2018 (7) TMI 2128 - HC - Income Tax

TP Adjustment - risk adjustment of 1% - Maintainability of appeal against ITAT order - substantial question of law or not? - Whether Tribunal was right in law in directing the assessing authority / transfer pricing officer to allow risk adjustment of 1% to the assessee as per prevailing norms - HELD THAT - ITAT held that the risk of having a single customer is an anticipated risk which may or may not happen unlike the marketing and technical risks which have to be contemporaneously dealt with by the comparables. The ITAT did not accept that the risk adjustment should be by 5% or at the difference of PLR of the RBI and the banks, and directed the TPO to consider all the contentions and decide the percentage of risk adjustments to be made in accordance with law. Respectfully following the decision of INTELLINET TECHNOLOGIES INDIA (P.) LTD. 2012 (6) TMI 237 - ITAT BANGALORE as above the TPO is directed to decide the percentage of risk adjustments to be calculated in this case. Controversy involved herein is no more res integra in view of the decision of this Court in M/s.Softbrands India Pvt. Ltd. 2018 (6) TMI 1327 - KARNATAKA HIGH COURT wherein it has been observed that unless the finding of the Tribunal is found ex facie perverse, the Appeal u/s. 260-A of the Act, is not maintainable. A substantial quantum of international trade and transactions depends upon the fair and quick judicial dispensation in such cases. Had it been a case of substantial question of interpretation of provisions of Double Taxation Avoidance Treaties (DTAA), interpretation of provisions of the Income Tax Act or Overriding Effect of the Treaties over the Domestic Legislations or the questions like Treaty Shopping, Base Erosion and Profit Shifting (BEPS), Transfer of Shares in Tax Havens (like in the case of Vodafone etc.), if based on relevant facts, such substantial questions of law could be raised before the High Court under Section 260-A of the Act, the Courts could have embarked upon such exercise of framing and answering such substantial question of law. On the other hand, the appeals of the present tenor as to whether the comparables have been rightly picked up or not, Filters for arriving at the correct list of comparables have been rightly applied or not, do not in our considered opinion, give rise to any substantial question of law. The present appeals filed by the Revenue do not give rise to any substantial question of law

Summary

Issues:
1. Appeal filed by Revenue challenging Order of Income Tax Appellate Tribunal
2. Substantial question of law regarding risk adjustment
3. Misconceived grounds of appeal by Revenue
4. Precedent set by earlier Tribunal decision
5. Maintainability of Appeal u/s. 260-A of the Act
6. Lack of substantial question of law in present case

Analysis:
1. The judgment pertains to an appeal filed by the Revenue challenging the Order of the Income Tax Appellate Tribunal related to the Assessment Year 2011-12. The appeal was admitted to consider the substantial question of law formulated in the appeal memorandum regarding risk adjustment.

2. The Tribunal, in a brief order, dismissed the Revenue's grounds as misconceived. The Tribunal relied on earlier decisions and directed the Transfer Pricing Officer to allow risk adjustment to the assessee based on prevailing norms. The Tribunal highlighted the need to consider all contentions and decide the percentage of risk adjustments in accordance with the law.

3. The controversy in the case was deemed settled based on a previous decision of the Court, where it was observed that unless the Tribunal's finding is ex facie perverse, the appeal under Section 260-A of the Act is not maintainable. The Court emphasized that certain issues, such as the selection of comparables and application of filters, do not give rise to substantial questions of law.

4. The Court clarified that appeals challenging the Tribunal's findings should meet specific requirements to invoke Section 260-A of the Act. Mere dissatisfaction with the Tribunal's factual findings is not sufficient to raise a substantial question of law. The Court dismissed the Revenue's appeals, stating they lacked merit and did not meet the criteria under the Act.

5. After hearing arguments from both sides, the Court concluded that no substantial question of law arose in the present case. Consequently, the Appeal filed by the Revenue was dismissed, with no costs imposed. The judgment highlighted the importance of applying consistent standards in appeals, regardless of the appealing party.