Sap Labs India Private Limited v. Income Tax Officer, Circle 6, Bangalore

430 SUPREME COURT REPORTS [2023] 4 S.C.R. SAP LABS INDIA PRIVATE LIMITED INCOME TAX OFFICER, CIRCLE 6, BANGALORE (Civil Appeal No. 8463 of 2022) BAPRIL 19, 2023 [M. R. SHAH AND M. M. SUNDRESH, JJ.] Income Tax Act, 1961 : ss. 92, 92A to 92CA, 92D, 92E, 92Fand 260 A – Transfer pricing matters – Arm length price,determination of – Arm length price, determined by the tribunal –CThereafter, determination of the arm’s length price by the High Court,in exercise of powers u/s. 260A – Permissibility of - Held: Therecannot be any absolute proposition of law that in all cases wherethe tribunal has determined the arm’s length price the same is finaland cannot be the subject matter of scrutiny by the High Court inDan appeal u/s 260A – When the determination of the arm’s lengthprice is challenged before the High Court, it is always open for theHigh Court to consider and examine whether the arm’s length pricehas been determined while taking into consideration the relevantguidelines under the Act and the Rules – It is always open for theHigh Court to examine in each case whether the determination ofEthe arm’s length price and the findings recorded by tribunal whiledetermining the arm’s length price are perverse or not – Thus, theimpugned judgments and orders passed by the High Court that thedetermination of arm’s length price by the tribunal shall be finalagainst which an appeal u/s. 260 A is not required to be entertainedFis quashed and set aside. Allowing the appeals, the Court HELD: 1.1 While determining the arm’s length price, thetribunal has to follow the guidelines stipulated under Chapter Xof the Income Tax Act, 1961, namely, Sections 92, 92A to 92CA,G92D, 92E and 92F of the Act and Rules 10A to 10E of the Rules.Any determination of the arm’s length price under Chapter X dehors the relevant provisions of the guidelines, can be consideredas perverse and it may be considered as a substantial question oflaw as perversity itself can be said to be a substantial question ofHlaw. Therefore, there cannot be any absolute proposition of law that in all cases where the tribunal has determined the arm’slength price the same is final and cannot be the subject matter ofscrutiny by the High Court in an appeal under Section 260A ofthe IT Act. When the determination of the arm’s length price ischallenged before the High Court, it is always open for the HighCourt to consider and examine whether the arm’s length pricehas been determined while taking into consideration the relevantguidelines under the Act and the Rules. Even the High Courtcan also examine the question of comparability of two companiesor selection of filters and examine whether the same is donejudiciously and on the basis of the relevant material/evidence onrecord. The High Court can also examine whether thecomparable transactions have been taken into considerationproperly or not, i.e., to the extent non-comparable transactionsare considered as comparable transactions or not. [Para 7][442-C-G] 430 430 431 430 430 9023 , Section: ISSUES 1.2. In each case, the High Court should examine whetherthe guidelines laid down in the Act and the Rules are followedwhile determining the arm’s length price. Therefore, the absoluteproposition of law laid down by the Karnataka High Court in thecase of Softbrands India (P) Ltd. that in the matter of transferpricing, determination of the arm’s length price by the tribunalshall be final and cannot be subject matter of scrutiny and theHigh Court is precluded from examining the correctness