SAP LABS INDIA PRIVATE LIMITED versus INCOME TAX OFFICER, CIRCLE 6, BANGALORE on 19 April 2023

SUPREME COURT REPORTS

[2023] 4 S.C.R.

SAP LABS INDIA PRIVATE LIMITED

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v.

INCOME TAX OFFICER, CIRCLE 6, BANGALORE

(Civil Appeal No. 8463 of 2022)

BAPRIL 19, 2023

[M. R. SHAH AND M. M. SUNDRESH, JJ.]

Income Tax Act, 1961 : ss. 92, 92A to 92CA, 92D, 92E, 92Fand 260 A – Transfer pricing matters – Arm length price,determination of – Arm length price, determined by the tribunal –CThereafter, determination of the arm’s length price by the High Court,in exercise of powers u/s. 260A – Permissibility of - Held: Therecannot be any absolute proposition of law that in all cases wherethe tribunal has determined the arm’s length price the same is finaland cannot be the subject matter of scrutiny by the High Court inDan appeal u/s 260A – When the determination of the arm’s lengthprice is challenged before the High Court, it is always open for theHigh Court to consider and examine whether the arm’s length pricehas been determined while taking into consideration the relevantguidelines under the Act and the Rules – It is always open for theHigh Court to examine in each case whether the determination ofEthe arm’s length price and the findings recorded by tribunal whiledetermining the arm’s length price are perverse or not – Thus, theimpugned judgments and orders passed by the High Court that thedetermination of arm’s length price by the tribunal shall be finalagainst which an appeal u/s. 260 A is not required to be entertainedFis quashed and set aside.

Allowing the appeals, the Court

HELD: 1.1 While determining the arm’s length price, thetribunal has to follow the guidelines stipulated under Chapter Xof the Income Tax Act, 1961, namely, Sections 92, 92A to 92CA,G92D, 92E and 92F of the Act and Rules 10A to 10E of the Rules.Any determination of the arm’s length price under Chapter X dehors the relevant provisions of the guidelines, can be consideredas perverse and it may be considered as a substantial question oflaw as perversity itself can be said to be a substantial question ofHlaw. Therefore, there cannot be any absolute proposition of law that in all cases where the tribunal has determined the arm’slength price the same is final and cannot be the subject matter ofscrutiny by the High Court in an appeal under Section 260A ofthe IT Act. When the determination of the arm’s length price ischallenged before the High Court, it is always open for the HighCourt to consider and examine whether the arm’s length pricehas been determined while taking into consideration the relevantguidelines under the Act and the Rules. Even the High Courtcan also examine the question of comparability of two companiesor selection of filters and examine whether the same is donejudiciously and on the basis of the relevant material/evidence onrecord. The High Court can also examine whether thecomparable transactions have been taken into considerationproperly or not, i.e., to the extent non-comparable transactionsare considered as comparable transactions or not. [Para 7][442-C-G]

Issues

1.2. In each case, the High Court should examine whetherthe guidelines laid down in the Act and the Rules are followedwhile determining the arm’s length price. Therefore, the absoluteproposition of law laid down by the Karnataka High Court in thecase of Softbrands India (P) Ltd. that in the matter of transferpricing, determination of the arm’s length price by the tribunalshall be final and cannot be subject matter of scrutiny and theHigh Court is precluded from examining the correctness of thedetermination of the arm’s length price by the tribunal in an appealunder Section 260A of the IT Act on the ground that it cannot besaid to be raising a substantial question of law cannot be accepted.Within the parameters of Section 260A of the IT Act in an appealchallenging the determination of the arm’s length price, it isalways open for the High Court to examine in each case whetherwhile determining the arm’s length price, the guidelines laid downunder the Act and the Rules, are followed or not and whether thedetermination of the arm’s length price and the findings recordedby the tribunal while determining the arm’s length price areperverse or not. [Para 8][442-H; 443-A-C]

1.3. The impugned judgments and orders passed by theHigh Court dismissing the Revenue’s appeals and even theappeals preferred by the assessees are quashed and set aside AB

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Aand the matters are required to be remitted back to the concernedHigh Courts to decide and dispose of the respective appealsafresh in light of the observations made and examine in each andevery case whether the guidelines laid down under the Act andthe Rules, referred are followed while determining the arm’slength price by the tribunal or not and to that extent whether theBfindings recorded by the tribunal while determining the arm’slength price are perverse or not. [Para 9][443-D-E]

PCIT v. Softbrands India (P) Ltd. (2018) 406 ITR 513(Karnataka) – disapproved.

