ALP of Intra-Group Services Cannot be Nil without Sec. 92C(3) Compliance: Supreme Court Dismisses SLP of American Express Banking Corp [Read Order]

The Supreme Court has dismissed an SLP filed by American Express Banking Corporation against the Delhi High Court ruling on transfer pricing. The HC had upheld the Income Tax Appellate Tribunal’s (ITAT) remand on the intra-group services and emphasised the compliance of Section 92C(3) for determining ALP.

The assessee, American Express Banking Corporation, is a company incorporated under the laws of the United States of America and was engaged in the business of banking. The assessee had set up its Branch in India during the financial year [FY] 2007-08 after obtaining the licence from the Reserve Bankof India [RBI]. The assessee filed its return of income for AY 2009-10, declaring a total income of Rs 52,74,06,080/-.

The assessee had entered into an international transaction with its Associate Enterprises [AEs] of a value of Rs. 320 Crores. In view of the same, the Assessing Officer [AO] made a reference under Section 92CA(3) of the Act to the Transfer Pricing Officer [TPO] for determining the Arms’ Length Price [ALP] of the international transactions.

The TPO passed an order and made the transfer pricing adjustment amounting to Rs. 24,30,24,147/- on account of the ALP of the international transaction as determined by it. Pursuant to the above adjustment, the AO passed the final assessment order adjusting the amount as determined by the TPO – Rs. 24,30,24,147/-.

The assessee appealed the final assessment order before the CIT(A). The CIT(A) held that it was not possible to quantify the value of the intra-group services availed by the assessee in the absence of any third-party documentation and directed that the adjustment on account of the international transactions relating to intra-group services be restricted to 50% of the adjustment as directed by the TPO.

The Revenue appealed the CIT(A)’s decision before the ITAT on the grounds of the inclusion of Cepha Imaging Private Limited and R Systems International Limited as comparables for determining the ALP. The Revenue also assailed the decision of the CIT(A) to direct the exclusion of Coral Hub Ltd., Cosmic Global Ltd., E Clerx Services Ltd. and ICRA Online Ltd. as comparables on account of their functional dissimilarities.

The assessee argued that CIT(A) did not consider that the conditions as specified under Section 92C(3) of the Act were not satisfied and, therefore, the TPO could not have proceeded to determine the ALP based on the material available with it. The assessee also questioned the CIT(A)’s decision to determine ALP for intra-group services at 50 per cent. The assessee also challenged the exclusion of M/s. CG VAK Software and Exports Ltd. as a comparable.

The Delhi high court bench noted that, the ITAT did not find any fault with the CIT(A)’s decision regarding the exclusion/inclusion of the companies as comparable, as asserted by the Revenue or the assessee. However, insofar as the intra-group services are concerned, the ITAT observed that the TPO had faulted in determining the ALP for Intra-group services as nil, holding that some intra-group services had been received by the assessee and, therefore, the ALP of such services could not be determined as nil. In view of this, the ITAT remanded the matter to the TPO for determining the ALP afresh.

The assessee filed an appeal in 2025 at the Delhi High Court, aggrieved by the decision of the ITAT. The High Court upheld the decision of ITAT, remanding the matter to the TPO to consider afresh. The bench also emphasised that the TPO is required to consider whether any of the conditions under Section 92C(3) of the Act are satisfied before proceeding to make transfer pricing adjustments on account of intra-group services.

Recently, the Supreme Court bench comprising Justice J.B. Pardiwala and Justice K.V. Viswanathan dismissed the SLP filed by American Express Banking Corp.

The Supreme Court observed that “..... We find no good ground to interfere with the impugned order passed by the High Court”, upholding the Delhi High Court’s decision to concur with ITAT’s findings.

Accordingly, the apex court favoured remanding the case back to TPO for computing ALP on intra-group services.

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