2014 (11) TMI 1211 - HC - Income Tax

Tribunal Decision Upheld on Revenue Appeal for Assessment Year 2007-2008

Commissioner of Income Tax-III, Hyderabad. Versus  M/s. Sumtotal Systems India Pvt. Ltd., Hyderabad.

The High Court upheld the Tribunal's decision in an appeal by the Revenue for the assessment year 2007-2008. The Court found that the Tribunal's rejection ... TP Adjustment - rejecting comparable companies on the ground of exceptionally large scale of operations - HELD THAT:- Tribunal dealt at length with each of such companies and found on the basis of earlier Tribunal decisions that the companies were not comparable to the assessee. These findings purely turned on fact and no question of law, much less a substantial question of law, arises for consideration. Deleting Ishir Infotech as comparables ignoring the fact that the said company satisfies the employee cost filter - HELD THAT:- Nothing is placed on record to show that the earlier Tribunal decisions which were relied upon were set at naught. We therefore find no reason to interfere in so far as this issue is concerned. Tribunal (ITAT) deleting the comparable on functional difference ground ignoring the information obtained u/s 133(6) and also not giving opportunity to Transfer Pricing Officer (TPO) to examine the new facts, brought for the first time before the Hon’ble Tribunal (ITAT) - HELD THAT:- Tribunal relied on the judgment of the High Court in Gemplus Jewellery [2010 (6) TMI 65 - BOMBAY HIGH COURT] and the Special Bench decision of the Income Tax Appellate Tribunal at Chennai in ITO vs. Sac Soft Limited [2009 (3) TMI 243 - ITAT MADRAS-D] Issues:1. Justification of rejecting comparable companies by the Hon'ble Tribunal.2. Perversity in deleting Ishir Infotech as comparables.3. Correctness in deleting the comparable on functional difference ground.Issue 1: Justification of rejecting comparable companies by the Hon'ble TribunalThe High Court analyzed the appeal by the Revenue concerning the assessment year 2007-2008. The first suggested substantial question of law was whether the Tribunal was justified in rejecting comparable companies based on the exceptionally large scale of operations, disregarding the influence of high or low turnover on profit margins. The Court noted that the Tribunal extensively reviewed each company and concluded, based on previous Tribunal decisions, that the companies were not comparable to the assessee. The Court held that these findings were factual and did not raise any question of law, let alone a substantial one.Issue 2: Perversity in deleting Ishir Infotech as comparablesThe second question of law raised the issue of the Tribunal's deletion of Ishir Infotech as comparables, alleging perversity in the decision. The Court observed that there was no evidence presented to challenge the previous Tribunal decisions that formed the basis of the deletion. Consequently, the Court found no grounds to interfere with this issue, upholding the Tribunal's decision.Issue 3: Correctness in deleting the comparable on functional difference groundRegarding the third substantial question of law, the Court reviewed the Tribunal's reliance on the High Court judgment in Gemplus Jewellery and the Special Bench decision of the Income Tax Appellate Tribunal in ITO vs. Sac Soft Limited. The Court found no reason to interfere with the Tribunal's order, as it was based on legal precedents and sound reasoning. Consequently, the Court dismissed the appeal, deeming it devoid of merits and closed the pending miscellaneous applications without any order as to costs.