CVijay Kumar Talwar v. CIT (2011) 1 SCC 673 : [2010]14 SCR 499; Sir Chunilal V. Mehta and Sons Ltd. v.Century Spinning and Manufacturing Co. Ltd. AIR 1962SC 1314 : [1962] Suppl. SCR 549; G. L. Sutania andAnr v. SEBI and Ors. (2007) 5 SCC 133 : [2007] 6DSCR 1152 – referred to.

Case Law Reference

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 8463of 2022.F

From the Judgment and Order dated 09.07.2018 of the High Courtof Karnataka at Bengaluru in ITA No. 10 of 2011.

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With

Civil Appeal Nos. 8553, 8504, 8464, 8682, 9387, 8675, 9401, 9023,8465, 8466, 8607, 8608, 8554, 8622, 8609, 8702, 8621, 8620, 8610, 8611,8619, 8617, 8625, 8624, 8618, 8627, 8665, 8623, 8557, 8626, 8555, 8528,8704, 8666, 8661, 8663, 8628, 8664, 8559, 8667, 8560, 8668, 8584, 8587, H

8586, 8669, 8672, 8591, 8671, 8670, 8556, 8558, 8561, 8583, 8585, 8590,8592, 8674, 8679, 8594, 8680, 8686, 8703, 8600, 8676, 8677, 8683, 8684,8689, 8690, 8685, 9412, 8678, 8691, 9413, 8692, 9414, 8695, 9415, 8687,8696, 8603, 8605, 8699, 8700, 8701, 8697, 9404, 9411, 8602, 8693, 8705,8688, 8698, 9405, 9406, 9409, 9407, 9408, 9025, 9030, 9034, 9036, 8604,9410, 9021, 9022, 9024, 9026, 9027, 9028, 9029, 9416, 9031, 9032, 9033,9035, 9037, 9038, 9039, 9388, 9389, 9390, 9393, 9394, 9395, 9396, 9397,9398, 9399, 9400 of 2022, 2939 of 2023, 9402-9403, 8606, 8512, 8513,8511, 8646, 8549 of 2022, 2938 of 2023, 8461 and 8535 of 2022.

Balbir Singh, ASG, K.K.Chythanya, Tarun Gulati, Ajay Bohra,Arvind P. Datar, T. Suryanarayan, Percy Pardiwala, Ajay Vohra, Sr.Advs., Samarvir Singh, Naman Tandon, Prasenjeet Mohapatra, Ms.Monica Benjamin, Ms. Anu Sura, Rupesh Kumar, Rajat Nair, ShyamGopal, Zoheb Hussain, Prahlad Singh, Raj Bahadur Yadav, S. Sukumaran,Anand Sukumar, Sharath S., Bhupesh Kumar Pathak, Mrs. MeeraMathur, Ambhoj Kumar Sinha, Mrs. Anil Katiyar, Kishore Kunal, Parth,Manish Rastogi, Ankita Prakash, Akanksha Vigyan, Senthil Jagadeesan,Sajal Jain, Ms. Sonakshi Malhan, Ms. Remya Raj, Aakarshan Aditya,Deepak Chopra, Rohan Khare, Priyam Bhatnagar, Harpreet SinghAjmani, Mrs. Vanita Bhargava, Ajay Bhargava, Shantanu Chaturvedi,Prerna Singh, M/s. Khaitan & Co., Himanshu S. Sinha, Bhuwan Dhoopar,Yash Varmani, Syed Jafar Alam, Sanand Ramakrishnan, Nageswar Rao,Shreyash Shah, Yatharth Singh, Ms. Archana Sahadeva, Siddharth RajChoudhary, G. C Srivastava, Suvinay Dash, Kalrav Mehrotra,Ms. Runamoni Bhuyan, H. Raghavendra Rao, Shankey Agrawal, HarshShukla, Aditya Rathore, Ms. Shreya Wadhera, Ms. Meera Mathur, KunalVerma, Yugandhara Pawar Jha, Ms. Tanmayee Rajkmar, Ms. ManasaAnanthan, Ashwin Nair, Ms. Mahima Goud, Sai Kiran, Ms. LavanyaDhawan, Ritik Gupta, Ms. Kavita Jha, Anant Mann, Neeraj Jain, UditNaresh, Aniket D. Agrawal, Rajeev Mishra, Vishal Kalra, S. S. Tomar,Anil Kumar Gautam, Rohan Shah, Aurupdas Gupta, Rohan Thawani,Ms. Pooja Dhar, Hardeep Singh Anand, Pratul Pratap Singh, MantavyaSharma, V. Balachandran, K.R. Vasudevan, Siddharth Naidu, M/s. KSN& Co., Salil Kapoor, Ms. Ananya Kapoor, Sanat Kapoor, SumitLalchandani, Dr. Shaswat Bajpai, Vibhu Jain, Praveen Swarup, VivekSarin, Dibya Prashant Singh, Satish C. Kaushik, Ms. Avnika Mishra,Aakarshan Aditya, Advs. for the appearing parties.

