Nc: 2024:Khc:39755-Dbita v. Vii. Whether The Failure Of Turnover Filter In Certain Comparables With Respect To One Company

Digitallysigned by BLAVANYALocation: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. 272 OF 2022BETWEEN: 1.PR. COMMISSIONER OF INCOME TAX BMTC COMPLEX , KORMANGALA, BENGALURU-560029 BMTC COMPLEX , KORMANGALA, BENGALURU-560029 2.THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 7 (1) (2) BANGALOREINCOME TAX, CIRCLE 7 (1) (2) BANGALORE …APPELLANTS (BY SRI. SANMATHI E I.,ADVOCATE) AND: 1.M/S ZYNGA GAME NETWORK INDIA PVT LTD NO 19, 4TH AND 5TH FLOOR NO 19, 4TH AND 5TH FLOOR PRESTIGE FALCON TOWERS BRUNTON ROAD RICHMOND ROAD BENGALURU-560001 RICHMOND ROAD BENGALURU-560001 PAN …RESPONDENT (BY SRI. K R VASUDEVAN., ADV. A/W SRI.ANKUR P.D. ADV.) THE ADVOCATE FOR THE APPELLANT HAS FILED THE ABOVE INCOME TAX APPEAL UNDER SEC.260-A OF INCOME - 2 - TAX ACT 1961, ARISING OUT OF ORDER DATED 23/03/2021 PASSED IN IT(TP)A NO.2573/BANG/2019, FOR THE ASSESSMENT YEAR 2015-2016, PRAYING THIS HONBLE COURT TO DECIDE THE FOREGOING QUESTIONS OF LAW AND / OR SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BY THE HON'BLE COURT AS DEEMED FIT AND SET ASIDE THE APPELLATE ORDER DATED 23/03/2021 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, 'A' BENCH, BENGALURU, AS SOUGHT FOR, IN THE RESPONDENT-ASSESSEE'S CASE, IN APPEAL PROCEEDINGS IN IT(TP)A NO. 2573/BANG/2019 FOR ASSESSMENT YEAR 2015-2016 (ANNEXURE-A) AND GRANT SUCH OTHER RELIEF AS DEEMED FIT, IN THE INTEREST OF JUSTICE. THIS APPEAL, COMING ON FOR FINAL 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 JUDGMENT (PER: HON'BLE MR JUSTICE S.G.PANDIT) Heard the learned counsel Sri.Sanmathi.E.I., 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 - 3 - ITA No. 272 of 2022 23.03.2021 passed by the Income Tax Appellate Tribunal, ‘A’ Bench, Bengaluru (for short, ‘Appellate Authority’) in IT(TP)A.No.2573/Bang/2019 for the assessment year 2015-16. 3. This Court, admitted the appeal on 22.08.2022 to consider the following substantial questions of law: “I. Whether the Hon'ble Tribunal was right in fact and in law in not acknowledging that there is no direct relationship between turnover and the margin earned by the company? II. Whether the Hon'ble ITAT was right in law to ignore the parameters of analysis prescribed under Rule 10B, which are exhaustive and if so, whether it is legally permissible to bypass the same partially or by implication? III. Whether the Hon'ble ITAT, Bangalore, is correct in super Imposing the decision of other benches of ITAT in the case of assessee, to reject these comparable companies when selection of comparable companies in transfer pricing study depends on assessee specific FAR analysis? IV. Whether the Hon'ble Tribunal, Bangalore, is correct in its direction for provision for doubtful debts to treat it as operating in nature. Whereas TPO has considered it non-operating because the provisions have no direct nexus with the revenue of business. It is merely a provision and not the actual expense incurred during the previous year concerned? V. Whether the Hon'ble Tribunal was correct in its direction to exclude certain comparables on application of turnover filter ignoring its own decision in the case of M/s. Societe General Global Solution Centre (P) Ltd vs. DCIT, Circle-12(3), Bangalore vide IT(TP)A No.118(Bang)201? IV. Whether the Hon'ble Tribunal, Bangalore, is correct in its direction for provision for doubtful debts to treat it as operating in nature. Whereas TPO has considered it non-operating because the provisions have no direct nexus with the revenue of business. It is merely a provision and not the actual expense incurred during the previous year concerned? V. Whether the Hon'ble Tribunal was correct in its direction to exclude certain comparables on application of turnover filter ignoring its own decision in the case of M/s. Societe General Global Solution Centre (P) Ltd vs. DCIT, Circle-12(3), Bangalore vide IT(TP)A No.118(Bang)201? VI. Whether the Hon'ble ITAT was correct in its direction to exclude certain comparables on application of turnover filter ignoring the Judgment in Chryscapital Investment Advisors (India) Pvt. Ltd in ITA No.417 of 2014, which held that the mere fact that an entity makes high/extremely high 7 profits/losses/turnover does not, ipso facto, lead to its exclusion from the list of comparables for the purposes of determination of ALP? VII. Whether the failure of turnover filter in certain comparables with respect to one company decided by the Hon'ble Tribunal can be applied to other company, completely disregarding the actual turnover of the assessee company? VIII. Whether the Hon'ble ITAT was right in law and in fact in seeking exact comparability under TNNM and whether the objection to the selection of comparable is legally sustainable? IX. Whether in the facts and circumstances of the case, the Hon'ble ITAT is correct in holding that M/s. Tata Elxsi, Mindtree Ltd., Larsen and Toubro Infotech Ltd., R S Software India, Persistent Systems Ltd., Nihilent Technologies Ltd., Infosys Ltd., Cybage Software Pvt. Ltd. cannot be taken as a comparable as the company is having turnover of more than 200 Crores without appreciating the fact that the higher turnover does not necessarily mean that it would increase the profit margin? X. Whether in the facts and circumstances of the case, the Hon'ble ITAT is correct in holding that M/s Infobeans Technologies Ltd cannot be taken as the comparable, as the company is engaged in the diversified range under the software development which is different from that of the taxpayer's. However, the company has categorized itself under broad range of the software development and the TPO had considered after verifying functionality criteria of the comparable. Whether the Hon'ble ITAT is right and verifying the comparability analysis under TNMM along with the functions, assets and risk parameter of the taxpayer? XI. Whether on the facts and in the circumstances of the case, can the order passed by Tribunal be said as perverse in nature since Tribunal has directed the Transfer Pricing Officer to exclude certain comparable's which are chosen by the said officer in accordance with parameters set out in section 92 and Rule 10B?” 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 - 7 - 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 [ [ MPK List No.: 2 Sl No.: 0