ITAT Mumbai Deletes ₹61.22 Crore TP Addition, Says Pending HC Appeal Doesn't Affect Earlier Binding Order

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has deleted a transfer pricing adjustment of ₹61.22 crore. The tribunal held that a pending appeal before the Bombay High Court does not dilute the binding nature of an earlier coordinate bench decision unless it has been stayed or reversed by a superior judicial forum.

A bench of Judicial Member Anikesh Banerjee and Accountant Member Om Prakash Kant and passed the order while allowing an appeal filed by LANXESS India Pvt. Ltd.

“Merely because the revenue has preferred an appeal before the Hon'ble High Court does not dilute the binding nature of the order of the Coordinate Bench, in the absence of any stay or reversal by a superior judicial forum.”, the tribunal ruled.

The dispute arose from payments made by the company to its associated enterprises. The payments were towards Production Technology, Safety and Environment services, Information Technology support services and centralized support services.

The Transfer Pricing Officer determined the arm's-length price of these services at nil. A transfer pricing adjustment of ₹61.22 crore was consequently proposed. The Dispute Resolution Panel later upheld the adjustment.

Before the tribunal, the taxpyer contented that it had already submitted dcuments to establish the service he rendered. The material included agreements, invoices, email correspondence, cost allocation workings, technical studies, presentations, meeting records, and third-party invoices.

The company also pointed out that the Mumbai tribunal had already examined a similar dispute in its own case for Assessment Year 2020-21. In that case, the tribunal had deleted a transfer pricing adjustment relating to the same categories of services.

The Revenue argued that the company had failed to conclusively establish the actual receipt of services. It also questioned the economic benefits allegedly derived from those services.

The Revenue further submitted that the earlier tribunal ruling had been challenged before the Bombay High Court. It therefore argued that the adjustment should be maintained while the issue remained pending before the High Court.

After considering the rival submissions, the tribunal noted that the facts of the present year were materially identical to those considered in the earlier assessment year. It also noted that the Revenue had not identified any distinguishing feature warranting a different conclusion.

The tribunal rejected the argument that the pendency of an appeal before the High Court diluted the binding effect of the earlier decision.

Following its own decision in the taxpayer'ss own case for Assessment Year 2020-21, the tribunal set aside the directions of the Dispute Resolution Panel. It directed the Assessing Officer and the Transfer Pricing Officer to delete the ₹61.22 crore adjustment.

The appeal was accordingly allowed.