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AThe Judgment of the Court was delivered by

M. R. SHAH, J.

1. The present batch of Civil Appeals, mostly by the Revenue andfew of the assessees arises out of judgments and orders passed by thevarious High Courts, more particularly the High Court of Karnataka,Bdismissing the appeals challenging the findings of the Income TaxAppellate Tribunal (for short, ‘Tribunal’) on ‘Transfer Pricing’ issues onthe ground that the issues decided by the Tribunal are questions of factand as perversity is neither pleaded nor argued nor demonstrated byplacing material to that effect, no substantial question of law arises forCconsideration under Section 260A of the Income Tax Act, 1961 (forshort, ‘IT Act’). The High Court of Karnataka has dismissed the appealspreferred by the Revenue by relying upon its earlier judgment in thecase of PCIT v. Softbrands India (P) Ltd., reported in (2018) 406ITR 513 (Karnataka).

D2. Shri Balbir Singh, learned Additional Solicitor General of India,appearing on behalf of the Revenue has vehemently submitted that theKarnataka High Court in the case of Softbrands India (P) Ltd. (supra)has erroneously held that the Tribunal is the final fact finding authorityon determining the arm’s length price and therefore once the Tribunaldetermines the arm’s length price the same cannot be subject to judicialEscrutiny/scrutiny in an appeal under Section 260A of the IT Act.

2.1 Shri Balbir Singh, learned ASG has submitted that there cannotbe any absolute proposition of law that against the decision of the Tribunaldetermining the arm’s length price, there shall not be any interferenceby the High Court in an appeal under Section 260A of the IT Act.F

2.2 Shri Balbir Singh, learned ASG has taken us to the scheme oftransfer pricing/arm’s length price to be determined under Chapter X ofthe IT Act, more particularly Sections 92, 92A to 92CA, 92D, 92E and92F and Rules 10A to 10E of the Income Tax Rules, 1962 (for short, ‘ITRules’). It is submitted that under the scheme of transfer pricing, theGarm’s length price is to be determined taking into consideration theguidelines stipulated under the aforesaid provisions of the IT Act and theRules. It is submitted that therefore it is always open for the High Courtto consider and/or examine, whether the guidelines stipulated under theAct and the Rules, while determining the arm’s length price have beenfollowed by the Tribunal or not.H

2.3 It is submitted that if the arm’s length price is determined bythe Tribunal de hors the guidelines stipulated under the Act and theRules, more particularly Rules 10A to 10E of the Rules, the determinationcan be said to be perverse which is always subject to the scrutiny by theHigh Court in an appeal under Section 260A of the Act.

2.4 It is submitted that therefore the view taken by the High Courtof Karnataka in the case of Softbrands India (P) Ltd. (supra) is requiredto be corrected by this Court.

3. S/Shri Arvind P. Datar, Tarun Gulati, Percy Pardiwala, learnedSenior Advocates and other learned counsel appearing on behalf of therespective assessees have vehemently submitted that once the arm’slength price is determined by the Tribunal taking into consideration therelevant guidelines, thereafter challenge to the same cannot be said tobe a substantial question of law, to be considered in an appeal underSection 260A of the IT Act.

