Ita/474/2022 Of Pr. Commissioner Of Income Tax-2 v. M/S E4E Business Solutions India Pvt.ltd

Digitally signedbyMARIGANGAIAHPREMAKUMARILocation: HIGHCOURT OFKARNATAKA NC: 2024:KHC:39222-DBITA No. 474 of 2022 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 23 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. 474 OF 2022 BETWEEN: 1. PR. COMMISSIONER OF INCOME TAX-2 BMTC COMPLEX KORAMANGALA BANGALORE. BMTC COMPLEX KORAMANGALA BANGALORE. 2. THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-7(1)(1) BENGALURU. …APPELLANTS (BY SRI. SANMATHI E. I., ADV.) AND: M/S. E4E BUSINESS SOLUTIONS INDIA PVT.LTD., 389/1, 7 MAIN, 42 CROSS 5 BLOCK, JAYANAGAR BANGALORE- 560041 PAN: …RESPONDENT (BY SRI.M.LAVA., ADV.) THIS APPEAL IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 29/11/2021 PASSED IN ITA NO.1071/BANG/2018, FOR THE ASSESSMENT YEAR 2004-2005, PRAYING TO (1) DECIDE THE FOREGOING QUESTION OF LAW AND / OR SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BY THE COURT AS DEEMED FIT; (2) SET ASIDE THE APPELLATE ORDER DATED 29/11/2021 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, ‘B’ BENCH, BENGALURU, AS SOUGHT FOR, IN THE RESPONDENT-ASSESSEE’S CASE, IN APPEAL PROCEEDINGS IN ITA NO. 1071/BANG/2018 (ANNEXURE-A) FOR ASSESSMENT YEAR 2004-2005 AND GRANT SUCH OTHER RELIEF AS DEEMED FIT, INTEREST OF JUSTICE. THIS APPEAL, COMING ON FOR ORDER, 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 Sri.M.Lava., 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 29.11.2021 passed by the Income Tax Appellate Tribunal, ‘B’ Bench, Bengaluru (for short, ‘Appellate Authority’) in ITA.No.1071/Bang/2018 for the assessment year 2004-05, raising the following substantial questions of law: “1. Whether on the facts and circumstances of the case and in law, the Tribunal was justified the case and in law, the Tribunal was justified in directing the Transfer Pricing Officer to adopt the Internal Transaction Net Margin Method as the most appropriate method for benchmarking without appreciating the fact that the revenue earned from the associated enterprise is from the international market whereas the revenue earned from the non- associate enterprise is from the domestic market? 2. Whether on the facts and circumstances of the case and in law, the Tribunal was justified in not appreciating the fact that services rendered in two different markets cannot be same or similar and hence Internal TNMM was not the most appropriate method for benchmarking the international transaction? the case and in law, the Tribunal was justified in not appreciating the fact that services rendered in two different markets cannot be same or similar and hence Internal TNMM was not the most appropriate method for benchmarking the international transaction? 2. Whether on the facts and circumstances of the case and in law, the Tribunal was justified in not appreciating the fact that services rendered in two different markets cannot be same or similar and hence Internal TNMM was not the most appropriate method for benchmarking the international transaction? the case and in law, the Tribunal was justified in not appreciating the fact that services rendered in two different markets cannot be same or similar and hence Internal TNMM was not the most appropriate method for benchmarking the international transaction? 3. Whether on the facts and circumstances of the case and in law, the Tribunal was justified in not appreciating the fact that the profit margins earned from transactions with international markers cannot be same or similar to the profit margins eared from transactions with the domestic market since there are in the factors that influence the profit margins and hence Internal TNMM was not the most appropriate method for benchmarking the international transaction? the case and in law, the Tribunal was justified in not appreciating the fact that the profit margins earned from transactions with international markers cannot be same or similar to the profit margins eared from transactions with the domestic market since there are in the factors that influence the profit margins and hence Internal TNMM was not the most appropriate method for benchmarking the international transaction? NC: 2024:KHC:39222-DBITA No. 474 of 2022 4. Whether on the facts and circumstances of the case and in law, the Tribunal was justified in not upholding that the fact that factors like geography, functions performed, assets employed, risk taken, cost of labour, legal provisions between two different markets have a bearing on the profit margins. Hence the profit margin earned from international transactions cannot be compared with profit margins from transactions with the domestic market therefore Internal TNMM was not the most appropriate method for benchmarking the international transaction? 5. Whether on the facts and circumstances of the case and in law, the Tribunal was justified in not appreciating the fact that the taxpayer has not reported segmental break-up in respect of AF and Non-AEs transactions in the audited financials. It is only before the transfer pricing office that a break-up between AE and Non-AE segment has been furnished and it is without any key of allocation and supporting evidences in respect of expenses across the segments. Hence the internal TNMM is not the most appropriate method for benchmarking? 6. Whether on the facts and circumstances of the case and in law, the order passed by Tribunal can be said as perverse in nature in directing the TPO to adopt internal TNMM method when the assessee has not raised this issue before TPO during TP proceedings for arriving at the ALP?” the case and in law, the order passed by Tribunal can be said as perverse in nature in directing the TPO to adopt internal TNMM method when the assessee has not raised this issue before TPO during TP proceedings for arriving at the ALP?” 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 NC CT:bms List No.: 1 Sl No.: 23