Delhi High Court Quashes Transfer Pricing Order After TPO Failed To Share Agreements Relied Upon

The Delhi High Court has recently has held that a Transfer Pricing Officer (TPO) is bound to furnish copies of agreements relied upon for benchmarking before finalising a transfer pricing adjustment.

A division bench of Justices Dinesh Mehta and Vinod Kumar observed, “It is the settled position of law that any authority is bound to provide copies of the relied upon documents.”

The court was dealing with a writ petition challenging a transfer pricing order, whereby the TPO relied on third-party agreements but did not give Petitioner-taxpayer access to such material.

The taxpayer argued that that unless copies of the agreements are supplied to the petitioner, it cannot take defence as required inasmuch as the 'parties involved in the agreements' and the 'nature of agreements' so also the 'activities involved' may differ from business to business and country to country.

Revenue on the other hand contended that the agreements are available on 'Royalty stat database' and that the petitioner could have downloaded such agreements, if it so desired.

Rejecting this contention, the High Court said,

“There may be variety of agreements and factors including the 'nature of business' and the 'nature of transactions' and the 'goodwill involved' of a contracting party. Since the issue raised by the respondent is that the petitioner had paid excess royalty, we are of the view that unless copies of the agreements, on the basis whereof, the TPO is proceeding against the petitioner are provided to the petitioner, its right to defend his cause will be adversely impacted.”

Accordingly, the Court set aside the impugned transfer pricing order and directed the TPO to supply copies of the relied-upon agreements (with necessary redactions, if required) and thereafter proceed afresh in accordance with law.

For Petitioner: Advocates Ananya Kapoor, Soumya Singh and Aanjul, Advs

For Respondent: Senior Advocates Gaurav Gupta, SC with Advocates Shivendra Singh, Yojit Pareek, with Advocate Surya Jindal