3.1 It is submitted on behalf of the assessees that Section 260A ofthe IT Act provides that an appeal shall lie to the High Court from everyorder of the Tribunal only if the High Court is satisfied that the caseinvolves a substantial question of law. Sub-section (6) thereof providesthat the High Court may determine any issue which (a) has not beendetermined by the Appellate Tribunal; or (b) has been wrongly determinedby the Appellate Tribunal, by reason of a decision on such question oflaw as is referred to in sub-section(1).

3.2 It is submitted that the said provision came up for considerationin a catena of decisions. It is a settled position that jurisdiction undersection 260A of the IT Act cannot be invoked unless there arises asubstantial question of law. This is precisely what is held by the HighCourt of Karnataka in the judgment in Softbrands India (P) Ltd. (supra),by relying on a series of judgments of this Court.

3.3 It is submitted that a substantial question of law can arise in acase only when a question of law is fairly arguable, where there is roomfor difference of opinion on it.

3.4 It is submitted that a finding of fact may give rise to a substantialquestion of law, inter alia, in the event the findings are based on (i) noevidence; and/or (ii) while arriving at the said finding, relevant admissibleevidence has not been taken into consideration or inadmissible evidencehas been taken into consideration; or (iii) legal principles have not been A

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Aapplied in appreciating the evidence; or (iv) when the evidence has beenmisread. The High Courts as well as this Court have consistently heldthat the Tribunal being a final fact finding authority, in the absence ofdemonstrated perversity in its finding, interference therewith by the HighCourt is not warranted. In support of his submission, learned seniorcounsel/counsel have relied upon the decisions of this Court in the casesBof Vijay Kumar Talwar v. CIT, (2011) 1 SCC 673 and Sir ChunilalV. Mehta and Sons Ltd. v. Century Spinning and ManufacturingCo. Ltd., reported in AIR 1962 SC 1314.

3.5 It is further submitted that perversity, if any, not only should bespecifically alleged in the appeal before the High Court but also, as heldCby the High Court in the case of Softbrands India (P) Ltd. (supra), thesame ought to have been demonstrated.

3.6 It is further submitted that some instances where a substantialquestion of law can arise in Transfer Pricing matter is where the issuerelates to whether at all a transaction falls within the definition ofD‘international transaction’, or if two enterprises are ‘associatedenterprises’ as per the definition under the IT Act. The question ofcomparability of two companies or selection of filters are usually questionof fact, which primarily depend on the functions performed, assetsemployed and risks assumed by the tested party as well as comparableEtransactions. Unless perversity in the findings of the Tribunal is pleadedand demonstrated, by placing material on record, no substantial questionof law can arise and, therefore, there can be no interference by the HighCourt. To the extent there can be no dispute between the parties, inview of the settled legal proposition dealing with sections 260A of theAct and section 100 of the Code of Civil Procedure, 1908.F

3.7 It is submitted that in all the appeals filed by the Revenuebefore the High Court, the primary issues raised pertained to inclusionand exclusion of a few comparables and selection of filters, which areessentially questions of fact and there is a consensus ad idem to thisextent between the parties. In none of the appeals has the RevenueGpleaded, argued, or placed any material to demonstrate perversity in theorder of the Tribunal. Therefore, the High Court after noting the questionsraised, findings rendered by the Tribunal and noting that perversity isneither pleaded/argued nor demonstrated by placing any material,dismissed the appeals, by relying on principles laid down in SoftbrandsHIndia (P) Ltd. (supra). Therefore, no error can be attributed to the orders passed by the High Court dismissing the appeals, in suchcircumstances.

3.8 It is next submitted that the submission of the Revenue that ineach case the High Court should examine whether the guidelines laiddown in the IT Act and the Rules are followed to determine the arm’slength price is not correct and moreover is too farfetched, as the HighCourt can only decide substantial questions of law raised and arisingbefore it.

