Ita/201/2022 Of Pr.commissioner Of Income Tax v. M/S Galax E Solutions India Pvt Ltd

Digitallysigned byBHARATHI SLocation:HIGH COURTOFKARNATAKA IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 25 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.201 OF 2022 BETWEEN: 1. PR. COMMISSIONER OF INCOME TAX, BMTC COMPLEX, BMTC COMPLEX, KORAMANGALA BANGALORE. 2. INCOME TAX OFFICER, WARD-3(1)(2), BMTC COMPLEX, KORMANGALA, BANGALORE. …APPELLANTS (BY SRI. SANMATHI E I., ADVOCATE) AND: M/S. GALAX E SOLUTIONS INDIA PVT.LTD., UNIT NO.4, 8 FLOOR, INNOVATOR BLOCK ITPL WHITEFIELD ROAD, BANGALORE-560 066 PAN …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.184/BANG/2016, FOR THE ASSESSMENT YEAR 2011-2012 PRAYING TO (1) 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 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 ORAL JUDGMENT (PER: HON'BLE MR JUSTICE S.G.PANDIT) Heard the learned counsel Sri.Sanmathi.E.I., for appellants/Revenue and learned counsel Smt.Tanmayee Rajkumar 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 21.10.2020 passed by the Income Tax Appellate Tribunal, ‘B’ Bench, Bengaluru (for short, ‘Appellate Authority’) in IT(TP)A.No.184/Bang/2016 for the assessment year 2011-12. 3. This Court, admitted the appeal on 04.7.2023 to consider the following substantial questions of law: - 3 - NC: 2024:KHC:39919-DB ITA No. 201 of 2022 1.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 order on the basis of specific facts on record in the case of the assessee? 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 order on the basis of specific facts on record in the case of the assessee? 2.Whether the Tribunal was justified in fixing the RPT filter at 15% of the 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 tax payer? filter at 15% of the 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 tax payer? 3.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 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? application of RPT of 25% of sales as proper? 3.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 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? application of RPT of 25% of sales as proper? 4.Whether the Tribunal's order can be said as perverse in nature as Tribunal has directed TPO to exclude comparables on the ground of functional dissimilarity and RPT filter without examining findings rendered by Transfer Pricing Officer and materials brought on record by said officer which are in parameters of Rule 10B of the Act? perverse in nature as Tribunal has directed TPO to exclude comparables on the ground of functional dissimilarity and RPT filter without examining findings rendered by Transfer Pricing Officer and materials brought on record by said officer which are in parameters of Rule 10B of the Act? 5.Whether the Tribunal is right in law in directing the Transfer Pricing Officer to exclude comparable on 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? Transfer Pricing Officer to exclude comparable on 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? 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 therefore, the appeal should not be entertained at the - 5 - 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 SMJ, List No.: 2 Sl No.: 20