The Delhi High Court delivered a judgement regarding the tax authority’s rejection of SABIC India Pvt. Ltd.’s chosen transfer pricing method, ruling that the tax authority is required to provide justification when rejecting a taxpayer’s chosen transfer pricing method, demonstrating why an alternative method is deemed more suitable, on 14 October 2024.

SABIC, a subsidiary of the Saudi SABIC group that provides marketing support services in India. Saudi Basic Industries Corporation, commonly referred to as SABIC, is a chemical manufacturing company based in Saudi Arabia. The company is 70% owned by Saudi Aramco and operates in the sectors of petrochemicals, chemicals, industrial polymers, and fertilisers. SABIC is the second largest publicly traded company in both the Middle East and Saudi Arabia, according to Tadawul listings.

The Revenue has filed the present appeal under Section 260A of the Income Tax Act, 1961 impugning an order dated 8 June 2021 passed by the learned Income Tax Appellate Tribunal in ITA No. 454/Del/2021 captioned SABIC India Pvt. Ltd. v. DCIT Circle – 22(2) New Delhi.

During the 2016-17 assessment, the Transfer Pricing Officer (TPO) dismissed TNMM. The assessee had adopted TNMM to benchmark its international transactions. The TPO held that the TNMM was not an appropriate method to benchmark the international transactions and adopted the “other method” [Rule 10B(1)(f) of the Income Tax Rules, 1962], which according to the TPO was not a comparable uncontrolled price method (CUP method) but was somewhat akin to the said method, with wider latitude.

Initially upheld by the Dispute Resolution Panel, this assessment was later overturned by the Income Tax Appellate Tribunal (ITAT), which noted the TPO’s failure to provide a valid reason for abandoning the previously accepted method.