Tested Party Normally Should Be Least Complex Party To Controlled Transaction, Reiterates Calcutta High Court

The Division Bench comprising Justice T.S Sivagnanam and Justice Supratim Bhattacharya observed that “the tested party normally should be the least complex party to the controlled transaction and there is no bar for selection of tested party either local or foreign party and neither the Act nor the guidelines on transfer pricing provides so”.

The Bench noted several substantial questions of law pertaining to:

(i) Whether Tribunal erred in not considering the fact that foreign AEs could not be taken as tested party as per Indian TP regulation;

(ii) Whether Tribunal erred in not considering that segmental accounts which do not form part of audited financial statement can at all be taken into account to determine ALP wherein necessary verification is warranted at TPO's level regarding use of proper allocation keys/ basis while preparing segmented accounts;

And (iii) whether Tribunal erred in not considering that accounts prepared by assessee without any basis and breakup of expenses allocated to its segments is not justified and acceptable as per law.

The Bench found that the substantial issues had been decided in assessee's favour in its own cases for AY 2005-06.

Therefore, relying on the ruling in Principal Commissioner of Income Tax vs. Almatis Alumina Pvt. Ltd. (2022) 445 ITS 632 Cal, wherein it has been held that there is no prohibition on the selection of a foreign AE as a tested party based on TP Guidelines of the OECD and ICAI, the High Court dismissed the Revenue's appeal.

Counsel for Appellant/ Revenue: Smita Das De and Soumen Bhattacharjee

Counsel for Respondent/ Assessee: J.P. Khaitan and Nilanjana Banerjee Pal

Case Title: PCIT vs ITC INFOTECH INDIA LIMITED

Case Number: ITAT No 263/2023

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