THE Prl. Commissioner of Income Tax vs. M/S MOTOROLA SOLUTIONS KODIAK NETWORKS INDIA PVT.LTD

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ITA/395/2023HC KarnatakaKAHC01027545202326 September 2024Bench: S.G.PANDIT,C.M. POONACHA5 pages
AI SummaryWithdrawn

What did the High Court hold?

The High Court disposed of the appeal with liberty to the Revenue to revive it if the matter falls within the exceptions of CBDT Circular No. 09/2024 and Circular No. 5/2024. The Court explicitly stated that the substantial questions of law are kept open to be adjudicated in an appropriate proceeding. No decision was made on the merits of the substantial questions of law raised by the Revenue. The operative direction is to dispose of the appeal with the granted liberty, effectively deferring any ruling on the Tribunal's order regarding the exclusion of comparables based on the turnover filter. The judgment does not record any finding on the specific issues raised by the Revenue, nor does it provide reasoning for such a decision, as the appeal was disposed of on a procedural ground with liberty to revive.

What were the facts?

The Revenue, comprising the Principal Commissioner of Income-Tax and the Deputy Commissioner of Income-Tax, filed an appeal under Section 260-A of the Income Tax Act, 1961, against an order dated January 10, 2023, passed by the Income Tax Appellate Tribunal, Bengaluru. The appeal pertains to assessment year 2018-19 and challenges the Tribunal's direction to the Transfer Pricing Officer (TPO) to exclude certain comparable companies based on a turnover filter. The High Court admitted the appeal to consider substantial questions of law. During the hearing, the assessee, M/s. Motorola Solutions Kodiak Networks India Pvt. Ltd., 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. The Revenue sought liberty to revive the appeal if the matter fell within exceptions under Circulars 09/2024 and 05/2024.

What were the issues?

1. Whether, on the facts and in the circumstances, the Tribunal erred in law by directing the Transfer Pricing Officer (TPO) to exclude comparables (Exhilent Technologies Ltd, L & T Infotech Ltd, Mindtree Ltd, Persistent Systems Ltd, Wipro Ltd, Tata Elxsi Ltd, Nihilent Ltd, Infosys Ltd, Cybage Software Pvt Ltd, Tech Mahindra Ltd) based on a turnover filter exceeding Rs. 200 Crores, despite the TPO making adjustments in accordance with Rule 10B(2) of the Income Tax Rules and an earlier order not having reached finality? (Question of law and fact, concerning Rule 10B(2)). 2. Whether, on the facts and in the circumstances, the Tribunal erred in law by directing the TPO to exclude comparables that were already excluded by the TPO as per the parameters of Rule 10B and after applying required tests? (Question of law and fact, concerning Rule 10B). 3. Whether, on the facts and in the circumstances, the Tribunal erred in law by directing the exclusion of comparables based on a turnover filter, holding a correlation between turnover and operating margin, when turnover is not a criterion for deciding comparability? (Question of law and fact, concerning comparability criteria). 4. Whether the Tribunal's order is perverse in setting aside the Transfer Pricing adjustment made in the assessment order, which was based on the TPO's order and parameters set out in Rule 10B? (Question of law and fact, concerning perversity and Rule 10B). Assessee's Contention: The tax effect is less than Rs. 2 Crores, and therefore, the appeal should not be entertained by the Revenue, citing CBDT Circular No. 09/2024 dated 17.09.2024, which binds the Revenue. Revenue's Contention: Sought liberty to revive the appeal if the matter falls within the exceptions under CBDT Circular No. 09/2024 dated 17.09.2024 and Circular No. 5/2024 dated 15.03.2024.

Which sections of the Income-tax Act were involved?

Section 260-A,Section 10B(2),Section 10B

AI-generated summary — verify with the full judgment below

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NC: 2024:KHC:40518-DB ITA No. 395 of 2023

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 26TH 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. 395 OF 2023

BETWEEN:

1.

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

2.

THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE - 4 (1) (1), 2ND FLOOR, BMTC BUILDING, 80 FEET ROAD, KORMANGALA, BENGALURU - 560 095. …APPELLANTS

(BY SRI. DILIP M., A/W SRI. RAVIRAJ Y.V., ADVOCATES)

Digitally signed by B LAVANYA Location: HIGH COURT OF KARNATAKA

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NC: 2024:KHC:40518-DB ITA No. 395 of 2023

AND:

M/S. MOTOROLA SOLUTIONS KODIAK NETWORKS INDIA PVT. LTD., 9TH FLOOR, GREENHEART PHASE IV MFAR, MANYATA TECH PARK, NAGAWARA, BENGALURU - 560 001. PAN. AACCK0978J. …RESPONDENT (RESPONDENT SERVED)

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 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:40518-DB ITA No. 395 of 2023

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

Heard the learned counsel Sri.Dilip.M., along with Sri. Raviraj.Y.V., learned counsel for appellants/Revenue.

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 10.01.2023 passed by the Income Tax Appellate Tribunal, ‘C’ Bench, Bengaluru (for short, ‘Appellate Authority’) in IT(TP)A.No.816/Bang/2022 for the assessment year 2018-19.

3.

This Court, admitted the appeal on 12.06.2023 to consider the following substantial questions of law: 1. Whether on the facts and in the circumstances of the case the Tribunal is correct in law directing transfer Pricing Officer to exclude comparable's namely, Exhilent Technologies Ltd, L & T Infotech Ltd, Mindtree Ltd, Persistent systems Ltd, Wipro Ltd, Tata Elxsi Ltd, Nihilent Ltd, Infosys Ltd, Cybage Software Pvt Ltd, Tech Mahindra Ltd on basis of Turnover filter having more than 200 cr ignoring that Transfer Pricing Officer had

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NC: 2024:KHC:40518-DB ITA No. 395 of 2023

made Transfer Pricing Adjustment in accordance with Rule 10B(2) of I.T.Rules and when earlier order has not reached finality.

2.

Whether on the facts and in the circumstances of the case the Tribunal is correct in law in directing Transfer Pricing Officer to exclude comparables though the said comparables are excluded by TPO as per parameters of Rule 10B and after applying required tests"?

3.

Whether on the facts and in the circumstances of the case the Tribunal is correct in law in directing Transfer Pricing Officer to in directing Transfer Pricing Officer to exclude comprables on basis of turnover filter by holding that there exists a co-relation between turnover and operating margin of entity when turnover is not cridetiria for deciding the comparability"?

4.

Whether the order of the Tribunal can be said as perverse in nature in setting aside Transfer Pricing adjustment made in assessment order on basis of TPO's order when Transfer Pricing Adjustment is on basis of parameters set out in Rule 10B"?

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:40518-DB ITA No. 395 of 2023

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.: 3 Sl No.: 20

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