ITAT Ahmedabad Accepts Foreign AEs as Tested Party, Remands TP Adjustment

Sun Pharmaceutical Industries Ltd. Vs DCIT (ITAT Ahmedabad)

The Income Tax Appellate Tribunal (ITAT), Ahmedabad, decided the assessee’s appeal against the assessment order passed under Sections 143(3) read with 144C of the Income-tax Act, 1961 for Assessment Year 2012-13 pursuant to the directions of the Dispute Resolution Panel (DRP). The appeal involved numerous transfer pricing and corporate tax issues, including selection of the tested party for transfer pricing purposes, deductions, disallowances, and computation of book profits.

The principal issue concerned the transfer pricing adjustment of ₹10,350.60 crore. The assessee had benchmarked its international transactions by treating its overseas Associated Enterprises (AEs) as the tested party. The Transfer Pricing Officer (TPO) rejected this approach, treated the assessee as the tested party, modified the comparability analysis, revised the profit level indicator (PLI), and proposed an upward adjustment, which was affirmed by the DRP.

Before the Tribunal, the assessee relied on the Delhi ITAT’s decision in its own case for AY 2008-09 and on the Advance Pricing Agreement (APA) entered into with CBDT for AY 2014-15. The Tribunal examined the principles governing selection of the tested party, referred to international transfer pricing guidance and the earlier Delhi ITAT decision, and held that the least complex entity should ordinarily be selected as the tested party where reliable comparable data is available. It accepted the overseas AEs as the tested party and directed that the arm’s length price (ALP) be recomputed accordingly. The remaining transfer pricing issues were restored to the TPO for fresh determination in light of this finding, with due weight to the APA methodology wherever applicable.