2015 (11) TMI 1312 - HC - Income Tax

Determination of arm s length price - selection of comparable - the impugned order passed by the first respondent challenged on the premise that it was reiterated on earlier findings without making de novo assessment - Held that - There is absolutely nothing wrong in adopting the comparables selected by the TPO in erstwhile order, dated 26.10.2010 by the first respondent in determining the arm s length price of the international transaction of the petitioner while passing the impugned order. If at all the petitioner is aggrieved in such adoption, it is needless to state that the petitioner is always at liberty to challenge the impugned order in the manner known to law as the impugned order passed by the first respondent is not final and as against the said order, under the statute, an efficacious remedy of appeal is available to the petitioner. In fact, the first respondent has not only considered the comparables selected by the TPO in erstwhile draft assessment, but he has also considered the eight comparables newly identified by the petitioner using information collected from responses to letters issued under Section 133(6) and thereby determined the arm s length revenue at ₹ 57,05,68,292/- which is considerably lower than the erstwhile draft assessment, wherein, it was determined at ₹ 110.27 crores. Hence, the contention that the first respondent has reiterated the earlier findings, cannot be accepted. Therefore, it seems that the petitioner is not aggrieved of the impugned order passed by the first respondent on the premise that it was reiterated on earlier findings without making de novo assessment, but for the order that was not passed by the first respondent in favour of the petitioner by their expectation. - Decided against assessee.

Issues Involved:
1. Determination of Arm's Length Price (ALP) by the Transfer Pricing Officer (TPO).
2. Violation of principles of natural justice.
3. Methodology adopted by the TPO for determining ALP.
4. Scope of the court's order regarding the provision of information.
5. Petitioner's request for a de novo assessment.

Detailed Analysis:

1. Determination of Arm's Length Price (ALP) by the Transfer Pricing Officer (TPO):
The petitioner/assessee filed its return of income for the assessment year 2007-08, declaring a total income of Rs. 189,193,357/-. The case was selected for scrutiny, and a reference was made to the TPO for the determination of the ALP of the international transactions. The TPO proposed an adjustment of Rs. 110.827 crores by arriving at comparable companies' margins, which were higher than that of the petitioner. The Assessing Officer passed a draft order of assessment incorporating the adjustments proposed by the TPO, along with certain additions. The petitioner filed its objection to the said draft order before the Dispute Resolution Panel (DRP), which upheld the additions proposed by the Assessing Officer.

2. Violation of Principles of Natural Justice:
The petitioner argued that the TPO considered certain information, which was not available in the public domain, by issuing notices under Section 133(6) of the Income Tax Act. The petitioner requested this information multiple times, but it was not furnished, leading to the filing of writ petitions. The court allowed the writ petitions on the limited ground of violation of principles of natural justice and remitted the matter to the Additional Commissioner of Income Tax. The department later furnished the information, and the petitioner filed a detailed analysis. The first respondent then passed an order modifying the re-computation of income, making an upward adjustment to Rs. 57.05 crores.

3. Methodology Adopted by the TPO for Determining ALP:
The petitioner contended that the TPO should have adopted the Comparable Uncontrolled Price (CUP) method instead of the Transactional Net Margin Method (TNMM) for determining the ALP of the international transactions relating to Citi Group entities. The petitioner argued that the TPO's approach violated the principles of natural justice as the TPO did not provide reasons for rejecting the companies selected by the petitioner as comparables.

4. Scope of the Court's Order Regarding the Provision of Information:
The court's order dated 15.11.2011 set aside the orders impugned in the writ petitions on the limited ground of violation of principles of natural justice. The court directed the respondents to furnish the information sought by the petitioner. The respondents complied by providing the information, and the petitioner filed objections based on this information. The first respondent considered these objections and passed the impugned order, determining the arm's length revenue at Rs. 57.05 crores.

5. Petitioner's Request for a De Novo Assessment:
The petitioner argued that the first respondent should have made a de novo assessment after considering the objections. However, the court noted that its earlier order did not direct a de novo consideration but only required the provision of information to the petitioner. The court found that the first respondent had complied with the order by providing the information and considering the objections, resulting in a well-reasoned order.

Conclusion:
The court dismissed the writ petition, finding no illegality or irregularity in the impugned order. The court held that the petitioner has an efficacious alternative remedy of appeal under the statute and directed the appellate authority to entertain the appeal without insisting on the limitation aspect if filed within six weeks from the date of receipt of the court's order.

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