2017 (5) TMI 310 - HC - Income Tax

Direction issued by the ITAT to exclude the reimbursement cost while calculating the operating cost for determining the Arm s Length Price ( ALP ) of the international transaction involving the Assessee during the AY in question - Held that - In the present case, as is evident from the passage extracted hereinbefore from the impugned order of the ITAT, after the examination of the agreement the ITAT came to a definite factual conclusion as regards reimbursement of the infrastructure costs of the Assessee by the AE without any mark up. Thus the decision has turned purely on facts. The ground of perversity ought not to be casually pleaded. It requires a detailed study of the entire record by the Appellant. In the present case, for instance, the ITAT after examining the agreement between the Assessee and its AE has agreed with the Assessee that the reimbursement of the infrastructure cost has no mark-up. Unless there is a specific plea to the effect that the said factual finding is perverse, the Court cannot, at the instance of a general plea of perversity, entertain such a ground of appeal by the Revenue. No substantial question law arises

Summary

Issues Involved:
Validity of direction to exclude reimbursement cost for determining Arm's Length Price (ALP) of international transaction.

Analysis:
1. The appeal by the Revenue under Section 260A of the Income Tax Act, 1961 challenged the order of the Income Tax Appellate Tribunal (ITAT) regarding the exclusion of reimbursement cost while calculating the operating cost for determining the ALP of an international transaction during the Assessment Year 2011-12.
2. The Assessee, a subsidiary of CPA Mauritius Ltd., offered legal support services to Associated Enterprises (AEs) and third-party customers. The controversy revolved around the exclusion of reimbursement costs from operating costs for ALP calculation.
3. The ITAT examined the agreement between the Assessee and its AE and differentiated between reimbursements for service costs with mark-up and infrastructure costs without mark-up. It concluded that reimbursement towards infrastructure without mark-up should be excluded from operating costs for ALP determination.
4. The Revenue argued that the ITAT disregarded a precedent and contended the impugned order was perverse. However, the Court noted the factual distinction in the cited precedent and emphasized the necessity of specific pleading and evidence for challenging factual findings.
5. The Court dismissed the appeal, finding no substantial question of law arising from the ITAT's order. It emphasized the importance of responsible and specific pleading when alleging perversity in factual findings, requiring references to relevant documents in the record.

This detailed analysis highlights the key aspects of the judgment, including the factual findings, legal arguments, and the Court's reasoning in dismissing the appeal.