2018 (6) TMI 1783 - HC - Income Tax

TP Adjustment - substantial question of law or fact - Maintainability of appeal in High court - whether tribunal was right in holding that RPT filters should be 15% and not 25% taken by the TPO? - 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 appellants the appeal at the instance of an assessee or the Revenue under Section 260-A of the Act is not maintainable. No substantial question of law arises in the present case also

Summary

Issues:
- Appeal filed under section 260A of the Income Tax Act, 1961 regarding Transfer Pricing Adjustments for A.Y. 2005-06.
- Whether Tribunal's decision on RPT% and comparables selection is justified.
- Applicability of RPT filter at 15% instead of 25%.
- Exclusion of certain comparables based on functional dissimilarity.
- Maintainability of appeal under section 260A without establishing perversity in ITAT's findings.

Analysis:
1. The Appellants-Revenue filed appeals under section 260A of the Income Tax Act, 1961 challenging the ITAT's order on Transfer Pricing Adjustments for A.Y. 2005-06. The proposed substantial questions of law raised by the Appellants focused on the Tribunal's decisions regarding RPT% and comparables selection.

2. The Tribunal's findings rejected the Appellants-Revenue's contentions on Transfer Pricing issues. The Tribunal discussed the application of RPT filters, emphasizing that the tolerance range of RPT should be considered based on the availability of comparables. In this case, with 17 comparables selected, a 15% RPT filter was deemed appropriate, leading to the exclusion of certain companies exceeding the threshold.

3. The Tribunal also directed the exclusion of specific comparables like Bhodtree Consulting Ltd., Exensys Software Solutions Ltd., Sankya Infotech Ltd., Thirdware Solution Ltd., and Tata Elxsi Ltd. based on functional dissimilarity, following earlier decisions. This exclusion was in line with maintaining the integrity of Transfer Pricing Adjustments.

4. A separate judgment in a related case highlighted the requirement to establish ex-facie perversity in ITAT's findings to maintain an appeal under section 260A. The judgment emphasized that issues related to comparables selection and filters application may not inherently raise substantial questions of law unless involving significant legal interpretations or treaty provisions.

5. The Court clarified that dissatisfaction with the Tribunal's factual findings alone is insufficient to invoke section 260A. The judgment underscored the need for substantial legal questions related to interpretations of laws or treaties for such appeals. Ultimately, the appeals filed by the Revenue were dismissed as lacking merit, with costs not awarded.

6. Following a thorough analysis and considering the arguments presented, the Court concluded that no substantial question of law arose in the present cases. Consequently, the appeals filed by the Appellants-Revenue were dismissed. The judgment highlighted the importance of legal interpretations and substantial questions in invoking section 260A for appeals related to Transfer Pricing matters.