2018 (8) TMI 517 - HC - Income Tax

Appeal filed by the Revenue against the order of the learned Tribunal - maintainability of appeal - Transfer pricing adjustments - reference to TPO - acceptable comparable - Held that - M.Janardhana Rao Vs. Joint Commissioner of Income Tax 2005 (1) TMI 14 - SUPREME COURT the Supreme Court held that the principles contemplated under Section 100 of the Code of Civil Procedure would apply to Section 260-A of the IT Act too. Right of appeal is not automatic. Right of appeal is conferred by statute. When statute confers a limited right of appeal only in a case which involves substantial questions of law, it is not open to this Court to sit in appeal over the factual findings arrived at by the Appellate Tribunal. Tribunal considering all materials and relevant facts, including the functional profile of M/s.Stewarts & Lloyds India Limited for successive years, arrived at the conclusion that M/s.Stewarts & Lloyds India Limited was a good comparable. There is no question of law, not to speak any substantial question of law, involved in this appeal.

Summary

Issues Involved:
1. Rejection of M/s.Stewarts & Lloyds India Limited as a comparable.
2. Inclusion of new comparables M/s.Desein Private Limited and M/s.Blue Star Design & Engineering Ltd.
3. Applicability of Section 260A of the Income Tax Act, 1961 regarding the presence of a substantial question of law.

Detailed Analysis:

1. Rejection of M/s.Stewarts & Lloyds India Limited as a comparable:
The respondent assessee had selected M/s.Stewarts & Lloyds India Limited as a comparable for its transfer pricing study. The Transfer Pricing Officer (TPO) rejected this comparable, citing that M/s.Stewarts & Lloyds India Limited had a material cost of 8.02% to the total operating cost, which was considered significant. However, the Tribunal noted that the TPO had accepted this company as a comparable in the previous assessment years (2008-09, 2009-10, and 2010-11). The Tribunal found the assessee's argument acceptable, stating that the material cost was not significant enough to consider the company as engaged in manufacturing/production, thus requiring a segmental analysis. Consequently, the Tribunal concluded that M/s.Stewarts & Lloyds India Limited was a good comparable.

2. Inclusion of new comparables M/s.Desein Private Limited and M/s.Blue Star Design & Engineering Ltd:
The respondent assessee argued that if M/s.Mahindra Consulting Engineers Ltd was considered a proper comparable, then M/s.Desein Private Limited and M/s.Blue Star Design & Engineering Ltd should also be included. These companies were claimed to provide similar engineering consultancy services. The Departmental Representative opposed this, stating that the assessee could not demonstrate the similarity in the functional profile of these companies with that of the assessee. The Tribunal, after considering the submissions, directed the TPO to rework the Profit Level Indicator (PLI) of the final list of comparables, which included Mahindra Consulting Engineers Ltd, M.N.Dastur & Company (P) Ltd, Toyo Engineering India Ltd, Kirloskar Consultants Ltd, and M/s.Stewarts & Lloyds Ltd.

3. Applicability of Section 260A of the Income Tax Act, 1961 regarding the presence of a substantial question of law:
The core issue before the High Court was whether the appeal filed by the Revenue against the Tribunal's order involved a substantial question of law under Section 260A of the Income Tax Act, 1961. The High Court referred to the Supreme Court judgments in Sir Chunilal V. Mehta & Sons Ltd. vs Century Spg. & Mfg. Co. Ltd. and Hero Vinoth Vs. Seshammal, which laid down the principles for determining when a question of law becomes substantial. The Court emphasized that for a question of law to be substantial, it must be debatable, not previously settled by law, and have a material bearing on the decision of the case. The Court found that the Tribunal had considered all materials and relevant facts, including the functional profile of M/s.Stewarts & Lloyds India Limited, and arrived at a factual conclusion that did not involve any substantial question of law. Consequently, the High Court dismissed the appeal, stating that there was no question of law involved, much less any substantial question of law.

Conclusion:
The High Court dismissed the Revenue's appeal, affirming the Tribunal's decision to include M/s.Stewarts & Lloyds India Limited as a comparable and directing the TPO to rework the PLI with the final list of comparables. The Court held that there was no substantial question of law involved in the appeal, thereby upholding the Tribunal's factual findings.