2017 (11) TMI 1661 - HC - Income Tax

TPA - comparable selection - Held that - Comparable to be adopted to determine the ALP as the basis of the activity conducted by the respondent-assessee is essentially a finding of fact. The view taken by the Tribunal is a reasonable and possible view. Moreover it has not been shown us to be in any manner perverse. Thus the question as raised does not give rise to any substantial questions of law

Summary

Issues Involved:

1. Non-applicability of the Comparable Uncontrolled Price (CUP) method.
2. Deletion of the addition made on account of adjustment of the Arm's Length Price (ALP) of the international transaction on payment of royalty.
3. Adoption of an aggregated approach rather than a segregated approach in Transfer Pricing.

Detailed Analysis:

1. Non-applicability of the Comparable Uncontrolled Price (CUP) Method:

The appellant department challenged the tribunal's decision which upheld the non-applicability of the CUP method. The tribunal and CIT(A) had deleted the addition of Rs. 2,30,42,000/- made on account of the adjustment of the ALP of the international transaction on payment of royalty by the assessee to its Associate Enterprise. The court referenced its previous decisions, particularly ITA No.170/2017 and ITA No.71/2015, where similar issues were addressed. The court reiterated that the tribunal's findings were in line with established precedents and were not perverse. The tribunal's decision to reject the CUP method was upheld, as the method was not considered appropriate for the transactions in question.

2. Deletion of the Addition on Account of Adjustment of the ALP:

The department contended that the tribunal erred in deleting the addition of Rs. 1,65,25,000/- by holding that the CUP method was not applicable. The court reviewed the tribunal's decision, which was based on a detailed examination of comparable companies and their financial data. The tribunal had relied on previous judgments, including those from the Bombay High Court in Commissioner of Income Tax vs. General Atlantic (P) Ltd. and Commissioner of Income Tax-3 vs. Goldman Sachs (India) Securities (P) Ltd., which supported the tribunal's approach in determining the ALP. The court found no substantial question of law in the tribunal's decision to delete the addition, as it was based on reasonable and possible views.

3. Adoption of an Aggregated Approach Rather than a Segregated Approach:

The department argued that the tribunal's adoption of an aggregated approach was against the Transfer Pricing Guidelines and provisions of Section 92, which stipulate that each transaction should be separately benchmarked. The court referred to its earlier decisions, including ITA No.72/2015, where it was observed that the tribunal's approach was consistent with the guidelines and previous judgments. The tribunal had considered the economic scenario and market conditions, and its decision to adopt an aggregated approach was found to be reasonable and not perverse. The court upheld the tribunal's decision, finding no substantial question of law in the department's contention.

Conclusion:

The court dismissed the appeal, affirming the tribunal's decisions on all three issues. The tribunal's approach in rejecting the CUP method, deleting the additions based on ALP adjustments, and adopting an aggregated approach was upheld as consistent with legal precedents and reasonable interpretations of the law. The issues were answered in favor of the assessee and against the department, with no substantial questions of law arising from the tribunal's decisions.