Ita/139/2023 Of The Pr. Commissioner Of Income Tax v. M/S. Tokai Rika Minda India Pvt. Ltd

Digitallysigned byBHARATHI SLocation:HIGH COURTOFKARNATAKA NC: 2024:KHC:40428-DBITA No. 139 of 2023 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 27 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. 139 OF 2023 BETWEEN: 1. THE PR. COMMISSIONER OF INCOME TAX 5 FLOOR, BMTC BUILDING, 80 FEET ROAD, KORAMANGALA, BENGALURU-560095. 2. THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-7(1)(1) 2 FLOOR, BMTC BUILDING, 80 FEET ROAD, KORMANGALA, BENGALURU-560095. …APPELLANTS (BY SRI. M.DILIP, ADVOCATE A/W SRI. RAVIRAJ.Y.V., ADV.) - 2 - AND: M/S. TOKAI RIKA MINDA INDIA PVT. LTD., PLOT NO.365 SOMPURA, KIADB INDUSTRIAL AREA, DOBBA SET, NELAMANGALA TALUK, BENGALURU RURAL DIST-562111. PAN: AADCT 0271C …RESPONDENT (BY SRI. K.R.VASUDEVAN, ADVOCATE) THE 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 AND TO ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME-TAX APPELLATE TRIBUNAL, BENGALURU IN IT(TP)A NO.1513/BANG/2017 DATED 29/06/2022 FOR ASSESSMENT YEAR 2013-2014 ANNEXURE -D AND CONFIRM THE ORDER OF THE DRP CONFIRMING THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-7(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 - 3 - ORAL JUDGMENT (PER: HON'BLE MR JUSTICE S.G.PANDIT) Heard the learned counsel Sri. Dilip.M., along with Raviraj.Y.V., learned counsel for the appellants/Revenue and learned counsel Sri. K.R.Vasudevan along with Sri. Ankur.P.D., learned counsel for 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 29.06.2022 passed by the Income Tax Appellate Tribunal, ‘B’ Bench, Bengaluru (for short, ‘Appellate Authority’) in IT(TP)A.No.1513/Bang/2017 for the assessment year 2013-14. 3. This Court, admitted the appeal on 29.08.2023 to consider the following substantial questions of law: 1. Whether on the facts and circumstances of the case and in law, the Tribunal is right in law in not considering that to allow working capital adjustment without an upper limit would result into abnormal adjustment and would make the profit earned within the permitted range even if no operating profit is earned? 2. Whether on the facts and circumstances of the case and in law, the Tribunal is right in law in not upholding the approach of the Transfer Pricing Officer in limiting the working capital adjustment to the average cost of capital of the comparable companies? 3. Whether the Tribunal’s order can be said as perverse in nature 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? 4. Whether the Tribunal is right in law in providing working capital adjustment to assessee without considering that the disclosures in the Annual Report does not contain a breakup of trade and non trade Debtors and creditors and cost of capital different for different companies? 5. Whether the Transfer Pricing Officer compared the net profit margin of unrelated entities at entity level with that of the taxpayer as per Rule 10B(e) and made adjustment to the net profit margin of the entity, the said adjustment would in fact be an adjustment to the net profit margin of international transaction and in such a scenario, the Tribunal’s direction to consider only Associated Enterprises Transaction for the adjustment is not logical and thus perverse in nature? 4. Whether the Tribunal is right in law in providing working capital adjustment to assessee without considering that the disclosures in the Annual Report does not contain a breakup of trade and non trade Debtors and creditors and cost of capital different for different companies? 5. Whether the Transfer Pricing Officer compared the net profit margin of unrelated entities at entity level with that of the taxpayer as per Rule 10B(e) and made adjustment to the net profit margin of the entity, the said adjustment would in fact be an adjustment to the net profit margin of international transaction and in such a scenario, the Tribunal’s direction to consider only Associated Enterprises Transaction for the adjustment is not logical and thus perverse in nature? 6. Whether the Tribunal’s order can be said as perverse in nature in remitting the issue pertaining to custom duty adjustment by relying on its earlier order wherein, the taxpayer company’s activities and functions were not similar to that of assesse and cannot be considered to facts of present case as taxpayer in present case in a normal routine manner operates and in case of the relied upon company, it is an extraordinary event which is on-operating in the case? 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 kept open to be adjudicated in an appropriate proceeding. Sd/- (S.G.PANDIT) JUDGE Sd/- (C.M. POONACHA) JUDGE