2019 (8) TMI 167 - HC - Income Tax

TP adjustment - Comparable selection - loss making companies should not be excluded only on that basis - three comparables i.e. ITI Ltd., Punjab Communications and Himachal Futuristic Communications (P) Ltd. were included as comparables for the purposes of computation of the transfer price for international transactions in the Assessee s manufacturing and installation segment - HELD THAT - ITAT differed from the view expressed by the TPO and accepted the reasoning put forth by counsel for the Assessee that the finances of the three comparables which included ITI Ltd., with reference to their respective annual reports, did show that there was a general trend in the industry of either loss-making or declining revenues. The ITAT was of the view that loss making companies should not be excluded only on that basis. In the present case there was no dispute on the functional profile of the Assessee being similar to that of ITI Ltd. The opinion expressed by the ITAT is a plausible one in the facts and circumstances of the case. The inclusion of ITI Ltd. and the other two comparables is supported by sound reasoning given by the ITAT which, in the considered view of this Court, cannot be said to be perverse. No substantial question of law arises.

Summary

Issues:
1. Delay in re-filing the appeal.
2. Inclusion of comparables for computation of transfer price for international transactions.

Delay in re-filing the appeal:
The High Court condoned the delay in re-filing the appeal based on the reasons provided in the application, and subsequently disposed of the application. This issue was addressed promptly by the Court.

Inclusion of comparables for computation of transfer price for international transactions:
The Revenue appealed against an order by the Income Tax Appellate Tribunal (ITAT) regarding the inclusion of three comparables - ITI Ltd., Punjab Communications, and Himachal Futuristic Communications (P) Ltd. The Revenue contended that ITI Ltd., being a Government company, should not be considered comparable due to its unique working environment and financial support from the government affecting its market competitiveness. The Transfer Pricing Officer (TPO) had also highlighted these aspects specific to ITI Ltd. However, the ITAT disagreed with the TPO's view, emphasizing the industry trend of loss-making or declining revenues among the comparables. The ITAT found the functional profile similarity between the Assessee and ITI Ltd. significant, citing a previous court decision. The High Court, after considering arguments from both sides, upheld the ITAT's decision, deeming it plausible and supported by sound reasoning. The Court concluded that no substantial question of law arose, leading to the dismissal of the appeal by the Revenue.

This detailed analysis of the judgment covers the issues of delay in re-filing the appeal and the inclusion of comparables for the computation of transfer prices for international transactions, providing a comprehensive overview of the legal proceedings and decisions made by the High Court.