(TP)A.No.218/Bang/2015 for the assessment year 2010-11.

3.

This

Court,

admitted the appeal on 27.01.2022 to consider the following substantial question of law:

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NC: 2024:KHC:39728-DB ITA No. 326 of 2021

“1. Whether the Tribunal was right in directing Transfer Pricing Officer to exclude M/s. Acropetal Technologies Ltd and E-Clerx Services as comparables by holding that said companies are functionally different ven when the TPO has chosen proper comparable by applying qualitative and quantitative tests and when selection of comparable in a case depends in transfer pricing on assessee specific data analysis and the transfer pricing officer has passed order on the basis of specific facts on record in the case of the assessee?

2.

Whether on the facts and in the circumstances of the case, the Tribunal's order can be said as perverse in nature as Tribunal has directed TPO to exclude comparable's on the ground of functional dissimilarity without examining findings rendered by TPO and materials brought on record by TPO which are in parameters of Rule 10B of the Act?”

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

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NC: 2024:KHC:39728-DB ITA No. 326 of 2021

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

MPK List No.: 2 Sl No.: 30

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