Date Of Judgment 26-06-2018, Ita v. M/S Swiss Re Global Business Solutions India Private Limited

IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 26 DAY OF JUNE 2018 PRESENT THR HON’BLEK DR.JUSTICE VINBBT KOTHARI ANT) THR HON’BLE MRS..JUSTICK S.SUJATHA I.T.A. No.884/2017 BETWEEN : 1.Pr. COMMISSIONER OF INCOME TAX (CENTRAL)C.R.BUILDING, QUEENS ROAD,BBNGALURU-560001OF INCOME TAX (CENTRAL)C.R.BUILDING, QUEENS ROAD,BBNGALURU-560001 «|Dy. COMMISSIONER OF INCOME TAXCIRCLE-6(1)(2), BMTC COMPLEX,KORAMANGALA,BENGALURU.. APPELLANTS (BY SRI E.L.SANMATHI, ADV.) AND : M/s SWISS RE GLOBAL BUSINESSSOLUTIONS INDIA PRIVATE LIMITED, (FORMERLY KNOWN AS SWISS RE SHARED|SERVICES (INDIA) PRIVATE LIMITED)VASAWANI CETROPOLIS,~ ‘TO 5 FLOOR, FAIRWINDS BUILDINGBRMBASSY GOLF LINKSBUSINESS PARK|CHALLAGHATA VILLAGE|BANGALORBE-560071_. RESPONDENT. (BY SRI MALLAHA RAO K., ADV. A/W|oRI SANDEEP KARHAIL. ADV) Date of Judgment 26-06-2018, ITA No.884/2017 Pr. Commissioner of Income Tax (Central) & another Vs. M/s Swiss Re Global Business Solutions India Private Limited 2/35 THIS [TA IS FILED UNDER SECTION 260-A OF INCOME|TAX ACT 1961, ARISING OUT OF ORDER DATED 13.04.2017.PASSED IN ITA NO.2315/BANG/2016, FOR THE ASSESSMENTYREAR 2012-2013 PRAYING TO: DECIDE THE FORBKGOINQUESTION OF LAW AND/OR SUCH OTHER QUESTIONS OF LAW,AS MAY BR FORMULATED BY THR HON'BLBE COURT ASDBEMBD FIT AND SHIT ASIDE THE APPELLATE ORDER DATED13.04.9017PASSED|BY|THREINCOME,TAXAPPBLLATEHTRIBUNAL, 'B' BENCH, BENGALURU, IN APPEAL PROCEEDINGS |ITA NO.2315/BANG/2016 FOR ASSESSMENT YEAR 2012-13, AS|SOUGHT FOR IN THIS APPEAL AND TO GRANT SUCH OTHER|RBELIBF AS DEBMED FIT. THIS APPEAL COMING ON FOR ADMISSION, THIS DAY,S. SUJATHA, J., DELIVERED THE FOLLOWING: JU DGMENT Mr.E.I.Sanmathi., Adv. for Appellants - RevenueMr. Mallaha Rao.K. A/w Mr. Sandeep Karhail,Advs.for Respondent - Assessee. This Appeal is filed by the Revenue purportedlyraising substantial questions of law arising from theOrder of the Income Tax Appellate Tribunal, “B’ Bench, Bangalore, inIT [TPJA No.2315/Bang/2016dated 13.04.2017, relating to the Assessment Year2012-13. 2.The proposed substantial question of law)framed by the Revenue in the Memorandum of Appeal is"as under: Date of Judgment 26-06-2018, ITA No.884/2017 Pr. Commissioner of Income Tax (Central) & another Vs. M/s Swiss Re Global Business Solutions India Private Limited 3/35 “Whether on the facts and in thecircumstances of the case, the Tribunal was|right in excluding comparable’s namely, M/s.UniversalPrintoystemsLtd, InformedTechnologies India Ltd, Infosys BPO Ltd, M/s.Microgenetics Systems Ltd, TCS E-Serve Ltdand BNR Udyog Ltd contrary to its own|earlier decisions in cases of M/s. Societe|General Global Solution Centre Pvt. Ltd., and|also in case of Vmoksha Technologies Put.|Ltd., and all the required tests were satisfiedin case of the comparable’s chosen by TPO”? 3.The learned Tribunal, after discussing therival contentions of both the Appellant-Revenue andRespondent-Assessee, has returned a finding as under:| aHavingconsideredtherivalSubmissions as well qs relevant material on'record we find that the turnover is a relevant|factor for the purpose of determining the.comparability of the proposed companies for|the purpose of determining the arms length|price. The Hon'ble Bombay High Court in case.of Vs M/s. Pentair Water India Put. Ltd.| Date of Judgment 26-06-2018, ITA No.884/2017 Pr. Commissioner of Income Tax (Central) & another Vs. M/s Swiss Re Global Business Solutions India Private Limited 4/35 (supra) while dealing with the issue of thecomparability of companies having high|turnover in comparison to the assessee heldin para 5 and 6 as under. “Oo. On perusal of the impugned OrderpassedbytheTribunaldated23.05.2014, we find that the Tribunalhas recorded the reasons for notaccepting the said three companies arecomparable by stating as follows: [jj HCL Comnet Systems & ServicesLtd:- Date of Judgment 26-06-2018, ITA No.884/2017 Pr. Commissioner of Income Tax (Central) & another Vs. M/s Swiss Re Global Business Solutions India Private Limited 4/35 (supra) while dealing with the issue of thecomparability of companies having high|turnover in comparison to the assessee heldin para 5 and 6 as under. “Oo. On perusal of the impugned OrderpassedbytheTribunaldated23.05.2014, we find that the Tribunalhas recorded the reasons for notaccepting the said three companies arecomparable by stating as follows: [jj HCL Comnet Systems & ServicesLtd:- We find force in the submission ofthe learned AR that this companycannot be a comparable as the turnoverof this company is 260.18 crores whilein the case of the Assessee, the turnoveris around Rs.1l1 crores only. Whilemaking the selection of comparables,the turnover filter, in our opinion, has tobe the basis for selection. A companyhaving turnover of Rs.11 crores cannotbe compared with a company which 1shaving turnover of Rs.260 crores whichis more than 23 times the turnover ofthe Assessee. This company cannot beregarded to be in equal size to theAssessee. We, accordingly, direct theAO to exclude this company out of thecomparables. Date of Judgment 26-06-2018, ITA No.884/2017 Pr. Commissioner of Income Tax (Central) & another Vs. M/s Swiss Re Global Business Solutions India Private Limited 5/35 /u/ Infosys BPO Ltd.:- In this case