2013 (7) TMI 1101 - AT - Income Tax

Summary

Issues involved: Transfer pricing adjustment, selection of tested party, selection of comparables, penalty proceedings under Section 271(1)(c) of the IT Act.

Transfer pricing adjustment: The appeal was filed against the assessment order passed by the A.O. under Section 143(3) u/r 144 C of the IT Act, based on the direction of the Dispute Resolution Panel (DRP). The appellant contested the upward transfer pricing adjustment of Rs. 15,87,39,602 for the sale of medical kits to its associated enterprise. Various sub-grounds were raised challenging the economic analysis, comparables, and the treatment of the appellant as a captive wholesale trader. The Tribunal found that the DRP and TPO erred in selecting the AE as the tested party and IDA Foundation Netherlands as a comparable, contrary to the Tribunal's decision in the appellant's earlier cases. The Tribunal accepted the appellant as the tested party and rejected IDA Foundation Netherlands as a comparable. Out of the six comparables noted by the TPO, two were common with the earlier year, and one was found acceptable due to discrepancies in the objections raised by the TPO and DRP. Consequently, the ALP adjustment made by the AO was deemed unsustainable and deleted.

Selection of tested party and comparables: The Tribunal held that the appellant should be accepted as the tested party and rejected IDA Foundation Netherlands as a comparable. The TPO's objections regarding the comparables were scrutinized, and discrepancies were found in the objections raised against one of the comparables, Shamrock Industrial Ltd. Despite objections related to high Related Party Transactions (RPT) and lack of export sales, the Tribunal found that Shamrock Industrial Ltd. was an acceptable comparable based on factual data from the Prowess database extract. The Tribunal concluded that the addition made by the AO on account of ALP was not sustainable and therefore deleted the same.

Penalty proceedings: The ground regarding the initiation of penalty proceedings under Section 271(1)(c) of the IT Act was rejected as premature.

Conclusion: The appeal of the assessee was partly allowed, with the Tribunal ruling in favor of the appellant on the transfer pricing adjustment issue and rejecting the initiation of penalty proceedings at that stage.