“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 u/s 260A – When the determination of the arm’s length price is challenged before the High Court, it is always open for the High Court to consider and examine whether the arm’s length price has been determined while taking into consideration the relevant guidelines under the Act and the Rules.”

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Case Details: Sap Labs India Private Limited Vs. ITO - 2023 (4) TMI 859 - SUPREME COURT

Supreme Court Held

The Supreme Court held that the Tribunal must follow the guidelines stipulated under Chapter X of the Income-tax Act, namely, Sections 92, 92A to 92CA, 92D, 92E and 92F and Rules 10A to 10E while determining the arm’s length price (ALP). Any determination of ALP under Chapter X dehors the relevant provisions of the Income-tax Act is considered perverse and may be considered a substantial question of law as perversity itself can be said to be a substantial question of law.

There cannot be any absolute proposition of law that in all cases where the Tribunal determined ALP, the same is final and cannot be scrutinised by the High Court in an appeal under Section 260A of the Income-tax Act.

When the determination of ALP is challenged before the High Court, it is always open for the High Court to consider and examine whether the ALP was determined considering the relevant guidelines under the Act and the Rules.

Even the High Court can also examine the comparability of two companies or selection of filters and whether the same is done judiciously and based on the relevant material/evidence on record. The High Court can also examine whether the comparable transactions have been taken into consideration properly, i.e., to the extent non-comparable transactions are considered comparable transactions or not.

Therefore, the view that in the matter of transfer pricing, the determination of ALP by the Tribunal shall be final and cannot be subject matter of scrutiny isn’t acceptable. The High Court is not precluded from examining the correctness of the determination of ALP.

Consequently, the matter was remitted back to the respective High Court for fresh consideration after examining the arm’s length price in accordance with the relevant provisions.

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