also we noted the'turnover in respect of this Company isRs.649.56 crores while the turnover ofthe Assessee company is around Rs.11-crores which is much more than 65.times of the Assessee’s turnover. We,therefore, do not find any illegality orinfirmity in the order of CII(A) inexcluding this Company out of thecomparable. Accordingly, we confirm the order| of the CIT{(A). [ittipro Ltd.:- After)hearingthe|rivalsubmissions, we noted that the CIT(A)applyingthe|TUrnNoverfilterhas.excluded this company out of thecomparables. The turnover reported inthe case of Wipro Ltd., is Rs.939.78crores while in the case of the Assesseethe turnover is q@qround RPRs.11 crorTherefore, on the basis of the turnoverfuter itself this company cannot beregarded to be comparable to theAssessee company and accordingly, wedo not find any infirmity in the findingof|CIT(A)whittlheexcludedthisCOMLPDArOF|the|Turnover|criteriafollowing the decision of this tribunal in:sony India (P) Ltd., V/s. DCIT,|114 ITD 448 Delht Date of Judgment 26-06-2018, ITA No.884/2017 Pr. Commissioner of Income Tax (Central) & another Vs. M/s Swiss Re Global Business Solutions India Private Limited 6/35 EBK-GaiCommunication,QYAOOTIOL 282 ITAT (Pune)Deloittee Consulting India _ PutLtd.,V/s.DCIT,ITANo. 1082/ Hyd/ 20 Genisys Integrating System (Indta) (P) Ltd., V/s. DCIT, 53 Sot 159 (Bang)” 6. TheSaid|findingsof|theTribunal in respect of the said threeCompaniesareOnthebasisof|appreciation of evidence on record. Wefind no infirmity in the said findings ofthe Tribunal on tat count. In fact, theTribunal has endorsed the views oftheCIT Appeals whilst coming to suchconclusions. The concurrent findings offacts arrived at by the Authoritiesbelow, cannot be re-appreciated by thisCourt in the present Appeal.” é.Thus the Hon’ble High Court has|upheld that there was no infirmity in finding|of the Tribunal on this issue wherein it was|held that the company having turnover of|more than 23 times of the assessee’s turnover|cannot be compared with the assessee. A|similar view has been taken by the Hon’ble.Punjab and Haryana High Court in case ofAgilent Technologies (International) Put. Ltd.,|V/s. ACIT (supra). It is pertinent to note thatthis Tribunal in a series of decision has taken| Date of Judgment 26-06-2018, ITA No.884/2017 Pr. Commissioner of Income Tax (Central) & another Vs. M/s Swiss Re Global Business Solutions India Private Limited 7/35 é.Thus the Hon’ble High Court has|upheld that there was no infirmity in finding|of the Tribunal on this issue wherein it was|held that the company having turnover of|more than 23 times of the assessee’s turnover|cannot be compared with the assessee. A|similar view has been taken by the Hon’ble.Punjab and Haryana High Court in case ofAgilent Technologies (International) Put. Ltd.,|V/s. ACIT (supra). It is pertinent to note thatthis Tribunal in a series of decision has taken| Date of Judgment 26-06-2018, ITA No.884/2017 Pr. Commissioner of Income Tax (Central) & another Vs. M/s Swiss Re Global Business Solutions India Private Limited 7/35 a consistent view that in case turnover filter tsapplied it should be in the multiple of the|assessee’s turnover and _ accordingly tTribunal has taken a view that in normal|circumstances ten times of the assessee’s|turnover on both sides lower as well as)higher would be an appropriate tolerance|FANGE|of|CTUYTNOvewhileselectingthe|comparable companies. In the case in hand|the assessee’s turnover is PRs.71.37 crores.Accordingly by applying the said parameter often times of assessee’s turnoveron both sides|the companies which are having less than 7.1crores and more than PRs.713 crores onturnover would be excluded. Thus we find|from|theabove detatlsthatthese SIxcompanies are breaching the said tolerance|range of turnover either on the lower side or|on the higher side. In view of the above|discussion.aswellas|factsandcircumstances of the case, we direct the|AO/TPO to exclude the above mentioned S1ixcompanies from the set of comparables.” Date of Judgment 26-06-2018, ITA No.884/2017 Pr. Commissioner of Income Tax (Central) & another Vs. M/s Swiss Re Global Business Solutions India Private Limited 8/35 4The controversy involved herein is no moreres integrain view ot the decision of this Court inI1.T.A. Nos.536/2015 and 537/2015dated|25.06.2018>awherein it has been observed that unless the finding ofthe Tribunal is found ex facie perverse, the Appeal u/s.260-A of the Act, is not maintainable. The relevant,portion of the Judgment is quoted below for readyreference: “O2. Let us briefly now discuss the Scheme ofassessment under'Chapter X- relating toTransfer|PricingCASCSof|InternationalTaxation under these provisions in income.arising from international transactions which|Shall be computed having regard to the‘Arm’s Length Price7(Sec. 92). 