2016 (7) TMI 1469 - HC - Income Tax

TPA - ALP determination - matter not properly examined by Assessing Officer/TPO - when a remand order is passed to examine substantial factual issues Assessing Officer/TPO should be allowed to consider the matter/issues on which remand is made by taking into account entire relating aspects or scope of enquiry should be restricted by the observations already made by higher authorities i.e. DRP/Tribunal? - Held that - Revenue did not dispute that Tribunal has found certain factual aspects relating to functions of Assessee not properly examined appreciated and adjudicated by Assessing Authority/TPO. When in respect to factual aspects matter is remanded authority who has to consider the matter on remand obviously must be free to look into the entire matter without being influenced by any observations made by higher authorities in proceedings which were taken against appellant by Assessing Officer/TPO which have now been set aside and the matter has been remanded. We answer the questions in favour of Assessee and direct that the parties shall be at liberty to raise entire factual issues before Assessing Officer/TPO in respect of grounds on which Tribunal has remanded the matter and any observation otherwise made on these factual aspects either by Tribunal or Dispute Resolution Panel shall not be treated to be binding upon Assessing Authority/TPO.

Summary

Issues:
1. Whether the appellant is considered a manufacturer?
2. Determination of the most appropriate method to be adopted.
3. Selection between external or internal comparables for determining the Arm's Length Price (ALP).
4. Granting adjustments to the ALP claimed by the assessee.

Analysis:

1. The High Court analyzed whether the appellant, primarily a distributor, could be classified as a manufacturer. The Court noted that while the appellant placed orders for spares from factories, it did not qualify as a manufacturer. The appellant's practice of ordering spares through job work orders did not equate to manufacturing. The Court emphasized that the appellant's role in laying down design and specifications was akin to the manufacturer's responsibilities. Consequently, the Court concluded that the matter required further examination by the Assessing Officer and Transfer Pricing Officer to determine the correct Arm's Length Price (ALP) for international transactions.

2. The Court set aside specific grounds for fresh adjudication while addressing the issue of the most appropriate method to be adopted. It highlighted that the difference between the rates of custom duty and excise duty could be considered in adjustments, as these were statutory levies.

3. The appellant contended that the Tribunal, upon remanding the matter to the Assessing Officer and Transfer Pricing Officer, should have allowed the parties to address the entire issue without being bound by previous findings of the Dispute Resolution Panel or the Tribunal. The Court acknowledged the need for a comprehensive reevaluation of the factual aspects that were not adequately examined by the Assessing Authority and TPO. It ruled in favor of the appellant, directing that the parties could address all factual issues before the Assessing Officer and TPO without being constrained by previous observations.

4. The Court emphasized that when factual aspects are remanded for examination, the authority responsible for reconsideration must have the freedom to assess the entire matter independently of prior observations made by higher authorities. The Court's decision allowed for a thorough review of the factual issues without being influenced by previous findings, ultimately favoring the appellant's position in the appeal.

Overall, the High Court's judgment addressed the complexities surrounding the appellant's classification, method selection, comparables determination, and adjustments to the ALP, ensuring a fair and comprehensive reassessment of the matter by the relevant authorities.