3.9 It is further submitted that the Revenue’s submission that thejudgment in Softbrands India (P) Ltd. (supra) indicates that there willbe no interference even where inconsistent views are taken by theTribunal is misconceived, because, it is quite possible that in view of theparticular set of facts in one case, one Bench excludes a company andin another case includes the same in view of different set of facts, orsimilarly applies a filter in one and not in another. This is what is in factheld in Softbrands India (P) Ltd. (supra) (please see para 45). Inalmost all cases it is the Revenue which uses the same set of comparablesfor determining an arm’s length price, thus, painting all assessees withthe same brush. These are questions of facts, which would requiredetermination on a case by case basis, and unless perversity isdemonstrated in the order of the Tribunal, no interference is called forby the High Court.

3.10 It is further submitted that Transfer Pricing analysis involvesbenchmarking of controlled transactions with uncontrolled transactions(terms specifically defined in the IT Act and the Rules) is largely astatistical exercise using database of companies in public domain asspecifically defined in the IT Act and the Rules, referred hereinabove.In the specific facts of batch of cases wherein department hasapproached this Court, the exercise of application of detailed guidelinesset out in the IT Act and the Rules was indeed carried out and ironed outby Tribunal with assistance of tax payers representatives and departmentofficers by looking a publicly available information mostly in the form ofaudited financials etc., of companies as prescribed in the IT Act and theRules. Contrasting the appeals/ pleadings filed before High Court ofKarnataka by taxpayers and department available as part of batch ofappeals filed would enable appreciation of the case made out before theHigh Court. This is essential to appreciate the correctness of conclusionsby the High Court in this batch of appeals/petitions. Tax department is ABC

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Aattempting to seek intervention of this Court in present batch ofdepartment’s cases without reference to/de hors any of this relevantbackground facts. Over last two decades, Tribunal and various HighCourts have applied the guidelines laid down in the IT Act and the Rulescontributing to evolution of a process. Intervention in the department’sappeals in present batch of cases and/or laying down any guidelinesBignoring this background could potentially disturb the well settled principlesunder section 260A (equivalent to section 100 CPC). In backgroundfacts or present batch of department’s appeals, acceptance ofdepartment’s contention about lack of application of mind by the HighCourt would cast an unjust burden on the High Court to undertake a suoCmoto exploration of facts not placed before it, make out a case for thedepartment and decide the same without any assistance from the appellantbefore the High Court. Any such guidelines would upset settled law notonly with reference to section 260A but also impact process under section100 CPC. Unlike the assessees cases involved in this batch of appeals,it was never the case of the department that the High Court has notDconsidered any of its written/ oral pleadings before the High Court. It issubmitted that considered view may be taken after taking into accountpleadings before the High Court, pleadings in the appeals before thisCourt in Assessees and department appeals and not based on sweepinggeneralization.E

3.11 It is submitted that Transfer Pricing provisions are essentiallya valuation exercise involving determination of a statistical sample ofcomparables. Under Section 92C(2) of the IT Act, Arm’s Length Priceis always in a range. It is not a science but it is an art. This Court in G.L.Sutania and Anr v SEBI and Ors. reported in 2007 (5) SCC 133 atFparas 84 and 85, have unequivocally stated that valuation is a question offact.

3.12 It is submitted that the case of the Revenue is that theproposition in Softbrands India (P) Ltd. (supra) that no question oflaw can arise out of the transfer pricing matters involving selection ofGcomparables or application of filters, and the Tribunal is the final factfinding authority and all the questions decided by the Tribunal arequestions of fact is too broadly stated, and as a result of this proposition,it would appear that the High Court has held that no appeal would lie toit under section 260A of the IT Act.

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3.13 It is further submitted by the learned counsel appearing onbehalf of the respective assessees in the appeals preferred by theRevenue that in all these cases, the High Court has found that there isno perversity by the Tribunal in determining the arm’s length price andtherefore no substantial question of law arises as no perversity is pleadedand demonstrated. It is submitted that therefore the impugned judgmentsand orders passed by the High Court dismissing the appeals preferredby the Revenue are not required to be interfered with by this Court.

4. We have heard Shri Balbir Singh, learned ASG appearing onbehalf of the Revenue and learned senior counsel/counsel appearing onbehalf of the respective assessees at length.