33.Section.92-Adefinesan.GAssociate Enterprise“ vizZ., the Companywhich participates directly or indirectly, or'through one or more intermediaries, in its|Management or control or Capital of the otherEnterprise by holding more than 26% of theShare holding in such other Enterprises and Date of Judgment 26-06-2018, ITA No.884/2017 Pr. Commissioner of Income Tax (Central) & another Vs. M/s Swiss Re Global Business Solutions India Private Limited 9/35 satisfy the other criterias as_ stated inSection 92-Aof the Act. 34.Theword|GInternationalTransaction’is defined inSection 92-B ofthe Act. 35, The most important provisionconcerning us in this batch of cases 1s|Section 92-Cof the Act which provides for|GComputation of Arm’s Length Price’and|the said provision stipulates that theArm’sLength Price’'in relation to the internationaltransactions shall be determined by following|any of these methods enumerated inSection92-Cof the Act which is considered to be the GMost.AppropriateMethod’by|theAuthorities under the Act. The methods|provided are: Clause (a): Comparable Uncontrolled|Principles Method(CUP)Pa Clause (b):Resale Price Method(RP) Clause (c)I! Cost Plus Method(CP) Clause (d): Profit Split Method(PS) Clause (e): Transactional Net MarginMethod(TNMM)- and Date of Judgment 26-06-2018, ITA No.884/2017 Pr. Commissioner of Income Tax (Central) & another Vs. M/s Swiss Re Global Business Solutions India Private Limited 10/35 Clause (f): such other Method as maybe prescribed by the Board. GMost.AppropriateMethod’by|theAuthorities under the Act. The methods|provided are: Clause (a): Comparable Uncontrolled|Principles Method(CUP)Pa Clause (b):Resale Price Method(RP) Clause (c)I! Cost Plus Method(CP) Clause (d): Profit Split Method(PS) Clause (e): Transactional Net MarginMethod(TNMM)- and Date of Judgment 26-06-2018, ITA No.884/2017 Pr. Commissioner of Income Tax (Central) & another Vs. M/s Swiss Re Global Business Solutions India Private Limited 10/35 Clause (f): such other Method as maybe prescribed by the Board. 36. It appears from the true facts of thevarious cases before us and the arguments ofthe learned counsels that theITINNM Methoappears to be the most popular and widely|adopted Method for determining the ‘Arm’slength price’~in which the Operating ProfitMarginof|comparableCompaniesareconsidered by the Authorities and applied to|the cases of the Assessees to determined the|‘Arm’s Length Price’~ and make _ TransfPricing Adjustments.| Rules 10-A, 10-AB, 10-B, 10-C & 10-CAof the|Income Tax Rules, 1962|prescribethe manner for working out 'Arms LengthPrice“under aforesaid prescribed Methods. 37.Section 92-CAof the Act envisagesthat the Assessing Authority, if he considers|necessary or expedient so to do, he can with|theprevious|approvalof|thePrincipalCommiusstionerrefer|thecomputationof|‘Arm’s Length Price’~ TOTransfer Pricing Date of Judgment 26-06-2018, ITA No.884/2017 Pr. Commissioner of Income Tax (Central) & another Vs. M/s Swiss Re Global Business Solutions India Private Limited 11/35 Officer(TPO),anotherDepartmentalAuthority only, who is supposed to have.special knowledge and training for computingthe ‘Arm’s Length Price’in the internationaltransactions. The Report of the Transfer|Pricing Officer is binding on the AssessingAuthority as perSection 92-CA (4)| of theAct, but where the Assessee raises an.objection against the Draft Assessment Order|of the Assessing Authority based on such|Report of the Transfer Pricing Officer, theAssessee Company within 30 days can eitheraccept the said Draft Order or file its|objections before the Dispute Resolution Panel(DRP)1 and the Assessing Officer as perSection 144-Cof the Act. The said DisputeResolution Panel comprises of a Collegium ofthreePrincipalCommissionersOrCommissioners of Income Tax constituted by the Board as defined inSection 144-C (15)of the Act and it has to comply with the|principles of natural justice by giving anopportunity of hearing to the Assessees. The|order passed by the Assessing Authority in|pursuance of the directions of the Dispute. Date of Judgment 26-06-2018, ITA No.884/2017 Pr. Commissioner of Income Tax (Central) & another Vs. M/s Swiss Re Global Business Solutions India Private Limited 12/35 Resolution Panel (DRP) is directly appealable|to the Income Tax Tribunal under'Section253 (1) (d)!of the Act.Section 254of the Actempowers the Appellate Tribunal to pass|such orders on the appeals|‘as tt thinks fit’after giving an opportunity of hearing to both|the parties. 38. From the aforesaid Scheme ofassessment with regard to _ internationatransactions, it is clear that the process of|determination of‘Arm’s Length Price’‘has tobe undertaken by the Expert Wing of the|Income Tax Department which is manned by.Transfer Pricing Officer (TPO)1 and at thehigherlevelby(OCollegiumof|three|Commissioners in the form of|DisputeResolution Panel (DRP)1 whose orders onquestions of facts are appealable before thehighest fact finding body, viz., the Appellate|Tribunal. — 39. The process of determination ofGArm’s Length Price’' as observed above,necessarily takes into account the comparable|cases of other similarly situated or nearly| Date of Judgment 26-06-2018, ITA No.884/2017 Pr. Commissioner of Income Tax (Central) & another Vs. M/s Swiss Re Global Business Solutions India Private Limited 13/35 similarly situated Corporate Entities whose.data are in public domain or on the DataBases like Prowess and Capital Line Data|Base etc. | No Substantial Question of Law|Arises in these Cases: 39. The process of determination ofGArm’s Length Price’' as observed above,necessarily takes into account the comparable|cases of other similarly situated or nearly| Date of Judgment 26-06-2018, ITA No.884/2017 Pr. Commissioner of Income Tax (Central) & another Vs. M/s Swiss Re Global