2018 (8) TMI 2023 - HC - Income Tax

TP Adjustment - Tribunal has held that RPM is the most appropriate method in the taxpayers case when the taxpayer has performed more functions than that of a routine trader as evident from the huge loss reported at the entity level and ignoring the evidence brought in by the Transfer Pricing Officer - substantial question of law - HELD THAT - This Court in a recent judgment in M/s Softbrands India Pvt. 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. 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 toany substantial question of law. The present appeals filed by the Revenue do not give rise to any substantial question of law and the suggested substantial questions of law do not meet the requirements of Section 260-A of the Act and thus the appeals filed by the Revenue are found to be devoid of merit and the same are liable to be dismissed.

Summary

Issues:
1. Interpretation of the most appropriate method in transfer pricing cases.
2. Consideration of substantial questions of law in appeals under Section 260-A of the Income Tax Act.

Analysis:
1. Interpretation of the most appropriate method in transfer pricing cases:
The appeal before the Karnataka High Court involved a dispute over the most appropriate method (RPM) to determine the arm's length price (ALP) for international transactions. The Tribunal considered the functions performed by the taxpayer, a distributor of water heaters, and the lack of value addition to the products sold in India. The Tribunal concluded that RPM was the most appropriate method in this case, rejecting the Revenue's argument that the taxpayer's functions as a distributor warranted a different approach. The Court cited precedents and held that in cases where products are sold without value addition, RPM should be preferred. The Court set aside the order of the Assessing Officer and directed the adoption of RPM as the most appropriate method.

2. Consideration of substantial questions of law in appeals under Section 260-A:
The Court referred to a recent judgment where it was emphasized that appeals under Section 260-A of the Income Tax Act must involve substantial questions of law to be maintainable. The Court clarified that issues related to the selection of comparables or the application of filters do not necessarily give rise to substantial questions of law. The judgment highlighted that the mere dissatisfaction with the Tribunal's findings is not sufficient to invoke Section 260-A. The Court dismissed the Revenue's appeals, emphasizing that the same standards apply regardless of whether the appeals are filed by the Revenue or the Assessee. The Court held that the appeals lacked merit and were devoid of substantial questions of law, leading to their dismissal without costs.

In conclusion, the Karnataka High Court dismissed the Revenue's appeal, finding no substantial question of law in the case. The Court upheld the Tribunal's decision regarding the most appropriate method for determining the arm's length price in transfer pricing cases where products are sold without value addition. The judgment underscored the importance of substantial questions of law in appeals under Section 260-A of the Income Tax Act and clarified the standards for invoking such provisions.