5. In the present batch of Civil Appeals preferred by the Revenue,the respective High Courts, more particularly the Karnataka High Courthave/has dismissed the appeals preferred by the Revenue in which theRevenue challenged the determination of the arm’s length price by theTribunal, relying upon and/or considering the decision of the KarnatakaHigh Court in the case of Softbrands India (P) Ltd. (supra). In thecase of Softbrands India (P) Ltd. (supra), the High Court has takenthe view that the determination of arm’s length price by the Tribunalshall be final against which an appeal under Section 260A of the IT Actis not required to be entertained.

Therefore, the short question which is posed for the considerationof this Court is, whether in every case where the Tribunal determinesthe arm’s length price, the same shall attain finality and the High Court isprecluded from considering the determination of the arm’s length pricedetermined by the Tribunal, in exercise of powers under Section 260Aof the Act?

6. While determining the aforesaid issue, the relevant provisionsfor determining the arm’s length price under the IT Act are required tobe referred to.

Section 92-C which is relevant, for the purpose of determiningALP inter alia, reads as follows:

“92C. (1) The arm’s length price in relation to aninternational transaction [or specified domestictransaction] shall be determined by any of the followingmethods, being the most appropriate method, having regardto the nature of transaction or class of transaction or class AB

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of associated persons or functions performed by suchpersons or such other relevant factors as the Board mayprescribe, namely : - (a) comparable uncontrolled price method; (b) resale price method;

(c) cost plus method;

(d) profit split method;

(e) transactional net margin method;

(f) such other method as may be prescribed by the Board.

(2) The most appropriate method referred to in sub-section(1) shall be applied, for determination of arm’s length price,in the manner as may be prescribed:

Provided that where more than one price is determined by themost appropriate method, the arm’s length price shall be takento be the arithmetical mean of such prices:

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(3) Where during the course of any proceeding for theassessment of income, the Assessing Officer is, on the basisof material or information or document in his possession, ofthe opinion that- (a) the price charged or paid in an internationaltransaction [or specified domestic transaction] has notbeen determined in accordance with sub-sections (1) and(2); or (b) any information and document relating to aninternational transaction [or specified domestictransaction] have not been kept and maintained by theassessee in accordance with the provisions contained insub-section (1) of section 92D and the rules made in thisbehalf; or

(c) the information or data used in computation of the arm’slength price is not reliable or correct; or

(d) the assessee has failed to furnish, within the specifiedtime, any information or document which he was requiredto furnish by a notice issued under sub-section (3) ofsection 92D, the Assessing Officer may proceed todetermine the arm’s length price in relation to the saidinternational transaction [or specified domestictransaction] in accordance with sub-sections (1) and (2),on the basis of such material or information or documentavailable with him:

Provided that an opportunity shall be given by the AssessingOfficer by serving a notice calling upon the assessee toshow cause, on a date and time to be specified in the notice,why the arm’s length price should not be so determined onthe basis of material or information or document in thepossession of the Assessing Officer.”

20. Section 92C(1) thus visualizes determination of the “arms-length price” (ALP) by any of five enumerated methods, “beingthe most appropriate method ”, having regard to the “nature oftransaction or class of transaction or class of associatedpersons or functions performed by such persons or such otherrelevant factors as the board may prescribe, namely (a)comparable uncontrolled price method, (b) resale pricemethod, (c) cost + method, (d) profit split method, (e)transactional net margin method, (f) any such other methodas may be prescribed by the board. Where more than one priceis determined by the most appropriate method, the arm’s lengthprice shall be taken to be arithmetical mean of such prices.”

21. Rule 10B of the Rules prescribes the determination of arm’slength price under Section 92C. The first step in all methods isevaluation of differences between the international transactionundertaken with the “unrelated enterprise performing thecomparable functions” in similar circumstances. Rule 10B ofthe Income-tax Rules inter alia, provides for various methodsfor determination of the arm’s length price. Rule 10B(1)(e)prescribes the “transactional net margin method” (TNMM) withwhich the present case is concerned. Rule 10B(1)(e) (i) is asunder:

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A“10B. (1) Determination of arm’s length price under section92C:— . .

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(e) transactional net margin method, by which,—

B(i) the net profit margin realised by the enterprise from aninternational transaction entered into with an associatedenterprise is computed in relation to costs incurred or saleseffected or assets employed or to be employed by theenterprise or having regard to any other relevant base.”

