The Pr Commissioner Of Income Tax vs. M/S Ariba Technologies India Pvt Ltd

PDF · subscribers
ITA/76/2024HC KarnatakaKAHC01004465202430 September 2024Bench: S.G.PANDIT,C.M. POONACHA5 pages
AI SummaryWithdrawn

What did the High Court hold?

The High Court disposed of the appeal with liberty to the Revenue to revive it if the matter falls within the exceptions of CBDT Circulars No. 09/2024 and No. 5/2024. The Court noted the submission by the assessee that the tax effect in the appeal was less than Rs. 2 Crores, making it subject to the monetary limits prescribed by the circulars. The Revenue's counsel sought liberty to revive the appeal in case the matter met the exceptions mentioned in the circulars. Consequently, the appeal was disposed of as per the Revenue's request, with the substantial questions of law kept open to be adjudicated in an appropriate proceeding. No decision was made on the merits of the transfer pricing issues raised by the Revenue.

What were the facts?

The Revenue, represented by the Principal Commissioner of Income Tax and the Deputy Commissioner of Income Tax, filed an appeal under Section 260-A of the Income Tax Act, 1961, before the High Court of Karnataka. The appeal challenges an order dated June 15, 2023, passed by the Income Tax Appellate Tribunal (ITAT), Bengaluru, in IT(TP)A No. 987/Bang/2022 for the assessment year 2018-19. The ITAT's order was against M/s Ariba Technologies India Pvt Ltd. The Revenue sought to set aside the ITAT's order and confirm the orders of the Dispute Resolution Panel (DRP) and the Deputy Commissioner of Income Tax.

What were the issues?

The Tribunal had to decide nine substantial questions of law raised by the Revenue. These questions primarily concern the ITAT's decision regarding the selection of comparable companies for transfer pricing analysis. The core issues are: 1. Whether the ITAT was correct in directing the exclusion of certain companies (Infosys BPM Services Pvt. Ltd., Motif India Infotech Pvt. Ltd., Eclerx Services Ltd., & MPS Ltd.) as comparables by imposing an upper limit on the turnover filter. 2. Whether the ITAT erred in not following its own previous decisions in M/s Societe General Global Solution Centre Pvt. Ltd. and M/s. Vmoksha Technologies Pvt. Ltd., which held that turnover is not a relevant criterion for comparability. 3. Whether the ITAT was correct in holding that a correlation exists between turnover and operating margin of an entity. 4. Whether the ITAT was correct in directing the exclusion of Manipal Digital Systems (P) Ltd. and Domex E Data (P) Ltd. as comparables due to functional dissimilarity. 5. Whether the ITAT correctly appreciated that transfer pricing is not an exact science and no two entities can be exact replicas. 6. Whether the ITAT was right in seeking an exact replica of the assessee for determining the Arm's Length Price (ALP), especially when the transactional profit split method (THMM) was the most appropriate method. 7. Whether the ITAT was correct in demanding comparability standards that might defeat the purpose of determining ALP. 8. Whether the ITAT's order imposing conditions was beyond the scope of law and business reality, without appreciating that no two companies are identical. 9. Whether the ITAT was correct in remitting the issue regarding the inclusion of comparables not part of the TPO's search matrix, thereby promoting cherry-picking. The Revenue argued that the ITAT's decision on these points was erroneous. The Assessee argued that the tax effect was below Rs. 2 Crores, and therefore, the appeal should not be entertained in view of CBDT Circular No. 09/2024.

Which sections of the Income-tax Act were involved?

Section 260-A

AI-generated summary — verify with the full judgment below

- 1 -

NC: 2024:KHC:41146-DB ITA No. 76 of 2024

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 30TH 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. 76 OF 2024 BETWEEN:

1.

THE PR COMMISSIONER OF INCOME TAX 5TH FLOOR, BMTC BUILDING, 80 FEET ROAD, KORMANGALA, BENGALURU-560095

2.

THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE -1(1)(1) 2ND FLOOR, BMTC BUILDING, 80 FEET ROAD, KORMANGALA, BENGALURU-560095 …APPELLANTS (BY SRI. SUSHAL TIWARI N.,ADVOCATE)

AND:

M/S ARIBA TECHNOLOGIES INDIA PVT LTD PLOT C1, 8A CAMPUS RMZ ECOWORLD, SARJAPUR, MARATHAHALLI OUTER RING ROAD, BANGALORE-560103 PAN AADCA 0918P …RESPONDENT (BY SMT. TANMAYEE RAJKUMAR.,ADVOCATE)

THIS ITA / INCOME TAX APPEAL IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN, ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME-TAX APPELLATE TRIBUNAL, BENGALURU IN IT(TP)A NO. 987/BANG/2022 DATED 15.06.2023 FOR ASSESSMENT YEAR 2018-2019 ANNEXURE A AND CONFIRM THE ORDER OF THE DRP CONFIRMING THE ORDER

Digitally signed by BHARATHI S Location: HIGH COURT OF KARNATAKA

- 2 -

NC: 2024:KHC:41146-DB ITA No. 76 of 2024

PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 1(1)(1), BENGALURU AND ETC.

THIS APPEAL, COMING ON FOR ORDERS, 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. Sushal Tiwari. N., for appellants/Revenue and learned counsel Smt. Tanmayee Rajkumar, learned counsel for the 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 15.06.2023 passed by the Income Tax Appellate Tribunal, ‘A’ Bench, Bengaluru (for short, ‘Appellate Authority’) in IT(TP)A No.987/Bang/2022 for the assessment year 2018- 19, raising the following substantial questions of law:

“1. Whether the Hon’ble ITAT was right in fact and in law in directing exclusion of Infosys BPM Services Pvt. Ltd., Motif India Infotech Pvt. Ltd., Eclerx Services Ltd. & MPS Ltd., as

- 3 -

NC: 2024:KHC:41146-DB ITA No. 76 of 2024

comparable on by imposing upper limit on turnover filter. 2. Whether the Hon’ble ITAT, Bangalore, was right in not following the decision of it own bench rendered in the case of M/s Societe General Global Solution Centre Pvt. Ltd. In IT(TP)A No.1188/BANG/2011 and M/s. Vmoksha Technologies Pvt. Ltd. In IT(TP)A No. 595/BANG/2013 dated 26.08.2019 for AY 2005-06 where the Tribunal has held that turnover is not a relevant criterion for deciding the comparability. 3. Whether the Hon’ble TITAT was right in holding that there exists a co-relation between turnover and operation margin of an entity. 4. Whether the Hon’ble ITAT was right in fact and in law in directing exclusion of Manipal Digital Systems (P) Ltd., Domex E Data (P) Ltd. As comparables on functional dissimilarity. 5. Whether the Tribunal is right in not appreciating in fact that transfer pricing is not an exact science and no tow entities can be exact replicas. 6. Whether the Hon’ble ITAT is right in trying to find out exact replica of the assessee for determining the Arm’s length price based on

- 4 -

NC: 2024:KHC:41146-DB ITA No. 76 of 2024

such replica, even when the law and the international jurisprudence itself recognize that there cannot be an exact comparable to a given situation, expecially with THMM as the most appropriate method. 7. Whether the Hon’ble ITAT was right in law in demanding comparability standards that may itself defeat the purpose of law relating to determination of ALP under the Income Tax Act. 8. Whether the order of Tribunal in imposing conditions is beyond the scope of law and business reality all close comparable on one or the other ground, without appreciating that not two companies can ever be same. 9. Whether the Hon’ble ITAT was right in fact and in law to remit the issue regarding inclusion of certain comparable which were not part of the TPOs Search Matrix, thereby promoting the cherry picking of comparables?”

3.

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:41146-DB ITA No. 76 of 2024

Taxes. It is also submitted that the aforesaid Circular binds the revenue.

4.

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.

5.

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

BS List No.: 1 Sl No.: 27

More judgments on Section 260-A

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

Latest GST High Court judgments

Search GST case law →