Ita/148/2020 Of The Pr Commissioner Of Income Tax v. M/S First Advantage Global Operating Center Pvt. Ltd

Digitallysigned byBHARATHI SLocation:HIGH COURTOFKARNATAKA NC: 2024:KHC:40415-DB ITA No. 148 of 2020 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.148 OF 2020 BETWEEN: 1. THE PR. COMMISSIONER OF INCOME TAX CIT (A), 5 FLOOR, BMTC BUILDING, 80 FEET ROAD, KORMANGALA, BENGALURU-560095. BENGALURU-560095. 2. THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-11(3), PRESENT ADDRESS JCIT, SPECIAL RANGE-3, 2 FLOOR, BMTC BUILDING, 80 FEET ROAD, KORMANGALA, 80 FEET ROAD, KORMANGALA, BENGALURU-560095. …APPELLANTS (BY SRI. DILIP M, ALONG WITH RAVIRAJ Y.V .,ADVOCATE) - 2 - NC: 2024:KHC:40415-DB ITA No. 148 of 2020 AND: M/S FIRST ADVANTAGE GLOBAL OPERATING CENTER PVT. LTD., LEVEL-1, EXPLORER BUILDING, INTERNATIONAL PARK, WHITEFIELD ROAD, BENGALURU-560066. (BY SRI. VANAJA M R.,ADVOCATE) …RESPONDENT THIS ITA / INCOME TAX APPEAL IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 07/08/2019 PASSED IN IT(TP)A NO. 176/BANG/2014, FOR THE ASSESSMENT YEAR 2009-2010. PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE 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 Sri. Raviraj.Y.V., learned counsel for the appellants/Revenue and Smt. M.R.Vanaja, learned counsel for the 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 07.08.2019 passed by the Income Tax Appellate Tribunal, ‘B’ Bench, Bengaluru (for short, ‘Appellate Authority’) in IT(TP)A.No.176/Bang/2014 for the assessment year 2009-10. 3. This Court, admitted the appeal on 07.10.2020 to consider the following substantial questions of law: "1. Whether on the facts and circumstances of the case, the Tribunal is correct in holding that Persistent Systems Ltd., Larsen and ToubroInfotech Ltd., Bodhtree Consulting Ltd., Tata Elxsi Ltd, Kals Information Systems Ltd in SWD segment and Cosmic Global Ltd., Eclerx Services Ltd., Infosys BPO Ltd., Accentia Technologies Ltd in ITES segment cannot be taken as comparable holding that these companies are functionally dissimilar even when they are chosen by Transfer Pricing Officer after applying all tests as prescribed under Rule 10B of I.T. Rules? 2. Whether on the facts and circumstances of the case and in law, the Tribunal was right in seeking exact comparability, while searching for comparable companies of the assessee under TNMM whereas the requirement of law and international jurisprudence require seeking similar comparables companies? 3. Whether on the facts and circumstances of the case and in law, the Tribunal while seeking the exact comparability the Tribunal is right in imposing condition beyond law whereas the requirement of law is to acknowledge only those differences that are likely to materially affect the margin? 4. Whether on the facts and circumstances of the case and in law, the Tribunal was right in not acknowledging that there is no direct relationship between brand value and the margin earned by the company. Branch may generate the revenue of the company but does not increase the profit margin? 5. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in directing the TPO to treat Forex gain as operating revenue based on its earlier decision in the case of SAP Labs India Pvt Ltd and Triology India Pvt. Ltd even though the same is rightly excluded by TPO considering that the same is not incidental to business of assessee?" 4. Learned counsel for the assessee submits that 4. Whether on the facts and circumstances of the case and in law, the Tribunal was right in not acknowledging that there is no direct relationship between brand value and the margin earned by the company. Branch may generate the revenue of the company but does not increase the profit margin? 5. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in directing the TPO to treat Forex gain as operating revenue based on its earlier decision in the case of SAP Labs India Pvt Ltd and Triology India Pvt. Ltd even though the same is rightly excluded by TPO considering that the same is not incidental to business of assessee?" 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 - 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