Bharti Airtel Limited vs. Principal CIT
In a significant ruling, the Income Tax Appellate Tribunal (ITAT) Delhi Bench has quashed the Principal Commissioner of Income Tax’s (PCIT) direction under Section 263 of the Income Tax Act, 1961, to enhance transfer pricing (TP) adjustment by ₹2,663.71 crores. The Tribunal held that the mere admission of a Special Leave Petition (SLP) by the Hon’ble Supreme Court in the Firestone International Ltd. case could not be grounds for revising a legally valid assessment order based on settled law.
Background:
In the impugned order, the PCIT had enhanced the TP adjustment on the basis that the Transfer Pricing Officer (TPO) incorrectly allowed a pro-rata adjustment. This adjustment was made by the TPO in accordance with settled judicial precedents, including various decisions of the Hon’ble Bombay High Court and other forums, where such treatment was upheld.
The PCIT relied on the fact that in CIT vs. Firestone International Ltd. (378 ITR 558), the Revenue’s SLP was admitted by the Hon’ble Supreme Court. Based on this, the PCIT concluded that the TPO’s action in allowing proportionate TP adjustment was erroneous and prejudicial to the interest of the Revenue.
Findings of the Tribunal:
1. TPO Conducted Proper Inquiry:
The TPO, during the TP proceedings for AY 2020-21, carried out detailed investigations and made a substantial TP adjustment of over ₹457 crores. On request of the assessee, and in line with established legal principles, the TPO restricted the TP adjustment to only the value of international transactions undertaken with Associated Enterprises (AEs), allowing a pro-rata adjustment of ₹249.04 crores.
2. PCIT’s Reliance on Pending SLP Rejected:
The ITAT noted that just because an SLP is pending or admitted by the Supreme Court does not override the binding nature of jurisdictional High Court decisions. In fact, the Hon’ble Apex Court had dismissed the SLP in the case of Hindustan Unilever Ltd. [ITA No. 1873 of 2013], wherein the Bombay High Court had upheld the principle of pro-rata TP adjustment.
3. No Error Prejudicial to Revenue:
The ITAT emphasized that the scope of Section 263 is limited to cases where the assessment order is both erroneous and prejudicial to the interest of Revenue. Since the TPO’s decision was based on sound legal footing and supported by the jurisdictional High Court’s rulings, the assessment could not be termed erroneous.
4. Settled Law Cannot Be Undone by Mere Litigation:
The Tribunal further referred to the decision in M/s Damco India Pvt. Ltd. vs. DCIT [ITA No. 1155/Mum/2017], observing that the SLP in the Firestone case pertains to Section 14A disallowance—not transfer pricing—and hence had no direct bearing on the issue at hand.
Conclusion:
The ITAT firmly rejected the PCIT’s attempt to invoke Section 263 based on the pending Firestone SLP, holding that the Revenue cannot revisit settled legal positions simply because it is contesting the matter in a higher court. The Tribunal reaffirmed that a validly completed TP assessment based on prevailing legal standards cannot be deemed erroneous merely due to contrary interpretation being pursued by Revenue elsewhere.