SC tax ruling may add to litigation

Chances of fresh cases both by tax department as well as taxpayers high

- SURABHI

WEDNESDAY'S SUPREME COURT ruling that "arm's length price" determined by the income tax appellate tribunal (ITAT) cannot be treated as "final" in disputes related to alleged income suppression by multinational companies will give more currency to 224 cases pending at higher forums like high courts and the apex court itself, besides potentially increasing fresh litigation, tax experts said. The tax department will be the immediate gainer, as among the pending appeals against tribunal orders, 219 were initiated by it, with only five appeals filed by taxpayers.

The SC decision could also increase the utility of conciliatory mechanisms like advance pricing agreements (APAs), which have gained traction in the last few years, as taxpayers would resort to these, with more vigour, given the delays and uncertainties associated with litigation.

As a result of apex court's ruling, the pending appeals will be restored to the respective high courts for adjudication, said Tarun Arora, partner, Deloitte India, adding that the ruling would also affect a large number of appeals which are pending before various courts on "similar matters."

"The Supreme Court ruling can lead to increase in uncertainty and more litigation as the revenue authority can go to the high court for an appeal on the transfer pricing decision by the tribunal. However, revenue will have to prove to the high court that there was substantial deviation in following the law and rules by the tribunal before the case is admitted by the high court," he noted.