TMI Blog2018 (7) TMI 52X X X X Extracts X X X X X X X X Extracts X X X X ..... enue - I.T.A. No.884/2017 - - - Dated:- 26-6-2018 - DR. Vineet Kothari And Mrs. S. Sujatha, J.J. Sri E.I. Sanmathi, ADV.- For the Appellant Sri Mallaha Rao K., ADV. A/W Sri Sandeep Karhail. ADV- For the Respondent JUDGMENT This Appeal is filed by the Revenue purportedly raising substantial questions of law arising from the Order of the Income Tax Appellate Tribunal, B Bench, Bangalore, in IT [TP]A No.2315/Bang/2016 dated 13.04.2017, relating to the Assessment Year 2012-13. 2. The proposed substantial question of law framed by the Revenue in the Memorandum of Appeal is as under: Whether on the facts and in the circumstances of the case, the Tribunal was right in excluding comparable s namely, M/s. Universal Print Systems Ltd, Informed Technologies India Ltd, Infosys BPO Ltd, M/s. Microgenetics Systems Ltd, TCS E-Serve Ltd and BNR Udyog Ltd contrary to its own earlier decisions in cases of M/s. Societe General Global Solution Centre Pvt. Ltd., and also in case of Vmoksha Technologies Pvt. Ltd., and all the required tests were satisfied in case of the comparable s chosen by TPO ? 3. The learned Tribunal, after discussing the rival contentions of both ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company and accordingly, we do not find any infirmity in the finding of CIT(A) while he excluded this company on the turnover criteria following the decision of this tribunal in: Sony India (P) Ltd., V/s. DCIT, 114 ITD 448 Delhi, E-Gain Communication, 2008 TIOL 282 ITAT (Pune) Deloittee Consulting India Pvt. Ltd., V/s. DCIT, ITA No.1082/Hyd/2010 Genisys Integrating System (India) (P) Ltd., V/s. DCIT, 53 Sot 159 (Bang) 6. The said findings of the Tribunal in respect of the said three Companies are on the basis of appreciation of evidence on record. We find no infirmity in the said findings of the Tribunal on tat count. In fact, the Tribunal has endorsed the views of the CIT Appeals whilst coming to such conclusions. The concurrent findings of facts arrived at by the Authorities below, cannot be re-appreciated by this Court in the present Appeal. 8. Thus the Hon ble High Court has upheld that there was no infirmity in finding of the Tribunal on this issue wherein it was held that the company having turnover of more than 23 times of the assessee s turnover cannot be compared with the assessee. A similar view has been taken by the Hon ble Punjab and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of Arm s Length Price and the said provision stipulates that the Arm s Length Price in relation to the international transactions shall be determined by following any of these methods enumerated in Section 92-C of the Act which is considered to be the Most Appropriate Method by the Authorities under the Act. The methods provided are: Clause (a): Comparable Uncontrolled Principles Method (CUP); Clause (b): Resale Price Method (RP) Clause (c): Cost Plus Method (CP) Clause (d): Profit Split Method (PS) Clause (e): Transactional Net Margin Method (TNMM); and Clause (f): such other Method as may be prescribed by the Board. 36. It appears from the true facts of the various cases before us and the arguments of the learned counsels that the TNNM Method appears to be the most popular and widely adopted Method for determining the Arm s length price in which the Operating Profit Margin of comparable Companies are considered by the Authorities and applied to the cases of the Assessees to determined the Arm s Length Price and make Transfer Pricing Adjustments. Rules 10-A, 10-AB, 10-B, 10-C 10- CA of the Income Tax Rules, 1962 prescribe the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ublic domain or on the Data Bases like Prowess and Capital Line Data Base etc. No Substantial Question of Law Arises in these Cases: 40. The dispute essentially before us is the pairing and matching such comparables with the Transfer Pricing Analysis of the profit margins given by the Assessee himself during the course of determination of such Arm s Length Price . 41. The shades of arguments raised by both the sides before us in these appeals and most of which have been filed by the Revenue are that either the wrong Filters have been applied or Filters have been wrongly applied, particularly qua Turnover Filter giving a far too wide or narrower range of comparables or even though comparable Entities were functionally different entities from the Entities in the list of Departmental comparables, as against the comparables sought to be provided by the assessees but the Revenue Department generally insists on their inclusion to get high profit ratio leading to higher Transfer Pricing adjustments, whereas the assessee would like to keep the comparables in a narrower range to justify its Transfer Pricing Analysis and profits declared. 42. In sum and substance, we fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re what we observed above appears to us to be the sustainable view that the key to the lock for entering into the jurisdiction of High Court under Section 260-A of the Act is the existence of a substantial question of law involved in the matter. The key of ex-facie perversity of the findings of the Tribunal duly established with the relevant evidence and facts. Unless it is so, no other key or for that matter, even the in-consistent view taken by the Tribunal in different cases depending upon the relevant facts available before it cannot lead to the formation of a substantial question of law in any particular case to determine the aspects of determination of Arm s Length Price as is sought to be raised before us. Need for giving Primacy to the Tribunal in the area of fact finding: 46. Undoubtedly, the Income Tax Tribunal is the final and highest fact finding body under the Act. It is manned by Expert Members (Judicial Members are selected from District Judges or Advocates and Accountant Members selected from practicing Chartered Accountants or persons of CIT level in the Department). Therefore this quasi- judicial forum is expected and as some of the nicely articulated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... involve substantial questions of law and it is not open to the High Court to sit in appeal over the factual findings arrived at by the Tribunal. 