Ita/241/2023 Of The Pr Commissioner Of Income Tax v. M/S Toyoto Boshoku Automotive India Pvt Ltd

Digitallysigned byBHARATHI SLocation:HIGH COURTOFKARNATAKA NC: 2024:KHC:40544-DB ITA No. 241 of 2023 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 26 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.241 OF 2023 BETWEEN: 1. THE PR. COMMISSIONER OF INCOME TAX 5 FLOOR, BMTC BUILDING, 80 FEET ROAD, KORMANGALA, BENGALURU – 560 095. 2. THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-7(1)(1), 2 FLOOR, BMTC BUILDING, 80 FEET ROAD, KORMANGALA, BENGALURU – 560 095. …APPELLANTS (BY SRI. DILIP M, ADVOCATE A/W SRI. RAVIRAJ.Y.V., ADVOCATE) AND: M/S. TOYOTO BOSHOKU AUTOMOTIVE INDIA PVT LTD 41, BHIMENAHALLI, M N HALLI POST, BIDADI, RAMANAGARAM - 562 109. PAN. AAECT 1871F. …RESPONDENT (BY SRI. BALRAM R RAO, ADVOCATE) 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 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 Sri. Balram.R.Rao, 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 26.09.2022 passed by the Income Tax Appellate Tribunal, ‘B’ Bench, Bengaluru (for short ‘Appellate Authority’) in IT(TP)A.No.722/Bang/2022 for the assessment year 2017-18. 3. This Court, admitted the appeal on 12.09.2023 to consider 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 directing the Assessing the case, the Tribunal's order can be said as perverse in nature in directing the Assessing - 4 - NC: 2024:KHC:40544-DBITA No. 241 of 2023 Officer/Transfer Pricing Officer to apply most appropriate method for determination of Arms Length Price as MAM method as against TNMM method adopted by Transfer Pricing Officer to benchmark royalty transactions when the transactions between the taxpayer and its AE fulfilled all the conditions specified in Rule 10B(1)(d) of the Act and OECD guidelines? 2.Whether on the facts and in the circumstances of the case, the Tribunal is right in law in directing the TPO to apply most appropriate method for determination of Arms Length Price as PSM method as against TNMM method adopted by Transfer Pricing Officer ignoring that profit margins under TNMM method, which is net profit margin of the entity, cannot demonstrate the arms length nature of an independent, stand-alone transaction like royalty payment? the case, the Tribunal is right in law in directing the TPO to apply most appropriate method for determination of Arms Length Price as PSM method as against TNMM method adopted by Transfer Pricing Officer ignoring that profit margins under TNMM method, which is net profit margin of the entity, cannot demonstrate the arms length nature of an independent, stand-alone transaction like royalty payment? 3.Whether on the facts and in the circumstances of the case, the Tribunal's order can be said as the case, the Tribunal's order can be said as perverse in nature as Tribunal has failed to consider that the residual profit split method provides a routine return for routine services and also accommodates a compensation for non-routine services and investment in non-routine assets and hence, it is the most appropriate method to evaluate the international transactions of royalty? 3.Whether on the facts and in the circumstances of the case, the Tribunal's order can be said as the case, the Tribunal's order can be said as perverse in nature as Tribunal has failed to consider that the residual profit split method provides a routine return for routine services and also accommodates a compensation for non-routine services and investment in non-routine assets and hence, it is the most appropriate method to evaluate the international transactions of royalty? 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