Facts of the Case

The present appeals (ITA Nos. 839 & 840 of 2018) were filed by the Revenue challenging the order dated 07.12.2017 passed by the Income Tax Appellate Tribunal (ITAT), Delhi Bench.

The dispute pertained to transfer pricing adjustments for Assessment Years 2008-09 and 2009-10, specifically regarding the selection and exclusion of comparables for determining the Arm’s Length Price (ALP).

  • For AY 2009-10: ITAT directed exclusion of Infosys Limited as a comparable.
  • For AY 2008-09: ITAT directed exclusion of Kals Information Systems Ltd., Infosys Limited, and Wipro Limited.

The ITAT relied on its earlier decision in the assessee’s own case for AY 2007-08.

Issues Involved

  1. Whether the ITAT was justified in excluding certain companies (Infosys Ltd., Wipro Ltd., Kals Information Systems Ltd.) as comparables for transfer pricing analysis.
  2. Whether such exclusion gives rise to a substantial question of law under Section 260A of the Income Tax Act.
  3. Whether consistency with earlier assessment years should be maintained in transfer pricing matters.

Petitioner’s Arguments (Revenue)

  • The Revenue contended that the ITAT erred in directing exclusion of the comparables selected by the Transfer Pricing Officer (TPO).
  • It argued that such exclusions impacted the computation of ALP and warranted judicial interference.
  • The Revenue sought reconsideration of ITAT findings regarding comparability analysis.

Respondent’s Arguments (Assessee)

  • The assessee submitted that identical issues had already been decided in its favour for AY 2007-08.
  • It was highlighted that the Revenue’s appeal for AY 2007-08 (ITA No. 613/2015) had already been dismissed by the Delhi High Court.
  • Therefore, the principle of consistency applied, and no new question of law arose.

Court’s Findings / Order

The Delhi High Court observed:

  • The issue regarding exclusion of comparables had already been examined in earlier years.
  • The Court relied on its prior judgment dated 19.08.2015, where it held that exclusion of comparables by ITAT did not suffer from legal infirmity and no substantial question of law arose.
  • The Court reaffirmed that comparability analysis is largely fact-specific and does not ordinarily give rise to a substantial question of law.

Final Order

  • The Court held that no substantial question of law arises in the present appeals.
  • Accordingly, both appeals were dismissed.

Important Clarification

  • Transfer pricing comparability selection is a factual determination, and High Courts will not interfere unless a clear legal issue arises.
  • The principle of consistency across assessment years plays a significant role.
  • Reliance was placed on the precedent:
    • Chryscapital Investment Advisors (India) Pvt. Ltd. v. DCIT (2015) 277 CTR (Del) 137

Sections Involved

  • Section 92C – Determination of Arm’s Length Price
  • Section 92CA – Reference to Transfer Pricing Officer
  • Section 260A – Appeal to High Court
  • Rule 10B(4), Income Tax Rules, 1962 – Comparability analysis

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2021:DHC:2870-DB/NAC14092021ITA8402018_151236.pdf

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.