PR. COMMISSIONER OF INCOME TAX-6 vs. M/S. THE HIMALAYA DRUG COMPANY

PDF · subscribers
ITA/835/2018HC KarnatakaKAHC01055709201802 July 2025Bench: S.G.PANDIT,T.M.NADAF7 pages
AI SummaryRemanded

What did the High Court hold?

The High Court noted that the assessee had raised a contention regarding the assessment order being passed beyond the time limit prescribed under Section 144C(13) of the IT Act. This issue was the subject matter of ITA No. 571/2017. The High Court, in its judgment dated 04.06.2025 in ITA No. 571/2017, had held that the assessment order was indeed passed beyond the time limit prescribed under Section 144C(13). Consequently, the High Court held that the examination of the impugned order, which was passed subsequently on merits by the ITAT, would not arise. Therefore, the substantial questions of law raised by both the assessee and the revenue did not require consideration. Liberty was reserved to both parties to raise their respective questions of law in appropriate proceedings, and all contentions were kept open.

What were the facts?

The appeals before the High Court of Karnataka arose from an order dated 04.07.2018 passed by the Income Tax Appellate Tribunal (ITAT), Bengaluru, in IT(TP)A No.807/Bang/2016, concerning Assessment Year 2011-2012. ITA No. 764/2018 was filed by the assessee, M/s. Himalaya Drug Company, and ITA No. 835/2018 was filed by the Revenue (Pr. Commissioner of Income Tax-6 and Deputy Commissioner of Income Tax). The assessee had contended that the ITAT's order was passed beyond the period prescribed under Section 144C(13) of the Income Tax Act, 1961. This contention was previously decided against the assessee by the ITAT on 21.06.2017, after which the Tribunal proceeded to pass the order on merits. The High Court had previously admitted the appeals to examine substantial questions of law.

What were the issues?

The High Court was to decide on substantial questions of law arising from the ITAT's order. For ITA No. 764/2018 (assessee's appeal), the questions were: 1. Whether the Tribunal was justified in law in impliedly upholding the validity of a draft assessment order which was in substance a final assessment order, under Section 144C(13) of the IT Act? 2. Whether the Tribunal was justified in law in impliedly holding that the Appellant and certain overseas entities are associated enterprises as defined under Section 92A of the IT Act? For ITA No. 835/2018 (Revenue's appeal), the questions were: 1. Whether the Tribunal was justified in holding that the Revenue failed to notice the fundamental principle of international taxation and Chapter X of the IT Act that foreign associated enterprises and Indian associated enterprises are separate tax centers, while the Revenue held that no independent entity would incur such elevated AMP expenses on account of a brand held by another entity without seeking arm's length compensation? 2. Whether the Tribunal was right in law in relying on Essilor Manufacturing India Pvt. Ltd. v. DCIT and DCIT v. Nike India Pvt. Ltd. to delete the transfer pricing adjustment of Rs.31,69,02,034/- in respect of AMP Expenditure without appreciating that the assessee incurred huge expenditure for advertisement and selling for marketing its products, though it did not own the title to the brands? 3. Whether the Tribunal's order was perverse in holding that the Transaction Net Margin Method (TNMM) was the most appropriate method and not the Cost Price Method, without considering the assessee's intense functions like marketing, advertisement, sales promotion, utilization of more assets, and bearing higher risks in the domestic segment, compared to the associated enterprise's functions in the export segment?

Which sections of the Income-tax Act were involved?

Section 260-A,Section 144C(13),Section 92A

AI-generated summary — verify with the full judgment below

- 1 -

HC-KAR NC: 2025:KHC:23552-DB ITA No. 764 of 2018 C/W ITA No. 835 of 2018

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 2ND DAY OF JULY, 2025 PRESENT THE HON'BLE MR. JUSTICE S.G.PANDIT AND THE HON'BLE MR. JUSTICE T.M.NADAF INCOME TAX APPEAL NO. 764 OF 2018 C/W INCOME TAX APPEAL NO. 835 OF 2018

IN ITA No. 764/2018: BETWEEN:

M/S. HIMALAYA DRUG COMPANY MAKALI, TUMKUR ROAD, BENGALURU-562 162, (REPRESENTED BY ITS CHIEF FINANCIAL OFFICER, MS. JAYASHREE ULLALL, AGED ABOUT 45 YEARS, D/O SHRI. DAYANANDA ULLALA) …APPELLANT (BY SRI. TATA KRISHNA., ADVOCATE) AND:

THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE - 1(1), BMTC BUILDING, 80 FEET ROAD, KORAMANGALA, 6TH BLOCK, BENGALURU-560 095. …RESPONDENT

Digitally signed by MADHURI S Location: High Court of Karnataka

- 2 -

HC-KAR NC: 2025:KHC:23552-DB ITA No. 764 of 2018 C/W ITA No. 835 of 2018

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

THIS APPEAL IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 04.07.2018 PASSED IN IT(TP)A NO. 807/BANG/2016 FOR THE ASSESSMENT YEARS 2011-2012, PRAYING TO ALLOW THE APPEAL AND SET-ASIDE OR REVERSE THE IMPUGNED ORDER OF THE INCOME TAX APPELLATE TRIBUNAL, BENGALURU 'B' BENCH BEARING IN IT(TP)A NO. 807/BANG/2016, DATED 04.07.2018 (SO FAR AS SAME IS PREJUDICIAL TO THE APPELLANT) AS ENCLOSED IN ANNEXURE-A AND ETC. .

