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TMI Blog2018 (6) TMI 1592X X X X Extracts X X X X X X X X Extracts X X X X ..... that too a substantial one, which has a well-defined connotations as explained above and findings of facts arrived at by the Tribunal in these type of assessments like any other type of assessments in other regular assessment provisions of the Act, viz., sections 143, 147 etc. are final and are binding on this court. While dealing with these appeals under section 260A of the Act, we cannot disturb those findings of fact under section 260A of the Act, unless such findings are ex facie per verse and unsustainable and exhibit a total non-application of mind by the Tribunal to the relevant facts of the case and evidence before the Tribunal. Otherwise if the High Court takes the path of making such a comparative analysis and pronounces upon the questions as to which filter is good and which comparable is really a comparable case or not, it will drag the High Courts into a whirlpool of such data analysis defeating the very purpose and purport of the provisions of section 260A of the Act. Therefore what we observed above appears to us to be the sustainable view that the key to the lock for entering into the jurisdiction of the High Court under section 260A of the Act is the existence o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen the Transfer Pricing Officer had granted sufficient time to the assessee to file reply to the show-cause notice dated November 13, 2013 ? 3. The learned Income-tax Appellate Tribunal in its order dated May 18, 2016 has given the following findings with regard to the issues raised in the present appeal by the Department. 5.5. In principle, we are in agreement with the contentions raised by the assessee, as gross profit over sales can eliminate the difference in claim of depreciation due to age of the machinery, rate at which it was claimed and method of claims like straight line or written down value. We accordingly direct the Assessing Officer/Transfer Pricing Officer to adopt the comparison of profitability ratios adopting the gross profit over sales. Since the details of capacity utilization of the comparable companies and rate of depreciation could not be analysed as commented by Dispute Resolution Panel, it would be better if gross profit analysis was undertaken taking sales less cost of raw material as basis (excluding other cost including depreciation, interest, etc.) so that auto components profitability could be analysed so as to consider whether the import of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;s length price' and the said provision stipulates that the 'arm's length price' in relation to the international transactions shall be determined by following any of these methods enumerated in section 92C of the Act which is considered to be the most appropriate method by the authorities under the Act. The methods provided are : Clause (a) : Comparable uncontrolled price method (CUP) ; Clause (b) : Resale price method (RP) ; Clause (c) : Cost plus method (CP) ; Clause (d) : Profit split method (PS) ; Clause (e) : Transactional net margin method (TNMM) ; and Clause (f) : such other method as may be prescribed by the Board. It appears from the true facts of the various cases before us and the arguments of the learned counsel that the transactional net margin method appears to be the most popular and widely adopted method for determining the 'arm's length price' in which the operating profit margin of comparable companies are considered by the authorities and applied to the cases of the assessees to determine the 'arm's length price' and make transfer pricing adjustments. Rules 10A, 10AB, 10B, 10C an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of other similarly situated or nearly similarly situated corporate entities whose data are in public domain or on the databases like Prowess and Capitaline database, etc. No substantial question of law arises in these cases The dispute essentially before us is the pairing and matching such comparables with the transfer pricing analysis of the profit margins given by the assessee himself during the course of determination of such 'arm's length price'. The shades of arguments raised by both the sides before us in these appeals and most of which have been filed by the Revenue are that either the wrong filters have been applied or filters have been wrongly applied, particularly qua turnover filter giving a far too wide or narrower range of comparables or even though comparable entities were functionally different entities from the entities in the list of Departmental comparables, as against the comparables sought to be provided by the assessees but the Revenue Department generally insists on their inclusion to get high profit ratio leading to higher transfer pricing adjustments, whereas the assessee would like to keep the comparables in a narrower range to ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the very purpose and purport of the provisions of section 260A of the Act. Therefore what we observed above appears to us to be the sustainable view that the key to the lock for entering into the jurisdiction of the High Court under section 260A of the Act is the existence of a substantial question of law involved in the matter. The key of ex facie perversity of the findings of the Tribunal is duly established with relevant evidence and facts. Unless it is so, no other key or for that matter, even the inconsistent view taken by the Tribunal in