In CA No. 8463 OF 2022-SC- Top Court rules that determination of arm’s length price by Tribunal is not final and it can be subject to judicial scrutiny in an appeal under Section 260A of the Income Tax Act
Justice M.R. Shah and Justice M.M. Sundresh [19-04-2023]

Read Order: Sap Labs India Private Limited v. Income Tax Officer, Circle 6, Bangalore

Chahat Varma

New Delhi, April 20, 2023: While hearing a batch of Civil Appeals filed by the Revenue, the Supreme Court has ruled there cannot be any absolute proposition of law that in all cases where the Tribunal has determined the arm’s length price, the same is final and cannot be the subject matter of scrutiny by the High Court in an appeal under Section 260A of the IT Act.

Learned Additional Solicitor General of India, appearing on behalf of the Revenue submitted before the court that the Karnataka High Court in the case of PCIT v. Softbrands India (P) Ltd [LQ/KarHC/2018/2531] had held that the Tribunal is the final fact finding authority on determining the arm’s length price and therefore once the Tribunal determines the arm’s length price, the same cannot be subject to judicial scrutiny/scrutiny in an appeal under Section 260A of the IT Act.

The division bench of Supreme Court was of the view that “while determining the arm’s length price, the Tribunal has 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 and Rules 10A to 10E of the Rules. Any determination of the arm’s length price under Chapter X de hors the relevant provisions of the guidelines, referred to hereinabove, can be considered as perverse and it may be considered as a substantial question of law as perversity itself can be said to be a substantial question of law.”

“Within the parameters of Section 260A of the IT Act in an appeal challenging the determination of the arm’s length price, it is always open for the High Court to examine in each case whether while determining the arm’s length price, the guidelines laid down under the Act and the Rules, referred to hereinabove, are followed or not and whether the determination of the arm’s length price and the findings recorded by the Tribunal while determining the arm’s length price are perverse or not,” the division bench said.

Therefore, the view taken by the Karnataka High Court in the case of Softbrands India (P) Ltd., has been rejected by the Supreme Court. The matters have been remitted back to the respective High Courts to decide and dispose of the appeals afresh in light of the observations made hereinabove.