THE PR COMMISSIONER OF INCOME TAX 2 vs. M/S TANGOE INDIA SOFTEK PVT LTD

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ITA/559/2023HC KarnatakaKAHC01046438202325 September 2024Bench: S.G.PANDIT,C.M. POONACHA7 pages
AI SummaryRemanded

What did the High Court hold?

The High Court disposed of the appeal with liberty granted to the revenue to revive it, as prayed for by the revenue's counsel. The court noted the submissions regarding the tax effect and the applicability of CBDT Circular No. 09/2024 and Circular No. 5/2024. The substantial questions of law were kept open to be adjudicated in an appropriate proceeding. Therefore, 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 expressly left undecided.

What were the facts?

The Revenue, comprising the Principal Commissioner of Income Tax-2 and the Assessment Unit, filed an appeal under Section 260-A of the Income Tax Act, 1961, challenging an order dated March 29, 2023, passed by the Income Tax Appellate Tribunal (ITAT), 'A' Bench, Bengaluru. The appeal pertains to Assessment Year 2018-19 and concerns transfer pricing issues. The High Court admitted the appeal on September 12, 2023, to consider substantial questions of law. During the hearing, the assessee's counsel pointed out that the tax effect in the appeal is less than Rs. 2 Crores, citing CBDT Circular No. 09/2024 dated September 17, 2024, which binds the revenue. The revenue's counsel sought liberty to revive the appeal if the matter falls within the exceptions of the aforementioned circulars.

What were the issues?

The High Court was to decide the following substantial questions of law: 1. Whether the Tribunal's order was perverse for not acknowledging the lack of a direct relationship between turnover and profit margin. 2. Whether the Tribunal was legally correct in ignoring the parameters prescribed under Rule 10B, which are stated to be exhaustive. 3. Whether the Tribunal was correct in imposing decisions of other ITAT benches on the assessee to reject comparable companies, when comparable selection depends on assessee-specific FAR analysis. 4. Whether the Tribunal was correct in directing the exclusion of comparables based on a turnover filter, disregarding its own prior decision in M/s. Societe General Global Solution Centre (P) Ltd. 5. Whether the Tribunal was correct in directing the exclusion of specific comparables from SWD and ITES segments based on a turnover filter, ignoring the judgment in Chryscapital Investment Advisors (India) Pvt Ltd, which held that high turnover alone does not ipso facto lead to exclusion. 6. Whether the Tribunal was correct in directing the exclusion of comparables from SWD and ITES segments based on functional dissimilarity, without prejudice to the functionality under the TNMM method. 7. Whether the Tribunal was correct in setting aside specific comparables from SWD and ITES segments based on functional dissimilarity, despite the TPO using similar business keywords for selection. 8. Whether the Tribunal was right in seeking exact comparability under TNMM and if the objection to comparable selection was legally sustainable. The assessee contended that the appeal should not be entertained due to the low tax effect, citing CBDT Circular No. 09/2024. The revenue sought liberty to revive the appeal if exceptions under the circulars applied. No specific arguments were recorded for the revenue on the merits of the transfer pricing issues.

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:39924-DB ITA No. 559 of 2023

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. 559 OF 2023

BETWEEN:

1.

THE PR. COMMISSIONER OF INCOME TAX-2, BMTTC BUILDING, KORAMANGALA, BANGALORE.

2.

THE ASSESSMENT UNIT INCOME TAX DEPARTMENT, NATIONAL FACELESS ASSESSMENT, NEW DELHI. …APPELLANTS (BY SRI. SANMATHI E I., ADVOCATE)

AND:

M/S. TANGOE INDIA SOFTEK SERVICES PVT.LTD., TOWER B, 2ND AND 3RD FLOORS, GLOBAL TECHNOLOGY PARK, MARATHAHALLI OUTER RING ROAD, VARTHUR ROAD, DEVARABEESANAHALLI, VARTHUR VILLAGE,

Digitally signed by BHARATHI S Location: HIGH COURT OF KARNATAKA

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NC: 2024:KHC:39924-DB ITA No. 559 of 2023

BANGALORE-560 103. PAN AAECT3060A …RESPONDENT

(RESPONDENT SERVED)

