Transfer Pricing | Resolution Under Mutual Agreement Procedure Is By Consensus, Cannot Be Imposed Upon Assessee: Delhi HC

A division bench of Justices Vibhu Bakhru and Swarana Kanta Sharma observed that such a resolution cannot be imposed in a contested case, where there is no consensus.

MAP procedure is based on an agreement between the competent authorities of the contracting states, which is accepted by the Assessee. It is evolved for resolving a dispute regarding double taxation by a consensual procedure, within the framework of the Double Taxation Avoidance Agreements (DTAA). In cases where a taxpayer finds that the taxation is not in accordance with DTAA, it is entitled to apply for resolution by MAP.

The Court however cautioned that MAP must necessarily be confined to issues arising out of DTAA and the subject transactions.

“The Agreement under MAP cannot be extrapolated as a determination of ALP of international transactions, which are not subject to MAP,” it held.

In the case at hand, the ITAT permitted the Transfer Pricing Officer to determine the transfer pricing adjustment relating to the assessee's Non-US transactions on the same framework (MAP under Indo-US DTAA) as adopted for determining the adjustment in respect of US transactions.

It is challenging that the Assessee approached the High Court with this order. It contended that the basis for TP adjustments under MAP cannot be applied to international transactions, which are not subject of negotiations under the MAP.

Thus, the question before the Court was whether it is apposite to use the framework agreed by competent authorities of the US and India under the MAP in terms of Article 27 of the Indo-US DTAA, for deciding transfer pricing issues that are not covered under the said framework.

At the outset, the High Court noted that the issue regarding transfer pricing adjustment may arise where taxing authorities of both the contracting states may tax the same income. Thus MAP is evolved for resolving a dispute regarding double taxation by competent authorities of contracting states, via a consensual procedure, within the framework of the Double Taxation Avoidance Agreements.

Court said the clear objective of MAP is to eliminate double taxation issues by “mutual consultation”. It observed,

“The effect of imputing a framework arrived at between competent authorities of India and the US in respect of US Transactions to Non-US Transactions has an effect of imposing a consensual and negotiated settlement regarding one set of transaction to another where there is no such consensus. This in effect seeks to foreclose a right of an assessee to dispute a TP adjustment on the basis of the assessee's acceptance of an agreement in a situation, which is materially different.”

Court added, “It is of vital importance to note that there is no agreement between the tax authorities of other Non-US countries regarding the determination of the ALP of Non-US Transactions. Thus, the TP adjustments made on the basis of MAP under the Indo-US DTAA, does not bind the tax authorities of the non-US countries.”

Accordingly, it allowed the assessee's appeal and restored the matter to ITAT for decision in accordance with the Act.

Appearance: For the Appellant: Mr Deepak Chopra, Mr Harpreet Singh and Mr Priyam Bhatnagar, Advocates. For the Respondents: Mr Indruj Singh Rai, senior standing counsel with Mr Sanjeev Menon, Mr Rahul Singh and Mr Anmol Jagga, Advocates.

Case title: Aon Consulting Pvt. Ltd. (Successor Entity Of Aon Services (I) Pvt. Ltd. v. Principal Commissioner Of Income Tax – 1 And Ors.

Citation: 2025 LiveLaw (Del) 180

Case no.: ITA 244/2024

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