2019 (8) TMI 1832 - HC - Income Tax

TP Adjustment - comparable selection - DRP and the Tribunal have found that M/s. Vishal is not comparable with the Respondent - HELD THAT - Exclusion of M/s. Vishal as a comparable to determine the ALP of its services to its AEs is a finding of fact which is not shown to be perverse. Therefore, the question as framed does not give rise to any substantial question of law. Thus, not entertained CG- vak Software Limited as comparable for the purpose determining the Arm's length pricing in the case of assessee - DRP while deciding the Respondent s application held that M/s. CG Vak could not be excluded from the list of comparable as it did makes profit in the relevant Assessment Year under consideration. This view on facts was upheld by the Tribunal - This concurrent finding of fact by DRP and the Tribunal has not been shown to be perverse. Therefore, the question as framed does not give rise to any substantial question of law. Thus, not entertained. Substantial question of law or fact - We find that this appeal as filed by the Revenue seeks to challenge concurrent finding of facts arrived at by the DRP and the Tribunal. In fact, no perversity in the impugned order is even attempted to be shown by the Revenue. The appeal is filed in a normal course, without considering the issue whether the impugned order gives rise to a substantial question of law, to be challenged in appeal. Revenue continues to file appeals in respect of the Transfer Pricing issue as a matte of routine and/or standard operating procedure even when no substantial question of law arises. We trust that the authorities would examine this issue at the highest level and ensure that no unnecessary appeals such as this, which are factual in nature, without being perverse are, filed to this Court. We direct the Registry to forward a copy of this order to the CBDT, so that the appropriate directions can be given to the Commissioners of Income Tax.

Summary

Issues:
1. Exclusion of a comparable company for determining Arm's length price.
2. Inclusion of a consistently loss-making company as a comparable for determining Arm's length price.

Analysis:

Issue 1 - Exclusion of Comparable Company:
The appeal challenges the order of the Income Tax Appellate Tribunal (Tribunal) regarding the exclusion of a comparable company, M/s. Vishal Information Technology Ltd., for determining the Arm's length price (ALP) in the case of the assessee. The Respondent, engaged in providing Information technology enabled services, used the Transactional Net Margin Method (TNMM) to determine the ALP. Despite the Respondent's PLI closely matching the mean of the comparable companies, the Transfer Pricing Officer (TPO) included M/s. Vishal as a comparable. However, both the Dispute Resolution Panel (DRP) and the Tribunal agreed with the Respondent's argument that M/s. Vishal's business model significantly differed from the Respondent's, leading to its exclusion as a comparable. The Tribunal's decision to exclude M/s. Vishal was upheld as a factual finding, not shown to be perverse, and hence no substantial question of law arose.

Issue 2 - Inclusion of Loss-Making Company as Comparable:
Regarding the inclusion of CG Vak Software and Exports Ltd., a consistently loss-making company, as a comparable for determining the ALP, the TPO initially excluded it. However, the DRP and the Tribunal disagreed, stating that CG Vak made a profit in the relevant assessment year and thus could not be excluded. This concurrent factual finding was not shown to be perverse, leading to the conclusion that no substantial question of law arose. The appeal challenged the concurrent findings of fact without demonstrating any perversity in the impugned order, leading to its dismissal by the High Court.

Observations and Conclusion:
The High Court expressed concern over the routine filing of appeals by the Revenue without demonstrating perversity or substantial questions of law in Transfer Pricing cases. Citing precedents, the Court emphasized that inclusion/exclusion of comparables does not automatically constitute a question of law unless relevant factors are disregarded or irrelevant considerations are taken into account. The Court directed the Revenue to serve the order on the Principal Chief Commissioner of Income Tax for necessary action and highlighted the need for a review of appeals filed solely on findings of fact without evidence of perversity. The Court dismissed the present appeal, urging authorities to avoid filing unnecessary appeals that lack substantial legal issues.