THIS INCOME TAX APPEAL IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 29/03/2023 PASSED IN IT(TP)A NO.923/BANG/2022, FOR THE ASSESSMENT YEAR 2018-2019 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 SET ASIDE THE APPELLATE ORDER DATED 29.03.2023 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, 'A' BENCH, BENGALURU, AS SOUGHT FOR, IN THE RESPONDENT-ASSESSEE'S CASE, IN APPEAL PROCEEDINGS IN IT(TP)A NO.923/BANG/2022 FOR A.Y.2018- 2019 AND TO 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

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NC: 2024:KHC:39924-DB ITA No. 559 of 2023

ORAL JUDGMENT (PER: HON'BLE MR JUSTICE S.G.PANDIT)

Heard the learned counsel Sri.Sanmathi.E.I., for appellants/Revenue.

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 29.03.2023 passed by the Income Tax Appellate Tribunal, ‘A’ Bench, Bengaluru (for short, ‘Appellate Authority’) in IT(TP)A.No.923/Bang/2022 for the assessment year 2018-19.

3.

This

Court,

admitted the appeal on 12.09.2023 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 nature in not acknowledging that there is no direct relationship between turnover and the margin earned by the company?

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NC: 2024:KHC:39924-DB ITA No. 559 of 2023

2.

Whether the Tribunal is right in law to ignore the parameters of analysis prescribed under Rule 10B, which are exhaustive and if so, whether it is legally permissible to bypass the same partially or by implication?

3.

Whether the Tribunal is correct in super imposing the decision of other benches of ITAT in the case of assessee, to reject these comparable companies when selection of comparable companies in transfer pricing study depends on assessee specific FAR analysis?

4.

Whether the Tribunal is correct in its direction to exclude certain comparables namely on application of turnover filter ignoring its own decision in the case of M/s. Societe General Global Solution Centre (P) Ltd vs DCIT, Circle-12(3), Bangalore vide IT(TP) A No.118(Bang)201?

5.

Whether the Tribunal is correct in its direction to exclude certain comparables namely Excellent Technologies P. Ltd, Tech Mahindra Ltd, L&T Infotech Ltd, Mindtree Ltd, Persistent Systems Ltd, Wipro Ltd, Tata Elxsi Ltd, Nihilent Ltd, Infosys Ltd, Cybage Software P. Ltd from SWD segment and Microland Ltd, Tech Mahindra Business Services Ltd, BPM Services P Ltd, Eclerx Services Ltd, MPS Ltd, Motiff India Infotech P Ltd form ITES segment on

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NC: 2024:KHC:39924-DB ITA No. 559 of 2023

application of turnover filter ignoring the Judgement in Chryscapital Investment Advisors (India) Pvt Ltd in ITA No.417 of 2014, which held that the mere fact that an entity makes high/extremely high profits/losses/turnover does not, ipso facto, lead to its exclusion from the list of comparables for the purposes of determination of ALP?

6.

Whether the Tribunal is correct in its direction to exclude certain comparables Infobean Technologies from SWD and Domex E data Pvt. Ltd form ITES segment on application of functionally dissimilar without prejudice the functionality of the comparables under the TNMM method?

7.

Whether the Tribunal was correct in its direction to set aside of certain comparables namely Silgate Solutions Ltd, Dynacons Systems & Solutions Ltd, Tejora Technologies Ltd, E-Zest Solutions Ltd, Majestic IT Services Ltd, Airan Ltd and CES Ltd in SWD and Blue Cloud Softech Solutions Ltd, Infomile Technologies Ltd, Cyfuture India Pvt Ltd, Surevin BPO Services Ltd from ITES segment on application of functionally dissimilar without prejudice the functionality of the comparables under the TNMM method where the TPO has made the search for selection of the appropriate comparables using similar business keyword to the taxpayer?

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NC: 2024:KHC:39924-DB ITA No. 559 of 2023

8.

Whether the Tribunal is right in law and in fact in seeking exact comparability under TNNM and whether the objection to the selection of comparable is legally sustainable?

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.

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

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NC: 2024:KHC:39924-DB ITA No. 559 of 2023

kept open to be adjudicated in an appropriate proceeding.

Sd/- (S.G.PANDIT) JUDGE

Sd/- (C.M. POONACHA) JUDGE

SMJ List No.: 2 Sl No.: 23

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