SPL Labs India Pvt ltd Vs ITO,Circle 6 Bangalore

Case snapshot

Sections / provisions: 260A

Questions before the Court / Tribunal

• Transfer pricing appellate review: scope of High Court interference under section 260A with Tribunal determination of arm's-length price.
• What factual, statutory and procedural conditions control the relief?
• How does the operative order apply to the parties and the challenged proceeding?

Material facts and procedural background

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

3. S/Shri Arvind P. Datar, Tarun Gulati, Percy Pardiwala, learned Senior Advocates and other learned counsel appearing on behalf of the respective assessees have vehemently submitted that once the arm’s length price is determined by the Tribunal taking into consideration the relevant guidelines, thereafter challenge to the same cannot be said to be a substantial question of law, to be considered 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).

3.9 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 inconsistent views are taken by the Tribunal is misconceived, because, it is quite possible that in view of the particular set of facts in one case, one Bench excludes a company and in another case includes the same in view of different set of facts, or similarly applies a filter in one and not in another. This is what is in fact held in Softbrands India (P) Ltd. (supra) (please see para 45). In almost all cases it is the Revenue which uses the same set of comparables for determining an arm’s length price, thus, painting all assessees with the same brush. These are questions of facts, which would require determination on a case by case basis, and unless perversity is demonstrated in the order of the Tribunal, no interference is called for by the High Court.

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.

3.13 It is further submitted by the learned counsel appearing on behalf of the respective assessees in the appeals preferred by the Revenue that in all these cases, the High Court has found that there is no perversity by the Tribunal in determining the arm’s length price and therefore no substantial question of law arises as no perversity is pleaded and demonstrated. It is submitted that therefore the impugned judgments and orders passed by the High Court dismissing the appeals preferred by the Revenue are not required to be interfered with by this Court.

Appellant / assessee submissions

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 Solicitor General of India, appearing on behalf of the Revenue has vehemently submitted that the Karnataka High Court in the case of Softbrands India (P) Ltd. (supra) has erroneously held that the Tribunal is the final fact finding authority on determining the arm’s length price and therefore once the Tribunal determines the arm’s length price the same cannot be subject to judicial scrutiny/scrutiny in an appeal under Section 260A of the IT Act. 2.1 Shri Balbir Singh, learned ASG has submitted that there cannot be any absolute proposition of law that against the decision of the Tribunal determining the arm’s length price, there shall not be any interference by the High Court in an appeal under Section 260A of the IT Act.

2.2 Shri Balbir Singh, learned ASG has taken us to the scheme of transfer pricing/arm’s length price to be determined under Chapter X of the IT Act, more particularly Sections 92, 92A to 92CA, 92D, 92E and 92F and Rules 10A to 10E of the Income Tax Rules, 1962 (for short, ‘IT Rules’). It is submitted that under the scheme of transfer pricing, the arm’s length price is to be determined taking into consideration the guidelines stipulated under the aforesaid provisions of the IT Act and the Rules. It is submitted that therefore it is always open for the High Court to consider and/or examine, whether the guidelines stipulated under the Act and the Rules, while determining the arm’s length price have been followed by the Tribunal or not. 2.3 It is submitted that if the arm’s length price is determined by the Tribunal de hors the guidelines stipulated under the Act and the Rules, more particularly Rules 10A to 10E of the Rules, the determination can be said to be perverse which is always subject to the scrutiny by the High Court in an appeal under Section 260A of the Act. 2.4 It is submitted that therefore the view taken by the High Court of Karnataka in the case of Softbrands India (P)…

3. S/Shri Arvind P. Datar, Tarun Gulati, Percy Pardiwala, learned Senior Advocates and other learned counsel appearing on behalf of the respective assessees have vehemently submitted that once the arm’s length price is determined by the Tribunal taking into consideration the relevant guidelines, thereafter challenge to the same cannot be said to be a substantial question of law, to be considered 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

Revenue / respondent submissions

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 Solicitor General of India, appearing on behalf of the Revenue has vehemently submitted that the Karnataka High Court in the case of Softbrands India (P) Ltd. (supra) has erroneously held that the Tribunal is the final fact finding authority on determining the arm’s length price and therefore once the Tribunal determines the arm’s length price the same cannot be subject to judicial scrutiny/scrutiny in an appeal under Section 260A of the IT Act. 2.1 Shri Balbir Singh, learned ASG has submitted that there cannot be any absolute proposition of law that against the decision of the Tribunal determining the arm’s length price, there shall not be any interference by the High Court in an appeal under Section 260A of the IT Act.

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.

3.13 It is further submitted by the learned counsel appearing on behalf of the respective assessees in the appeals preferred by the Revenue that in all these cases, the High Court has found that there is no perversity by the Tribunal in determining the arm’s length price and therefore no substantial question of law arises as no perversity is pleaded and demonstrated. It is submitted that therefore the impugned judgments and orders passed by the High Court dismissing the appeals preferred by the Revenue are not required to be interfered with by this Court.

