No Legal Bar in Selecting Foreign AE as Tested Party for Determining ALP | HC

Case Details: PCIT v. ITC Infotech India Ltd. - [2024] 159 taxmann.com 323 (Calcutta)

Judiciary and Counsel Details

• • T.S. Sivagnanam & Supratim Bhattacharya, JJ.
  • Ms Smita Das De & Soumen Bhattacharjee, Advs. for the Appellant.
  • J.P. Khaitan, Sr. Adv & Nilanjana Banerjee Pal, Adv. for the Respondent.

Facts of the Case

The instant appeal was filed by the Assessing Officer (AO) under Section 260A of the Income Tax Act, 1961 against the order passed by the Tribunal. AO has raised the following questions of law for consideration:

“Whether the Tribunal was justified in law in not considering the fact that foreign AEs cannot be taken as ‘tested party’ as per Indian Transfer Pricing Regulation in as much as the tested party should be an Indian entity and the level of margin has to be considered for establishing arm’s length comparability?”

High Court Held

The Calcutta High Court held that the issues that arose for consideration had been decided by the Tribunal in favour of the assessee in the assessee’s case in past years. The order passed in favour of the assessee for the assessment years 2005-06, and the High Court has also affirmed 2006-07.

The Tribunal observed that the Indian Transfer Pricing guidelines issued by the Institute of Chartered Accountants of India vide guidance note on report under Section 92E by Institute of Chartered Accountants of India and transfer pricing guidelines issued by OECD do not prohibit associated enterprises to be tested party.

The Tribunal accepted the stand taken by the assessee that the associated enterprises could be selected as a tested party. Accordingly, the finding rendered by the Tribunal was just, proper and legally valid. Thus, the appeal filed by AO was to be dismissed.

List of Cases Reviewed

• • PCIT v. Almatis Alumina (P.) Ltd. [2022] 137 taxmann.com 202/[2022] 286 Taxman 378 (Calcutta) (para 5) followed.