THE PR COMMISSIONER OF INCOME TAX vs M/S XCHANGING SOLUTIONS LTD

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NC: 2024:KHC:41200-DB ITA No. 187 of 2023

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. 187 OF 2023 BETWEEN:

THE PR. COMMISSIONER OF INCOME TAX 5TH FLOOR, BMTC BUILDING, 80 FEET ROAD, KORMANGALA, BENGALURU -560 095.

THE ASSISTANT COMMISSIONER OF INCOMET TAX CIRCLE -7 (1) (1), 2ND FLOOR, BMTC BUILDING, 80 FEET ROAD, KORMANGALA, BENGALURU -560 095. …APPELLANTS (BY SRI. DILIP M.,ADVOCATE A/W SRI. RAVIRAJ Y V, ADVOCATE)

AND:

M/S XCHANGING SOLUTIONS LTD H P AVENUE. 39/40, ELECTRONIC CITY, HOSUR MAIN ROAD, BENGALURU-560100, PAN-AAFCS 9303L. …RESPONDENT (BY SMT. TANMAYEE RAJKUMAR.,ADVOCATE)

THIS ITA / INCOME TAX APPEAL IS FILED UNDER SEC.260-A OF THE INCOME TAX ACT, 1961, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE, ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME-TAX APPELLATE TRIBUNAL, BENGALURU IN IT(TP)A NO. 294/BANG/2021

Digitally signed by BHARATHI S Location: HIGH COURT OF KARNATAKA

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NC: 2024:KHC:41200-DB ITA No. 187 of 2023

DATED 12/05/2022 FOR ASSESSMENT YEAR 2016-2017 ANNEXURE- D AND CONFIRM THE ORDER OF THE DRP CONFIRMING THE ORDER PASSED BY THE ASST. COMMISSIONER OF INCOME-TAX, CIRCLE- 7(1)(1), BENGALURU AND ETC.

THIS APPEAL, COMING ON FOR ADMISSION, 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 Dilip M along with learned counsel Sri Raviraj Y.V, for appellants/Revenue and learned counsel Smt.Tanmayee Rajkumar, for the respondent/assessee.

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 12.05.2022 passed by the Income Tax Appellate Tribunal, ‘B’ Bench, Bengaluru (for short, ‘Appellate Authority’) in IT(TP)A.No.294/Bang/2021 for the assessment year 2016- 17, raising the following substantial questions of law:

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NC: 2024:KHC:41200-DB ITA No. 187 of 2023

“1. "Whether on the facts and circumstances of the case, the Tribunal's order can be said as perverse in nature in law in removing Larson & Turbo Infotech Ltd.. Nihilent Technologies Ltd.. Persistant Systems Ltd., Thirdware Solutions Ltd., Infosys Ltd., Aspire Systems (India) Pvt. Ltd., Cybage Software Pvt. Ltd. and RS Sofwtware (For 2 years) as comparables on by imposing turnover filter"? 2. Whether on the facts and in the circumstances of the case, the Tribunal was right in not following the decision of its own bench rendered in the case of M/s Societe Generale 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 26.08.2016 for AY 2005-06 where the Tribunal has held that turnover is not a relevant criteria for deciding the comparability"?

"Whether the Tribunal was right in holding that there exists a co-relation between turnover and operating margin of an entity"?

3A. "Whether on the facts and in the circumstances of the case, the Tribunal is justified in allowing WCA, where it does not impact the profit margin of the company"?

3B. "Whether on the facts and in the circumstances of the case, the Tribunal the in directing to allow working capital adjustments without considering that the average working capital may not show the actual working capital employed during the year"?

"Whether on the facts and in the circumstances of the case, the Tribunal was right in law in providing working capital adjustment to the taxpayer without considering that the disclosures in the Annual report does not contain a breakup of trade and non-trade Debtors and Creditors"?

"Whether on the facts and in the circumstances of the case, the Tribunal the was right in law in providing working capital adjustment to the taxpayer without considering that Cost of capital is different for different companies"?

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NC: 2024:KHC:41200-DB ITA No. 187 of 2023

"Whether on the facts and in the circumstances of the case, the Tribunal is right in setting aside the disallowance u/s 40(a)(i) amounting to Rs. 50,20,109/- by relying on the decision of the Hon'ble Apex Court decision in the case of M/s. Engineering Analysis Centre of Excellence Pvt. Ltd. Vs CIT (432 ITR 471) (SC), when the said decision was not accepted by the department and review petition is pending for adjudication before the Supreme Court?”

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.

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:41200-DB ITA No. 187 of 2023

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.: 4 Sl No.: 33

THE PR COMMISSIONER OF INCOME TAX vs. M/S XCHANGING SOLUTIONS LTD