Business Solutions India Private Limited 13/35 similarly situated Corporate Entities whose.data are in public domain or on the DataBases like Prowess and Capital Line Data|Base etc. | No Substantial Question of Law|Arises in these Cases: 40. The dispute essentially before us isthe 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 such7s “ArmLength Price’ 41. The shades of arguments raised byboth 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 fartoo wide or narrower range of comparables or even|thoughcomparableEntitieswerefunctionally different entities from the Entities|in the list of Departmental comparables, as|againstthecomparablessoughttobe| Date of Judgment 26-06-2018, ITA No.884/2017 Pr. Commissioner of Income Tax (Central) & another Vs. M/s Swiss Re Global Business Solutions India Private Limited 14/35 provided by the assessees but the Revenue.DepartmentgenerallyinsistsOntheirinclusion to get high profit ratio leading to|higher Transfer Pricing adjustments, whereasthe|aSsSSCSSCwouldlike|tokeepthe|comparables in a narrower range to justify its|Transfer|PricingAnalysisandprofits|declared. 42. In sum and substance, we find thatsuch an exercise having been undertaken bythe Authorities below may have resulted not|onlyIn|highpitchedTransferPricingAdjustments in the declared profits of theAssessee, but a flood of such appeals gobefore the Tribunal itself where finally the|inclusion or exclusion of comparables has|been determined by the Tribunal on due|analysis giving its own reasons. 43. The contention raised before us thatin view of some different views taken by the|Tribunal by different Benches at differentplaces, the present appeals underSection260-Aof the Act deserve to be entertained|and admitted by this Court for laying down| Date of Judgment 26-06-2018, ITA No.884/2017 Pr. Commissioner of Income Tax (Central) & another Vs. M/s Swiss Re Global Business Solutions India Private Limited 15/35 certain Guidelines about the Filters or MostAppropriateMethodtobeadoptedfordetermination of the‘Arm’s length price9does not, in our considered opinion falls|within the parameters of the substantial|question of law. None of the sides was able|to point out any perversity in the Orders of the|Appellate Tribunal in this regard. | 44. This Court cannot be expected to.undertake the exercise of comparison of the|comparables itself which is essentially a fact|finding exercise. Neither the sufficient Datanor factual informations nor any technical|expertise is available with this Court to.undertake any such fact finding exercise in|the said appeals under Section 260-A of the|Act. This Court is only concerned with thequestion of law and that too a substantialone, which has a well defined connotations|as explained above and findings of facts|arrived at by the Tribunal in these type of|assessments|ltkeanyothertypeof|assessments in other regular assessment|provisions of the Act, viz. Sections 143, 147 Date of Judgment 26-06-2018, ITA No.884/2017 Pr. Commissioner of Income Tax (Central) & another Vs. M/s Swiss Re Global Business Solutions India Private Limited 16/35 etc. are final and are binding on this Court. |While dealing with these appeals underSection 260-Aof the Act, we cannot disturbthose findings offact underSection 260-Aofthe Act, unless such findings are ex-facie|perverse and unsustainable and exhibit atotal non-application of mind by the Tribunal|to the relevant facts of the case and evidence|before the Tribunal. Date of Judgment 26-06-2018, ITA No.884/2017 Pr. Commissioner of Income Tax (Central) & another Vs. M/s Swiss Re Global Business Solutions India Private Limited 16/35 etc. are final and are binding on this Court. |While dealing with these appeals underSection 260-Aof the Act, we cannot disturbthose findings offact underSection 260-Aofthe Act, unless such findings are ex-facie|perverse and unsustainable and exhibit atotal non-application of mind by the Tribunal|to the relevant facts of the case and evidence|before the Tribunal. 45. Otherwise if the High Court takesthe path of making such a comparative|analysis and pronounces upon the questions|as to which Filter is good and _ whiccomparable is really comparable case or not,|it will drag the High Courts into a whirlpool ofsuch Dataanalysis defeating the verypurpose and purport of the provisions ofSection 260-Aof the Act. Therefore what weobserved above appears to us to be thesustainable view that the key to the lock forentering into the jurisdiction of High Court|underSection 260-A.of the Act is theexistence of a substantial question of law|involved in the matter. The key of ex-facie| Date of Judgment 26-06-2018, ITA No.884/2017 Pr. Commissioner of Income Tax (Central) & another Vs. M/s Swiss Re Global Business Solutions India Private Limited 17/35 perversity of the findings of the Tribunal dulyestablished with the relevant evidence and|facts. Unless it is so, no other key or for thatmatter, even the in-consistent view taken by|the Tnbunal 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 todetermine the aspects of determination of|GArm’s Length Price“ as is sought to beraised before us. Need for giving Primacy to theTribunal in the area offact finding: 46. Undoubtedly, the Income TaxTribunal is the final and highest fact finding|body under the Act. Itis manned