Additional TP Ground on AE as Tested Party Admissible before ITAT: Bombay HC favours Nivea India [Read Order]

The Bombay High Court has upheld the Income Tax Appellate Tribunal’s ( ITAT ) decision allowing Nivea India Private Ltd. to raise an additional transfer pricing ground at the appellate stage.

The court held that the Associated Enterprises (AEs) can be considered as the tested party, even if such a plea was not taken before the Transfer Pricing Officer (TPO) or the first appellate authority.

The Revenue had challenged the ITAT order on the basis that Nivea India had originally treated itself as the tested party in its transfer pricing study and Form 3CEB, and that shifting the tested party to AEs involved factual examination which should not be allowed through an additional ground at the Tribunal stage.

It was argued that such a change unsettled the assessee’s own declared position and was not merely a legal issue but a factual one requiring fresh material.

The tribunal, however, admitted the additional ground after examining the record and noting that core functional and relationship details of the AEs were already available through Form 3CEB and the transfer pricing study.

The ITAT bench relied on settled Supreme Court and High Court precedents allowing new legal grounds to be raised before the Tribunal where relevant facts are on record and where consideration is necessary to correctly determine tax liability.

The Tribunal further pointed out that transfer pricing regulations are founded on the arm’s length principle and OECD guidelines, under which the “tested party” is the least complex entity with reliable comparable data.

It also observed that the question of selecting the most appropriate tested party goes to the root of correct ALP determination and should be examined substantively rather than rejected on technical grounds.

Accordingly, it restored the issue to the AO/TPO for fresh examination with liberty to call for documents and conduct independent inquiry.

The high court bench of Justices M.S.Karnik and S.M. Modak found that the ITAT was fully conscious that the ground was raised for the first time at the Tribunal stage and had nevertheless exercised its discretion judiciously.

The Court agreed that the appellate tribunal, being the final fact-finding authority, can admit additional grounds to make sure that tax is levied in accordance with law and consistent with Article 265 of the Constitution.

According to the court, the ITAT had not conclusively accepted the AE as the tested party but had only remanded the matter for proper verification and adjudication by the AO/TPO after granting opportunity to the assessee. The order of the same was passed and it was separately challenged.

Therefore, the Bombay High Court dismissed the appeal filed by the department.

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