Facts of the Case

The present appeals were filed by the Revenue before the Delhi High Court challenging a common order dated 9 August 2018 passed by the Income Tax Appellate Tribunal (ITAT) for Assessment Years 2012–13 and 2013–14.

The dispute arose from the Tribunal’s direction regarding benchmarking of international transactions, wherein the ITAT permitted internal comparison of net margins earned by the assessee from its associated enterprises (AEs) with those earned from unrelated parties.

The Revenue contended that such benchmarking was done without adequately considering the detailed analysis and findings of the Transfer Pricing Officer (TPO) and the Dispute Resolution Panel (DRP).

Issues Involved

  1. Whether the ITAT erred in allowing internal benchmarking of international transactions based on net margins earned from AEs and non-AEs.
  2. Whether the ITAT failed to consider the detailed reasoning and orders of the TPO and DRP.
  3. Whether such directions of the ITAT give rise to a substantial question of law under Sections 37 & 46 of the Income Tax Act.

Petitioner’s Arguments (Revenue)

  • The ITAT improperly allowed internal TNMM comparison without properly evaluating the TPO and DRP’s detailed analysis.
  • The Tribunal’s approach undermined the structured transfer pricing framework and ignored comparability analysis requirements.
  • The issue involved a substantial question of law, warranting interference by the High Court.

Respondent’s Arguments (Assessee – M/s Birlasoft (India) Ltd.)

  • The issue had already been adjudicated in earlier years involving the same assessee.
  • The ITAT’s approach of internal benchmarking was justified and consistent with transfer pricing principles.
  • No substantial question of law arose, as the matter was purely factual and already settled by precedent.

Court’s Findings / Order

The Delhi High Court observed that:

  • The same issue had arisen earlier in the assessee’s own case for AY 2009–10.
  • In that case, the Court had declined to entertain the Revenue’s appeal (ITA No. 44/2015).
  • Since the issue was already settled, no substantial question of law arose in the present appeals.

Important Clarification

  • The Court reaffirmed that where an issue has been consistently decided in earlier years for the same assessee, identical questions will not be reconsidered unless new legal grounds arise.
  • Transfer pricing disputes involving internal benchmarking vs external comparables may be treated as factual determinations, limiting High Court interference.

Sections Involved

  • Section 37 of the Income Tax Act, 1961 – General deduction provisions
  • Section 46 (as referred in record context)
  • Transfer Pricing Provisions (Chapter X – though not explicitly detailed, inherently involved)

Link to download the order -

https://delhihighcourt.nic.in/app/case_number_pdf/2019:DHC:7415-DB/SMD09072019ITA5872019_164600.pdf

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