Madras High Court rules on Arm's Length Pricing

Madras High Court rules on Arm's Length Pricing

It orders the Income Tax department to maintain time limits

A division bench of the Madras High Court has told the Transfer Pricing Officer to pass an order determining Arm's Length Pricing within 60 days. It held that the Income Tax department could not claim that the time limits prescribed in the statute were not mandatory.

The petitioner is a private limited company, engaged in the business of manufacturing generic drugs and exporting to group entities and contract research and development services for pharmaceutical products.

In December 2018, a notice under Section 92CA(2) of the Income Tax Act was issued by the appellant upon the writ petitioner to furnish certain particulars. In November 2019, it passed the order under Section 92CA (3) of the IT Act. But the writ petitioner claimed it was passed after the time limit prescribed for passing such an order.

A bench of Justice R Mahadevan and Justice J Sathya Narayana Prasad held, "If the language employed in any statute is clear and unambiguous from its plain and natural meaning, external aid for interpretation is unnecessary. We adjudicate the period of limitation applicable to TPO under Section 92CA(3A) and Section 153."

The bench further stated, "It would only be apropos to note that as per proviso to Section 92CA (3A), if the time limit for the TPO to pass order is less than 60 days, then the remaining period shall be extended to 60 days. This implies that not only is the time frame mandatory, but also that the TPO has to pass an order within 60 days."

It added, "For the reference to the TPO, the time limit for completing the assessment would only be 21 months from the end of the assessment year. It is only if a reference is pending, that the department gets another 12 months. Once the reference is made and after availing the benefit of the extended period to pass orders, the department cannot claim that the time limits are not mandatory.