Ita/529/2019 Of Principal Commissioner Of Income Tax-4 v. M/S Microfocus Software India Pvt Ltd

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. 529 OF 2019 BETWEEN: 1. PRINCIPAL COMMISSIONER OF INCOME TAX-4, BMTC COMPLEX, KORAMANGALA, BENGALURU. BMTC COMPLEX, KORAMANGALA, BENGALURU. 2. THE DY. COMMISSIONER OF INCOME TAX, CIRCLE-12(2), BMTC COMPLEX, KORAMANGALA, BENGALURU …APPELLANTS CIRCLE-12(2), BMTC COMPLEX, KORAMANGALA, BENGALURU …APPELLANTS (BY SRI. SANMATHI E I., ADVOCATE) AND:Digitallysigned byM/S MICROFOCUS SOFTWARE INDIA PVT. LTD., BHARATHI SLocation:(PREVIOUSLY KNOWN AS NOVELL SOFTWARE HIGH COURTDEVELOPMENT (INDIA) P. LTD.,) OFBAGMANE TECH PARK, KARNATAKAD .BLOCK 65/2, C.V. RAMAN NAGAR, BYRASANDRA POST, BANGALORE-560 093 PAN - …RESPONDENT (BY SRI. SURYANARAYANA T., SR. COUNSEL A/W SMT. TANMAYEE RAJKUMAR, ADVOCATE) THIS INCOME TAX APPEAL IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 31/03/2016 PASSED IN IT(TP)A NO.1287/BANG/2011, FOR THE ASSESSMENT YEAR 2007-2008 PRAYING TO DECIDE THE FOREGOING QUESTION OF LAW AND / OR SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BY THE HON'BLE COURT AS DEEMED FIT A) SET ASIDE THE APPELLATE ORDER DATED 31.03.2016 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, 'A' BENCH, BENGALURU, IN APPEAL PROCEEDINGS NO. IT(TP)A NO.1287/BANG/2011 (ANNEXURE-A) FOR THE ASSESSMENT YEAR 2007-2008 AS SOUGHT FOR IN THIS APPEAL; AND TO GRANT SUCH OTHER RELIEF AS DEEMED FIT, IN THE INTEREST OF JUSTICE 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.Sanmathi.E.I., for appellants/Revenue and Sri. Suryanarayana.T., learned Senior Counsel along with Smt. Tanmayee Rajkumar, 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 31.3.2016 passed by the Income Tax Appellate Tribunal, ‘A’ Bench, Bengaluru (for short, ‘Appellate Authority’) in IT(TP)A.No.1287/Bang/2011 for the assessment year 2007-2008. 3. This Court, admitted the appeal on 11.02.2020 to consider the following substantial questions of law: - 4 - ITA No. 529 of 2019 1.Whether on the facts and circumstances of the case and in law, Tribunal was right in seeking exact comparability while searching for comparable companies of the assessee under TNMM whereas the requirement of law and international jurisprudence require seeking similar comparable companies? requirement of law and international jurisprudence require seeking similar comparable companies? 2.Whether on the facts and circumstances of the case and in law, while seeking the exact comparability as mentioned above, the Tribunal was right in imposing condition beyond law whereas the requirement of law is to acknowledge only those differences that are likely to materially affect the margin? the case and in law, while seeking the exact comparability as mentioned above, the Tribunal was right in imposing condition beyond law whereas the requirement of law is to acknowledge only those differences that are likely to materially affect the margin? 3.Whether on the facts and circumstances of the case and in law, the Tribunal was right in not acknowledging that determination of the case and in law, the Tribunal was right in not acknowledging that determination of - 5 - ALP by carrying out comparability analysis of the comparable companies is an art and not exact science as no two companies are exactly same? 3.Whether on the facts and circumstances of the case and in law, the Tribunal was right in not acknowledging that determination of the case and in law, the Tribunal was right in not acknowledging that determination of - 5 - ALP by carrying out comparability analysis of the comparable companies is an art and not exact science as no two companies are exactly same? 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 - 6 - NC: 2024:KHC:40502-DBITA No. 529 of 2019 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.: 3 Sl No.: 12