2015 (3) TMI 14 - HC - Income Tax

Transfer pricing adjustment - ITAT directing inclusion of data and particulars pertaining to Cyber Media Events Limited in the transfer pricing studies, to determine arm s length price (ALP) for the purpose of income tax - Held that - ITAT s order does not raise a substantial question of law. As observed in the impugned order, as to whether the turnover filter is an appropriate one and applicable cannot be answered in the abstract and is entirely fact dependent. In the given facts of this case, the record indicates that the TPO chose to apply that filter but used it to exclude the data pertaining to M/s. Capital Trust Ltd. This inconsistency went unnoticed even by the DRP. The ITAT corrected the position and noticed that not having applied the turnover filter at the initial stage, the Revenue cannot take advantage, in the facts of the case, particularly when the turnover filter is not a test even in respect of the surviving comparable which are concededly part of the record. For the above reasons, no question of law arises. - Decided against revenue.

Summary

Issues:
1. Appeal against ITAT order regarding arm's length price determination for income tax purposes based on inclusion of data from Cyber Media Events Limited in transfer pricing studies.

Analysis:
1. The case involved an appeal by the Revenue against an ITAT order concerning the determination of arm's length price (ALP) for income tax purposes. The core issue revolved around the inclusion of data and particulars related to Cyber Media Events Limited in the transfer pricing studies. The primary question of law was whether the ITAT erred in directing the incorporation of this data to ascertain the ALP.

2. The assessee, engaged in various communication-related activities, submitted a Transfer Pricing Report (TPR) for A.Y. 2007-08 and 2008-09. The Transfer Pricing Officer (TPO) accepted the ALP for most international transactions but disputed one provision involving marketing and after sales services. The TPO rejected the TNMM method's analysis regarding comparables, particularly focusing on seven enterprises, including M/s. Cyber Media Events Private Limited and M/s. Capital Trust Ltd. The TPO excluded the latter due to its low revenue, a decision later upheld by the DRP.

3. The ITAT, however, overturned the TPO's decision regarding the inclusion of M/s. Capital Trust Ltd. as a comparable. The ITAT emphasized that exclusion based solely on low turnover was inappropriate, stressing the importance of functional profiles over arbitrary criteria. The ITAT directed the AO to consider Capital Trust Ltd. as a comparable for determining the ALP.

4. The Revenue contended that the exclusion of M/s. Capital Trust Ltd. was justified, emphasizing the significance of turnover size in relation to the segmental business activity of the comparable company. Conversely, the assessee argued that no turnover filter was initially applied by either party, and the ITAT's decision was context-specific, not warranting a question of law.

5. The High Court concluded that the ITAT's order did not raise a substantial question of law. It noted the inconsistency in applying the turnover filter by the TPO and the subsequent correction by the ITAT. The Court highlighted that the turnover filter was not a decisive test for the surviving comparables. Therefore, the appeal was dismissed, including all pending applications.