PR COMMISSIONER OF INCOME TAX-5 vs. M/S NVIDIA GRAPHICS PVT LTD.,

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ITA/494/2018HC KarnatakaKAHC01043698201825 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 learned counsel for the assessee pointed out that the tax effect was less than Rs. 2 Crores, citing CBDT Circular No. 09/2024, which binds the Revenue. The learned counsel for the Revenue requested liberty to revive the appeal if the matter fell under the exceptions of the aforementioned circulars. In light of these submissions, the appeal was disposed of with the liberty granted to the Revenue as prayed. The substantial questions of law were kept open to be adjudicated in an appropriate proceeding. No decision was made on the merits of the questions of law raised.

What were the facts?

The Revenue, comprising the Pr. Commissioner of Income Tax-5 and the Income Tax Officer Ward-12(1), Bengaluru, filed an appeal under Section 260-A of the Income Tax Act, 1961, against an order dated 09.02.2018 passed by the Income Tax Appellate Tribunal (ITAT), Bengaluru Bench. The ITAT's order was in relation to ITA No. 1412/Bang/2010 for the assessment year 2006-2007. The appeal was admitted by the High Court on 29.03.2021 to consider substantial questions of law. The dispute pertains to the comparability analysis undertaken for determining the arm's length price of international transactions.

What were the issues?

The Tribunal had to decide the following substantial questions of law: 1. Whether the Tribunal's order was perverse in excluding comparables like M/s. Kals Information Systems Ltd, Accel Transmatics Ltd, Flextronics Software Ltd, Persistent Systems Ltd, Tata Elxsi, and Megasoft Ltd as functionally dissimilar, or due to turnover, RPT, and margin filters, based on functional dissimilarity, as per Section 92CA of the Income Tax Act, 1961. 2. Whether the Tribunal was justified in holding M/s. Kals Information Systems Ltd, M/s. Bodhtree Consulting Ltd, and other comparables as functionally not comparable, or due to turnover, RPT, and margin filters, when the assessing authority had selected them by applying all tests and considering relevant data, under Section 92CA of the Income Tax Act, 1961. 3. Whether the Tribunal was correct in rejecting Infosys Ltd as a comparable on the ground of high turnover, without acknowledging that brand value does not directly correlate with profit margin, rendering the order perverse, under Section 92CA of the Income Tax Act, 1961. Assessee's contention: 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 17.09.2024, 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 92CA

AI-generated summary — verify with the full judgment below

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NC: 2024:KHC:40084-DB ITA No. 494 of 2018

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 25TH 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. 494 OF 2018

BETWEEN:

1.

PR. COMMISSIONER OF INCOME TAX-5, BMTC COMPLEX, KORAMANGALA, BANGALORE.

2.

THE INCOME TAX OFFICER WARD-12(1), BANGALORE …APPELLANTS

(BY SRI. SANMATHI E.I., ADVOCATE)

AND:

M/S. N VIDIA GRAPHICS PVT LTD., C1, JACARANDA, WING A, OUTER RING ROAD, MANYATA EMBASSY BUSINESS PARK, OUTER RING ROAD, BENGALURU-560 045.

Digitally signed by BHARATHI S Location: HIGH COURT OF KARNATAKA

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NC: 2024:KHC:40084-DB ITA No. 494 of 2018

PAN:AABCN9200H …RESPONDENT

(BY SRI. VIKRAM UNNI RAJAGOPAL, ADVOCATE)

THIS ITA / INCOME TAX APPEAL IS FILED UNDER SECTION 260-A OF THE INCOME TAX ACT 1961, ARISING OUT OF THE ORDER DATED 09.02.2018 PASSED IN ITA NO. 1412/BANG/2010 FOR THE ASSESSMENT YEAR 2006-2007, PRAYING TO DECIDE THE FOREGOING QUESTION OF LAW AND/OR SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BY THE HONBLE COURT AS DEEMED FIT 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:40084-DB ITA No. 494 of 2018

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. Vikram Unni Rajagopal 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 09.02.2018 passed by the Income Tax Appellate Tribunal, ‘B’ Bench, Bengaluru (for short ‘Appellate Authority’) in IT(TP)A.No.1412/Bang/2010 for the assessment year 2006-07.

3.

This Court, admitted the appeal on 29.3.2021 to consider the following substantial questions of law: "(1) Whether on the facts and in the circumstances of the case, the Tribunal's order can be said as perverse in excluding comparable's M/s. Kals Information Systems Ltd, Accel Transmatics Ltd, Flextronics Software Ltd, Persistent Systems Ltd, Tata Elxsi and Megasoft Ltd as functionally not similar to that of assessee, turnover filter, RPT and

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NC: 2024:KHC:40084-DB ITA No. 494 of 2018

margin filters? on the basis of functionally dissimilarity?

(2) Whether on the facts and in the circumstances of the case, the Tribunal is justified in deciding M/s. Kals Information Systems Ltd, M/s. Bodhtree Consulting Ltd and other comparable's as functionally not comparable, turnover, RPT filter ad margin filters even when the assessing authority has rightly chosen the comparable by applying all tests and considering the all relevant data's?

(3) Whether on the facts and in the circumstances of the case, the Tribunal is right in law in rejecting Infosys Ltd as comparable on ground of high turnover without acknowledging that there is no direct relationship between brand value and margin earned by the Company, brand may generate revenue of the Company but does not increase the profit margin and as such the order passed by the Tribunal is perverse in nature?"

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:40084-DB ITA No. 494 of 2018

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

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