4. We have heard Shri Balbir Singh, learned ASG appearing on behalf of the Revenue and learned senior counsel/counsel appearing on behalf of the respective assessees at length. 5. In the present batch of Civil Appeals preferred by the Revenue, the respective High Courts, more particularly the Karnataka High Court have/has dismissed the appeals preferred by the Revenue in which the Revenue challenged the determination of the arm’s length price by the Tribunal, relying upon and/or considering the decision of the Karnataka High Court in the case of Softbrands India (P) Ltd. (supra). In the case of Softbrands India (P) Ltd. (supra), the High Court has taken the view that the determination of arm’s length price by the Tribunal shall be final against which an appeal under Section 260A of the IT Act is not required to be entertained. Therefore, the short question which is posed for the consideration of this Court is, whether in every case where the Tribunal determines the arm’s length price, the same shall attain finality and the High Court is precluded from considering the determination of the arm’s length price determined by the Tribunal, in exercise of powers under Section 260A of the…

Court / Tribunal analysis and reasoning

4. We have heard Shri Balbir Singh, learned ASG appearing on behalf of the Revenue and learned senior counsel/counsel appearing on behalf of the respective assessees at length. 5. In the present batch of Civil Appeals preferred by the Revenue, the respective High Courts, more particularly the Karnataka High Court have/has dismissed the appeals preferred by the Revenue in which the Revenue challenged the determination of the arm’s length price by the Tribunal, relying upon and/or considering the decision of the Karnataka High Court in the case of Softbrands India (P) Ltd. (supra). In the case of Softbrands India (P) Ltd. (supra), the High Court has taken the view that the determination of arm’s length price by the Tribunal shall be final against which an appeal under Section 260A of the IT Act is not required to be entertained. Therefore, the short question which is posed for the consideration of this Court is, whether in every case where the Tribunal determines the arm’s length price, the same shall attain finality and the High Court is precluded from considering the determination of the arm’s length price determined by the Tribunal, in exercise of powers under Section 260A of the…

Operative decision and relief

3.7 It is submitted that in all the appeals filed by the Revenue before the High Court, the primary issues raised pertained to inclusion and exclusion of a few comparables and selection of filters, 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.

4. We have heard Shri Balbir Singh, learned ASG appearing on behalf of the Revenue and learned senior counsel/counsel appearing on behalf of the respective assessees at length. 5. In the present batch of Civil Appeals preferred by the Revenue, the respective High Courts, more particularly the Karnataka High Court have/has dismissed the appeals preferred by the Revenue in which the Revenue challenged the determination of the arm’s length price by the Tribunal, relying upon and/or considering the decision of the Karnataka High Court in the case of Softbrands India (P) Ltd. (supra). In the case of Softbrands India (P) Ltd. (supra), the High Court has taken the view that the determination of arm’s length price by the Tribunal shall be final against which an appeal under Section 260A of the IT Act is not required to be entertained. Therefore, the short question which is posed for the consideration of this Court is, whether in every case where the Tribunal determines the arm’s length price, the same shall attain finality and the High Court is precluded from considering the determination of the arm’s length price determined by the Tribunal, in exercise of powers under Section 260A of the…

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 arm’s length price by the Tribunal or not and to that extent whether the findings recorded by the Tribunal while determining the arm’s length price are perverse or not. 10. In view of the above and for the reasons stated above, all these appeals are allowed. The impugned judgments and orders passed by the respective High Courts are hereby quashed…

are remitted back to the respective High Courts to decide and dispose of the appeals afresh in light of the observations made hereinabove and to examine whether in each case 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 findings recorded by the Tribunal while determining the arm’s length price are perverse or not. The aforesaid exercise be completed, preferable within a period of nine months from the date of receipt of the present order by the respective High Courts. It is specifically observed that we have not entered into the merits of the cases at all and we have not expressed anything on the determination of the arm’s length price in case of respective assessees, either in favour of the assessees or in favour of the Revenue. It is ultimately for the concerned High Court to take a fresh decision, as observed hereinabove. 11. All these appeals stand allowed in terms of the above. No costs.

Ratio and legal principle

• The packaged judgment addresses Transfer pricing appellate review: scope of High Court interference under section 260A with Tribunal determination of arm's-length price. The precise proposition must be read with the Court/Tribunal's reasoning and operative directions.
• Reliance depends on matching the statutory version, jurisdiction, procedural stage and material evidence recorded in the judgment.

Why this judgment matters

This decision is relevant to practitioners and affected parties dealing with transfer pricing appellate review: scope of high court interference under section 260a with tribunal determination of arm's-length price. Its value lies in showing how the adjudicating forum connected the applicable rule to the proved facts and procedural posture.

Practitioner action points

• Match the statutory version, jurisdiction, procedural stage and decisive evidence before relying on the result.
• Verify current appellate, review and SLP history and any later amendment or controlling authority.
• Attach the complete judgment to the working paper or filing and cite the paragraph/page supporting the proposition.

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Section / provision impact

• 260A - apply the exact version considered in the judgment.

Case network

Similar issue / useful comparison

• Parth Developers vs. Pr. CIT - ITAT Indore
• PCIT v. Axis Bank Ltd - Court / Tribunal to be verified
• OERLIKON BALZERS COATING INDIA PRIVATE LIMITED VS. UNION OF INDIA & ANR - Court / Tribunal to be verified

Different outcome / possible distinction

• Ajay Parasmal Kothari v. ITO - Partly allowed
• P.R. Packaging Service v. ACIT - Allowed

Full judgment and source control

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