2012 (10) TMI 897 - AT - Income Tax

Transfer pricing - ALP - Disallowance of expenses - reduction in net profit ratio - alleged that turnover is decreased in comparison to last year but expenses increased significantly as compared to previous year figure Held that - Income of the assessee has been accepted by the learned TPO as being on arm s length basis - Assessing Officer has made the addition merely on estimates - Assessing Officer has first time confronted the assessee on 2nd of December, 2008. It was supposed to file reply by 10.12.2008. The assessee has filed the reply on 12.12.2008. Again the Assessing Officer raised the query on 24.12.2008 and directed the assessee to explain by 26.12.2008. In this short period, assessee could not submit the reply and the Assessing Officer accordingly passed the assessment order before 31.12.2012 - sufficient opportunity was not granted to the assessee by the Assessing Officer. He has just provided two days time for explaining its position matter remanded to Assessing Officer for readjudication

Summary

Issues:
1. Challenge to assessment order under section 143(3) read with section 144C for assessment year 2006-07.
2. Challenge to order of Learned CIT (Appeals) dated 1.5.2010 for assessment year 2005-06.

Analysis:
1. *Assessment Year 2006-07:*
The appellant, a software marketing and support services company, contested the assessment order for the said year. The Assessing Officer, after scrutiny, found discrepancies in international transactions and made adjustments based on the TPO's recommendations. The appellant objected to the comparables selected by the TPO, arguing they were not suitable for comparison. The ITAT observed that the DRP failed to address the detailed objections raised by the appellant, leading to a non-speaking order. Consequently, the ITAT set aside the order, restoring all issues for fresh adjudication by the DRP.

2. *Assessment Year 2005-06:*
In this year, the appellant challenged the disallowance of a specific amount. The Assessing Officer noted a decrease in net profit ratio compared to the previous year, questioning the increase in certain expenses. The appellant explained the changes in revenue recognition and operations, but the Assessing Officer disallowed a significant sum without sufficient opportunity for the appellant to respond adequately. The ITAT found that the Assessing Officer did not provide adequate time for the appellant to explain, leading to a lack of due process. Consequently, the ITAT set aside the orders of the lower authorities and remitted the issue back to the Assessing Officer for proper reconsideration.

In both cases, the ITAT allowed the appeals for statistical purposes, emphasizing the importance of providing a fair opportunity for the appellant to present their case and address objections effectively.