Case: Pr. Commissioner of Income Tax - 6 Vs. Eight Roads Investments Advisors Private Limited (Formerly Known As Fil Capital Advisors India Private Limited)

comparable on the basis of the functionality of the said companies in the public domain. We find that such a detailed exercise having been undertaken by the Tribunal qua each and every comparable company, the reasons given by the Tribunal cannot be faulted with in respect of the comparable companies. The Tribunal has referred to and relied upon the order passed by this Court in the case of Principal Commissioner of Income Tax - 14 Vs. Temasek Holdings Advisors India Pvt. Ltd. in Income Tax Appeal No.304 of 2017 delivered on 16th April 2019, wherein the following substantial questions of law were framed.(a) Whether on the facts and in the circumstances of the case, the Tribunal is correct in law in directing the Assessing Officer to include ICRA Management Consultancy Services Ltd., Kinetic Trust Limited in the set of comparable companies while determining the TP adjustment of international transaction (b) Whether on the facts and in the circumstances of the case, the Tribunal is correct in law in striking down the additional markup margin of 3% to the average PLI of the comparable companies selected by the TPO 17. In the said order, this Court after referring to another order dated 17th November 2016 passed in Income Tax Appeal No.1051 of 2014 dismissed the revenues appeal raising objection to the Tribunals decision to include ICRA Management Consultancy Services Ltd. and Kinetic Trust Limited which were both rejected by the TPO. So also in the present case, the comparables suggested by the assessee which were excluded by the TPO / DRP were in fact adopted as comparables by the TPO for the financial year 2009 - 2010 in the case of the assessee itself. This aspect was also considered in the aforesaid order.18. The assessee has placed before us a copy of the judgment delivered by this Court in the case of Principal Commissioner of Income Tax - 3 V/s. M/s. Bain Capital and Advisors (I) P. Ltd. in Income Tax Appeal No.541 of 2016, dated 24th November 2018, wherein the revenue had urged the following question for consideration.Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in holding that Motilal Oswal Investment Advisors Pvt. Ltd. and M/s. IDFC Ltd. were not comparables for the purpose of Rule 10B of the Income Tax Rules 19. This Court after due consideration dismissed the appeal of the revenue holding that no substantial question of law arose from the order of the Tribunal. 20. On a thorough consideration we find that the rational for inclusion of the six comparables excluded by the TPO have been dealt with in extensive detail by the Tribunal and we are in agreement with the reasons recorded by the Tribunal. Further the reasons given for inclusion of the five new comparables by the TPO have been decidedly set aside by the Tribunal on the basis of decisions rendered by this Court either in the case of the assessee itself and / or in other cases after proper consideration. 21. At this stage we would like to refer to paragraph No.54 in the judgment of Principal Commissioner of Income Tax Vs. M/s. Softbrands India Pvt. Ltd. (supra), which reads thus :54. The procedure of assessment under Chapter X relating to international transactions as indicated above is already a lengthy one and involves multiple Authorities of the Department. A huge, cumbersome and tenacious exercise of Transfer Pricing Analysis has to be undertaken by the Corporate Entities who have to comply with the various provisions of the Act and Rules with a huge Data Bank and in the first instance they have to satisfy that the profits or the income from transactions declared by them is at Arms length which analysis is invariably put to test and inquiry by the Authorities of the Department and through the process of Transfer Pricing Officer (TPO) and Dispute Resolution Panel (DRP) 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 multi- layer 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 260-A of the Act were to be lightly entertained by High Court against the findings of the Tribunal, without putting it to a strict scrutiny of the existence of the substantial questions of law, it is likely to open the flood-gates for this litigation to spill over on the dockets of the High Courts and up to the Supreme Court, where such further delay may further cause serious damage to the demand of expeditious judicial dispensation in such cases.22. From the above, it is clear that the appeal filed under Section 260A of said Act is required to be entertained only on substantial question of law arising out of the order of the Tribunal, keeping in mind that we can not disturb findings of fact under Section 260A of the said Act unless such findings are shown to be ex-facie perverse and unsustainable and exhibit a total non-application of mind. We are therefore of considered opinion that the present appeal filed by the Revenue does not give rise to any substantial question of law. The appeal filed by the Revenue is found to be devoid of merit and the same is liable to be dismissed.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]8. At the outset, we would like to state that, the findings arrived at by the Tribunal are entirely one of facts and the revenue has failed to show as to how the said findings are perverse in any manner whatsoever.In view of the above detailed reproduction of the reasonings given by the Tribunal we find that, while undertaking the exercise to arrive at the arms length price which is essentially a matter of estimate of the fair value which the Indian Company had paid or had received from its Associate Enterprise (A.E.), such exercise is required to be undertaken by the TPO on the basis of the facts and figures relating to comparable cases of other similarly placed entities, whose relevant data is available in the public domain. As per the provisions of the Act and the Rules, the assessee company is required to furnish its own Transfer Pricing Analysis and the list of chosen comparables which may or may not