Ita/700/2023 Of Pr. Commissioner Of Income Tax-3 v. M/S Open Silicon Research Pvt Ltd

Digitallysigned by BLAVANYALocation:HIGHCOURT OFKARNATAKA 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.700 OF 2023 BETWEEN: 1. PR. COMMISSIONER OF INCOME TAX-3, KORMANGALA, BANGALORE. INCOME TAX-3, KORMANGALA, BANGALORE. 2. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 3(1)(1), KORMANGALA, BANGALORE. …APPELLANTS (BY SRI. E.I.SANMATHI, ADVOCATE) AND: M/S. OPEN SILICON RESEARCH PVT. LTD., 11/1, AND 12/1, MARUTHI INFOTECH CENTRE, INDIRANAGAR, KORMANGALA, BENGALURU - 71, PAN: . …RESPONDENT (BY SRI. RAVISHANKAR S.V, ADVOCATE) THIS ITA/INCOME TAX APPEAL IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 17.05.2023 PASSED IN IT(TP)A NO. 965/BANG/2022, FOR THE ASSESSMENT YEAR 2011-12 PRAYING SET ASIDE THE APPELLATE ORDER DATED 17.05.2023 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, A BENCH, BANGALORE, AS SOUGHT FOR, IN THE RESPONDENT-ASSESSEE'S CASE, IN APPEAL PROCEEDINGS IN IT(TP)A NO. 965/BANG/2022 FOR A.Y 2011-12 (ANNEXURE A) AND GRANT SUCH OTHER RELIEF AS DEEMED FIT, IN THE INTEREST OF JUSTICE. THIS APPEAL IS COMING ON FOR FURTHER ORDERS, THIS DAY, JUDGMENT WAS DELIVERED THEREIN AS UNDER: - 2 - 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. E.I.Sanmathi for appellants/Revenue and Sri. Ravishankar.S.V., 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 17.05.2023 passed by the Income Tax Appellate Tribunal, ‘A’ Bench, Bengaluru (for short ‘Appellate Authority’) in IT(TP)A.No.965/Bang/2022 for the assessment year 2011-12, raising the following substantial questions of law: 1. "Whether the Tribunal was right in fact and in law in characterizing the assessee as a captive service provider when the TRO has done a detailed FAR analysis and characterized the assessee as a Software development service provider including R&D functions"? 2. "Whether the Tribunal was right in fact and in law in removing Infosys Limited, Larsen & Toubro Infotech Limited, Mindtree Limited, Persistent Systems Limited and Tata Elxsi Limited as comparables by imposing turnover filter"? a. "Whether the Tribunal was right in not following the decision of its own bench rendered in the case of M/s SocieteGenerale Global Solution Centre Pvt Ltd. in IT (TP) A No. 1188/BANG/2011 and M/s. Vmoksha Technologies Pvt. Ltd. in IT (TP) A No. 595/BANG/2013 dated 26.08.2016 for AY 2005- 06 where the Tribunal has held that turnover is not a relevant criteria for deciding the comparability"? b. "Whether the Tribunal's order can be said as perverse in nature in holding that there exists a co-relation between turnover and operating margin of an entity"? 3. "Whether the Tribunal was right in fact and in law in removing E-Infochips Limited as comparable on functional dissimilarity. a."Whether the Tribunal is right in not appreciating in fact that transfer pricing is not an exact science and no two entities can be exact replicas"? b. "Whether the Tribunal is right in trying to find out exact replica of the assessee determining the Arm's length price based on such replica, even when the law and the international jurisprudence itself recognize that there cannot be an exact comparable to a given situation, especially with TNMM as the most appropriate method"? 4. "Whether the Tribunal was right in law in demanding Comparability standards that nay itself defeat the purpose of law relating to determination of ALP under the income tax Act"? 3. "Whether the Tribunal was right in fact and in law in removing E-Infochips Limited as comparable on functional dissimilarity. a."Whether the Tribunal is right in not appreciating in fact that transfer pricing is not an exact science and no two entities can be exact replicas"? b. "Whether the Tribunal is right in trying to find out exact replica of the assessee determining the Arm's length price based on such replica, even when the law and the international jurisprudence itself recognize that there cannot be an exact comparable to a given situation, especially with TNMM as the most appropriate method"? 4. "Whether the Tribunal was right in law in demanding Comparability standards that nay itself defeat the purpose of law relating to determination of ALP under the income tax Act"? 5. "Whether the order of Tribunal in imposing conditions is beyond the scope of law and business reality by rejecting all close comparables on one or the other ground, without appreciating that not two Companies can ever be same"?" 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. - 5 - 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 SMJ List No.: 4 Sl No.: 6