Ita/176/2023 Of The Pr. Commissioner Of Income Tax v. M/S Texas Instruments India Pvt Ltd

Digitallysigned by BLAVANYALocation:HIGHCOURT OFKARNATAKA 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.176 OF 2023 BETWEEN: 1. THE PR. COMMISSIONER OF INCOME-TAX, 5 FLOOR, BMTC BUILDING, 80 FEET ROAD, KORMANGALA, BENGALURU -560 095. 2. THE JOINT COMMISSIONER OF INCOME-TAX, LTU, PRESENT ADDRESS, DCIT, CIRCLE -7 (1) (1), 2 FLOOR, BMTC BUILDING, 80 FEET ROAD, KORMANGALA. BENGALURU-560 095. …APPELLANTS (BY SRI. DILIP M., A/W SRI. RAVIRAJ Y.V., ADVOCATES) - 2 - NC: 2024:KHC:40393-DB AND: M/S. TEXAS INSTRUMENTS (INDIA) PVT. LTD., BAGMANE TECH PARK, NO.66/3, ADJACENT TO LRDE, BYRASANDRA, C V RAMAN NAGAR, BENGALURU -560 093, PAN: AAACT 5445M. …RESPONDENT (BY SRI. K.R.VASUDEVAN, A/W SRI. ANKUR P.D., ADVOCATES) 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 AND ETC. THIS APPEAL, COMING ON FOR FURTHER ORDERS, 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 appellants/Revenue and learned counsel Sri. K.R.Vasudevan along with Sri. Ankur.P.D., 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 17.05.2022 passed by the Income Tax Appellate Tribunal, ‘B’ Bench, Bengaluru (for short ‘Appellate Authority’) in IT(TP)A.No.1446/Bang/2019 for the assessment year 2012-13, raising the following substantial questions of law: 1. "Whether on the facts and in the circumstances of the case, the Tribunal's order can be said as perverse in nature in seeking exact comparability under TNMM and whether the objection to the selection of comparable is legally sustainable"? 2. "Whether on the facts and in the circumstances of the case, the Tribunal's order can be said as perverse in law in ignoring the parameters of analysis prescribed under Rule 10B, which 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, the Tribunal's order cane be said as perverse in law in holding that M/s. HCCA Business Services Pvt. Ltd., M/s. Asian Business Exhibition and conference Ltd., M/s. Killick Agencies and Marketing Ltd. cannot be taken as a comparable as the company's main part of operations is payroll processing services whereas as seen from the annual report of the company for AY 2010-11, the company's functions is similar functions to the taxpayer i.e. providing support services and under TNMM analysis the requirement for benchmarking analysis is for similar functionally comparable not exact functionally comparable"? 4. "Whether on the facts and in the circumstances of the case, for the A.y.2010-11, the Tribunal was right in law and in fact holding that M/s. Killick Agencies and Marketing Ltd. fails export turnover filter. The relevant extract of Annual report is reproduced below: ITA No. 176 of 2023 and as such it is evident from the above extracts that the percentage of export revenue to the total revenue is 100 percent and thus passes the filter". 5. "Whether on the facts and in the circumstances of the case, the Tribunal was right in relying upon the decisions of coordinate benches in the cases of Electronics for Imaging India Pvt. Ltd. (supra) without appreciating the dissimilarities between the facts in case of the taxpayer and that of those relied upon". 4. "Whether on the facts and in the circumstances of the case, for the A.y.2010-11, the Tribunal was right in law and in fact holding that M/s. Killick Agencies and Marketing Ltd. fails export turnover filter. The relevant extract of Annual report is reproduced below: ITA No. 176 of 2023 and as such it is evident from the above extracts that the percentage of export revenue to the total revenue is 100 percent and thus passes the filter". 5. "Whether on the facts and in the circumstances of the case, the Tribunal was right in relying upon the decisions of coordinate benches in the cases of Electronics for Imaging India Pvt. Ltd. (supra) without appreciating the dissimilarities between the facts in case of the taxpayer and that of those relied upon". 6. "Whether on the facts and in the circumstances of the case, the Tribunal is correct in fact and in law in seeking exact comparability, which searching for comparable companies of the assessee under TNMM whereas the requirement of law and international jurisprudence require seeking similar comparable companies? 7. "Whether on the facts and in the circumstances of the case the Tribunal's order can be said as perverse in nature in law in directing that the operating margin decided in the Bilateral APA with USA for the US AE which was decided by the APA authorities after examining the FAR of the US AE, be applied to the Malaysian AE without verifying and analysing the FAR of the Malaysian AE." 8. "Whether on the facts and in the circumstances of the case, the Tribunal's order can be said as perverse in not appreciating that the purpose of DTAA is to prevent profit shifting and tax avoidance by MNC's and hence the transactions with the Malaysian AE should have also been subject to transfer pricing audit instead of merely applying the operating margin decided under Bilateral APA with AE of another country i.e., US AE"?. 