Arm’s length price determined by ITAT not final and is appealable u/s 260A – SC

There is no absolute proposition of law that arm’s length price determined by ITAT is final and cannot be subjected to judicial scrutiny in an appeal under Section 260A of the Income Tax Act.

ABCAUS Case Law Citation:
ABCAUS 3710 (2023) (04) SC

Important Case Laws relied upon :
PCIT vs. Softbrands India (P) Ltd. (2018) 406 ITR 513 (Karnataka)
Vijay Kumar Talwar v. CIT, (2011)1 SCC 673
Sir Chunilal vs. Mehta and Sons Ltd. v. Century Spinning and Manufacturing Co. Ltd. AIR 1962 SC 1314
G.L. Sutania and Anr v SEBI and Ors. 2007(5) SCC 133

The substantial question involved in these appeals was 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 Income Tax Act, 1961 (the Act).

The Hon’ble Supreme Court observed that while determining the arm’s length price, the Tribunal has to follow the guidelines stipulated under Chapter X of the Act, namely, Sections 92, 92A to92CA, 92D, 92E and 92F of the Act and Rules 10A to 10E of the Income Tax Rules, 1962 (the Rules).

The Hon’ble Supreme Court opined that any determination of the arm’s length price under Chapter X de hors the relevant provisions of the guidelines, referred to hereinabove, can be considered as perverse and it   may be considered as a substantial question of law as perversity itself can be said to be a substantial question of law.

Therefore, there cannot be any absolute proposition of law that in all cases where the Tribunal has determined the arm’s length price the same is final and cannot be the subject matter of scrutiny by the High Court in an appeal under Section 260A of the Act.

The Hon’ble Supreme Court laid down the following guidelines when the determination of the arm’s length price is challenged before the High Courts:

(i) it is always open for the High Court to consider and examine whether the arm’s length price has been determined while taking into consideration the relevant guidelines under the Act and the Rules.

(ii) Even the High Court can also examine the question of comparability of two companies or selection of filters and examine whether the same is done judiciously and on the basis of the relevant material/evidence on record.

(iii) The High Court can also examine whether the comparable transactions have been taken into consideration properly or not, i.e., to the extent non- comparable transactions are considered as comparable transactions or not.

The Hon’ble Supreme Court held that the   absolute proposition of law laid down by the Karnataka High Court that in the matter of transfer pricing, determination of the arm’s length price by the Tribunal shall be final and cannot be subject matter of scrutiny and the High Court is precluded from examining the correctness of the determination of the arm’s length price by the Tribunal in an appeal under Section 260A of the Act on the ground that it cannot be said to be raising a substantial question of law cannot be accepted.  

In view of the above observations, the Division Bench of the Hon’ble Supreme Court quashed and set aside all the impugned judgments and orders passed by the respective High Courts and the matters were remitted back to the respective High Courts to decide and dispose of the   appeals afresh in light of the guidelines made. 

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