C7. Therefore, while determining the arm’s length price, the Tribunalhas to follow the guidelines stipulated under Chapter X of the IT Act,namely, Sections 92, 92A to 92CA, 92D, 92E and 92F of the Act andRules 10A to 10E of the Rules. Any determination of the arm’s lengthprice under Chapter X de hors the relevant provisions of the guidelines,referred to hereinabove, can be considered as perverse and it may beDconsidered as a substantial question of law as perversity itself can besaid to be a substantial question of law. Therefore, there cannot be anyabsolute proposition of law that in all cases where the Tribunal hasdetermined the arm’s length price the same is final and cannot be thesubject matter of scrutiny by the High Court in an appeal under SectionE260A of the IT Act. When the determination of the arm’s length price ischallenged before the High Court, it is always open for the High Courtto consider and examine whether the arm’s length price has beendetermined while taking into consideration the relevant guidelines underthe Act and the Rules. Even the High Court can also examine the questionof comparability of two companies or selection of filters and examineFwhether the same is done judiciously and on the basis of the relevantmaterial/evidence on record. The High Court can also examine whetherthe comparable transactions have been taken into consideration properlyor not, i.e., to the extent non-comparable transactions are considered ascomparable transactions or not. Therefore, the view taken by theGKarnataka High Court in the case of Softbrands India (P) Ltd. that inthe transfer pricing matters, the determination of the arm’s length priceby the Tribunal is final and cannot be subject matter of scrutiny underSection 260A of the IT Act cannot be accepted.

8. Thus, in each case, the High Court should examine whetherthe guidelines laid down in the Act and the Rules are followed whileH

determining the arm’s length price. Therefore, we are of the opinion thatthe absolute proposition of law laid down by the Karnataka High Courtin the case of Softbrands India (P) ltd. (supra) that in the matter oftransfer pricing, determination of the arm’s length price by the Tribunalshall be final and cannot be subject matter of scrutiny and the HighCourt is precluded from examining the correctness of the determinationof the arm’s length price by the Tribunal in an appeal under Section260A of the IT Act on the ground that it cannot be said to be raising asubstantial question of law cannot be accepted. As observed hereinabove,within the parameters of Section 260A of the IT Act in an appealchallenging the determination of the arm’s length price, it is always openfor the High Court to examine in each case whether while determiningthe arm’s length price, the guidelines laid down under the Act and theRules, referred to hereinabove, are followed or not and whether thedetermination of the arm’s length price and the findings recorded by theTribunal while determining the arm’s length price are perverse or not.

9. In view of the above, the impugned judgments and orders passedby the High Court dismissing the Revenue’s appeals and even the appealspreferred by the assessees are required to be quashed and set aside andthe matters are required to be remitted back to the concerned HighCourts to decide and dispose of the respective appeals afresh in light ofthe observations made hereinabove and examine in each and every casewhether the guidelines laid down under the Act and the Rules, referredto hereinabove, are followed while determining the arm’s length price bythe Tribunal or not and to that extent whether the findings recorded bythe Tribunal while determining the arm’s length price are perverse ornot.

10. In view of the above and for the reasons stated above, allthese appeals are allowed. The impugned judgments and orders passedby the respective High Courts are hereby quashed and set aside. Thematters are remitted back to the respective High Courts to decide anddispose of the appeals afresh in light of the observations made hereinaboveand to examine whether in each case while determining the arm’s lengthprice the guidelines laid down under the Act and the Rules, referred tohereinabove, are followed or not and whether the findings recorded bythe Tribunal while determining the arm’s length price are perverse ornot. The aforesaid exercise be completed, preferable within a period ofnine months from the date of receipt of the present order by the respective A

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AHigh Courts. It is specifically observed that we have not entered into themerits of the cases at all and we have not expressed anything on thedetermination of the arm’s length price in case of respective assessees,either in favour of the assessees or in favour of the Revenue. It isultimately for the concerned High Court to take a fresh decision, asobserved hereinabove.B

11. All these appeals stand allowed in terms of the above. Nocosts.

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Nidhi Jain

(Assisted by : Abhishek Pratap Singh and Tamana, LCRAs)

Appeals allowed.

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