Facts of the Case

The present matter arises from two cross appeals—one filed by the Revenue and the other by the Assessee—challenging a common order dated 13 November 2017 passed by the Income Tax Appellate Tribunal (ITAT) for Assessment Year 2011–12.

The dispute pertains to transfer pricing adjustments made by the Transfer Pricing Officer (TPO), specifically relating to the selection of comparable companies for determining the Arm’s Length Price (ALP).

Issues Involved

  • Whether the selection of comparables by the Transfer Pricing Officer for determining ALP was correct and justified.
  • Whether such selection gives rise to a substantial question of law under Section 260A of the Income-tax Act, 1961.

Petitioner’s Arguments (Revenue)

  • The Revenue challenged the ITAT’s findings, contending that the Tribunal erred in evaluating the comparables selected by the TPO.
  • It was argued that the Tribunal’s approach affected the correctness of transfer pricing adjustments.

Respondent’s Arguments (Assessee)

  • The Assessee supported the ITAT’s order, asserting that the selection/rejection of comparables is a matter of factual determination.
  • It was contended that no substantial question of law arises unless the findings are perverse or arbitrary.

Court’s Findings / Order

  • The Delhi High Court held that selection of comparables in transfer pricing is essentially a question of fact.
  • It does not give rise to a substantial question of law unless the findings are demonstrated to be perverse or unreasonable.
  • The Court found that neither the Revenue nor the Assessee established such perversity in the ITAT’s order.
  • Accordingly, both appeals were dismissed, with no order as to costs.

Important Clarification

  • Transfer pricing disputes relating to comparables selection are generally factual in nature.
  • High Courts will interfere only when:
    • The findings are perverse, or
    • There is a clear error in law.
  • Routine disagreement with ITAT findings is insufficient to invoke appellate jurisdiction under Section 260A.

Sections Involved

  • Section 92C – Determination of Arm’s Length Price
  • Section 92CA – Reference to Transfer Pricing Officer
  • Section 260A – Appeal to High Court

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2019:DHC:7398-DB/SMD13052019ITA2522019_154631.pdf

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