2018 (8) TMI 2104 - HC - Income Tax

TP Adjustment - mirror transactions ALP adjustments - Tribunal held that in mirror transactions ALP adjustments cannot be done, i.e., if one transaction is treated as at Arm s Length, no adjustment can be made on the other related corresponding transaction of the AE without appreciating that this stand is against the provisions of Section 92(3) of the Act? - substantial question of law - HELD THAT - As 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. No substantial question of law arises in the present case

Summary

Issues:
1. Interpretation of provisions of Section 92(3) of the Income Tax Act regarding Arm's Length Price adjustments in mirror transactions.
2. Maintainability of appeals under Section 260-A of the Act based on the establishment of ex-facie perversity in the findings of the Income Tax Appellate Tribunal.

Analysis:
1. The primary issue in this case revolves around the interpretation of Section 92(3) of the Income Tax Act concerning Arm's Length Price (ALP) adjustments in mirror transactions. The Revenue raised a substantial question of law regarding the Tribunal's decision on whether ALP adjustments can be made on related corresponding transactions of the Associated Enterprise (AE) if one transaction is treated as at ALP. The Tribunal, after considering the facts and judicial precedents, found that where the Transfer Pricing Officer (TPO) has accepted a transaction to be at ALP in the hands of the AE, the TPO cannot take a different stand in the case of the other party to the transaction, i.e., the assessee. This decision was based on previous rulings in the assessee's own case for different assessment years, leading to the allowance of the assessee's appeal for the relevant assessment year 2008-09.

2. Another significant aspect addressed in this judgment pertains to the maintainability of appeals under Section 260-A of the Act based on the establishment of ex-facie perversity in the findings of the Income Tax Appellate Tribunal. Citing a recent judgment, the Court emphasized that appeals concerning the correctness of comparables chosen or filters applied for determining comparables do not give rise to substantial questions of law. The Court clarified that dissatisfaction with the Tribunal's findings of fact alone is insufficient to invoke Section 260-A. Consequently, the Court dismissed the Revenue's appeal, highlighting the need for substantial questions of law to be raised for an appeal to be maintainable under Section 260-A, regardless of whether the appeal is filed by the Revenue or the Assessee.

In conclusion, the judgment delves into the nuances of Transfer Pricing regulations, specifically addressing the treatment of mirror transactions in relation to ALP adjustments. Additionally, it provides clarity on the prerequisites for maintaining appeals under Section 260-A of the Income Tax Act, emphasizing the importance of substantial questions of law in such appeals.