be agreed to by the Revenue Authorities and they would introduce some more comparables rejecting the comparables given by the assessee company by applying certain filters like Related Party Transactions (RPT) filter, turnover filter, export earnings filter, employee cost filter, etc to bring them within the comparable range of the cases of such comparables and generally there would be a tug of war between the assessee and the revenue in such a situation. We would state that the assessee company would normally choose comparables, whose operating profit margins are less or only little more than the assessee, but the revenue would bring in comparables with higher profit margins. The TPO, may in the case of an assessee introduce and suggest comparables whose operating margins are higher than the assessee company so as to make transfer pricing adjustments in the declared income of the assessee, resulting in fetching of more revenue. From the aforesaid quoted paragraphs from the Tribunals order, it is evident that, individual cases of such comparables have been juxtaposed with the functionality of the assessee considered, analyzed and discussed by the Tribunal in respect of comparables which were excluded by the TPO as also in the case of those comparables which were included by the TPO. It is quite common to note that, while some comparables are found to be appropriate and really comparable to the facts of the assessee company, some are not and it would ultimately result in whether the correct filters have been properly applied or not or whether the most appropriate method of determination of arms length price has been adopted or not to make fair and reasonable transfer pricing adjustments in the hands of the assessee. However, the entire exercise of making transfer pricing adjustments on the basis of comparables is nothing but a matter of estimate of a broad and fair guess-work of the authorities based on factual relevant materials brought before the authorities i.e. the TPO, the DRP and the Tribunal, which are the fact finding authorities.In the case before us the TNMM method appears to have been the most popular and widely adopted method for determining the Arms Length Price in which the operating profit margin of comparable companies are considered by the authorities and applied to the case of the assessee to determine the Arms Length Price to make transfer pricing adjustments. Rules 10-A, 10-AB, 10-B, 10-C and 10-CA of the Income Tax Rules, 1962 prescribe the manner for working out Arms Length Price under the prescribed methods. From the aforesaid scheme of assessment, it is clear that the process of determination of Arms Length Price has to be undertaken by the Expert Wing of the Income Tax Department which is manned by TPO and at the higher level by a collegium of three Commissioners in the form of DRP whose orders are appealable before the Appellate Tribunal. In the above backdrop, in so far as the present case is concerned the TPO had rejected six comparable companies chosen by the assessee for bench marking namely i) Access India Advisors Limited; ii) ICRA Management Consulting Services Limited; iii) IDC (India) Limited; iv) Informed Technologies Limited; v) Integrated Capital Services Limited and vi) Kinetic Trust Limited. The Transfer Pricing Officer (TPO) only accepted one company as a comparable company being Future Capital Investment Advisors Limited but undertook a further detailed analyses and proposed to include the following five more companies as comparables namely i) Future Capital Holdings Limited (Segmental); ii)ICRA Online Limited(Segmental); iii) IDFC Investment Advisors Private Limited; iv) Kshitij Investment Advisors Limited and v) Motilal Oswal Investment Advisors Private Limited.The submissions advanced on behalf of the respective parties are mostly based upon the filters which have been applied which are essentially related to turnover filter, the comparable entities being functional entities, higher transfer pricing adjustments, transfer pricing analyses and profits declared by the companies. We have quoted the specific findings given by the Tribunal and would therefore, not like to dwelve deeper or reiterate the same. We would however like to say that the Tribunal has considered the case of each comparable company and discussed the parameters of comparables for the purposes of including the same as a comparable and / or excluding the same as comparable on the basis of the functionality of the said companies in the public domain. We find that such a detailed exercise having been undertaken by the Tribunal qua each and every comparable company, the reasons given by the Tribunal cannot be faulted with in respect of the comparablealso in the present case, the comparables suggested by the assessee which were excluded by the TPO / DRP were in fact adopted as comparables by the TPO for the financial year 2009 - 2010 in the case of the assessee itself. This aspect was also considered in the aforesaid order.On a thorough consideration we find that the rational for inclusion of the six comparables excluded by the TPO have been dealt with in extensive detail by the Tribunal and we are in agreement with the reasons recorded by the Tribunal. Further the reasons given for inclusion of the five new comparables by the TPO have been decidedly set aside by the Tribunal on the basis of decisions rendered by this Court either in the case of the assessee itself and / or in other cases after proper consideration.From the above, it is clear that the appeal filed under Section 260A of said Act is required to be entertained only on substantial question of law arising out of the order of the Tribunal, keeping in mind that we can not disturb findings of fact under Section 260A of the said Act unless such findings are shown to be ex-facie perverse and unsustainable and exhibit a total non-application of mind. We are therefore of considered opinion that the present appeal filed by the Revenue does not give rise to any substantial question of law. The appeal filed by the Revenue is found to be devoid of merit and the same is liable to be dismissed.