Facts of the Case

The present matter involved cross appeals filed by both the Revenue and the Assessee against a common order passed by the Income Tax Appellate Tribunal (ITAT) dated 13 November 2017 for Assessment Year 2011–12.

The dispute arose from transfer pricing adjustments made by the Transfer Pricing Officer (TPO), specifically concerning the selection of comparable companies for determining the arm’s length price in international transactions undertaken by the assessee.

Issues Involved

  • Whether the selection of comparables by the TPO for transfer pricing adjustment was correct.
  • Whether such selection raises 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 on the ground that the comparables selected were inappropriate, thereby affecting the determination of arm’s length price.
  • It was argued that the Tribunal erred in excluding/including certain companies during the transfer pricing analysis.

Respondent’s Arguments (Assessee)

  • The Assessee supported the ITAT’s order, contending that the selection of comparables is a factual exercise based on functional analysis.
  • It was submitted that no substantial question of law arises from such factual determinations unless perversity is demonstrated.

Court’s Findings / Order

The Delhi High Court held that:

  • The selection of comparables in transfer pricing matters is essentially a factual determination.
  • Such issues do not give rise to a substantial question of law unless the findings are shown to be perverse or arbitrary.
  • The Court found no such perversity in the present case.

Accordingly, both the appeals (by Revenue and Assessee) were dismissed, holding that no substantial question of law arose from the ITAT’s order.

Important Clarification by Court

  • Transfer pricing disputes relating to comparables selection are generally factual in nature.
  • High Courts will not interfere under Section 260A unless there is clear perversity in the Tribunal’s findings.
  • This judgment reinforces judicial restraint in transfer pricing appellate jurisdiction.

Sections Involved

  • Section 92C – Computation 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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