2018 (11) TMI 1552 - HC - Income Tax

Computation of deduction u/s 10A - exclude expenses incurred in foreign currency and other expenses that has been excluded from ETO, from the total turnover also - Held that - The issue is covered by the decision of the hon ble Supreme Court in the case of CIT v. HCL Technologies Ltd 2018 (5) TMI 357 - SUPREME COURT as held when the object of the formula is to arrive at the profit from export business, expenses excluded from export turnover have to be excluded from total turnover also. Oth erwise, any other interpretation makes the formula unworkable and absurd. Hence, we are satisfied that such deduction shall be allowed from the total turnover in same proportion as well. TPA - selection of comparable - Held that - Since the Tribunal has examined the profile and datas of Bodh tree Consulting Ltd. and has come to the conclusion that this com pany cannot be taken as good comparable for computing the arm s length price (ALP), we find no justification in re-examining the issue again. Accordingly, following the aforesaid order of the Tribunal, we uphold the exclusion of Bodhtree Consulting Ltd. from the list of comparables. Sankhya Infotech Ltd. was examined by the Tribunal and the Tribunal following the view taken in the case of Kodiak Network India Ltd. 2015 (8) TMI 225 - ITAT BANGALORE has directed the TPO to exclude this company from the list of comparables - same yardsticks and parameters will have to be applied, even if such appeals are filed by the assessees, because, there may be cases where the Tribunal giving its own reasons and findings has found certain comparables to be good comparables to arrive at an arm s length price in the case of the assessees with which the assessees may not be satisfied and have filed such appeals before this court. Therefore we clarify that mere dissatisfaction with the findings of facts arrived at by the learned Tribunal is not at all a sufficient reason to invoke section 260A of the Act before this court - Decided against revenue

Summary

Issues:
1. Interpretation of provisions under section 10A of the Income-tax Act regarding the exclusion of certain expenses from total turnover.
2. Exclusion of comparables in transfer pricing analysis based on functional dissimilarity and previous tribunal decisions.
3. Whether the Tribunal's exclusion of certain comparables with filters of less than 25% was justified.
4. Applicability of section 260A of the Act in appeals regarding selection of comparables in transfer pricing analysis.

Interpretation of Provisions under Section 10A:
The appeal raised a question regarding the exclusion of expenses incurred in foreign currency from the total turnover under section 10A of the Income-tax Act. The High Court referred to a previous Supreme Court decision and held that expenses excluded from export turnover must also be excluded from total turnover. The court emphasized that any other interpretation would be against legislative intent. The Tribunal's decision to allow deductions from total turnover in the same proportion as export turnover was upheld.

Exclusion of Comparables in Transfer Pricing Analysis:
The Tribunal excluded certain comparables based on functional dissimilarity, following previous tribunal decisions. The court noted that unless there is clear perversity in the Tribunal's findings, appeals under section 260A of the Act are not maintainable. The court cited a judgment emphasizing that issues related to comparables selection do not generally raise substantial questions of law. The Tribunal's exclusion of comparables was found to be justified based on the facts and previous decisions.

Exclusion of Comparables with Filters of Less than 25%:
The Tribunal's exclusion of comparables with filters of less than 25% was challenged. However, the court found that the Tribunal's decision was consistent with its earlier order and did not see a reason to re-examine the issue. The court upheld the exclusion of these comparables based on the Tribunal's previous rulings and the lack of justification for re-examination.

Applicability of Section 260A in Transfer Pricing Appeals:
The court clarified that appeals related to comparables selection in transfer pricing analysis do not generally give rise to substantial questions of law under section 260A of the Act. Mere dissatisfaction with the Tribunal's findings is not sufficient to invoke section 260A. The court dismissed the Revenue's appeals, emphasizing the need for consistent application of parameters in such cases, whether filed by the Revenue or the assessees.

In conclusion, the High Court dismissed the Revenue's appeal, stating that no substantial question of law arose in the case. The court upheld the Tribunal's decisions regarding the exclusion of expenses from turnover, exclusion of comparables based on functional dissimilarity, and the consistent application of filters in transfer pricing analysis.