THE PR. COMMISSIONER OF INCOME TAX vs. M/S. CONTINU SERVE SOFTECH INDIA PVT. LTD.,

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ITA/322/2023HC KarnatakaKAHC01021714202327 September 2024Bench: S.G.PANDIT,C.M. POONACHA7 pages
AI SummaryDismissed

What did the High Court hold?

The High Court disposed of the appeal based on a CBDT circular regarding tax effect thresholds. The court granted liberty to the Revenue to revive the appeal if it falls within exceptions to the circular.

What were the facts?

The Revenue filed an appeal against an order of the Income Tax Appellate Tribunal concerning the assessment year 2016-17. The appeal raised several substantial questions of law regarding the selection of comparable companies and transfer pricing adjustments.

What were the issues?

The appeal concerned the correctness of the Tribunal's decision on selecting comparable companies and transfer pricing adjustments. The primary issue for disposal was the applicability of a CBDT circular on tax effect.

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:40432-DB ITA No. 322 of 2023

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 27TH 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.322 OF 2023

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-2(1)(1), 2ND FLOOR, BMTC BUILDING, 80 FEET ROAD, KORMANGALA, BENGALURU-560095. …APPELLANTS

(BY SRI. DILIP M., ADVOCATE A/W SRI. RAVIRAJ.Y.V., ADVOCATE)

Digitally signed by B LAVANYA Location: HIGH COURT OF KARNATAKA

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AND:

M/S. CONTINU SERVE SOFTECH INDIA PVT. LTD., PRATHIK TECH PARK, 2ND AND 3RD FLOOR, SY.NO.93/1, VEERASANDRA VILLAGE, ATTIBELE HOBLI, HOSUR ROAD, ELECTRONIC CITY PHASE-I, BENGALURU-560100. PAN: AAACC 8342A

…RESPONDENT (RESPONDENT SERVED)

THIS APPEAL IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW AND ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME-TAX APPELLATE TRIBUNAL, BENGALURU IN IT(TP)A.NO.242/BANG/2021 DATED 23.09.2022 FOR ASSESSMENT YEAR 2016-2017 ANNEXURE-D AND CONFIRM THE ORDER OF THE DRP CONFIRMING THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE - 2(1)(1), BENGALURU AND ETC.

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

Heard the learned counsel Sri. Dilip.M., along with Sri. Raviraj.Y.V., learned counsel for the 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 23.09.2022 passed by the Income Tax Appellate Tribunal, ‘A’ Bench, Bengaluru (for short, ‘Appellate Authority’) in IT(TP)A.No.242/Bang/2021 for the assessment year 2016-17.

3.

This Court, admitted the appeal on 12.12.2023 to consider the following substantial questions of law:

“1. Whether the Tribunal was right in law and in fact seeking exact comparability under Transaction Net Margin Method?

2.

Whether the Tribunal was right in law to ignore the parameters of analysis prescribed under Rule 10B, which

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are exhaustive and if so, whether it is legally permissible to bypass the same partially or by implication?

3.

Whether on the facts and circumstances of the case and in law, the Tribunal is right in law in excluding,

i) R S Software (India) Ltd.

ii) Persistent Systems Ltd.

iii) Thirdware Solutions Ltd.

iv) Larsen & Toubro Infotech Ltd.

v) Infosys Ltd.

vi) Nihilent Ltd.

vii) Aspire Systems (India) Pvt. Ltd.

viii) Cybage Software Pvt. Ltd

and including following comparables under SWD segment:

i) Akshay Software Technologies Ltd.

ii) Evoke Technologies Pvt Lts.

iii) Sasken Technologies Ltd

without acknowledging the fact that the said comparable's were chosen by TPO on the basis of materials on record and after applying the requires testes prescribed under the Rules and as such order passed by Tribunal is perverse in nature?

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4.

Whether on the facts and in the circumstances of the case, the Tribunal's order can be said as perverse in nature in directing Transfer Pricing Officer to comparable by ignoring findings of Transfer Pricing Officer rendered in TPO's order which has been rightly upheld by DRP?

5.

Whether on the facts and in the circumstances of the case, the Tribunal's order can be said as perverse in nature in directing Transfer Pricing Officer to not to consider this company in PLI margin computation for the FY: 2013-14?

6.

Whether on the facts and in the circumstances of the case, the Tribunal's order can be said as perverse in nature in directing Transfer Pricing Officer to allow actual adjustment towards the differences in working capital position between the assessee and the companies in the final set of comparables without appreciating that upper limit would result into abnormal adjustment and would make the profit earned within the permitted range even if no operating profit is earned?

7.

Whether, on the facts and in the circumstances of the case, the Tribunal is justified in excluding Infobeans Technologies Ltd by relying on the decisions rendered by the coordinate Bench in the case of M/s. Prism Network Pvt Ltd and M/s. Borqs Software Solutions Pvt.Ltd?

8.

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 failed to consider the reasons of DRP, TPO and materials on record?

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NC: 2024:KHC:40432-DB ITA No. 322 of 2023

9.

Whether the Tribunal was right in facts and in law in rejecting Softsol India Ltd. as comparable by applying RPT filter of 15% when different Tribunal’s including ITAT Bengaluru have considered 25% RPT as appropriate?”

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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kept open to be adjudicated in an appropriate proceeding.

Sd/- (S.G.PANDIT) JUDGE

Sd/- (C.M. POONACHA) JUDGE

SMJ List No.: 4 Sl No.: 53

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