THE PR. COMMISSIONER OF INCOME TAX vs. M/S REITZEL INDIA PVT LTD

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ITA/503/2022HC KarnatakaKAHC01048262202224 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 Revenue was granted liberty to revive the appeal if the matter falls within the exceptions outlined in CBDT Circular No. 09/2024 and Circular No. 5/2024. The substantial questions of law admitted for consideration were kept open to be adjudicated in an appropriate proceeding. No decision was made on the merits of the questions of law raised by the Revenue. The operative direction was to dispose of the appeal with liberty to revive, and the questions of law were expressly left undecided.

What were the facts?

The Revenue, comprising the Principal Commissioner of Income Tax and the Assistant Commissioner of Income Tax, filed an appeal under Section 260-A of the Income Tax Act, 1961, against an order dated August 26, 2021, passed by the Income Tax Appellate Tribunal (ITAT), Bengaluru Bench. The appeal pertains to Assessment Year 2015-2016 and challenges the ITAT's decision in IT(TP)A No. 2341/Bang/2019. The High Court admitted the appeal on September 11, 2023, to consider specific substantial questions of law. The assessee is M/s Reitzel India Pvt Ltd.

What were the issues?

1. Whether, in the present facts and circumstances, the Tribunal was correct in law in allowing the assessee's appeal by directing the Transfer Pricing Officer/Assessing Authority to re-examine the issue of benchmarking the interest on delayed trade receivables without analyzing the reasoning for aggregation/segregation and separate benchmarking of the transaction, and restoring the issue merely on the ground that the main issue was restored to the Assessing Officer/Transfer Pricing Officer? 2. Whether, in the present facts and circumstances, the Tribunal's order directing the Transfer Pricing Officer to include export incentives like DEPB in the operating profit was perverse, without appreciating that DEPB is a government incentive offered as a matter of policy and not revenue derived from an international transaction for transfer pricing purposes, and that its inclusion would lead to profit shifting from India to the foreign Associated Enterprise's tax jurisdiction? Assessee's Contention: The tax effect in this 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 falls within the exceptions provided under 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:39739-DB ITA No. 503 of 2022

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. 503 OF 2022 BETWEEN:

1.

THE PR. COMMISSIONER OF INCOME TAX, KORMANGALA, BANGALORE.

2.

ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-5(1)(1), KORMANGALA, BENGALURU. …APPELLANTS (BY SRI SANMATHI E I, ADVOCATE)

AND:

1.

M/S REITZEL INDIA PVT LTD., PLOT NO.98-99, KIADB INDUSTRIAL AREA, KUNIGAL, TUMKUR-572126, PAN-AACCR4566P. …RESPONDENT (BY SRI NARENDRA KUMAR J JAIN, ADVOCATE)

THIS APPEAL IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 26/08/2021 PASSED IN IT(TP)A NO.2341/BANG/2019, FOR THE

Digitally signed by B LAVANYA Location: HIGH COURT OF KARNATAKA

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NC: 2024:KHC:39739-DB ITA No. 503 of 2022

ASSESSMENT YEAR 2015-2016, PRAYING THAT THIS HON’BLE COURT MAY BE PLEASED TO: (1) 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 SET ASIDE THE APPELLATE ORDER DATED 26/08/2021 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, B BENCH, BENGALURU, AS SOUGHT FOR, IN THE RESPONDENT-ASSESSEE'S CASE, IN APPEAL PROCEEDINGS IN IT(TP)A NO.2341/BANG/2019 FOR ASSESSMENT YEAR 2015- 2016 (ANNEXURE-A) AND GRANT SUCH OTHER RELIEF AS DEEMED FIT, IN THE 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.Narendra Kumar Jain 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 26.08.2021 passed by the Income Tax Appellate Tribunal,

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NC: 2024:KHC:39739-DB ITA No. 503 of 2022

‘B’ Bench, Bengaluru (for short, ‘Appellate Authority’) in IT(TP)A.No.2341/Bang/2019 for the assessment year 2015-16.

3.

This

Court,

admitted the appeal on 11.09.2023 to consider the following substantial question of law:

1.

“Whether in the present facts and circumstances of the case, the Tribunal is correct in law in allowing appeal preferred by assessee by directing Transfer Pricing Officer/Assessing Authority to examine the issue of benchmarking of the interest on delayed trade receivable afresh without analyzing the reasoning for aggregation / segregation and separate benchmarking of the transaction and restoring the issue merely on the ground that the main issue was restored to the file of Assessing Officer / Transfer Pricing Officer?”

2.

“Whether in the present facts and circumstances of the case, the order passed by Tribunal can be said as perverse in directing the Transfer Pricing Officer to include export incentive i.e DEPB in the operating profit on the assessee without appreciating that DEPB is an incentive offered by

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NC: 2024:KHC:39739-DB ITA No. 503 of 2022

Government as incentive offered by Government as a matter of police and is not a revenue derived from the international transaction for the purpose of transfer pricing and inclusion of the same in the operating profit of the assessee would lead to shifting of profits from the Indian Tax jurisdiction to the Foreign AE’s tax jurisdiction?”

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 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.

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NC: 2024:KHC:39739-DB ITA No. 503 of 2022

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.: 48

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