2018 (7) TMI 2289 - HC - Income Tax

TP Adjustment - comparable selection - ALP - substantial question of law or fact - Whether Tribunal has erred in holding the Cost Plus Method as the Most Appropriate Method for the international transaction relating to the contract manufacturing activity of the appellant in light of the comparable companies chosen by the TPO? - HELD THAT - The 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.

Summary

Issues:
1. Selection of Cost Plus Method as the Most Appropriate Method for international transaction.
2. Compliance with parameters prescribed under Rule 10B of the Income-tax Rules, 1961.

Issue 1: Selection of Cost Plus Method
The Appeals raised substantial questions of law regarding the Order of the Income Tax Appellate Tribunal, focusing on the selection of the Cost Plus Method for the international transaction related to contract manufacturing activities. The Appellant contested the Tribunal's choice of comparable companies, arguing that they were not closely comparable to the Appellant's activities. The Tribunal discussed the basis comparability adopted by the TPO and compared it with the functional comparability advocated by the Appellant. Reference was made to a similar case involving M/s.GE BE Pvt. Ltd., where the TPO rejected the comparables chosen by the assessee and identified new comparable companies. The Tribunal upheld the TPO's decision, emphasizing the need for objective and transparent comparables selection. The Tribunal also addressed the Appellant's request for adjustments to the margins of comparable companies for marketing expenses, aligning with the decision in a related case. Consequently, the Appellant's appeal against the transfer pricing adjustment was rejected.

Issue 2: Compliance with Rule 10B of Income-tax Rules
The Appellant also contested the Tribunal's compliance with Rule 10B of the Income-tax Rules, 1961, concerning the selection and exclusion of comparable companies. The Tribunal's decision was based on a detailed analysis of the comparables chosen and the adjustments made for marketing and selling expenses. The CIT(A) granted adjustments based on actual expenditure by comparable companies, resulting in a nil adjustment. The Tribunal found the CIT(A)'s decision consistent with a previous case and declined to interfere. The Court referred to a prior decision highlighting that appeals challenging comparables selection do not necessarily raise substantial questions of law unless the Tribunal's findings are ex facie perverse. The Court emphasized that dissatisfaction with the Tribunal's factual findings is insufficient to invoke Section 260-A of the Act. Consequently, the Appeals filed by the Revenue were dismissed, as no substantial question of law was found to arise in the present case.

In conclusion, the High Court dismissed the Appeals filed by the Appellant-Assessee, emphasizing that the issues raised did not meet the criteria for invoking Section 260-A of the Act. The judgment highlighted the importance of fair and quick judicial dispensation in international trade cases and reiterated the need for objective and transparent comparables selection in transfer pricing assessments.