Comparable Used For First Time During ALP Determination Must Be Justified With Reasons: Punjab & Haryana High Court Deletes Arm's Length Price
The Punjab & Haryana High Court held that Revenue Department must establish compelling reasons for taking departure from the comparables selected by him in previous assessment years if he opts so, while carrying out transfer pricing adjustment to the international transactions of the assessee. The Division Bench comprising Justice Sanjeev Prakash Sharma and Justice Sanjay...
The Punjab & Haryana High Court held that Revenue Department must establish compelling reasons for taking departure from the comparables selected by him in previous assessment years if he opts so, while carrying out transfer pricing adjustment to the international transactions of the assessee.
The Division Bench comprising Justice Sanjeev Prakash Sharma and Justice Sanjay Vashisth observed that “Once the TPO himself has not accepted the said comparable which were considered for assessment proceedings in question while examining subsequent assessment proceedings, we do not find any justification to allow the inclusion of such comparables for the first time”. (Para 9)
Facts of the case:
Since the TPO had not provided compelling reasons to take departure from the previously selected comparables for purposes of benchmarking, the CIT(A) negated the findings of the TPO proposed to make ALP addition to assessee's income. On appeal, the ITAT confirmed the findings of the CIT(A). Hence, the Revenue Department had approached the High Court challenging the order of the ITAT.
Observations of the High Court:
The Bench noted the Revenue's contention that TPO had rejected Assessee's submissions with respect to having used multiple air data to determine margins of comparable.
The Bench also referred to the submission of Revenue that the TPO had passed the order in conformity with provisions of Rule10B (2) and 10B(4) of the Income Tax Rules.
Observing that the aspects raised by Revenue are purely factual, the Bench referred to the ITAT's findings wherein CIT(A)'s order were upheld that comparable rejected for subsequent AYs were not to be included for impugned AY also.
The Bench noted that the TPO, on identical facts, had rejected the comparable in the subsequent assessment years.
Hence, the Bench clarified that once the TPO himself has not accepted the comparables which were considered for assessment proceedings in question while examining subsequent assessment proceedings, there is no justification to allow the inclusion of such comparable for the first time.
Moreover, even for the previous years, when the comparables have been taken into consideration as accepted by the TPO, he cannot take departure from the said course for each assessment year, added the Bench.
Since the Revenue failed to establish compelling reasons for such departure, the High Court dismissed the Revenue's appeal as devoid of any merit.
Counsel for Appellant/ Revenue: Varun Issar
Counsel for Respondent/ Assessee: None
Case Title: PCIT vs Osram India
Case Number: ITA No 85/2023