2014 (8) TMI 1099 - HC - Income Tax

Addition on account of adjustment to Arm s length price - ITAT deleted the addition - revenue has raised a question and issue about the Commissioner (First Appellate Authority) and the Tribunal not following the principles of natural justice - Held that - In the present case not only the record to the Transfer Pricing Officer was submitted and he was furnished the evidence by the assessee but the assessee was present to give any clarification. The assessee s representative remained present and his name is also appearing in para 2 of the order passed by the Transfer Pricing Officer. Once the computation of Arm s Length Price was discussed after evidence in that behalf was furnished by the assessee then it would be the bounden duty of the Transfer Pricing Officer to pass an order in terms of sub-section (3) of section 92CA of the Income Tax Act. He having failed to do so the Commissioner was fully justified in undertaking the exercise in terms of the statutory provisions and completing it. He has recorded a finding of fact that grounds 2 to 10 relates to transfer price adjustment. The order passed by the assessing officer under section 143(3) of the Act reveals that there is a specific material on record. The assessee is a captive service provider rendering back office support service to its affiliate enterprises. The activities undertaken by the assessee are essentially IT enabled services such as data entry transcription and audit of shipping bills such as bill of lading. The detailed reference is made from para 4.2. onwards by the Commissioner to all the material that has been produced and failure on the part of Transfer Pricing Officer to perform his duties. The Tribunal also has referred to this material and rendered a finding of fact that if initial burden on the assessee has been discharged in this case by producing evidence then it is for the Transfer Pricing Officer or the assessing officer to consider it and conclude that the instances are not comparable. Any comparable cases as brought by the assessee could have been scrutinized in this backdrop and on this touchstone. The findings of the First Appellate Authority were under challenge and they were being scrutinized by the Tribunal then it was open for the Tribunal to consider the complaint of the revenue with regard to its findings. The Tribunal performed its duty in law when it proceeded to find out whether the Commissioner of Income Tax s (Appeals) the First Appellate Authority order was perverse or vitiated by any error of law apparent on the face of record. It also considered the complaint as to whether the Commissioner exercised his discretion or his powers as the First Appellate Authority arbitrarily and capriciously. Having found no basis in all these complaints and dismissing the appeals of the revenue the Tribunal did not commit any error. To our mind the order of the Tribunal is not vitiated by any serious legal infirmity nor is it perverse rather it is unfortunate that a detailed and properly reasoned order of the First Appellate Authority and the Second Appellate Authority is being challenged and that too on such grounds by the revenue. We would highly appreciate the parties not discrediting the Tribunal or the First Appellate Authority in this manner. The complaints about unfair treatment or breach of principles of natural justice ought to be backed and supported by some material which would demonstrate serious prejudice and loss. A technical objection of nature will not carry the case of either parties any further.

Summary

Issues:
- Appeal against Tribunal's order on assessment years 2005-06 and 2006-07
- Deletion of addition on account of adjustment to Arm's length price (ALP)
- Refusal to send the case back to Transfer Pricing Officer
- Allegation of non-compliance with principles of natural justice
- Identification of comparable instances by the assessee
- Tribunal's scrutiny of the Commissioner's order
- Allegation of unfair treatment by the Tribunal
- Dismissal of appeals by the Tribunal with costs

Analysis:
1. The revenue appealed against the Tribunal's order dismissing their appeals related to assessment years 2005-06 and 2006-07, specifically concerning the deletion of addition on account of adjustment to Arm's length price (ALP). The appellant contended that the case should have been sent back to the Transfer Pricing Officer for further examination as the Officer had not considered the comparability of instances provided by the assessee, leading to non-compliance with the principles of natural justice.

2. The respondent-assessee argued that the Transfer Pricing Officer failed to consider the evidence presented by the assessee in support of the computation of Arm's Length Price, despite repeated requests and submissions. The Commissioner upheld the assessee's claim, stating that the instances were comparable, and the Tribunal affirmed this decision. The respondent emphasized that the Tribunal correctly did not permit the revenue to argue against the record, leading to the dismissal of the appeal.

3. Upon reviewing the memo of appeal and annexures, the Court found that the revenue's challenge was an attempt to seek re-appraisal of factual findings and overcome deficiencies in the Transfer Pricing Officer's order. The Court noted that the Officer had the necessary documents and submissions from the assessee to determine comparability, which he failed to do. The Commissioner and Tribunal rightfully assessed the evidence and upheld the findings in favor of the assessee.

4. The Court concluded that the Tribunal did not treat the revenue unfairly or unjustly, as it appropriately scrutinized the Commissioner's order and dismissed the appeals based on the merits of the case. The Court emphasized that complaints about breach of principles of natural justice should be substantiated with material evidence of serious prejudice, rather than technical objections. Dismissing the appeals with costs, the Court criticized the frivolous nature of the complaints and highlighted the importance of not wasting judicial time with unsubstantiated challenges.