ITAT Allows KBS Creations’ Appeal, Rules No Transfer Pricing Adjustment Without Proved ‘Arrangement’ Under Section 80IA(10)

In a relief for KBS Creations, the Income Tax Appellate Tribunal (ITAT) has ruled that a transfer pricing adjustment cannot be made under Section 80IA(10) of the Income Tax Act without the department first proving that there was a specific "arrangement" or "agreement" between the related parties to inflate profits. This section is an anti-abuse provision that allows the Assessing Officer to re-compute the profits of an eligible business if it appears that the business is producing more than ordinary profits due to a close connection with another party. The ITAT held that the burden of proof is on the department to demonstrate the existence of such an arrangement with concrete evidence. In the absence of such proof, a transfer pricing adjustment cannot be made merely on the suspicion that the profits are high.