2018 (7) TMI 483 - HC - Income Tax

TPA - comparable selection - ALP - substantial question of law or fact - Held that - The controversy involved herein is no more res integra in view of the decision of this Court in M/S. SOFTBRANDS INDIA P. 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. Appellants - Revenue challenging Order of Income Tax Appellate Tribunal for AY 2009-10.
2. Functional comparability of Kals Information Systems Ltd as a comparable.
3. Application of assessee-specific FAR analysis in selecting comparables.
4. Ex-facie perversity in ITAT findings for maintainability of appeal under Section 260-A.
5. Determination of substantial questions of law in transfer pricing cases.

Analysis:
1. The Appellants - Revenue contested the Order of the Income Tax Appellate Tribunal for AY 2009-10, raising substantial questions of law. The ITAT's decision on the functional comparability of Kals Information Systems Ltd was a key issue. The ITAT emphasized the importance of examining actual performance data rather than relying on projected information from annual reports for functional comparability assessment. The Tribunal set aside the issue for further examination by the AO/TPO to determine the nature of functional profile and revenue sources accurately.

2. The ITAT's approach to applying assessee-specific FAR analysis in selecting comparables was challenged. The ITAT highlighted the need to delve into actual facts and activities to assess functional comparability accurately. The Tribunal stressed the significance of examining real data to understand the nature of the business and revenue sources of comparable companies. The decision in M/s 3DPLM Software Solutions Ltd was cited to support the importance of factual analysis in determining functional comparability.

3. A recent judgment emphasized the requirement of establishing ex-facie perversity in ITAT findings for the maintainability of appeals under Section 260-A. The judgment clarified that appeals related to comparables selection and application of filters do not inherently raise substantial questions of law. The Court underscored the need for substantial questions of law to involve interpretations of tax treaties, domestic legislation, or complex tax issues like BEPS or treaty shopping.

4. The judgment highlighted that dissatisfaction with ITAT's factual findings alone is insufficient to invoke Section 260-A for appeal. The Court stressed that the same standards apply to appeals filed by both Revenue and Assessees. The judgment emphasized that appeals concerning comparables selection and arm's length pricing must involve significant legal questions to be considered under Section 260-A.

5. After hearing arguments from both parties, the Court concluded that no substantial question of law arose in the case. Consequently, the appeal filed by the Revenue was dismissed as lacking merit. The judgment reiterated that the mere disagreement with ITAT's factual findings does not warrant invoking Section 260-A. The Court emphasized the need for appeals to raise substantial legal questions related to tax laws or treaties for consideration.