2018 (7) TMI 2324 - HC - Income Tax

TP adjustments - mirror transactions ALP adjustments - TPO has accepted the expenditure incurred by the AE to be at arm s length but has not accepted the income of the assessee to be at arm s length - 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. We are of the opinion that the DRP was right in holding that what is true of one end is true of the other end of the transaction but it erred in holding that the remedy is to suitably substitute the ALP determined in the hands of assessee also in the hands of the AE. As rightly pointed out by the learned counsel for the assessee, the DRP can only give directions as regards the determination of ALP in the hands of the assessee before it. It cannot give directions to consider the issue in the hands of an assessee whose case is not before it. It is for the relevant TPO/AO to take action in accordance with law in the light of facts and circumstances of the case before them applying their mind independently and not on the directions of DRP or any other authority in another case. Therefore, the relevant ground of appeal on this issue is allowed.

Summary

Issues:
Appeal by Revenue challenging ITAT order on substantial questions of law regarding ALP adjustments and profit margin.

Analysis:
1. The appeal raised substantial questions of law regarding the ITAT order on ALP adjustments and profit margin for the Assessment Year 2004-05.
2. The main issue was whether ALP adjustments can be made in mirror transactions, i.e., if one transaction is treated as at Arm's Length, can adjustments be made on the other related corresponding transaction of the AE.
3. The Tribunal held that transactions with an AE must be at arm's length from each other, and if one end is at ALP, the other end should also be considered at arm's length.
4. The Tribunal found that the TPO had not considered the reasons for the assessee's loss and had not examined the margin of the assessee compared to similar companies.
5. The Tribunal concluded that the ALP determined by the TPO was not justified and remanding the issue would not serve any purpose since the TPO had accepted the transaction to be at ALP in the hands of the AE.
6. Referring to a previous judgment, the Court emphasized that appeals challenging comparables or filters for arriving at the correct list of comparables do not give rise to substantial questions of law.
7. The Court dismissed the Revenue's appeal, stating that no substantial question of law arose for consideration in the case.