2018 (7) TMI 471 - HC - Income Tax

High Court rules on transfer pricing comparables and telecommunication charges exclusion.

The Pr. Commissioner Of Income-Tax, CIT (A) And The Deputy Commissioner Of Income-Tax Circle-3 (1) (2) Versus M/s. E4E Business Solutions India Pvt. Ltd.

The High Court dismissed the appeal by the Appellants-Revenue, ruling that no substantial question of law arose in the case. The Court affirmed the ... TPA - Comparable selection - substantial question of law - Held that:- This Court in Prl.Commissioner of Income Tax & Anr. Vs. M/s.Softbrands India Pvt. Ltd. (2018 (6) TMI 1327 - KARNATAKA HIGH COURT ) has held that in these type of findings of the learned Tribunal remained final fact findings of the learned Tribunal and are binding on the lower authorities of the Department as well as this Court and unless an established ex-facie perversity is found in the findings of the learned Tribunal, the appeal u/s.260A of the Act is not maintainable. Issues involved:1. Interpretation of substantial questions of law raised by the Appellants-Revenue regarding the exclusion of certain comparables in a transfer pricing case.2. Determination of whether telecommunication charges excluded from export turnover should also be excluded from total turnover.Issue 1 - Interpretation of substantial questions of law:The Appellants-Revenue filed an appeal under section 260A of the Income Tax Act, 1961, challenging the ITAT order regarding transfer pricing adjustments. The first substantial question of law revolved around the exclusion of certain comparables by the Tribunal. The Tribunal, citing previous decisions, directed the exclusion of specific companies from the list of comparables, emphasizing the need for functional comparability. The High Court referred to the Division Bench's decision in the Tata Elxsi case, affirming that items excluded from export turnover must also be excluded from total turnover. The Court highlighted the legislative intent behind Section 10A and emphasized the importance of interpreting the law in line with its purpose.Issue 2 - Exclusion of telecommunication charges from turnover:The second substantial question of law pertained to whether telecommunication charges excluded from export turnover should also be excluded from total turnover. The High Court relied on the HCL Technologies case, where it was held that such deductions should be allowed from total turnover in the same proportion as from export turnover. The Court emphasized that any other interpretation would lead to illogical results and go against the legislative intent. By aligning with the principles established in previous judgments, the Court upheld the exclusion of telecommunication charges from total turnover.Conclusion:After thorough analysis and considering the arguments presented, the High Court concluded that no substantial question of law arose in the case. The appeal filed by the Appellants-Revenue was dismissed, emphasizing that dissatisfaction with tribunal findings alone is insufficient to invoke Section 260A. The judgment reiterated the importance of interpreting tax laws in line with their objectives and legislative intent, ensuring fair and consistent application in transfer pricing cases.