by Expert|Members (Judicial Members are selectedfrom District Judges or Advocates andAccountant Members selected from practicingChartered Accountants or persons of CIT level|in the Department). Therefore this quast-judicial forum is expected and as some of the.nicely articulated Judgments and Orders from|the Tribunal would indicate, the Orders| Date of Judgment 26-06-2018, ITA No.884/2017 Pr. Commissioner of Income Tax (Central) & another Vs. M/s Swiss Re Global Business Solutions India Private Limited 18/35 passed by the Tribunal should normally putan end and quietus to the findings of facts|and factual aspects of assessment. The|lower Revenue Authorities cannot be allowed|to make it their prestige issue, if their stand1s |not upheld by the Tribunal and _ agitatagainst their Orders before the higher Courts|by resort toSection 260-AOT|Section 26]of|the Act merely because they are dissatisfied|with the findings offacts by the Tribunal. — 47. In the case before us now, the pickof|comparables,Short-listingof|them,|applying of filters, etc., are all fact finding|exercises and therefore the final Orders|passed by the Tribunal are binding on thelower Authorities of the Department as well|as High Court. 48. The Tribunal of course is expectedto act fairly, reasonably and rationally and|Should scrupulously avoid perversity in their)Orders. It should reflect due application ofmind when they assign reasons for returning|the particularfindings. | Date of Judgment 26-06-2018, ITA No.884/2017 Pr. Commissioner of Income Tax (Central) & another Vs. M/s Swiss Re Global Business Solutions India Private Limited 19/35 47. In the case before us now, the pickof|comparables,Short-listingof|them,|applying of filters, etc., are all fact finding|exercises and therefore the final Orders|passed by the Tribunal are binding on thelower Authorities of the Department as well|as High Court. 48. The Tribunal of course is expectedto act fairly, reasonably and rationally and|Should scrupulously avoid perversity in their)Orders. It should reflect due application ofmind when they assign reasons for returning|the particularfindings. | Date of Judgment 26-06-2018, ITA No.884/2017 Pr. Commissioner of Income Tax (Central) & another Vs. M/s Swiss Re Global Business Solutions India Private Limited 19/35 49. For instance, while dealing withcomparables or Filters, if un-equals like|softwareGiant|InfosysOT|Wipro.are|compared to a newly established small size|Company engaged in Software service, it|would obviously be wrong and perverse. The|very word“comparable”’ means that theGroup of Entities should be in a homogeneous|Group. They should not be wildly dissimilar|OT.unlikeOLrpolesapart.Such|wild|comparisons may result in the best Judgmentassessment going haywire and duirectionlesswild, which may land up the findings of the|Tribunal in the realm of perversity attracting|interference underSection 260-Aof the Act. — Some Precedents from the High' Courts holding Similar View: oO. Here, we would like to refer to someof the judgments of the different High Courts|where the High Courts have refused _ tentertain such appeals under Section 260-A|of the Act in these type of cases. — Date of Judgment 26-06-2018, ITA No.884/2017 Pr. Commissioner of Income Tax (Central) & another Vs. M/s Swiss Re Global Business Solutions India Private Limited 20/35 A. The Division Bench ofMadras HighCourt' in the case ofCommissioner of.Income Tax, Chennai Vs. Same Deutz-Fahr India (P) Ltd. [2018] 253 Taxman 32(Madras)decided on05/12/2017,afterdiscussing the Supreme Court decisions|laying down the parameters of Section 260-A|of the Act and Section 100 of Ciwil Procedure|Code held that right of appeal under Section|260-A of the Act is not automatic and it islimited 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. 51. The Court held that whether thecase ofM/s. HMT Limitedwas comparable |case with the case of assessee before it or not|was the factual issue, it held that the learned|Tribunalhas|factuallyassessedthesimilarities betiveenM/s. HMT Limitedand|the Respondent Assessee and the same does|not warrant any interference under Section|260-A of the Act. Date of Judgment 26-06-2018, ITA No.884/2017 Pr. Commissioner of Income Tax (Central) & another Vs. M/s Swiss Re Global Business Solutions India Private Limited 21/35 The relevant factual background of thecase and law pronounced by the Courts are|quoted below. “QTherespondentaSSCSSCECadoptedTransactional Net Margin Method (TNMM) as.the appropriate method to determine the ALP|of its international transactions ofpurchase ofTaAUmaterialsand.components. Theassessee identified five comparablesandit made adjustment on account of idle|capacity on comparables in order to arrive at|ALP of its purchase transaction. The|respondent assessee arrived at weighted|average. 10.The TPO found that M/s. HMT'Limited needed to be included in the'comparables.However, the TPO found thatthe turnover of M/s. HMT Limited was more|than twice the turnover of the assessee|company and, thus, could not be considered|as a comparable. Date of Judgment 26-06-2018, ITA No.884/2017 Pr. Commissioner of Income Tax (Central) & another Vs. M/s Swiss Re Global Business Solutions India Private Limited 22/35 I].. 12.. 