The Delhi High Court ruled that it is impermissible for Transfer Pricing Officer to doubt commercial soundness of expenditure that may be incurred.
The bench noted that the TPO had suggested adjustments in the Transfer Pricing Order based on the allegation that payment of invoices raised by AT KBO to its Associated Enterprises had not been received on time. In view of the above, it chose to treat those outstanding receivables as being liable to be recharacterized as unsecured loans.
The court said that it is clearly impermissible for the TPO to disregard the actual transaction unless it comes to the conclusion that an unrelated party would not have undertaken the same in usual course of business. More importantly it is wholly impermissible for the TPO to doubt commercial soundness of the expenditure that may be incurred.
Furthermore, the bench observed that it would also not be permissible for the TPO to engage in the restructuring of a transaction, unless the economic substance of a transaction differed from its form and if the form and substance of the transaction were the same but the arrangements relating to the transaction when viewed in totality differed from that which would have been adopted by independent enterprises acting in a commercially rational manner.
The court found no ground to interfere with the view ultimately taken by the Tribunal.
Case Information
Case Name: The Commissioner Of Income Tax – International Taxation V/S A.T. Kearney Ltd.
Judicial Level & Location : Delhi High Court
Appeal Number : ITA 159/2023
Date of Ruling : 11/07/2024
Ruling in favor of: Respondent
Judges: Justice Yashwant Varma and Justice Ravinder Dudeja
