SC Upholds ITAT Remand in Transfer Pricing Dispute on Intra-Group Services

American Express Banking Corporation (India Branch) Vs Assistant Director of Income Tax (Supreme Court of India)

Supreme Court: Dismisses assessee’s SLP on ALP remand of intra-group services

Facts:

• The petitioner is American Express Banking Corporation (India Branch) (the ‘assessee’). The respondent is the Assistant Director of Income Tax, Circle 1(1), International The matter concerns transfer-pricing adjustments relating to intra-group services (IGS) and the computation of Arm’s-Length Price (ALP).
• The Transfer Pricing Officer (TPO) made an ALP adjustment in respect of intra-group services provided within the American Express The TPO’s approach was driven by the finding that the assessee had not established that it had derived benefits from the intra-group services; on that premise, the TPO proceeded to treat those services as not being something an independent entity would have paid for (i.e., the absence of benefit was a key factual predicate for making the transfer- pricing adjustment).
• The issue of ALP for the intra-group services proceeded through the appellate The Income Tax Appellate Tribunal (ITAT) had directed a remand on the ALP/IGS question (i.e., returned the matter for reconsideration consistent with the findings/directions). The High Court of Delhi considered the matter and confirmed ITAT’s remand on the ALP qua intra-group services. In doing so, the High Court recorded that (a) the TPO had proceeded on the basis that the assessee had failed to prove benefit, and (b) before making a TP adjustment, the TPO was required to consider whether any of the conditions specified in section 92C(3) are satisfied. The High Court therefore, required a careful, condition-based inquiry rather than a straight negative inference.
• The assessee filed a Special Leave Petition (SLP) in the Supreme Court challenging the High Court’s judgment dated 5 May 2025 (ITA 5/2025 before the Delhi High Court). The SLP was heard by a two-judge bench of the Supreme Court on 15 September 2025.

Issues:

• Whether the TPO could make a transfer-pricing (ALP) adjustment in respect of intra-group services merely on the basis that the assessee failed to demonstrate any benefit from those services
• Whether the TPO is required to explicitly examine the conditions contained in section 92C(3) (statutory conditions that govern computation of ALP/transfer pricing adjustments) before proceeding to make an adjustment on account of intra-group services.
• Whether the ITAT/High Court were justified in remanding the ALP.

Observations made by the Hon’ble Delhi High Court:

• The central controversy relates to the amount paid by the assessee for intra-group services; the TPO had made a very large TP adjustment (Rs. 24,30,24,147 in aggregate) and in particular, treated the ALP of intra-group services as nil.
• The TPO did not accept the assessee’s TNMM benchmarking; he applied alternative filters, recomputed comparables, and arrived at markedly different margins (TPO average net margin 29.91% and assessee 18.12% for back-office services). The TPO rejected certain comparables and included others based on his own filters.
• The TPO concluded that the assessee had failed to substantiate (on documentary evidence) that services were actually rendered or that benefits had accrued, and therefore held ALP of certain intra-group service payments to be nil. The TPO relied on email exchanges and considered them
• The HC recorded the TPO’s view that many payments were for incidental/duplicative or liaison services which, in the TPO’s assessment, do not amount to intra-group services that would be paid for by an independent enterprise. The HC reproduced and considered the TPO’s reasoning about incidental benefit.
• The HC noted the TPO’s comment that the assessee’s transfer-pricing report (Rule 10D) lacked a proper FAR analysis for the alleged services and did not benchmark those services under any of the five prescribed methods. The HC recorded the TPO’s finding that the assessee did not carry out a cost-benefit analysis when acquiring those services.
• The HC observed that both the CIT(A) and the ITAT had found that the assessee had in fact, received intra-group services and therefore the ALP for such services could not be treated as nil as a matter of principle. These concurrent findings required the TPO to revisit the issue.
• The HC emphasised that a taxpayer’s TP analysis cannot be rejected by the TPO/AO unless the statutory pre-conditions listed in section 92C(3) are satisfied; the TPO may only substitute ALP on the basis of material available to him and after following the subsection’s procedure (including show-cause opportunity). The HC set out Section 92C(3) and its requirements.
• The HC observed that, on the available record, the TPO did not properly examine the transfer pricing analysis submitted by the assessee regarding the value of the intra-group services and therefore the TPO’s “nil” conclusion was not sustainable without fresh enquiry.
• Because the ITAT and CIT(A) had found services were received, the HC considered it necessary and appropriate that the matter be remanded to the TPO for fresh determination of ALP — the TPO’s fundamental premise (that no services were received) had been rejected on appeal and required reconsideration.
• The HC directed that on remand, the TPO must consider the assessee’s TP studies afresh in light of ITAT/CIT(A) findings and must expressly examine whether any of the conditions in section 92C(3) are satisfied before proceeding to make any transfer-pricing adjustment for intra-group services.
• Having recorded the above, the HC found no substantial question of law to be decided in favour of the assessee and accordingly dismissed the appeal, while preserving the remand direction.

Observations made by the Hon’ble Supreme Court:

• After hearing the petitioner’s counsel and perusing the record, the Supreme Court found no good ground to interfere with the impugned order of the Delhi High Court. The Special Leave Petition was dismissed. The short order records that the Court heard counsel and, on the materials, declined to disturb the High Court’s judgment.
• By dismissing the SLP, the Supreme Court effectively upheld the High Court’s approach that:

I. The TPO’s reliance on the assessee’s inability to demonstrate benefit for intra-group services was a point that required careful consideration, and

II. Before effecting transfer-pricing adjustments for intra-group services, the TPO must consider whether any of the statutory conditions in section 92C(3) are met — the High Court had emphasised that this condition-based statutory inquiry is necessary before an adjustment is made.