9. "Whether on the facts and in the circumstances of the case the Tribunal's order can be said as perverse in nature in seeking exact comparability under TNMM and whether the objection to the selection of comparable is legally sustainable as Tribunal has ignored the parameters of analysis prescribed under Rule 10B, which are exhaustive and if so, whether it is legally permissible to bypass the same partially or by implication"? 10. "Whether on the facts and in the facts and circumstances of the case, the Tribunal was correct in holding that M/s. Just Dial Ltd., M/s. Killick Agencies and Marketing Ltd. cannot be taken as a comparable as the company has no income which is akin to marketing support services whereas as seen from the annual report of the company for AY 2012-13, the company's functions is similar functions to the taxpayer i.e. providing support services. Under TNMM analysis the requirement for benchmarking analysis is for similar functionally comparable not exact functionally comparable"? 11. "Whether on the facts and in the circumstances the Tribunal was right in relying upon the decisions of coordinate benches in the cases of Nokia India Ltd. (supra) without appreciating the dissimilarities between the facts in case of the taxpayer and that of those relied upon". 12. "Whether on the facts and in the circumstances of the case, Whether the Tribunal was correct in holding that M/s. I Media Corp Ltd. cannot be taken as comparables as the company has earned revenue from event management not from advertisements and there is an extraordinary event of amalgamation, whereas as annual report of the company for AY 2014-15, the company earns revenue from advertisement which is similar to the support servies and since the activities of fellow subsidiary that has been merged with IMCL are also in the nature of routine support services only and a part of the overall services provided by the group and merger of two entities which are in the same line of business, will not impact the functional comparability of IMCL with the taxpayer"? 12. "Whether on the facts and in the circumstances of the case, Whether the Tribunal was correct in holding that M/s. I Media Corp Ltd. cannot be taken as comparables as the company has earned revenue from event management not from advertisements and there is an extraordinary event of amalgamation, whereas as annual report of the company for AY 2014-15, the company earns revenue from advertisement which is similar to the support servies and since the activities of fellow subsidiary that has been merged with IMCL are also in the nature of routine support services only and a part of the overall services provided by the group and merger of two entities which are in the same line of business, will not impact the functional comparability of IMCL with the taxpayer"? 13. "Whether on the facts and in the facts and circumstances of the case, Whether the Tribunal was correct in holding that M/s. IRunway India Pvt. Ltd.cannot be taken as comparables as the company has failed RPT filter and the functions carried out by this company are not very clear from the notes to the financial statements without appreciating the fact that RPT revenue to sales ratio for this comparable works out to 3.7%(i.e.Rs.282.97 lakhs/Rs.7655.85 lakhs) and seen from page 24 of the annual; report of the company, iRunway is a knowledge services company that provides technology analysis and research srvices to corporations, law firms and other leading technology investment and licensing firms worldwide. The functions of the company are similar to the taxpayer i.e. providing support services. Under TNMM analysis the requirement for benchmarking analysis is for similar functionally comparable not exact functionally comparable" 14. "Whether amount written-off by the assessee could be allowed as deduction under section 28 when written-off loss did not spring directly from business of the assessee company and was not incidental to it"? 15. Whether the tribunal is right in law in treating the loss/expenditure as revenue in nature and thereby allowing deduction under section 28 r.w.s. 29 of the Act when the said expenditure was purely capital in nature"? 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 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