2018 (7) TMI 380 - HC - Income Tax

TPA - Comparable selection - substantial question of law - Held that - This Court in Prl.Commissioner of Income Tax & Anr. Vs. M/s.Softbrands India Pvt. Ltd. (2018 (6) TMI 1327 - KARNATAKA HIGH COURT ) has held that in these type of findings of the learned Tribunal remained final fact findings of the learned Tribunal and are binding on the lower authorities of the Department as well as this Court and unless an established ex-facie perversity is found in the findings of the learned Tribunal, the appeal u/s.260A of the Act is not maintainable.

Summary

Issues:
1. Appeal under section 260A of the Income Tax Act, 1961 regarding Transfer Pricing adjustments for A.Y. 2010-11.
2. Exclusion of comparables, functional dissimilarity, and non-operating expenses.
3. Inclusion of certain comparables and treatment of bad and doubtful debts provision.

Analysis:

1. The Appellants-Revenue filed an appeal under section 260A of the Income Tax Act, 1961, challenging the order of the ITAT, Bench 'A', Bangalore, for A.Y. 2010-11. The proposed substantial questions of law raised by the Appellants-Revenue pertained to the exclusion of comparables like M/s. Accentia Technologies Ltd. and M/s. Fortune Infotech Ltd. based on functional dissimilarity, as well as the treatment of personal expenses, depreciation, and rent as non-operating expenses. The Tribunal was questioned for directing the inclusion of certain comparables and holding certain expenses as non-operating without proving nexus with business activities.

2. The Tribunal's findings rejected the Revenue's contentions on various Transfer Pricing issues. The Tribunal excluded M/s. Accentia Technologies Ltd. as a comparable due to extraordinary financial events and functional dissimilarity. Similarly, M/s. Fortune Infotech Ltd. was deemed functionally not comparable based on unique technology and technical know-how. The Tribunal directed the inclusion of comparables like M/s. R. Systems International Ltd. and M/s. Ultramarine & Pigments Ltd. based on relevant case laws and financial data availability.

3. The Tribunal's decision on the treatment of personal expenses, depreciation, and rent as non-operating in nature was upheld, emphasizing the lack of nexus with business activities. Additionally, the Tribunal's ruling on the provision for bad and doubtful debts as operating in nature was supported by referencing relevant case law. The judgment highlighted the importance of factual findings by the Tribunal in Transfer Pricing matters, stating that mere dissatisfaction with findings does not warrant invoking section 260A of the Act. The appeal by the Revenue was dismissed, emphasizing the need for substantial legal questions for appeal under section 260A.

In conclusion, the judgment delves into the complexities of Transfer Pricing adjustments, comparability analysis, and the treatment of expenses in determining business profits. The Tribunal's detailed reasoning and reliance on case laws were pivotal in resolving the issues raised by the Appellants-Revenue, ultimately leading to the dismissal of the appeal for lack of substantial legal questions.