10.The TPO found that M/s. HMT'Limited needed to be included in the'comparables.However, the TPO found thatthe turnover of M/s. HMT Limited was more|than twice the turnover of the assessee|company and, thus, could not be considered|as a comparable. Date of Judgment 26-06-2018, ITA No.884/2017 Pr. Commissioner of Income Tax (Central) & another Vs. M/s Swiss Re Global Business Solutions India Private Limited 22/35 I].. 12.. 13.The learned Tribunal observed thatduring the transfer pricing proceedings, the|TPO had selected M/s. HMT Limited as one ofthe comparables on functional similarity, but|while determining the ALP, he had _ noincluded M/s. HMT limited as a comparable.The leqrned Tribunal held: “73 We heard the rival submissions andsperused the material placed on record. M/s. HMT Ltd., is in the segment ofmanufacturing of tractors and power tillers.|The functionality of the M/s. HMT Ltd.,and the assessee are more or less insimilar.The Ld. AR of the assesseesubmitted that all the functions of M/s. HMTLtd., and M/s. VST Tillers are one and theSarre.The TPO has rejected M/s. HMTLtd., as comparable merely because ofthe turnover.The turnover of the M/s. HMTLtd., for the AY 2005-06 wasRs. 248.00 Cr.adsagainsttheassessee’s|company| Date of Judgment 26-06-2018, ITA No.884/2017 Pr. Commissioner of Income Tax (Central) & another Vs. M/s Swiss Re Global Business Solutions India Private Limited 23/35 turnover of Rs.120.00 Cr. It ts tmpossible to|findOut.comparablewithall similarities inclusive of turnover.HvenM/s. VST Tiller selected by TPO was withRs.130.00 Cr.The turnover filter withturnover 3-5 times tis acceptable forselecting the comparable as per thedecisionsofthetribunals.In.theAppellant's case, the TPO has adopted theturnover filter and the M/s. HMT Ltd., being|functionally similar and the turnover was.only two times of Appellant, we are of the|considered opinion that the TPO shouldinclude M/s. HMT Ltd., as comparable. The|case laws relied upon by the assessee also|Supports arguments of the assessee. Bo theassessee and TPO adopted TNMM as most|appropriate method which would neutralizethedifferencessuchLS|tUrMnovVETetc.Therefore, we direct the TPO to include M/s. HMT Ltd., as comparable and re-work the|comparable margin. This ground of appealtsallowed”. Date of Judgment 26-06-2018, ITA No.884/2017 Pr. Commissioner of Income Tax (Central) & another Vs. M/s Swiss Re Global Business Solutions India Private Limited 24/35 14.The appeal is to the limited extent thatthe TPO has been directed to include M/s.|HMT Limited as a comparable and re-work|the comparable margin. 15 to 23... 4d.In M. Janardhana Rao v. Jt. CIT [2005]273 ITR 50/142 Taxman 722 (SC), theHon’ble.SupremeCourtheldthattheprinctples contemplated under Section100 of the Code of Civil Procedure wouldapply to Section 260-A of the IT Act too. YI5.Right of appeal is not automatic. Rightof appeal is conferred by statute. When|statute confers a limited right of appealrestricted only to cases which involvesubstantial questions of law, it is notopen to this Court to sit in appeal overthe factual findingsarrived at by the|Appellate Tribunal. 26.In the instant case, whether M/s. HMTLimitedcan be a comparable or not is a.factual tissue.The leqrned Tribunal has|factually assessed the similarities between Date of Judgment 26-06-2018, ITA No.884/2017 Pr. Commissioner of Income Tax (Central) & another Vs. M/s Swiss Re Global Business Solutions India Private Limited 25/35 M/s. HMT Limited and the’ respondentassessee and the same, in our consideredopinion,|does not warrant interference ofthis Court under Section 260-A of theIncome Tax Act, 1961.” YI5.Right of appeal is not automatic. Rightof appeal is conferred by statute. When|statute confers a limited right of appealrestricted only to cases which involvesubstantial questions of law, it is notopen to this Court to sit in appeal overthe factual findingsarrived at by the|Appellate Tribunal. 26.In the instant case, whether M/s. HMTLimitedcan be a comparable or not is a.factual tissue.The leqrned Tribunal has|factually assessed the similarities between Date of Judgment 26-06-2018, ITA No.884/2017 Pr. Commissioner of Income Tax (Central) & another Vs. M/s Swiss Re Global Business Solutions India Private Limited 25/35 M/s. HMT Limited and the’ respondentassessee and the same, in our consideredopinion,|does not warrant interference ofthis Court under Section 260-A of theIncome Tax Act, 1961.” B. Similarly, the Division Bench ofDethit High Courtin the case ofPrincipal,Commissioner of Income Tax-9 Vs. WSPConsultants India (P) Limitedin the!judgment dated03/11/2017, [2017] 253Taxman 58 (Detht)1 held that the learnedIncome Tax Appellate Tribunal was justifiedin upholding the contention of the assessees|that inclusion of three comparables 1.e. M/s. Ashok Leyland Projects Services’ Limited,Kitco Limited and Mitcon Consultancy andEngineering Services Limited was not correct, the Court held that the reasons given by the|Tribunal were justified and any inclusion or|exclusion of comparables per se cannot be|treated as a question of law unless it 1Ssdemonstrated to the Court that the Tribunal|or any other lower Authority took into account|the irrelevant consideration or excluded the! Date of Judgment 26-06-2018, ITA No.884/2017 Pr. Commissioner of Income Tax (Central) & another Vs. M/s Swiss Re Global Business Solutions India Private Limited 26/35 relevant entries in the.