PRINCIPAL COMMISSIONER OF INCOME TAX-4 vs. M/S METRICSTREAM INFOTECH (INDIA)

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ITA/460/2019HC KarnatakaKAHC01023746201923 September 2024Bench: S.G.PANDIT,C.M. POONACHA5 pages
AI SummaryRemanded

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 the threshold stipulated in CBDT Circular No. 09/2024, which bars the Revenue from filing appeals. The Revenue sought liberty to revive the appeal if it fell under the exceptions mentioned in the circulars. The Court granted this liberty to the Revenue. Consequently, the appeal was disposed of without a decision on the merits of the substantial questions of law. The Court explicitly kept the questions of law open to be adjudicated in an appropriate proceeding. No specific findings were made on the comparability of the entities, the perversity of the order, the exclusion of comparables, or the nature of ALP determination. The operative direction was to dispose of the appeal with liberty to revive.

What were the facts?

The appeal is filed by the Principal Commissioner of Income Tax and the Deputy Commissioner of Income Tax (Revenue) against an order dated February 27, 2019, passed by the Income-Tax Appellate Tribunal (ITAT), Bengaluru. The ITAT's order pertains to Income Tax Appeal (IT(TP)A) No. 1418/Bang/2017 for the assessment year 2013-14. The Revenue is challenging the ITAT's decision concerning the determination of the Arm's Length Price (ALP) for the assessee, M/s. Metricstream Infotech (India) Pvt. Ltd. The appeal is filed under Section 260-A of the Income Tax Act, 1961.

What were the issues?

The Tribunal had to decide the following substantial questions of law: 1. Whether the Tribunal was correct in holding that Larsen and Toubro Infotech Ltd. and Persistent Systems Ltd. were not comparable entities, considering they were functionally dissimilar, and in ignoring materials presented by the Transfer Pricing Officer (TPO)? 2. Whether the Tribunal's order was perverse, having ignored material evidence and relied on previous orders without appreciating the TPO's application of prescribed tests? 3. Whether the Tribunal was right in excluding certain comparables without considering the materials provided by the TPO? 4. Whether the Tribunal was correct in not acknowledging that the determination of ALP through comparability analysis is an art, not an exact science, as no two companies are identical? 5. Whether the Tribunal was right in demanding comparability standards that might defeat the purpose of determining ALP under the Act? Assessee's Contention: The assessee argued that the tax effect in the 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 September 17, 2024, which binds the Revenue. Revenue's Contention: The Revenue sought liberty to revive the appeal if the matter fell within the exceptions provided in Circular No. 09/2024 and Circular No. 5/2024 dated March 15, 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:39237-DB ITA No. 460 of 2019

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 23RD 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. 460 OF 2019 BETWEEN:

1.

PRINCIPAL COMMISSIONER OF INCOME TAX -4 BMTC COMPLEX, KORAMANGALA BENGALURU

2.

THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE -4(1) (2), BMTC COMPLEX , KORAMANGALA , BENGALURU …APPELLANTS (BY SRI. SANMATHI E I.,ADVOCATE)

AND:

M/S METRICSTREAM INFOTECH (INDIA) PVT. LTD. AMR TECH PARK, 4B, NO 23 & 24, HONGASANDRA VILLAGE, BEGUR HOBLI, BENGALURU SOUTH TALUK BENGALURU - 560068 PAN: AACCM4991K …RESPONDENT (BY SMT. GEETHA RANI K., AND SRI. NARENDRA KUMAR J JAIN, ADVOCATES)

THIS ITA IS FILED UNDER SECTION 260-A OF THE INCOME TAX ACT, 1961, PRAYING TO SET ASIDE THE APPELLATE ORDER

Digitally signed by BHARATHI S Location: HIGH COURT OF KARNATAKA

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NC: 2024:KHC:39237-DB ITA No. 460 of 2019

DATED 27.02.2019 PASSED BY THE INCOME-TAX APPELLATE TRIBUNAL, ‘C’ BENCH, BENGALURU IN IT(TP)A. No.1418/BANG/2017 (ANNEXURE-A) FOR ASSESSMENT YEAR 2013-2014 AS SOUGHT FOR IN THIS APPEAL, AND TO GRANT SUCH OTHER RELIEF AS DEEMED FIT, IN THE INTEREST OF JUSTICE AND ETC.,

THIS APPEAL, COMING ON FOR FINAL 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.Sanmathi E.I., for appellants/Revenue and learned counsel Smt. Geetha Rani K. and Sri Narendra Kumar J. Jain, learned counsels 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 27.02.2019 passed by the Income Tax Appellate Tribunal, “C” Bench, Bengaluru (for short, ‘Appellate Authority’) in IT(TP) A No.1418/Bang/2017 for the assessment year 2013-14, raising the following substantial questions of law:

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NC: 2024:KHC:39237-DB ITA No. 460 of 2019

1.

Whether on the facts and circumstances of the case and in law, the Tribunal correct in holding that Larsen and Toubro Infotech Ltd and Persistent Systems Ltd cannot be taken as comparable holding that these companies are functionally dissimilar ignoring the materials brought on record by Transfer Pricing Officer?

2.

Whether on the facts and circumstances of the case and in law, the Tribunal’s order can be said as perverse in nature as Tribunal has ignored material evidences and has only followed previous orders without appreciating that Transfer Pricing Officer has applied required tests as prescribed in Rules?

3.

Whether in the facts and circumstances of the case and in law, the Tribunal was right in excluding certain comparable’s without considering the materials brought on record by Transfer Pricing Officer?

4.

Whether on the facts and circumstances of the case in law, the Tribunal was right in not acknowledging that determination of ALP by carrying out comparability analysis of the comparable companies is an art and not exact

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NC: 2024:KHC:39237-DB ITA No. 460 of 2019

science as no two companies are exactly same?

5.

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

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 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

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NC: 2024:KHC:39237-DB ITA No. 460 of 2019

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.: 1 Sl No.: 60

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