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

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ITA/202/2022HC KarnatakaKAHC01019971202125 September 2024Bench: S.G.PANDIT,C.M. POONACHA6 pages
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What did the High Court hold?

The High Court disposed of the appeal with liberty to the Revenue to revive it if it falls within the exceptions of the circular. The substantial questions of law were kept open for future adjudication.

What were the facts?

The Revenue filed an appeal against an ITAT order concerning transfer pricing for AY 2011-12. The assessee argued that the appeal should not be entertained due to low tax effect as per CBDT Circular No. 09/2024.

What were the issues?

Whether the appeal should be entertained based on the tax effect and CBDT circulars, and the correctness of the ITAT's exclusion of comparables in transfer pricing.

Which sections of the Income-tax Act were involved?

Section 260-A

AI-generated summary — verify with the full judgment below

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NC: 2024:KHC:39908-DB ITA No. 202 of 2022

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. 202 OF 2022

BETWEEN:

1.

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

2.

INCOME TAX OFFICER, WARD 3(1)(2), BMTC COMPLEX, KORAMANGALA, BANGALORE. …APPELLANTS

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

AND:

M/S. GALAX E SOLUTIONS INDIA PVT.LTD., UNIT NO.4, 8TH FLOOR,

Digitally signed by BHARATHI S Location: HIGH COURT OF KARNATAKA

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NC: 2024:KHC:39908-DB ITA No. 202 of 2022

INNOVATOR BLOCK ITPL WHITEFIELD ROAD, BANGALORE-560 066 PAN AABCG9007F

…RESPONDENT

(BY SMT. TANMAYEE RAJKUMAR, ADVOCATE)

THIS INCOME TAX APPEAL IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 21/10/2020 PASSED IN IT(TP)A NO.494/BANG/2016, FOR THE ASSESSMENT YEAR 2011-2012 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.

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

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NC: 2024:KHC:39908-DB ITA No. 202 of 2022

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

Heard the learned counsel Sri. E.I.Sanmathi for appellants/Revenue and Smt. Tanmayee Rajkumar, learned counsel for the respondent.

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 21.10.2020 passed by the Income Tax Appellate Tribunal, ‘B’ Bench, Bengaluru (for short ‘Appellate Authority’) in IT[TP]A.No.494/Bang/2016 for the assessment year 2011-12, raising 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 data analysis and the transfer pricing officer has passed

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NC: 2024:KHC:39908-DB ITA No. 202 of 2022

order on the basis of specific facts on record in the case of the assessee?"

(ii) "Whether the Tribunal was justified in fixing the RPT filter at 15% of total revenue and excluding comparable by superimposing the decisions of Tribunal in other cases, 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 holding in this case that Related party Transactions are more than 15% of sales in case of comparables and hence, not right comparable particularly so when in other cases of software services the Tribunal has upheld application of RPT of 25% of sales as proper?"

vi) "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 RPT filer without examining findings rendered by Transfer Pricing Offcier and materials brought on record by said officer which are in parameters of rule 10B of the Act"?

(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

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NC: 2024:KHC:39908-DB ITA No. 202 of 2022

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"?

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 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

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NC: 2024:KHC:39908-DB ITA No. 202 of 2022

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

SMJ List No.: 2 Sl No.: 6

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