2018 (7) TMI 2076 - HC - Income Tax

TP Adjustment - ALP determination - substantial question of law or fact - HELD THAT - This Court in a recent judgment in Pr. Commissioner of Income Tax, Bangalore and Another Vs. M/s. Softbrands India P.Ltd. 2018 (6) TMI 1327 - KARNATAKA HIGH COURT has held that in these type of cases, unless an ex-facie perversity in the findings of the learned Income Tax Appellate Tribunal is established by the appellant, the appeal at the instance of an assessee or the Revenue under Section 260-A of the Act is not maintainable

Summary

Issues:
Transfer pricing adjustments based on associate enterprises, turnover filter for comparable companies, opportunity for cross-examination, standard deduction for Arms' Length Price determination.

Transfer Pricing Adjustments based on Associate Enterprises:
The appeal under section 260A of the Income Tax Act raised substantial questions of law regarding transfer pricing adjustments. The Tribunal directed the adjustments to be restricted to transactions of Associate Enterprises only, adopting operating revenue and costs. The Tribunal emphasized that only international transactions between associated enterprises are to be computed having regard to Arms' Length Price (ALP).

Turnover Filter for Comparable Companies:
The Tribunal discussed the importance of turnover filters in selecting comparable companies for transfer pricing studies. It highlighted the significance of size in business, stating that big companies have advantages in bargaining prices and attracting customers. The Tribunal upheld the turnover filter of companies with turnovers between 1 crore to 200 crores, considering it suitable and reasonable for the Indian scenario.

Opportunity for Cross-Examination:
The Tribunal stressed the importance of providing the assessee with an opportunity to cross-examine parties whose comparables were selected by the Transfer Pricing Officer. It emphasized that the assessee should be able to rebut the stand of selected companies during cross-examination, especially when objections are raised regarding comparables and revenue considerations.

Standard Deduction for Arms' Length Price Determination:
The Tribunal considered the issue of a 5% standard deduction for the assessee before making adjustments for transfer pricing. The assessee argued for the deduction based on precedents, while the Revenue contended that 5% is not a standard deduction but a range within which the ALP should fall. The Tribunal found this issue already covered by previous decisions and dismissed the appeal, stating that no substantial question of law arose in this case.

Conclusion:
In a recent judgment, the Court emphasized that appeals related to the selection of comparables and filters for transfer pricing do not give rise to substantial questions of law. The Court clarified that dissatisfaction with Tribunal findings is not sufficient to invoke section 260A of the Act. The appeal filed by the Revenue was dismissed, reiterating that the same parameters apply even if appeals are filed by assessees. The judgment highlighted the need for fair and quick judicial dispensation in cases involving international transactions.