2018 (8) TMI 2094 - HC - Income Tax

TP Adjustment - substantial questions of law raised before the High Court u/s 260-A - substantial quantum of international trade and transactions depends upon the fair and quick judicial dispensation in such cases - extra credit allowed can be considered as an independent international transaction and the same be compared with the internal CUP being average cost of the total funds available to the assessee directed the TPO to find out the cost of the total funds available to the assessee and same should be adopted as internal CUP for benchmarking of this independent international transaction i.e. allowing extra credit in addition the agreed credit period of 30 days - HELD THAT - This Court in a recent judgment in cit Vs. 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 u/s 260-A of the Act is not maintainable.

Summary

Issues:
1. Interpretation of substantial question of law under Section 260A of the Income Tax Act, 1961.
2. Determination of whether extra credit allowed can be considered an independent international transaction.
3. Benchmarking of independent international transactions.
4. Applicability of judicial precedents in transfer pricing analysis.
5. Maintainability of appeals under Section 260A based on findings of the Income Tax Appellate Tribunal.

Analysis:
1. The High Court dealt with the interpretation of substantial questions of law under Section 260A of the Income Tax Act, emphasizing the need for establishing ex-facie perversity in the findings of the Income Tax Appellate Tribunal to maintain an appeal. The Court highlighted that issues related to comparables and filters for determining comparables do not generally give rise to substantial questions of law.

2. The Court addressed the issue of whether extra credit allowed beyond the agreed credit period can be considered an independent international transaction. It was held that while the agreed credit period's effect is factored into prices, extra credit beyond this period constitutes a separate event requiring separate benchmarking to prevent profit shifting.

3. Regarding benchmarking of independent international transactions, the Court relied on a previous tribunal order to determine the rate of interest for benchmarking extra credit. The Court directed the Assessing Officer to find the cost of total funds available to the assessee and adopt it as the internal Comparable Uncontrolled Price (CUP) for benchmarking the independent international transaction of allowing extra credit.

4. The Court referred to a recent judgment to emphasize that appeals under Section 260A should be based on substantial questions of law related to significant legal interpretations, such as those concerning Double Taxation Avoidance Treaties or Transfer Pricing issues. Mere dissatisfaction with the Tribunal's factual findings is not sufficient to invoke Section 260A.

5. Ultimately, the Court found no substantial question of law in the present case and dismissed the appeal by the Revenue. The judgment reiterated the need for appeals to be based on substantial legal issues rather than factual disagreements with the Tribunal's findings, maintaining consistency in applying the standards for appeals filed by both Revenue and Assessees.

This comprehensive analysis of the judgment covers the key legal issues addressed by the High Court in the context of the Income Tax Act and transfer pricing regulations.