of thedetermination of the arm’s length price by the tribunal in an appealunder Section 260A of the IT Act on the ground that it cannot besaid to be raising a substantial question of law cannot be accepted.Within the parameters of Section 260A of the IT Act in an appealchallenging the determination of the arm’s length price, it isalways open for the High Court to examine in each case whetherwhile determining the arm’s length price, the guidelines laid downunder the Act and the Rules, are followed or not and whether thedetermination of the arm’s length price and the findings recordedby the tribunal while determining the arm’s length price areperverse or not. [Para 8][442-H; 443-A-C] 1.3. The impugned judgments and orders passed by theHigh Court dismissing the Revenue’s appeals and even theappeals preferred by the assessees are quashed and set aside Aand the matters are required to be remitted back to the concernedHigh Courts to decide and dispose of the respective appealsafresh in light of the observations made and examine in each andevery case whether the guidelines laid down under the Act andthe Rules, referred are followed while determining the arm’slength price by the tribunal or not and to that extent whether theBfindings recorded by the tribunal while determining the arm’slength price are perverse or not. [Para 9][443-D-E] PCIT v. Softbrands India (P) Ltd. (2018) 406 ITR 513(Karnataka) – disapproved. CVijay Kumar Talwar v. CIT (2011) 1 SCC 673 : [2010]14 SCR 499; Sir Chunilal V. Mehta and Sons Ltd. v.Century Spinning and Manufacturing Co. Ltd. AIR 1962SC 1314 : [1962] Suppl. SCR 549; G. L. Sutania andAnr v. SEBI and Ors. (2007) 5 SCC 133 : [2007] 6DSCR 1152 – referred to. Case Law Reference CIVIL APPELLATE JURISDICTION: Civil Appeal No. 8463of 2022.F From the Judgment and Order dated 09.07.2018 of the High Courtof Karnataka at Bengaluru in ITA No. 10 of 2011. With Civil Appeal Nos. 8553, 8504, 8464, 8682, 9387, 8675, 9401, 9023,8465, 8466, 8607, 8608, 8554, 8622, 8609, 8702, 8621, 8620, 8610, 8611,8619, 8617, 8625, 8624, 8618, 8627, 8665, 8623, 8557, 8626, 8555, 8528,8704, 8666, 8661, 8663, 8628, 8664, 8559, 8667, 8560, 8668, 8584, 8587, 8586, 8669, 8672, 8591, 8671, 8670, 8556, 8558, 8561, 8583, 8585, 8590,8592, 8674, 8679, 8594, 8680, 8686, 8703, 8600, 8676, 8677, 8683, 8684,8689, 8690, 8685, 9412, 8678, 8691, 9413, 8692, 9414, 8695, 9415, 8687,8696, 8603, 8605, 8699, 8700, 8701, 8697, 9404, 9411, 8602, 8693, 8705,8688, 8698, 9405, 9406, 9409, 9407, 9408, 9025, 9030, 9034, 9036, 8604,9410, 9021, 9022, 9024, 9026, 9027, 9028, 9029, 9416, 9031, 9032, 9033,9035, 9037, 9038, 9039, 9388, 9389, 9390, 9393, 9394, 9395, 9396, 9397,9398, 9399, 9400 of 2022, 2939 of 2023, 9402-9403, 8606, 8512, 8513,8511, 8646, 8549 of 2022, 2938 of 2023, 8461 and 8535 of 2022. 430 8619, 8617, 8625, 8624, 8618, 8627, 8665,8623, 8557, 8626, 8555, 8528,8704, 8666, 8661, 8663, 8628, 8664, 8559, A8586, 8669, 8672, 8591, 8671, 8670, 8556,B8558, 8561, 8583, 8585, 8590,8592, 8674, 8679, 8594, 8680, 8686, 8703,8600, 8676, 8677, 8683, 8684,8689, 8690, 8685, 9412, 8678, 8691, 9413,C8692, 9414, 8695, 9415, 8687,8696, 8603, 8605, 8699, 8700, 8701, 8697,9404, 9411, 8602, 8693, 8705,8688, 8698, 9405, 9406, 9409, 9407, 9408,D9025, 9030, 9034, 9036, 8604,9410, 9021, 9022, 9024, 9026, 9027, 9028,9029, 9416, 9031, 9032, 9033,9035, 9037, 9038, 9039, 9388, 9389, 9390,9393, 9395, 9396, 9397, 9397, 9398, 9399,E A2023, 2023, 2023, 2023, 2023, 2023, 2023,2023, 2023, 2023, 2023, 2023, 2023, 2023,2023, 2023, 2023, 2023, 2023, 2023, 2023,2023, 2023, 2023, 2023, 2023, 