‘Arm’s Length Price’determination. The relevant paragraphs 9 to 11 of thesaid judgment is quoted below for readyreference: “QThis Court is of the opinion that therationale that Ashok Leyland was deriving|major part of its revenue from wind energy|segment and that there was an extraordinary|event of merger and likewise M/s. Kitco Ltd.deriving income from government entity and|Mitcon Consultancy & Engineering ServicesLtd, is deriving less than 75% revenue fromconsultancy services, 1s a reasonable basis|for their exclusion.| 10.AnyinclusionOYexclusion|of|comparables per se cannot be treated as aquestion of law unless it is demonstrated tothe Court that the Tribunal or any other lower|authoritytook.intoaccount|irrelevantconsideration or excluded relevant factors in|the|ALPdeterminationthat|impactsignificantly. Date of Judgment 26-06-2018, ITA No.884/2017 Pr. Commissioner of Income Tax (Central) & another Vs. M/s Swiss Re Global Business Solutions India Private Limited 27/35 ll.In the present case, we find no sucherror. Consequently, the appeal is withoutmerits and is, therefore, dismissed.” C. The Division Bench ofBombay HighCourt.in the case ofCommissioner ofIncome Tax-II, Pune Vs. PTC Software (I)(P)Ltd. [2017] 395 ITR 176 (Bombay)|againreiterated similar position with reference to|various comparables with regard to one of the|comparables,M/s.KALSInformationSolutions Limited|whose case was in theappeals before us as well, held that that if|there is a functionality difference between the|two comparables and the Tribunal was|justified in excluding the same on the|challenge being raised by the assessee and|such findings of Tribunal are findings offact)which do not give rise to any substantial|question of law. The relevant portion of the aforesaidjudgment is quoted belowfor ready reference. “Re-Question (t1) Date of Judgment 26-06-2018, ITA No.884/2017 Pr. Commissioner of Income Tax (Central) & another Vs. M/s Swiss Re Global Business Solutions India Private Limited 28/35 The relevant portion of the aforesaidjudgment is quoted belowfor ready reference. “Re-Question (t1) Date of Judgment 26-06-2018, ITA No.884/2017 Pr. Commissioner of Income Tax (Central) & another Vs. M/s Swiss Re Global Business Solutions India Private Limited 28/35 (a)|M/s. KALS Information Solutions Ltd.(KALS_Ltd.)and|HeliosCGMathesonInformationTechnologyLtd.(Helios:|Matheson Ltd.) were included by the TPO in|his comparability analysis. The grievance ofthe 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 & Matheson Ltd. are engaged in thebusiness of selling of software products while|the respondent assessee renders software|services to its holding company. (b)The Tribunal in the impugned orderrecords that for the preceding assessment|year te. A.Y. 2006-07, the TPO had foundthatKALS Ltd. and Helios & Matheson.Ltd. were functionally not comparablewith the respondent assessee.In thesubject assessment year also, on the basis ofAnnual Report, it was noted that the KALS|was engaged in selling of software products|which1sdifferentfromtheactivity| Date of Judgment 26-06-2018, ITA No.884/2017 Pr. Commissioner of Income Tax (Central) & another Vs. M/s Swiss Re Global Business Solutions India Private Limited 29/35 undertaken by the respondent assessee,|namely, rendering of software service to its|holding company. Further, the tmpugned|order also records that no attempt was even|made by the Revenue before it to bring on|record any change in the nature of activities|carried out by KALS Ltd. and Helios &|Matheson Ltd. in the subject assessmentyear, making them functionally comparable tothe respondent assessee. In the aforesaid|facts, the Tribunal rendered a finding offactthat KALS Ltd. and Helios & Matheson Ltd.|are not comparable with the respondentaSsSSCSSCE Fuven before us, no submissions wereadvancedjustifyingthe|orderof|theAssessing Officer that the services renderedby KALS Ltd. and Helios & Matheson Ltd. are|comparable for the subject assessment year|with that of the respondent assessee. In the above view, as the findings of theTribunal being one of the fact which has not|been shown to be perverse,the question asproposed does not give rise to any Date of Judgment 26-06-2018, ITA No.884/2017 Pr. Commissioner of Income Tax (Central) & another Vs. M/s Swiss Re Global Business Solutions India Private Limited 30/35 substantial question of law.|Thus, notentertained.” o2. There are several such judgmentsfrom different High Courts which were citedat the bar, but there is no need to multiply|them here, as in essence the ratio of all these|judgments is similar with the view which we.have|takenabove,VIZ.thatunless(Operversity in the findings offact in this regardis established before the High Court, no|Substantialquestionof|lawQAr1iSeforconsideration under Section 260-A of the Act. Need to give an early quietus and to|the findings of fact by the Tribunal inthe realm ofInternational Taxation. 53.The huge quantum of borderless|Trade and International Transactions earning|lot of Foreign Exchange and revenues for|India through international Corporates andTrade with them has a big interface with the|Dispute Resolution of such cases in the TaxAdministration Department as well as theJudiciary. Date of Judgment 26-06-2018, ITA No.884/2017 Pr. Commissioner of Income Tax (Central) & another Vs. M/s Swiss Re Global Business Solutions India Private Limited 31/35 o4. The procedure of assessment under Need to give an early quietus and to|the findings of fact by the Tribunal inthe realm ofInternational Taxation. 