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TMI Blog2023 (4) TMI 859X X X X Extracts X X X X X X X X Extracts X X X X ..... to the extent non- comparable transactions are considered as comparable transactions or not. Therefore, the view taken by the Karnataka High Court in the case of Softbrands India (P) Ltd. [ 2018 (6) TMI 1327 - KARNATAKA HIGH COURT] that in the transfer pricing matters, the determination of the arm s length price by the Tribunal is final and cannot be subject matter of scrutiny under Section 260A of the IT Act cannot be accepted. As observed within the parameters of Section 260A of the IT Act in an appeal challenging the determination of the arm s length price, it is always open for the High Court to examine in each case whether while determining the arm s length price, the guidelines laid down under the Act and the Rules, referred to hereinabove, are followed or not and whether the determination of the arm s length price and the findings recorded by the Tribunal while determining the arm s length price are perverse or not. The impugned judgments and orders passed by the High Court dismissing the Revenue s appeals and even the appeals preferred by the assessees are required to be quashed and set aside and the matters are required to be remitted back to the concerned High Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9) CIVIL APPEAL NO. 8555 OF 2022 (Arising from SLP(Civil) No. 21000/2022 @ Diary No. 5862/2019) CIVIL APPEAL NO. 8528 OF 2022 (Arising from SLP(Civil) No. 7589/2019) CIVIL APPEAL NO. 8704 OF 2022 (Arising from SLP(Civil) No. 8141/2019) CIVIL APPEAL NO. 8666 OF 2022 (Arising from SLP(Civil) No. 8290/2019) CIVIL APPEAL NO. 8661OF 2022 (Arising from SLP(Civil) No. 8140/2019) CIVIL APPEAL NO. 8663 OF 2022 (Arising from SLP(Civil) No. 8145/2019) CIVIL APPEAL NO. 8628 OF 2022 (Arising from SLP(Civil) No. 8139/2019) CIVIL APPEAL NO. 8664 OF 2022 (Arising from SLP(Civil) No. 8147/2019) CIVIL APPEAL NO. 8559 OF 2022 (Arising from SLP(Civil) No. 21015/2022 @ Diary No. 7805/2019) CIVIL APPEAL NO. 8667 OF 2022 (Arising from SLP(Civil) No. 9064/2019) CIVIL APPEAL NO. 8560 OF 2022 (Arising from SLP(Civil) No. 21016/2022 @ Diary No. 7909/2019) CIVIL APPEAL NO. 8668 OF 2022 (Arising from SLP(Civil) No. 9066/2019) CIVIL APPEAL NO. 8584 OF 2022 (Arising from SLP(Civil) No. 21071/2022 @ Diary No. 8914/2019) CIVIL APPEAL NO. 8587 OF 2022 (Arising from SLP(Civil) No. 21075/2022 @ Diary No. 8916/2019) CIVIL APPEAL NO. 8586 OF 2022 (Arising from SLP(Civil) No. 21074/2022 @ Diary No. 8921/2019) CIVIL APPE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om SLP(Civil) No. 14978/2019) CIVIL APPEAL NO. 9414 OF 2022 (Arising from SLP(Civil) No. 16212/2019) CIVIL APPEAL NO. 8695 OF 2022 (Arising from SLP(Civil) No. 14980/2019) CIVIL APPEAL NO. 9415 OF 2022 (Arising from SLP(Civil) No. 16216/2019) CIVIL APPEAL NO. 8687 OF 2022 (Arising from SLP(Civil) No. 12348/2019) CIVIL APPEAL NO. 8696 OF 2022 (Arising from SLP(Civil) No. 14982/2019) CIVIL APPEAL NO. 8603 OF 2022 (Arising from SLP(Civil) No. 21096/2022 @ Diary No. 15505/2019) CIVIL APPEAL NO. 8605 OF 2022 (Arising from SLP(Civil) No. 21102/2022 @ Diary No. 15762/2019) CIVIL APPEAL NO. 8699OF 2022 (Arising from SLP(Civil) No. 14992/2019) CIVIL APPEAL NO. 8700 OF 2022 (Arising from SLP(Civil) No. 14996/2019) CIVIL APPEAL NO. 8701 OF 2022 (Arising from SLP(Civil) No. 14997/2019) CIVIL APPEAL NO. 8697 OF 2022 (Arising from SLP(Civil) No. 14990/2019) CIVIL APPEAL NO. 9404 OF 2022 (Arising from SLP(Civil) No. 15006/2019) CIVIL APPEAL NO. 9411 OF 2022 (Arising from SLP(Civil) No. 16205/2019) CIVIL APPEAL NO. 8602 OF 2022 (Arising from SLP(Civil) No. 21094/2022 @ Diary No. 13607/2019) CIVIL APPEAL NO. 8693 OF 2022 (Arising from SLP(Civil) No. 14979/2019) CIVIL APPEAL NO. 8705 OF 2022 (Arisin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing from SLP(Civil) No. 22622/2022 @ Diary No. 25285/2019) CIVIL APPEAL NO. 9388 OF 2022 (Arising from SLP(Civil) No. 24221/2022 @ Diary No. 26394/2019) CIVIL APPEAL NO. 9389 OF 2022 (Arising from SLP(Civil) No. 24222/2022 @ Diary No. 26866/2019) CIVIL APPEAL NO. 9390 OF 2022 (Arising from SLP(Civil) No. 24223/2022 @ Diary No. 26872/2019) CIVIL APPEAL NO. 9393 OF 2022 (Arising from SLP(Civil) No. 24227/2022 @ Diary No. 26887/2019) CIVIL APPEAL NO. 9394 OF 2022 (Arising from SLP(Civil) No. 24228/2022 @ Diary No. 27764/2019) CIVIL APPEAL NO. 9395 OF 2022 (Arising from SLP(Civil) No. 24229/2022 @ Diary No. 27869/2019) CIVIL APPEAL NO. 9396 OF 2022 (Arising from SLP(Civil) No. 24230/2022 @ Diary No. 