Ita/703/2023 Of Pr. Commissioner Of Income Tax-2 v. M/S Carl Zeiss India (Bangalore) Pvt Ltd

Digitally signedbyMARIGANGAIAHPREMAKUMARILocation: HIGHCOURT OFKARNATAKA IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 24 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. 703 OF 2023 BETWEEN: 1. PR. COMMISSIONER OF INCOME TAX-2 C.R. BUILDINGS, QUEENS ROAD, BANGALORE. C.R. BUILDINGS, QUEENS ROAD, BANGALORE. 2. THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-4(1)(2), BANGALORE. CIRCLE-4(1)(2), BANGALORE. …APPELLANTS (BY SRI.SANMATHI E I., ADVOCATE) AND: 1. M/S. CARL ZEISS INDIA (BANGALORE) PVT LTD PLOT NO.3, JIGANI LINK ROAD, BOMMASANDRA INDUSTRIAL AREA, BENGALURU-560099 PAN PLOT NO.3, JIGANI LINK ROAD, BOMMASANDRA INDUSTRIAL AREA, BENGALURU-560099 PAN …RESPONDENT (BY SRI. NAGESWAR RAO.D.D., ADVOCATE) THIS APPEAL IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 16/06/2023 PASSED IN IT(TP)A NO. 192/BANG/2022 FOR THE ASSESSMENT YEAR 2017-18, PRAYING TO DECIDE THE FOREGOING QUESTION OF LAW AND/OR SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BY THE HONBLE COURT AS DEEMED FIT; SET ASIDE THE APPELLATE ORDER DATED 16/06/2023 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, ‘C’ BENCH, BANGALORE, AS SOUGHT FOR, IN THE RESPONDENT-ASSESSEES CASE, IN APPEAL PROCEEDINGS IN IT(TP)A NO.192/BANG/2022 FOR A.Y 2017-18 (ANNEXURE-A). THIS APPEAL, COMING ON FOR ORDERS, 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.Nageshwar Rao.D.D., 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 16.06.2023 passed by the Income Tax Appellate Tribunal, ‘C’ Bench, Bengaluru (for short, ‘Appellate Authority’) in IT(TP)A.No.192/Bang/2022 for the assessment year 2017- 18, raising the following substantial questions of law: “1. Whether while seeking the exact comparability as mentioned above the tribunal was right in fact and in law in imposing condition beyond law where the requirement of law is to acknowledge only those differences that are likely to materially affect the margin? 2. Whether on the facts and circumstances of the case, the Tribunal was right in law in directing the TPO for exclusion of the companies from the set of comparables selected by the TPO on the ground of turnover filter by holding that there exists a co-relation between turnover and operating margin of an entity by following earlier decisions? 3. Whether, on the facts and circumstances of the case, the Tribunal was right in law in demanding comparability standards that may itself defeat the purpose of law relating to determination of ALP under the Income Tax Act? 4. Whether, the Tribunal, on the facts and in the circumstances of the case was right in excluding certain comparable's from the list of comparables holding that they are functionally different without appreciating that the comparables satisfy all the qualitative and quantitative filters applied by the TPO and that selection of comparables in a case depends on assessee specific FAR analysis & by relying on various decisions of ITAT Benches and not deciding the selection of the comparables on the basis of specific facts brought on record by the Transfer Pricing Officer resulting in passing a perverse order by Tribunal? 5. Whether on the facts and in the circumstances of the case, the Tribunal is right in law directing the assessing officer/Transfer Pricing Officer to exclude/include comparable's on basis of Turnover filter and functional dissimilarity. The Tribunal has failed to appreciate that the TPO had done computation of ALP in accordance with parameters of section 92CA and Rule 10B? on record by the Transfer Pricing Officer resulting in passing a perverse order by Tribunal? 5. Whether on the facts and in the circumstances of the case, the Tribunal is right in law directing the assessing officer/Transfer Pricing Officer to exclude/include comparable's on basis of Turnover filter and functional dissimilarity. The Tribunal has failed to appreciate that the TPO had done computation of ALP in accordance with parameters of section 92CA and Rule 10B? 6. Whether on the facts and in the circumstances of the case, the Tribunal's order can be said as perverse in nature in directing Transfer Pricing Officer to consider the provision for bad and doubtful debts as operating in nature while computing PLI of comparable companies ignoring findings of TPO and DRP?” 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 MPK List No.: 2 Sl No.: 6