51. The Court held that whether the case of M/s. HMT Limited was comparable case with the case of assessee before it or not was the factual issue, it held that the learned Tribunal has factually assessed the similarities between M/s. HMT Limited and the Respondent Assessee and the same does not warrant any interference under Section 260-A of the Act. The relevant factual background of the case and law pronounced by the Courts are quoted below. 9. The respondent assessee adopted Transactional Net Margin Method (TNMM) as the appropriate method to determine the ALP of its international transactions of purchase of raw materials and components. The assessee identified five comparables and it made adjustment on account of idle capacity on comparables in order to arrive at ALP of its purchase transaction. The respondent assessee arrived at weighted average. 10. The TPO found that M/s. HMT Limited needed to be included in the comparables. However, the TPO found that the turnover of M/s. HMT Limited was more than twice the tur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of appeal restricted only to cases which involve substantial questions of law, it is not open to this Court to sit in appeal over the factual findings arrived at by the Appellate Tribunal. 26. In the instant case, whether M/s. HMT Limited can be a comparable or not is a factual issue. The learned Tribunal has factually assessed the similarities between M/s. HMT Limited and the respondent assessee and the same, in our considered opinion, does not warrant interference of this Court under Section 260-A of the Income Tax Act, 1961. B. Similarly, the Division Bench of Delhi High Court in the case of Principal, Commissioner of Income Tax-9 Vs. WSP Consultants India (P) Limited in the judgment dated 03/11/2017, [2017] 253 Taxman 58 (Delhi)] held that the learned Income Tax Appellate Tribunal was justified in upholding the contention of the assessees that inclusion of three comparables i.e. M/s. Ashok Leyland Projects Services Limited, Kitco Limited and Mitcon Consultancy and Engineering Services Limited was not correct, the Court held that the reasons given by the Tribunal were justified and any inclusion or exclusion of comparables per se cannot be treated as a question of la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of software products while the respondent assessee renders software services to its holding company. (b) The Tribunal in the impugned order records that for the preceding assessment year i.e. A.Y. 2006-07, the TPO had found that KALS Ltd. and Helios Matheson Ltd. were functionally not comparable with the respondent assessee. In the subject assessment year also, on the basis of Annual Report, it was noted that the KALS was engaged in selling of software products which is different from the activity undertaken by the respondent assessee, namely, rendering of software service to its holding company. Further, the impugned order also records that no attempt was even made by the Revenue before it to bring on record any change in the nature of activities carried out by KALS Ltd. and Helios Matheson Ltd. in the subject assessment year, making them functionally comparable to the respondent assessee. In the aforesaid facts, the Tribunal rendered a finding of fact that KALS Ltd. and Helios Matheson Ltd. are not comparable with the respondent assessee. Even before us, no submissions were advanced justifying the order of the Assessing Officer that the services rendered by KALS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulti-layer litigation at multiple Fora. After the lengthy process of the same, the matter reaches the Tribunal which also takes its own time to decide such appeals. In the course of this dispute resolution, much has already been lost in the form of time, man-hours and money, besides giving an adverse picture of the sluggish Dispute Resolution process through these channels. If appeals under Section 260-A of the Act were to be lightly entertained by High Court against the findings of the Tribunal, without putting it to a strict scrutiny of the existence of the substantial questions of law, it is likely to open the flood-gates for this litigation to spill over on the dockets of the High Courts and up to the Supreme Court, where such further delay may further cause serious damage to the demand of expeditious judicial dispensation in such cases. 55. A substantial quantum of international trade and transactions depends upon the fair and quick judicial dispensation in such cases. Had it been a case of substantial question of interpretation of provisions of Double Taxation Avoidance Treaties (DTAA), interpretation of provisions of the Income Tax Act or Overriding Effect of the Treati ..... X X X X Extracts X X X X X X X X Extracts X X X X
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