ALP determined by ITAT is subject to review; there is no unbreakable legal principle that its judgement is final: SC

Sap Labs India Private Limited Vs. ITO – [2023] (SC)

The Supreme Court was asked to rule on the following question: “Did the High Court correctly hold that the Tribunal’s determination of arm’s length price shall be final, against which the High Court shall not entertain an appeal?”

The Supreme Court ruled that when assessing the arm’s length price (ALP), the Tribunal must adhere to the rules outlined in Chapter X of the Income-tax Act, including Sections 92, 92A to 92CA, 92D, 92E and 92F and Rules 10A to 10E. Any ALP determination made under Chapter X outside of the applicable Income-tax Act requirements is deemed perverse and may be regarded as a substantial question of law since perversity is itself a substantial question of law.

There cannot be a presumption of law that says the ALP determined by the Tribunal in every case is conclusive and cannot be challenged in court via an appeal under Section 260A of the Income-tax Act.

It is always possible for the High Court to assess and investigate whether the ALP was determined taking into account the pertinent criteria under the Act and the Rules when the determination of ALP is challenged before the High Court.

Even the High Court has the authority to consider the comparability of two businesses or the choice of filters, as well as whether these decisions were made wisely and in light of the pertinent information and evidence on file. The High Court can also assess whether comparable transactions have been appropriately taken into account, that is, whether non-comparable transactions have been given the same weight as comparable transactions or not.

Therefore, it is unacceptable to hold that the Tribunal’s determination of ALP in the question of transfer pricing shall be final and inadmissible to review. The High Court is free to review whether the ALP’s determination was accurate.

As a result, after analyzing the arm’s length pricing in accordance with the pertinent regulations, the matter was referred back to the appropriate High Court for further consideration.