2023, 2023,2023, 2023, 2023, 2023, 2023, 2023, 2023,2023, 2023, 2023, 2023, 2023, 2023, 2023,2023, 2023, 2023, 2023, 2023, 2023, 2023, 2 Balbir Singh, ASG, K.K.Chythanya, Tarun Gulati, Ajay Bohra,Arvind P. Datar, T. Suryanarayan, Percy Pardiwala, Ajay Vohra, Sr.Advs., Samarvir Singh, Naman Tandon, Prasenjeet Mohapatra, Ms.Monica Benjamin, Ms. Anu Sura, Rupesh Kumar, Rajat Nair, ShyamGopal, Zoheb Hussain, Prahlad Singh, Raj Bahadur Yadav, S. Sukumaran,Anand Sukumar, Sharath S., Bhupesh Kumar Pathak, Mrs. MeeraMathur, Ambhoj Kumar Sinha, Mrs. Anil Katiyar, Kishore Kunal, Parth,Manish Rastogi, Ankita Prakash, Akanksha Vigyan, Senthil Jagadeesan,Sajal Jain, Ms. Sonakshi Malhan, Ms. Remya Raj, Aakarshan Aditya,Deepak Chopra, Rohan Khare, Priyam Bhatnagar, Harpreet SinghAjmani, Mrs. Vanita Bhargava, Ajay Bhargava, Shantanu Chaturvedi,Prerna Singh, M/s. Khaitan & Co., Himanshu S. Sinha, Bhuwan Dhoopar,Yash Varmani, Syed Jafar Alam, Sanand Ramakrishnan, Nageswar Rao,Shreyash Shah, Yatharth Singh, Ms. Archana Sahadeva, Siddharth RajChoudhary, G. C Srivastava, Suvinay Dash, Kalrav Mehrotra,Ms. Runamoni Bhuyan, H. Raghavendra Rao, Shankey Agrawal, HarshShukla, Aditya Rathore, Ms. Shreya Wadhera, Ms. Meera Mathur, KunalVerma, Yugandhara Pawar Jha, Ms. Tanmayee Rajkmar, Ms. ManasaAnanthan, Ashwin Nair, Ms. Mahima Goud, Sai Kiran, Ms. LavanyaDhawan, Ritik Gupta, Ms. Kavita Jha, Anant Mann, Neeraj Jain, UditNaresh, Aniket D. Agrawal, Rajeev Mishra, Vishal Kalra, S. S. Tomar,Anil Kumar Gautam, Rohan Shah, Aurupdas Gupta, Rohan Thawani,Ms. Pooja Dhar, Hardeep Singh Anand, Pratul Pratap Singh, MantavyaSharma, V. Balachandran, K.R. Vasudevan, Siddharth Naidu, M/s. KSN& Co., Salil Kapoor, Ms. Ananya Kapoor, Sanat Kapoor, SumitLalchandani, Dr. Shaswat Bajpai, Vibhu Jain, Praveen Swarup, VivekSarin, Dibya Prashant Singh, Satish C. Kaushik, Ms. Avnika Mishra,Aakarshan Aditya, Advs. for the appearing parties. AThe Judgment of the Court was delivered by M. R. SHAH, J. 1. The present batch of Civil Appeals, mostly by the Revenue andfew of the assessees arises out of judgments and orders passed by thevarious High Courts, more particularly the High Court of Karnataka,Bdismissing the appeals challenging the findings of the Income TaxAppellate Tribunal (for short, ‘Tribunal’) on ‘Transfer Pricing’ issues onthe ground that the issues decided by the Tribunal are questions of factand as perversity is neither pleaded nor argued nor demonstrated byplacing material to that effect, no substantial question of law arises forCconsideration under Section 260A of the Income Tax Act, 1961 (forshort, ‘IT Act’). The High Court of Karnataka has dismissed the appealspreferred by the Revenue by relying upon its earlier judgment in thecase of PCIT v. Softbrands India (P) Ltd., reported in (2018) 406ITR 513 (Karnataka). D2. Shri Balbir Singh, learned Additional Solicitor General of India,appearing on behalf of the Revenue has vehemently submitted that theKarnataka High Court in the case of Softbrands India (P) Ltd. (supra)has erroneously held that the Tribunal is the final fact finding authorityon determining the arm’s length price and therefore once the Tribunaldetermines the arm’s length price the same cannot be subject to judicialEscrutiny/scrutiny in an appeal under Section 260A of the IT Act. 2.1 Shri Balbir Singh, learned ASG has submitted that there cannotbe any absolute proposition of law that against the decision of the Tribunaldetermining the arm’s length price, there shall not be any interferenceby the High Court in an appeal under Section 260A of the IT Act.F