53.The huge quantum of borderless|Trade and International Transactions earning|lot of Foreign Exchange and revenues for|India through international Corporates andTrade with them has a big interface with the|Dispute Resolution of such cases in the TaxAdministration Department as well as theJudiciary. Date of Judgment 26-06-2018, ITA No.884/2017 Pr. Commissioner of Income Tax (Central) & another Vs. M/s Swiss Re Global Business Solutions India Private Limited 31/35 o4. The procedure of assessment under ChapterXrelating|tointernationaltransactions as indicated above is already a|lengthy one and involves multiple Authorities|of the Department. A huge, cumbersome and|tenaciousexercise|of|TransferPricingAnalysis has to be undertaken by theCorporate 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 1s at §Arm’.Ss lengthwhich analysis isinvariably put to test and inquiry by the|Authorities of the Department and through the.process of|Transfer Pricing Officer (TPO)andDispute Resolution Panel (DRP). andthe|Tribunalat various stages, the assesseehas 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 TaxAuthorities have their own view on the other'side and the effort on the part of the Tax Date of Judgment 26-06-2018, ITA No.884/2017 Pr. Commissioner of Income Tax (Central) & another Vs. M/s Swiss Re Global Business Solutions India Private Limited 32/35 Revenue Authorities is always to extract moreand 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|tume to decide such appeals. In the course ofthis dispute resolution, much has already|been lost in the form of time, man-hours and|money, besides giving an adverse picture of|the sSluggish Dispute ResolutionProcess|through these channels. If appeals under|Section 260-Aof the Act were to be lightlyentertainedby|HighCourtagainstthefindings of the Tribunal, without putting it to astrictscrutinyof|theexistenceof|thesubstantial questions of law, it is likely toopen 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|thedemand|of|expeditiousjudicialdispensation in such cases. | Date of Judgment 26-06-2018, ITA No.884/2017 Pr. Commissioner of Income Tax (Central) & another Vs. M/s Swiss Re Global Business Solutions India Private Limited 33/35 Conclusion: 55.Asubstantial quantumof|international trade and transactions depends|upon the fair and quick judicial dispensation|in such cases. Had it been a case of|substantialquestionof|interpretation of|provisions of Double Taxation AvoidanceTreaties (DTAA), interpretation ofprovisions ofthe Income Tax Act or Overriding Effect of the|Treaties over the Domestic Legislations or the |questions like Treaty Shopping, Base Erosionand Profit Shifting (BEPS), Transfer of Shares|in Tax Havens (like in the case of Vodafone|etc.), uf based on relevant facts, such|substantial questions of law could beraised before the High Court underSection260-Aof the Act, the Courts could have|embarked upon such exercise offraming and|answering such substantial question of law.On the other hand, the appeals of the present|tenor as to whether the comparables have|been rightly picked up or not, Futers for|arriving at the correct list of comparables|have been rightly applied or not, do not in our| Date of Judgment 26-06-2018, ITA No.884/2017 Pr. Commissioner of Income Tax (Central) & another Vs. M/s Swiss Re Global Business Solutions India Private Limited 34/35 consideredopinion, giverisetO arysubstantial question of law. 06. Weare therefore of the consideredopinion that the present appeals filed by the|Revenue do not give rise to any substantialquestionof|law.andthe|Suggested|substantial questions of law do not meet therequirements ofSection 260-A|of the Act andthus the appeals filed by the Revenue are|found to be devoid of merit and the same are.liable to be dismissed. 57. We make it clear that the same'§yardsticks and parameters will have to beapplied, even tf such appeals are filed by the|Assessees, because, there may be cases.where the Tribunal giving its own reasons|and findings has found certain comparables|to be good comparables to arrive at an|7s “ArmLength Price“in the case of the assesseeswith which the assessees may not be|satisfied and have filed such appeals beforethis Court. Therefore we clarify that mere|dissatisfaction with the findings of facts|arrived at by the learned Tribunal ts not at all| Date of Judgment 26-06-2018, ITA No.884/2017 Pr. Commissioner of Income Tax (Central) & another Vs. M/s Swiss Re Global Business Solutions India Private Limited 35/35 a sufficient reason to invoke.Section 260-Aof the Act before this Court. o8. The appeals filed by the Revenue are|therefore dismissed with no order as_ tocosts.” 5.In the circumstances, having heard thelearned Counsel appearing for both the sides, We are ofthe considered opinion that no substantial question oflaw arises for consideration in the present case. | Hence, the Appeal filed by the Appellant-Revenue is liable to be dismissed and is accordingly dismissed. —No costs. AN/-| Sd/-.JUDGE. Sd/-.JUDGE.