A Bench led by Justice MR Shah set aside a Karnataka High Court ruling that held that in transfer pricing matters, the determination of the arm’s length price by the tribunal is final and cannot be subject to judicial scrutiny.
The bench said a high court can, in each case, examine whether the guidelines laid down under the Act and rules are followed or not, and whether the determination of the arm’s length price and findings recorded by the tribunal while determining the arm’s length price are perverse or not.
While remanding around 143 appeals filed by the revenue department back to various high courts, the apex court – without entering into the merits of the cases – directed them to examine each case. The high courts will have to complete the exercise within nine months.
ITAT has to follow guidelines stipulated under Chapter X of the IT Act, namely sections 92, 92A to 92CA, 92D, 92E and 92F of the Act and Rules 10A to 10E, the judgement stated.
According to the apex court, 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 these.
The court can even examine the question of comparability of two companies, or whether the comparable transactions have been taken into consideration properly or not, that is, to the extent non-comparable transactions are considered as comparable transactions or not, said the top court.The assessees had argued that it is a settled position that jurisdiction under section 260A cannot be invoked unless there arises a substantial question of law. 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, they added.
“This ruling highlights that obtaining certainty on transfer pricing matters through regular litigation channels could continue to be a long-drawn process,” said Eric Mehta, partner, PwC.