28142/2019) CIVIL APPEAL NO. 9397 OF 2022 (Arising from SLP(Civil) No. 24231/2022 @ Diary No. 28295/2019) CIVIL APPEAL NO. 9398 OF 2022 (Arising from SLP(Civil) No. 24232/2022 @ Diary No. 29371/2019) CIVIL APPEAL NO. 9399 OF 2022 (Arising from SLP(Civil) No. 24234/2022 @ Diary No. 29375/2019) CIVIL APPEAL NO. 9400 OF 2022 (Arising from SLP(Civil) No. 24235/2022 @ Diary No. 30481/2019) CIVIL APPEAL NO. 2939 OF 2023 (Arising from SLP(Civil) No. 8189 /2023 @ Diary No. 31535/2019) CIVIL APPEAL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kapoor, Adv. Ms. Ananya Kapoor, Adv. Mr. Sanat Kapoor, Adv. Mr. Sumit Lalchandani, Adv. Mr. Vibhu Jain, Adv. Mr. Praveen Swarup, AOR Mr. Rajendra Singhvi, Adv. Mr. R.P. Tolani, Adv. Mr. Suresh Tolani, Adv. Mr. Darpan Kirpalani, Adv. Ms. Arundhati Chakraborty, Adv. JUDGMENT M. R. SHAH, J. 1. The present batch of Civil Appeals, mostly by the Revenue and few of the assessees arises out of judgments and orders passed by the various High Courts, more particularly the High Court of Karnataka, dismissing the appeals challenging the findings of the Income Tax Appellate Tribunal (for short, Tribunal ) on Transfer Pricing issues on the ground that the issues decided by the Tribunal are questions of fact and as perversity is neither pleaded nor argued nor demonstrated by placing material to that effect, no substantial question of law arises for consideration under Section 260A of the Income Tax Act, 1961 (for short, IT Act ). The High Court of Karnataka has dismissed the appeals preferred by the Revenue by relying upon its earlier judgment in the case of PCIT v. Softbrands India (P) Ltd., reported in (2018) 406 ITR 513 (Karnataka). 2. Shri Balbir Singh, learned Additional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in an appeal under Section 260A of the IT Act. 3.1 It is submitted on behalf of the assessees that Section 260A of the IT Act provides that an appeal shall lie to the High Court from every order of the Tribunal only if the High Court is satisfied that the case involves a substantial question of law. Sub-section (6) thereof provides that the High Court may determine any issue which (a) has not been determined by the Appellate Tribunal; or (b) has been wrongly determined by the Appellate Tribunal, by reason of a decision on such question of law as is referred to in sub-section(1). 3.2 It is submitted that the said provision came up for consideration in a catena of decisions. It is a settled position that jurisdiction under section 260A of the IT Act cannot be invoked unless there arises a substantial question of law. This is precisely what is held by the High Court of Karnataka in the judgment in Softbrands India (P) Ltd. (supra), by relying on a series of judgments of this Court. 3.3 It is submitted that a substantial question of law can arise in a case only when a question of law is fairly arguable, where there is room for difference of opinion on it. 3.4 It is submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , which are essentially questions of fact and there is a consensus ad idem to this extent between the parties. In none of the appeals has the Revenue pleaded, argued, or placed any material to demonstrate perversity in the order of the Tribunal. Therefore, the High Court after noting the questions raised, findings rendered by the Tribunal and noting that perversity is neither pleaded/argued nor demonstrated by placing any material, dismissed the appeals, by relying on principles laid down in Softbrands India (P) Ltd. (supra). Therefore, no error can be attributed to the orders passed by the High Court dismissing the appeals, in such circumstances. 3.8 It is next submitted that the submission of the Revenue that in each case the High Court should examine whether the guidelines laid down in the IT Act and the Rules are followed to determine the arm s length price is not correct and moreover is too farfetched, as the High Court can only decide substantial questions of law raised and arising before it. 3.9 It is further submitted that the Revenue s submission that the judgment in Softbrands India (P) Ltd. (supra) indicates that there will be no interference even where inconsisten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 260A (equivalent to section 100 CPC). In background facts or present batch of department s appeals, acceptance of department s contention about lack of application of mind by the High Court would cast an unjust burden on the High Court to undertake a suo moto exploration of facts not placed before it, make out a case for the department and decide the same without any assistance from the appellant before the High Court. Any such guidelines would upset settled law not only with reference to section 260A but also impact process under section 100 CPC. Unlike the assessees cases involved in this batch of appeals, it was never the case of the department that the High Court has not considered any of its written/ oral pleadings before the High Court. It is submitted that considered view may be taken after taking into account pleadings before the High Court, pleadings in the appeals before this Court in Assessees and department appeals and not based on sweeping generalization. 