PR. COMMISSIONER OF INCOME TAX vs. M/S GALAX E SOLUTIONS INDIA PVT LTD

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ITA/505/2022HC KarnatakaKAHC01048263202224 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 argued that the tax effect was below the threshold specified in CBDT Circular No. 09/2024, making the appeal non-maintainable. The Revenue requested liberty to revive the appeal if the case fell under the exceptions mentioned in the circulars. Consequently, the Court granted the liberty as prayed for by the Revenue. The substantial questions of law were kept open to be adjudicated in an appropriate proceeding. No decision was made on the merits of the transfer pricing issues raised in the appeal. The operative direction was to dispose of the appeal with liberty to revive, and the questions of law were left undecided.

What were the facts?

The Revenue, comprising the Pr. Commissioner of Income Tax and the Assistant Commissioner of Income Tax, filed an appeal under Section 260-A of the Income Tax Act, 1961. The appeal challenges an order dated October 11, 2021, passed by the Income Tax Appellate Tribunal (ITAT), 'A' Bench, Bengaluru. The ITAT's order pertains to Income Tax Appeal (TP) No. 2565/Bang/2017 for the Assessment Year 2013-14. The appeal was admitted by the High Court on September 5, 2023, to consider specific substantial questions of law. The assessee is M/s Galax E Solutions India Pvt Ltd. The dispute revolves around the exclusion of comparable companies by the ITAT in a transfer pricing assessment.

What were the issues?

1. Whether the Tribunal was correct in excluding comparable companies by deeming them functionally different, despite the Transfer Pricing Officer (TPO) having applied qualitative and quantitative tests and considering specific facts of the assessee's case, as per Section 260-A of the Income Tax Act, 1961? 2. Whether the Tribunal was justified in excluding Larsen & Toubro Infotech Ltd., Mindtree Ltd., and Persistent Systems Ltd. as comparables by applying decisions not relevant to the present case's facts and materials, without a specific analysis of the taxpayer's situation, under Section 260-A? 3. Whether the Tribunal was justified in directing the TPO to exclude comparables chosen based on Rule 10B of the IT Rules, ignoring that turnover does not necessarily impact profit margins, under Section 260-A? 4. Whether the Tribunal's order was perverse in directing the exclusion of comparables based on functional dissimilarity and turnover filters without examining the TPO's findings and the materials presented, which adhered to Rule 10B, under Section 260-A? 5. Whether the Tribunal was correct in directing the exclusion of comparables based on a turnover filter without establishing its effect on profit margins and acknowledging the lack of a direct relationship between turnover and profit margin, under Section 260-A? Assessee's contention: The tax effect 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 of 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 10B

AI-generated summary — verify with the full judgment below

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NC: 2024:KHC:39741-DB ITA No. 505 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. 505 OF 2022 BETWEEN:

1.

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

2.

ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-3(1)(2), BMTC COMPLEX, KORMANGALA, BANGALORE. …APPELLANTS

(BY SRI SANMATHI E I, ADVOCATE)

AND:

1.

M/S GALAX E SOLUTIONS INDIA PVT LTD., UNIT NO.4, 8TH FLOOR, INNOVATOR BLOCK, ITPL, WHITEFIELD ROAD, BANGALORE-560066, PAN-AABCG9007F. …RESPONDENT

(BY SMT TANMAYEE RAJKUMAR, ADVOCATE)

THIS APPEAL IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 11/10/2021 PASSED IN IT(TP)A NO.2565/BANG/2017, FOR THE ASSESSMENT YEAR 2013-2014, PRAYING THAT THIS HON’BLE

Digitally signed by B LAVANYA Location: HIGH COURT OF KARNATAKA

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NC: 2024:KHC:39741-DB ITA No. 505 of 2022

COURT MAY BE PLEASED TO 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 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

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.Tanmayee Rajkumar 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 11.10.2021 passed by the Income Tax Appellate Tribunal, ‘A’ Bench, Bengaluru (for short, ‘Appellate Authority’) in IT(TP)A.No.2565/Bang/2017 for the assessment year 2013-14.

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NC: 2024:KHC:39741-DB ITA No. 505 of 2022

3.

This

Court,

admitted the appeal on 05.09.2023 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 by holding that said companies are functionally different 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 date analysis and the transfer pricing officer has passed order on the basis of specific facts on record in the case of assessee?

(ii) Whether the Tribunal was justified in excluding comparable’s namely, Larsen & Tourbo Infotech Ltd., Mindtree Ltd., and Persistent Systems Ltd by superimposing the decisions which are not applicable to facts and materials of present case, including those of other benches of Tribunal, without going into specific facts in the case of the taxpayer?

(iii) Whether the Tribunal is justified in directing Transfer Pricing Officer to exclude comparables ignoring that comparables are chosen on basis of Rule 10B of I.T. Rules and when

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NC: 2024:KHC:39741-DB ITA No. 505 of 2022

turnover does not have impact on profit margin of the companies?

(iv) Whether on the facts and in the circumstances of the case, the Tribunal’s order can be said as perverse in nature as Tribunal has directed TPO to exclude comparable’s on the ground of functional dissimilarity and Turnover filter without examining findings rendered by Transfer Pricing Officer and materials brought on record by said officer which are in parameters of Rule 10B of I.T. Rules?

(v) 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 on the basis Turnover filter 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

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NC: 2024:KHC:39741-DB ITA No. 505 of 2022

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.: 50

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