Court excludes company for Transfer Pricing, justifies inclusion of profit-making firm. Appeal dismissed for lack of legal merit.

The High Court upheld the decision to exclude M/s. Vishal Information Technology Ltd. as a comparable company for determining the Arm's length price (ALP) due to significant differences in business models. Additionally, the inclusion of CG Vak Software and Exports Ltd., a consistently loss-making company, as a comparable was justified as it made a profit in the relevant assessment year. The Court dismissed the appeal, emphasizing the need to avoid filing appeals without demonstrating perversity or substantial legal questions in Transfer Pricing cases.

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Issues:
1. Exclusion of a comparable company for determining Arm's length price.
2. Inclusion of a consistently loss-making company as a comparable for determining Arm's length price.

Analysis:

Issue 1 - Exclusion of Comparable Company:
The appeal challenges the order of the Income Tax Appellate Tribunal (Tribunal) regarding the exclusion of a comparable company, M/s. Vishal Information Technology Ltd., for determining the Arm's length price (ALP) in the case of the assessee. The Respondent, engaged in providing Information technology enabled services, used the Transactional Net Margin Method (TNMM) to determine the ALP. Despite the Respondent's PLI closely matching the mean of the comparable companies, the Transfer Pricing Officer (TPO) included M/s. Vishal as a comparable. However, both the Dispute Resolution Panel (DRP) and the Tribunal agreed with the Respondent's argument that M/s. Vishal's business model significantly differed from the Respondent's, leading to its exclusion as a comparable. The Tribunal's decision to exclude M/s. Vishal was upheld as a factual finding, not shown to be perverse, and hence no substantial question of law arose.

Issue 2 - Inclusion of Loss-Making Company as Comparable:
Regarding the inclusion of CG Vak Software and Exports Ltd., a consistently loss-making company, as a comparable for determining the ALP, the TPO initially excluded it. However, the DRP and the Tribunal disagreed, stating that CG Vak made a profit in the relevant assessment year and thus could not be excluded. This concurrent factual finding was not shown to be perverse, leading to the conclusion that no substantial question of law arose. The appeal challenged the concurrent findings of fact without demonstrating any perversity in the impugned order, leading to its dismissal by the High Court.

Observations and Conclusion:
The High Court expressed concern over the routine filing of appeals by the Revenue without demonstrating perversity or substantial questions of law in Transfer Pricing cases. Citing precedents, the Court emphasized that inclusion/exclusion of comparables does not automatically constitute a question of law unless relevant factors are disregarded or irrelevant considerations are taken into account. The Court directed the Revenue to serve the order on the Principal Chief Commissioner of Income Tax for necessary action and highlighted the need for a review of appeals filed solely on findings of fact without evidence of perversity. The Court dismissed the present appeal, urging authorities to avoid filing unnecessary appeals that lack substantial legal issues.

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