Sap Labs India Pvt. Ltd. v. ITO (2023)454 ITR 121/ 293 Taxman 263 / 332 CTR 249 / 225 DTR 1 (SC) Editorial : Decisions of Karnataka High Courts in Indigra Exporters P. Ltd v. Dy. CIT (2018) 407 ITR 396 (Karn)(HC). PCIT v. Kirloskar Toyata Textile Machnery P.Ltd (2019) 412 ITR 359 (Karn)(HC), PCIT v. E. Valuesrve SEZ (Gurgaon) P. Ltd (2019) 416 ITR 51 (Delhi)(HC) PCIT v. Mphass Ltd (2022) 446 ITR 361 (Karn )(HC), and PCIT v. Softbrands India (P) Ltd (2018) 406 ITR 513 (Karn) impliedly overruled. Sap Labs India Pvt. Ltd. v.ITO (Karn)(HC) (ITA. No. 10 of 2011 dt 9-7-2018)(2010) 6 ITR 81 (Trib), Remanded.

S. 260A : Appeal-High Court-Transfer pricing-Arm’s length price-International transactions-Determination-Court can consider whether relevant guidelines under Act and Rules taken into consideration–Comparability of two companies-Selection of filters judiciously done and on basis of relevant material and evidence on record-Matter remanded to the High Court to take a fresh decision.[S. 92, 92A to 92CA, 92D, 92E and 92F, R.10B to 10E, Art. 136]

Court held that  there cannot be any absolute proposition of law that in all cases where the Tribunal has determined the arm’s length price, that is final and cannot be the subject matter of scrutiny by the High Court in an appeal under section 260A of the Act. When the determination of the arm’s length price is challenged before the High Court, it is always open for the High Court to consider and examine whether the arm’s length price has been determined while taking into consideration the relevant guidelines under the Act and the Rules. The High Court can also examine the question of comparability of two companies or selection of filters and examine whether it has been done judiciously and on the basis of relevant material and evidence on record. The High Court can also examine whether or not the comparable transactions have been taken into consideration properly, i. e., to the extent non-comparable transactions are considered as comparable transactions or not. Thus, in each case, the High Court should examine whether the guidelines laid down in the Act and the Rules are followed while determining the arm’s length price. There can be no absolute proposition that in the matter of transfer pricing, determination of the arm’s length price by the Tribunal shall be final and cannot be subject matter of scrutiny and the High Court is precluded from examining the correctness of the determination of the arm’s length price by the Tribunal in an appeal under section 260A of the Act on the ground that it cannot be said to raise a substantial question of law. Within the parameters of section 260A of the Act in an appeal challenging the determination of the arm’s length price, it is always open for the High Court to examine in each case whether or not while determining the arm’s length price, the guidelines laid down under the Act and the Rules are followed and whether or not the determination of the arm’s length price and the findings recorded by the Tribunal while determining the arm’s length price are perverse. The court set aside the judgments and orders passed by the High Court and remitted the matters back to the High Courts to decide and dispose of the appeals afresh in the light of the observations in the judgment and examine in each and every case whether or not the guidelines laid down under the Act and the Rules had been followed by the Tribunal while determining the arm’s length price and to that extent whether or not the findings recorded by the Tribunal while determining the arm’s length price were perverse. The court specifically observed that it had not entered into the merits of the cases nor expressed anything on the determination of the arm’s length price either in favour of the assessees or in favour of the Revenue, and that it would be for the High Court to take a fresh decision. (AY. 2003-04)