2018 (7) TMI 2074 - HC - Income Tax

Inclusion of Forex loss/income while working out the operating margin - HELD THAT - As for inclusion of Forex loss/income while working out the operating margin, we are of the opinion that the assessee has to succeed. See M/s Triology E-Business Software Ltd. v. DCIT 2013 (1) TMI 672 - ITAT BANGALORE . Exclusion of comparable - HELD THAT - Turnover filter is very important and the companies having a turnover of ₹ 1 Crore to ₹ 200 crores have to be taken as a particular range and the assessee being in the range having turnover of ₹ 8.15 crores, the companies which also have turnover of ₹ 1 to ₹ 200 crores only should be taken into consideration for the purpose of making TP study. Companies functionally dissimilar with that of assessee need to be deselection. Sufficient reason to invoke Section 260-A - We make it clear that the same yardsticks and parameters will have to be applied, even if such appeals are filed by the Assessees, because, there may be cases where the Tribunal giving its own reasons and findings has found certain comparables to be good comparables to arrive at an 'Arm's Length Price' in the case of the assessees with which the assessees may not be satisfied and have filed such appeals before this Court. Therefore we clarify that mere dissatisfaction with the findings of facts arrived at by the learned Tribunal is not at all a sufficient reason to invoke Section 260-A of the Act before this Court.

Summary

Issues:
1. Appeal by Revenue against Tribunal's Order
2. Inclusion of forex gain/loss in profit level indicator (PLI)
3. Acceptance of turnover filter for selection of comparables
4. Exclusion of certain companies as comparables

Analysis:

1. The Revenue filed an appeal challenging the Order of the Income Tax Appellate Tribunal Bench 'A', Bangalore, regarding substantial questions of law arising from the assessment year 2009-10. The Tribunal directed the Transfer Pricing Officer (TPO) to include forex gain/loss while determining the PLI of the assessee, relying on a previous decision. The Court dismissed the Revenue's appeal as no substantial questions of law were found.

2. The Tribunal upheld the inclusion of forex gain/loss in the operating margin calculation, citing a previous case. The Court affirmed the Tribunal's decision, emphasizing the importance of considering turnover filters for selecting comparables. The Court highlighted the relevance of size in determining comparability and the need for a reasonable turnover filter range.

3. The Tribunal accepted the turnover filter for selecting comparables, emphasizing the significance of size in determining margins. The Court dismissed the Revenue's appeal, stating that no substantial questions of law were raised regarding the selection of comparables based on turnover.

4. The Tribunal excluded certain companies as comparables based on functional differences and turnover criteria. The Court upheld the Tribunal's decision, emphasizing the importance of functional similarity in selecting comparables. The Court dismissed the Revenue's appeal, stating that no substantial questions of law arose in this regard.

In conclusion, the Court dismissed the Revenue's appeal, stating that no substantial questions of law were raised in the case. The judgment highlighted the importance of considering turnover filters and functional similarities in selecting comparables for transfer pricing analysis.