IN ITA NO. 835/2018: BETWEEN: 1. PR. COMMISSIONER OF INCOME TAX-6, BMTC COMPLEX, KORAMANGALA, BANGALORE.

2.

DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE -1 (1), BANGALORE. ...APPELLANTS (BY SRI. SANMATHI E I., ADVOCATE) AND: M/S. THE HIMALAYA DRUG COMPANY, MAKALI, BANGALORE-562 162. ...RESPONDENT (BY SRI. TATA KRISHNA., ADVOCATE) THIS APPEAL IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 04.07.2018 PASSED IN IT(TP)A NO. 807/BANG/2016 FOR THE ASSESSMENT YEARS 2011-2012, PRAYING TO DECIDE

- 3 -

HC-KAR NC: 2025:KHC:23552-DB ITA No. 764 of 2018 C/W ITA No. 835 of 2018

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-04/07/2018 (ANNEXURE-A) 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. 807/BANG/2016 FOR ASSESSMENT YEAR 2011-12 & GRANT SUCH OTHER RELIEF AS DEEMED FIT, IN THE INTEREST OF JUSTICE. THESE APPEALS 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 T.M.NADAF

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

The above two appeals are filed under section 260-A of Income Tax Act, 1961 (hereinafter referred to as "IT Act") questioning the order dated 04.07.2018 passed by the Income Tax Appellate Tribunal, Bengaluru, 'B' Bench in IT(TP)A No.807/Bang/2016. ITA No.764/2018 is by the assessee and the said appeal was admitted to examine the following two substantial questions of law, vide order dated 04.07.2018.

- 4 -

HC-KAR NC: 2025:KHC:23552-DB ITA No. 764 of 2018 C/W ITA No. 835 of 2018

"1. Whether on the facts and circumstances of the case, is the Tribunal justified in law in impliedly upholding validity of draft assessment order which is in substance final assessment order? 2. Whether on the facts and circumstances of the case, is the Tribunal justified in law in impliedly holding that the Appellant and certain overseas entities are associated enterprises as defined under section 92A of the IT Act?"

ITA No.835/2018 is filed by respondent/Commissioner of Income Tax and the said appeal was admitted on 08.07.2019 to examine the following 3 substantial questions of law in the order dated 8.07.2019;

“1. Whether on the facts and in the circumstances of the case, Tribunal was justified in holding that Revenue has failed to notice the fundamental principle of international taxation and Chapter X of the Income Tax Act that the foreign associated enterprise and the Indian Associated Enterprise are separate tax centres and taxable entitles whereas, the Revenue has held that no independent entity would incur such an elevated level of AMP expenses on account of a brand held by some other entity and yet not seek Arm/s Length compensation on the same principle? 2. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in relying on the case of Essilor Manufacturing India Pvt. Ltd. V/s. DCIT and DCIT V/s. Nike India Pvt. Ltd. To delete the transfer pricing adjustment of

- 5 -

HC-KAR NC: 2025:KHC:23552-DB ITA No. 764 of 2018 C/W ITA No. 835 of 2018

Rs.31,69,02,034/- in respect of AMP Expenditure without appreciating that assessee has incurred huge expenditure for advertisement and selling i.e. for marketing its products though it does not won the title to the brands of products? 3. Whether in the facts and circumstances of the case, the Tribunal’s order can be held as perverse in nature in holding that the Transaction net Margin Method is the most appropriate method and not Cost Price Method without considering the facts of present case whereby the assessee performs intense functions such as marketing, advertisement and sales promotion and admission, utilises more assets and bears higher risks in the domestic segment whereas AE performs all aforesaid functions in the export segment, thus on Far profile under TNMM, is akin to comparing a simple manufacturer devoid of any other functions to full-fledged manufacturer, which is not correct?”

2.

The assessee had raised the contention that the order passed by the Income Tax Appellate Tribunal is beyond the period prescribed under section 144C(13) of IT Act. The said questions were answered against the assessee under order dated 21.06.2017 in the same appeal and the Appellate Tribunal had proceeded further to pass the order on merits under Annexure 'A' dated 04.07.2018, which is the subject matter of the above two appeals.

- 6 -

HC-KAR NC: 2025:KHC:23552-DB ITA No. 764 of 2018 C/W ITA No. 835 of 2018

3.

Learned counsel appearing for assessee would submit that the order passed rejecting the contentions of the limitations raised by the assessee was the subject matter of ITA No.571/2017. It is submitted that the said Income Tax Appeal was allowed by this court vide judgment dated 04.06.2025. Therefore, he submits that the examination of the questions raised in this appeal would not arise.

4.

Sri.E.I.Sanmathi, learned counsel appearing for respondent would not dispute the above fact. 5. In the above circumstances, we proceed to pass the following order; ORDER This court in it's judgment dated 04.06.2025 in ITA No.571/2017 had held that the assessment order passed is beyond the time limit prescribed under Section 144C(13) of IT Act. Hence, the examination of the impugned order, which is passed subsequently on merit, would not arise.

- 7 -

HC-KAR NC: 2025:KHC:23552-DB ITA No. 764 of 2018 C/W ITA No. 835 of 2018

In the above circumstances, the question of considering the substantial questions of law raised by the assessee as well as the revenue, would not arise. Liberty is reserved to both the parties to raise respective questions of law, in an appropriate proceedings. All contentions of the parties are kept open. Accordingly, above both appeals stand disposed of.

Sd/- (S.G.PANDIT) JUDGE

Sd/- (T.M.NADAF) JUDGE AKV List No.: 1 Sl No.: 40

More judgments on Section 260-A

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

Recent GST High Court judgments

Search GST case law →