Ita/35/2020 Of The Pr. Commissioner Of Income Tax v. M/S Csg Systems International (India) Pvt Ltd

Digitallysigned by BLAVANYALocation:HIGHCOURT OFKARNATAKA NC: 2024:KHC:40406-DB ITA No. 35 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.35 OF 2020 BETWEEN: 1. THE PR. COMMISSIONER OF INCOME TAX, 5 FLOOR, BMTC BUILDING, 80 FEET ROAD, KORAMANGALA, BENGALURU 560 095. 2. THE DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE-11(3), PRESENT ADDRESS, OF INCOME-TAX CIRCLE-11(3), PRESENT ADDRESS, DCIT, CIRCLE-2(1)(1), 2 FLOOR, BMTC BUILDING, 80 FEET ROAD, KORAMANGALA, BENGALURU 560 095. …APPELLANTS (BY SRI. DILIP M ., ADVOCATE A/W SRI. RAVIRAJ Y.V., ADVOCATE) AND: M/S CSG SYSTEMS INTERNATIONAL (INDIA) PVT. LTD., - 2 - NC: 2024:KHC:40406-DB ITA No. 35 of 2020 (FORMERLY KNOWN AS INDEPENDENT TECHNOLOGY SYSTEMS (INDIA) PVT. LTD., DIVYASREE TOWERS, 4 FLOOR, NO.55, GURUPPANNA PALYA, MADIVALA RANGE, BENGALURU 560 029 PAN AABCI 2954B (BY SRI. K.R. VASUDEVAN, A/W SRI. ANKUR P.D., ADVOCATES) …RESPONDENT THIS ITA / INCOME TAX APPEAL IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 31/07/2019 PASSED IN ITA NO.2026/BANG/2017, FOR THE ASSESSMENT YEAR 2010-2011 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 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 31.07.2019 passed by the Income Tax Appellate Tribunal, ‘C’ Bench, Bengaluru (for short, ‘Appellate Authority’) in ITA.No.2026/Bang/2017 for the assessment year 2010-11. 3. This Court, admitted the appeal on 28.09.2020 to consider the following substantial questions of law: "1. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in erred in excluding certain comparable from list of comparable on the ground of functional dissimilarity by following its earlier orders which has not reached finality and when the said companies satisfied qualitative and quantitative filers applied by Transfer Pricing Officer and they are functionally similar to that of assessee?. 2. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in directing the assessing authority/transfer pricing officer to treat foreign gain as part of operating profit by relying on its earlier decisions which has not reached finality?. 3. Whether on the facts and in the circumstances of the case, the Tribunal ought to have considered 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?. 4. Whether on the facts and in the circumstances of the case, the Tribunal is right in upholding the direction of the Dispute Resolution Panel to adjust the profit margin of the taxpayer without any upper cap in the working capital adjustment?. 5. Whether on the facts and in the circumstances of the case, the Tribunal is right in not upholding the approach of the Transfer Pricing Officer in - 5 - limiting the working capital adjustment to the average cost of capital of the comparable companies?. 3. Whether on the facts and in the circumstances of the case, the Tribunal ought to have considered 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?. 4. Whether on the facts and in the circumstances of the case, the Tribunal is right in upholding the direction of the Dispute Resolution Panel to adjust the profit margin of the taxpayer without any upper cap in the working capital adjustment?. 5. Whether on the facts and in the circumstances of the case, the Tribunal is right in not upholding the approach of the Transfer Pricing Officer in - 5 - limiting the working capital adjustment to the average cost of capital of the comparable companies?. 6. Whether on the facts and in the circumstances of the case, the Tribunal is right in holding that there is no basis for the Transfer Pricing Officer's action of imposing an upper limit on the working capital adjustment when the Transfer Pricing Officer has held that the upper limit of working capital adjustment should be the average of the cost of capital of the comparable companies?" 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