2014 (11) TMI 988 - AT - Income Tax

Contravention of Rule 46A(3) of the IT Rules - adoption of a different rate of OP/TC of two companies - Held that - Assessee, vide its letter dated 13.10.2008 addressed to the TPO, a copy of which is placed on pages 233 onwards of the paper book, calculated unadjusted OP/TC of this company at 16.15%. The detailed calculation is given along with this letter. Without adversely commenting on such calculation, the TPO proceeded to include a different percentage while calculating the arithmetic mean of OP/TC of the comparable companies. The ld. CIT(A) substituted the correct OP/TC as was given to the TPO. In our considered opinion, there is no admission of any additional evidence at the ld. CIT(A) s end. He has simply taken the figure from the letter given by the assessee to the TPO accompanied by the detailed calculation, which was not controverted by the TPO. - no infirmity can be traced in the order of the ld. CIT(A) in correcting the OP/TC margin of this company, which is without the assistance of any additional evidence filed before the ld. CIT(A) in contravention of Rule 46A(3) - Decided against Revenue.

Summary

Issues:
1. Admission of fresh evidence by CIT(A) without giving opportunity to TPO.
2. Dispute over OP/TC rates of two companies in the final computation of the arithmetic mean of the profit rate of comparable companies.

Analysis:

Issue 1: Admission of fresh evidence
The Revenue appealed against the CIT(A)'s order for accepting fresh evidence without giving the Transfer Pricing Officer (TPO) an opportunity, contrary to Rule 46A(3) of the IT Rules. The dispute primarily focused on the adoption of different OP/TC rates for two companies, Asian Cerc Information Technology Ltd. and Ace Software Exports Ltd., in determining the arithmetic mean of profit rates of comparable companies.

Issue 2: OP/TC rates of Asian Cerc Information Technology Ltd.
The TPO initially used an OP/TC rate of 37.4% for Asian Cerc Information Technology Ltd., while the assessee argued for 16.15%. The CIT(A) accepted the assessee's contention based on the details provided earlier, without introducing new evidence. The CIT(A) corrected the OP/TC margin to 16.15%, aligning with the assessee's submission, which was not contested by the TPO. The Revenue's objection to the admission of additional evidence was dismissed.

Issue 3: OP/TC rates of Ace Software Exports Ltd.
For Ace Software Exports Ltd., the TPO set the OP/TC rate at 15.46%, which the CIT(A) reduced to 13.65% based on information provided by the assessee to the TPO. The CIT(A) made the adjustment without the introduction of any new evidence, relying on the details previously submitted by the assessee. The CIT(A)'s correction of the OP/TC margin was upheld, and the Revenue's claim of additional evidence admission was rejected.

In conclusion, the appeal by the Revenue was dismissed, as the CIT(A) did not admit any new evidence but relied on the information already provided by the assessee to correct the OP/TC rates of the companies in question, ensuring compliance with the relevant rules and regulations.