PR. COMMISSIONER OF INCOME TAX-3 vs. M/S I.G.INFOTECH (INDIA) PVT LTD

PDF · subscribers
ITA/490/2023HC KarnatakaKAHC01037878202324 September 2024Bench: S.G.PANDIT,C.M. POONACHA5 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 specified in CBDT Circular No. 09/2024, making the appeal not maintainable. The Revenue sought liberty to revive the appeal if exceptions under the relevant circulars applied. 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 stated that the questions of law were kept open to be adjudicated in an appropriate proceeding. Therefore, no specific findings were made on the exclusion/inclusion of comparables, working capital adjustment, or the impact of turnover on profit margins. The operative direction was to dispose of the appeal with liberty to revive.

What were the facts?

The Revenue, comprising the Principal Commissioner of Income Tax-3 and the Assistant Commissioner of Income Tax, Circle 3(1)(1), Bangalore, filed an appeal under Section 260-A of the Income Tax Act, 1961. The appeal challenges an order dated 01.11.2022 passed by the Income Tax Appellate Tribunal, 'C' Bench, Bengaluru, in IT(TP)A.No.204/Bang/2022 for the Assessment Year 2017-18. The assessee is M/s. I.G. Infotech (India) Pvt Ltd. The High Court admitted the appeal on 22.07.2024 to consider substantial questions of law concerning the selection and exclusion of comparable companies in transfer pricing, working capital adjustment, and the effect of turnover on profit margins.

What were the issues?

The Tribunal had to decide the following substantial questions of law: 1. Whether the Tribunal was correct in directing the exclusion of specific comparable companies (Mind Tree Ltd, R Systems International Ltd, Persistent Systems Ltd, Tata Elsi Ltd, Nihilent Ltd, Infosys Ltd, and Cybage Software Pvt Ltd) when the Transfer Pricing Officer (TPO) had selected them based on qualitative and quantitative tests and specific facts of the assessee's case, as per Section 92C of the Income Tax Act. 2. Whether the Tribunal was justified in including other comparable companies (M/s. Batchmaster Software Pvt Ltd, M/s. DCIS Dot Corn Solutions India Pvt Ltd, and Evoke Technologies Ltd) despite the TPO applying filters and without considering the specific facts of the taxpayer's case, potentially by superimposing unrelated decisions. 3. Whether the Tribunal's order directing the TPO to grant working capital adjustment was perverse, given that the TPO had denied it due to the assessee's failure to substantiate the claim with materials, as per Section 92C. 4. Whether the Tribunal was correct in directing the TPO to exclude comparables without establishing their effect on the profit margin and without acknowledging the lack of a direct relationship between turnover and profit margin, as per Section 92C. Assessee's contention: The tax effect in the appeal is less than Rs. 2 Crores, and thus, the appeal should not be entertained by the Revenue in view of Circular No. 09/2024 dated 17.09.2024 issued by the CBDT, which binds the Revenue. Revenue's contention: The Revenue sought 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,Section 92C

AI-generated summary — verify with the full judgment below

- 1 -

NC: 2024:KHC:39743-DB ITA No. 490 of 2023

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. 490 OF 2023 BETWEEN:

1.

PR. COMMISSIONER OF INCOME TAX-3, KORMANGALA, BANGALORE.

2.

THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 3(1)(1), KORMANGALA, BANGALORE. …APPELLANTS

(BY SRI SANMATHI E I, ADVOCATE)

AND:

1.

M/S I.G.INFOTECH (INDIA) PVT LTD., 2ND FLOOR, INFINITY BUILDING, KHATHA NO.436, SURVEY NO.13/1B, CHALLAGATTA VILLAGE, VARTH HOBLI, INTERMEDIATE RII ROAD, DOMLUR, BENGALURU - 560071, PAN AABCH4430K. …RESPONDENT

(BY SRI NAGESWAR RAO.D.D, ADVOCATE (THROUGH VC))

THIS APPEAL IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 01/11/2022 PASSED IN IT(TP)A NO.204/BANG/2022, FOR THE ASSESSMENT YEAR 2017-2018, PRAYING THAT THIS HON’BLE COURT MAY BE PLEASED TO DECIDE THE FOREGOING QUESTION OF LAW AND/OR SUCH OTHER QUESTIONS OF LAW

Digitally signed by B LAVANYA Location: HIGH COURT OF KARNATAKA

- 2 -

NC: 2024:KHC:39743-DB ITA No. 490 of 2023

AS MAY BE FORMULATED BY THE HON’BLE COURT AS DEEMED FIT AND SET ASIDE THE APPELLATE ORDER DATED 01/11/2022 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, A BENCH, BENGALURU, AS SOUGHT FOR, IN THE RESPONDENT-ASSESSEES CASE, IN IT(TP)A NO.204/BANG/2022 (ANNEXURE-A) FOR ASSESSMENT YEAR 2017-2018 AND GRANT SUCH OTHER RELIEF AS DEEMED FIT, INTEREST OF JUSTICE.

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.Sanmathi.E.I., for appellants/Revenue and learned counsel Sri.Nageshwar Rao.D.D., for respondent/assessee through video conference.

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 01.11.2022 passed by the Income Tax Appellate Tribunal, ‘C’ Bench, Bengaluru (for short, ‘Appellate

- 3 -

NC: 2024:KHC:39743-DB ITA No. 490 of 2023

Authority’) in IT(TP)A.No.204/Bang/2022 for the assessment year 2017-18.

3.

This

Court,

admitted the appeal on 22.07.2024 to consider the following substantial questions of law: “(i) Whether the Tribunal was right in directing comparable's to be excluded from list of comparables namely, Mind Tree Ltd, R Systems International Ltd, Persistent Systems Ltd, Tata Elsi Ltd, Nihilent Ltd, Infosys Ltd and Cybage Software Pvt Ltd 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?

(ii) Whether the Tribunal was justified in including comparable's namely, M/s.Batchmaster Software Pvt Ltd, M/s.DCIS Dot Corn Solutions India Pvt Ltd and Evoke Technologies Ltd when all filters applied by TPO are satisfied and by superimposing the decisions which are not applicable to facts and materials of present case,

- 4 -

NC: 2024:KHC:39743-DB ITA No. 490 of 2023

including those of other benches of Tribunal, without going into specific facts in the case of the taxpayer?

(iii) Whether on the facts and in the circumstances of the case, the Tribunal's order can be said as perverse in nature in directing Transfer Pricing Officer to grant working capital adjustment when Transfer Pricing Officer rightly denied the same as assesse failed to substantiate its claim with materials?

(iv) Whether on the facts and in the circumstances of the case, the Tribunal is right in law in directing the Transfer Pricing Officer to exclude comparable without establishing its effect on the profit margin of the company and without acknowledging that there is no direct relationship between turnover and profit margin earned by the Company?”

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

- 5 -

NC: 2024:KHC:39743-DB ITA No. 490 of 2023

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.: 52

More judgments on Section 260-A

All 2,570 judgments and leading authorities on Section 260-A →

Recent GST High Court judgments

Search GST case law →