3.11 It is submitted that Transfer Pricing provisions are essentially a valuation exercise involving determination of a statistical sample of comparables. Under Section 92C(2) of the IT Act, Arm s Length P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed from considering the determination of the arm s length price determined by the Tribunal, in exercise of powers under Section 260A of the Act? 6. While determining the aforesaid issue, the relevant provisions for determining the arm s length price under the IT Act are required to be referred to. Section 92-C which is relevant, for the purpose of determining ALP inter alia, reads as follows: 92C. (1) The arm's length price in relation to an international transaction [or specified domestic transaction] shall be determined by any of the following methods, being the most appropriate method, having regard to the nature of transaction or class of transaction or class of associated persons or functions performed by such persons or such other relevant factors as the Board may prescribe, namely : - (a) comparable uncontrolled price method; (b) resale price method; (c) cost plus method; (d) profit split method; (e) transactional net margin method; (f) such other method as may be prescribed by the Board. (2) The most appropriate method referred to in subsection (1) shall be applied, for determination of arm's length price, in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rice is determined by the most appropriate method, the arm's length price shall be taken to be arithmetical mean of such prices. 21. Rule 10B of the Rules prescribes the determination of arm's length price under Section 92C. The first step in all methods is evaluation of differences between the international transaction undertaken with the unrelated enterprise performing the comparable functions in similar circumstances. Rule 10B of the Income-tax Rules inter alia, provides for various methods for determination of the arm's length price. Rule 10B(1)(e) prescribes the transactional net margin method (TNMM) with which the present case is concerned. Rule 10B(1)(e) (i) is as under: 10B. (1) Determination of arm's length price under section 92C: . . ************* ********* (e) transactional net margin method, by which, (i) the net profit margin realised by the enterprise from an international transaction entered into with an associated enterprise is computed in relation to costs incurred or sales effected or assets employed or to be employed by the enterprise or having regard to any other relevant base. 7. Therefore, while dete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al under Section 260A of the IT Act on the ground that it cannot be said to be raising a substantial question of law cannot be accepted. As observed hereinabove, within the parameters of Section 260A of the IT Act in an appeal challenging the determination of the arm s length price, it is always open for the High Court to examine in each case whether while determining the arm s length price, the guidelines laid down under the Act and the Rules, referred to hereinabove, are followed or not and whether the determination of the arm s length price and the findings recorded by the Tribunal while determining the arm s length price are perverse or not. 9. In view of the above, the impugned judgments and orders passed by the High Court dismissing the Revenue s appeals and even the appeals preferred by the assessees are required to be quashed and set aside and the matters are required to be remitted back to the concerned High Courts to decide and dispose of the respective appeals afresh in light of the observations made hereinabove and examine in each and every case whether the guidelines laid down under the Act and the Rules, referred to hereinabove, are followed while determining the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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