TaxTMI 
TaxTMI 
2018 (6) TMI 1592
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....cing Officer to calculate operating profit disallowing depreciation even though the depreciation is part of business and it is considered as operating in nature ? 2. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in directing the assessing authority/Transfer Pricing Officer to exclude depreciation, interest, etc., to calculate operating profit and also erred in directing the Assessing Officer/Transfer Pricing Officer to adopt gross profit analysis over sales and for gross profit analysis taking sales less cost of raw materials as basis ? 3. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in setting aside the Transfer Pricing Officer's order even when the Transfer Pricing Officer had granted sufficient time to the assessee to file reply to the show-cause notice dated November 13, 2013 ?" 3. The learned Income-tax Appellate Tribunal in its order dated May 18, 2016 has given the following findings with regard to the issues raised in the present appeal by the Department. "5.5. In principle, we are in agreement with the contentions raised by the assessee, as gross profit ov....
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....on under these provisions in income arising from international transactions which shall be computed having regard to the 'arm's length price' (section 92). Section 92A defines an 'associated enterprise', viz., the company which participates directly or indirectly, or through one or more intermediaries, in its management or control or capital of the other enterprise by holding more than 26 per cent. of the shareholding in such other enterprises and satisfy the other criteria as stated in section 92A of the Act. The word 'international transaction' is defined in section 92B of the Act. The most important provision concerning us in this batch of cases is section 92C of the Act which provides for 'computation 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 92C 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 price method (CUP) ....
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....254 of the Act empowers the Appellate Tribunal to pass such orders on the appeals 'as it thinks fit' after giving an opportunity of hearing to both the par ties. From the aforesaid scheme of assessment with regard to international transactions, it is clear that the process of determination of 'arm's length price' has to be undertaken by the expert wing of the Income-tax Department which is manned by the Transfer Pricing Officer and at the higher level by a Collegium of three Commissioners in the form of Dispute Resolution Panel whose orders on questions of facts are appealable before the highest fact finding body, viz., the Appellate Tribunal. The process of determination of 'arm's length price' as observed above, necessarily takes into account the comparable cases of other similarly situated or nearly similarly situated corporate entities whose data are in public domain or on the databases like Prowess and Capitaline database, etc. No substantial question of law arises in these cases The dispute essentially before us is the pairing and matching such comparables with the transfer pricing analysis of the profit marg....
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....ed above and findings of facts arrived at by the Tribunal in these type of assessments like any other type of assessments in other regular assessment provisions of the Act, viz., sections 143, 147 etc. are final and are binding on this court. While dealing with these appeals under section 260A of the Act, we cannot disturb those findings of fact under section 260A of the Act, unless such findings are ex facie per verse and unsustainable and exhibit a total non-application of mind by the Tribunal to the relevant facts of the case and evidence before the Tribunal. Otherwise if the High Court takes the path of making such a comparative analysis and pronounces upon the questions as to which filter is good and which comparable is really a comparable case or not, it will drag the High Courts into a whirlpool of such data analysis defeating the very purpose and purport of the provisions of section 260A of the Act. Therefore what we observed above appears to us to be the sustainable view that the key to the lock for entering into the jurisdiction of the High Court under section 260A of the Act is the existence of a substantial question of law involved in the matter. The key of ex ....
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....ly dissimilar or unlike or poles apart. Such wild comparisons may result in the best judgment assessment going haywire and directionless wild, which may land up the findings of the Tribunal in the realm of perversity attracting interference under section 260A of the Act. Some precedents from the High Courts holding similar view Here, we would like to refer to some of the judgments of the different High Courts where the High Courts have refused to entertain such appeals under section 260A of the Act in these type of cases. A. The Division Bench of the Madras High Court in the case of CIT v. Same Deutz-Fahr India P. Ltd. [2018] 405 ITR 345 (Mad) ; [2018] 253 Taxman 32 (Mad) decided on December 5, 2017, after discussing the Supreme Court decisions laying down the parameters of section 260A of the Act and section 100 of the Civil Procedure Code, 1908, held that right of appeal under section 260A of the Act is not automatic and it is limited right of appeal restricted only to cases which 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. The court held that w....
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....turnover filter with turnover of 3-5 times is acceptable for selecting the comparable as per the decisions of the Tribunals. In the appellant's case, the Transfer Pricing Officer has adopted the turnover filter and M/s. HMT Ltd., being functionally similar and the turnover was only two times of the appellant, we are of the considered opinion that the Transfer Pricing Officer should include M/s. HMT Ltd., as comparable. The case law relied upon by the assessee also supports the arguments of the assessee. Both the assessee and the Transfer Pricing Officer adopted the transactional net margin method as the most appropriate method which would neutralize the differences such as turnover, etc. Therefore, we direct the Transfer Pricing Officer to include M/s. HMT Ltd., as comparable and rework the comparable margin. This ground of appeal is allowed." 14. The appeal is to the limited extent that the Transfer Pricing Officer has been directed to include M/s. HMT Limited as a comparable and rework the comparable margin . . . In M. Janardhana Rao v. Joint CIT [2005] 273 ITR 50 (SC) ; [2005] 142 Taxman 722 (SC), the hon'ble Supreme Court held that the principles conte....
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....evant consideration or excluded relevant factors in the arm's length price determination that impact significantly. 11. In the present case, we find no such error. Consequently, the appeal is without merits and is, therefore, dismissed.' C. The Division Bench of the Bombay High Court in the case of CIT v. PTC Software (I) (P.) Ltd. [2017] 395 ITR 176 (Bom) again reiterated similar position with reference to various comparables with regard to one of the comparables, M/s. KALS Information Solutions Limited whose case was in the appeals before us as well, held that if there is a functionality difference between the two comparables and the Tribunal was justified in excluding the same on the challenge being raised by the assessee and such findings of the Tribunal are findings of fact which do not give rise to any substantial question of law. The relevant portion of the aforesaid judgment is quoted below for ready reference (page 181) : 'Re-Question (ii) (a) M/s. KALS Information Solutions Ltd. (KALS Ltd.) and Helios and Matheson Information Technology Ltd. (Helios and Matheson Ltd.) were included by the Transfer Pricing Officer in....
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....arly quietus to the findings of fact by the Tribunal in the realm of international taxation. The huge quantum of borderless trade and international transactions earning lot of foreign exchange and revenues for India through international corporates and trade with them has a big interface with the dispute resolution of such cases in the tax administration Department as well as the judiciary. The procedure of assessment under Chapter X relating to international transactions as indicated above is already a lengthy one and involves multiple authorities of the Department. A huge, cumber some and tenacious exercise of transfer pricing analysis has to be undertaken by the corporate entities who have to comply with the various provisions of the Act and Rules with a huge data bank and in the first instance they have to satisfy that the profits or the income from transactions declared by them is at 'arm's length' which analysis is invariably put to test and inquiry by the authorities of the Department and through the process of the Transfer Pricing Officer and Dispute Resolution Panel and the Tribunal at various stages, the assessee has a cumbersome task of comp....