different cases depending upon the relevant facts available before it cannot lead to the formation of a substantial question of law in any particular case to determine the aspects of determination of 'arm's length price' as is sought to be raised before us. Need for giving primacy to the Tribunal in the area of fact finding Undoubtedly, the Income-tax Appellate Tribunal is the final and highest fact finding body under the Act. It is manned by expert members (Judicial Members are selected from District Judges or advocates and Accountant Members selected from practising chartered account ants or persons of Commissioner of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that right of appeal under section 260A of the Act is not automatic and it is limited right of appeal restricted only to cases which involve substantial questions of law and it is not open to the High Court to sit in appeal over the factual findings arrived at by the Tribunal. The court held that whether the case of HMT Limited was com parable case with the case of the assessee before it or not was the factual issue, it held that the learned Tribunal has factually assessed the similarities between M/s. HMT Limited and the respondent-assessee and the same does not warrant any interference under section 260A of the Act. The relevant factual background of the case and law pronounced by the courts are quoted below (page 349 of 405 ITR) : 'The respondent-assessee adopted the transactional net margin method (TNMM) as the appropriate method to determine the arm's length price (ALP) of its international transactions of purchase of raw materials and components. The assessee identified five comparables and it made adjustment on account of idle capacity on comparables in order to arrive at the arm's length price of its purchase transaction. The respondent-assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the Transfer Pricing Officer has been directed to include M/s. HMT Limited as a comparable and rework the comparable margin . . . In M. Janardhana Rao v. Joint CIT [2005] 273 ITR 50 (SC) ; [2005] 142 Taxman 722 (SC), the hon'ble Supreme Court held that the principles contemplated under section 100 of the Code of Civil Procedure would apply to section 260A of the Income-tax Act too. The right of appeal is not automatic. Right of appeal is conferred by the statute. When statute confers a limited right of appeal restricted only to cases which involve 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. In the instant case, whether M/s. HMT Limited can be a comparable or not is a factual issue. The learned Tribunal has factually assessed the similarities between M/s. HMT Limited and the respondent-assessee and the same, in our considered opinion, does not warrant interference of this court under section 260A of the Income-tax Act, 1961.' B. Similarly, the Division Bench of the Delhi High Court in the case of Principal CIT v. WSP Consultants India P. Ltd. in the judgmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ready reference (page 181) : 'Re-Question (ii) (a) M/s. KALS Information Solutions Ltd. (KALS Ltd.) and Helios and Matheson Information Technology Ltd. (Helios and Matheson Ltd.) were included by the Transfer Pricing Officer in his comparability analysis. The grievance of the respondent-assessee before the Tribunal was that both are functionally different from the respondent-assessee and, therefore, could not be used as comparables. The respondent-assessee pointed out that KALS Ltd. and Helios and Matheson Ltd. are engaged in the business of selling of software products while the respondent-assessee renders software services to its holding company. (b) The Tribunal in the impugned order records that for the preceding assessment year, i.e., the assessment year 2006-07, the Transfer Pricing Officer had found that KALS Ltd. and Helios and Matheson Ltd. were functionally not comparable with the respondent-assessee. In the subject assessment year also, on the basis of the annual report, it was noted that the KALS was engaged in selling of software products which is different from the activity undertaken by the respondent-assessee, namely, rendering of software servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and inquiry by the authorities of the Department and through the process of the Transfer Pricing Officer and Dispute Resolution Panel and the Tribunal at various stages, the assessee has a cumbersome task of compliance and it has to satisfy the authorities that what has been declared by them is true and fair disclosure and much of the transfer pricing adjustments is not required but the tax authorities have their own view on the other side and the effort on the part of the tax Revenue authorities is always to extract more and more revenue. This process of making huge transfer pricing adjustments results in multilayer litigation at multiple fora. After the lengthy process of the same, the matter reaches the Tribunal which also takes its own time to decide such appeals. In the course of this dispute resolution, much has already been lost in the form of time, man-hours and money, besides giving an adverse picture of the sluggish dispute resolution process through these channels. If appeals under section 260A of the Act were to be lightly entertained by the High Court against the findings of the Tribunal, without putting it to a strict scrutiny of the existence of the substantial que ..... X X X X Extracts X X X X X X X X Extracts X X X X
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