Punjab & Haryana HC deletes Arm’s Length Price in absence of Justification in Comparables used During ALP Determination [Read Order]

The Punjab & Haryana High Court in a recent case deleted the Arm’s Length Price ( ALP ) in absence of justification in comparables used during ALP determination. It was 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, Osram India.

Since the Transfer Pricing Officer ( TPO ) had not provided compelling reasons to take departure from the previously selected comparables for purposes of benchmarking, the Commissioner of Income Tax ( CIT(A) ) negated the findings of the TPO proposed to make ALP addition to assessee’s income. The Income Tax Appellate Tribunal (ITAT), on appeal confirmed the findings of the CIT(A). Aggrieved by the same, the Revenue Department had approached the High Court challenging the order of the ITAT.

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The Revenue contented that TPO had rejected Assessee’s submissions with respect to having used multiple air data to determine margins of comparable. Further submitted that the TPO had passed the order in conformity with provisions of Rule10B (2) and 10B(4) of the Income Tax Rules.

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. It was noted that the TPO, on identical facts, had rejected the comparable in the subsequent assessment years.

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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, the court cannot allow the inclusion of such comparables for the first time.

Since the Revenue failed to establish compelling reasons for such departure, the Court dismissed the Revenue’s appeal as devoid of any merit.

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