2018 (8) TMI 863 - HC - Income Tax

Transfer pricing - exclusion of comparable - ITAT adopted the 15% as RPT Filter as against 25% RPT filtered applied by the TPO - International Transaction of the Assessee with its associated enterprises - Held that - unless the finding of the Tribunal is found ex facie perverse, the Appeal u/s. 260-A of the Act, is not maintainable. - Decided against the revenue.

Summary

Issues:
- Determination of RPT filter percentage for international transactions
- Exclusion of specific comparables for computing Arm's Length Price

Analysis:
1. Determination of RPT Filter Percentage:
The Tribunal considered the issue of adopting a 15% RPT filter against the TPO's recommendation of 25%. The Tribunal found that the assessee had valid grounds for seeking exclusion of certain companies, even if they were initially in the assessee's list of comparables. The Tribunal emphasized that the TP area is evolving, and decisions regarding exclusions should be revisited. The Tribunal directed a fresh examination by the AO/TPO for the comparability of Bodhtree Consulting Ltd. The Tribunal also excluded various other companies based on specific reasons provided for each, such as amalgamation skewing profits, functional differences, and RPT exceeding 15%.

2. Exclusion of Specific Comparables:
The Tribunal analyzed each comparable company individually, considering factors like functional differences, unreliable financials, and segmental results availability. The Tribunal referred to past decisions and held that certain companies should be excluded from the list of comparables for computing the Arm's Length Price. The Tribunal directed the AO/TPO to exclude companies like Extensys Software Solutions Ltd, Sankhya Infotech Ltd, Foursoft Ltd, Thirdware Solutions Ltd, Geometric Software Solutions Co. Ltd, Tata Elxsi Ltd, Visual Soft Technologies Ltd, Flextronics Ltd, Satyam Computers Services Limited, and Infosys Technologies Limited.

3. Legal Precedent and Dismissal of Appeal:
The Court cited a previous judgment to establish that the determination of comparables and filters does not necessarily raise substantial questions of law. The Court emphasized that unless the Tribunal's finding is ex facie perverse, appeals under Section 260-A of the Act are not maintainable for such issues. The Court concluded that the present appeal by the Revenue did not present any substantial question of law and dismissed the appeal, clarifying that dissatisfaction with Tribunal findings is not sufficient to invoke Section 260-A.

In conclusion, the High Court dismissed the Revenue's appeal as it did not raise any substantial question of law. The judgment provided detailed reasoning for the exclusion of specific comparables and the application of RPT filters, emphasizing the evolving nature of transfer pricing considerations and the need for a fresh examination in certain cases. The legal precedent cited underscored the limited scope for appeals based on comparables selection and filter application.