2014 (1) TMI 1861 - AT - Income Tax

Rectification u/s 254 - Foreign party/AE to be a tested party for determination of ALP - contention of the A.R that the TPO has not considered the contention of the assessee that foreign party can be a tested party - jurisdiction of the Tribunal and scope of Section 254(2) - HELD THAT - When the ALP determined by the assessee was rejected by the TPO on the ground that it is not as per the provisions of Section 92, this itself shows that the computation of the ALP by considering the foreign party as tested party was found not as per the provisions of Section 92. Therefore, we do not find any merit in the said contention of the assessee. The commercial/financial effect of an international transaction in the context of the assessee/taxpayer has to be compared with the finance/commercial outcome if the same transaction would have been carried out by the assessee with unrelated third party. In the matter of Transfer Pricing and determination of ALP which is factual in nature the principle of consistency or res judicata is not applicable until and unless the facts and circumstances governing the situation and legal position are identical in each case. Once the issue has been decided on merits by considering the relevant facts and material then the same cannot be reviewed in the garb of rectification of mistake u/s 254(2). The Tribunal cannot re-evaluate or re-appreciate the evidence and facts in the proceedings u/s 254(2). Only a mistake which is wide apparent, manifest and patent on the face of the order can be rectified u/s 254(2) and not something which can be involved serious circumstances of disputes of question of facts or law can be established by long drawn process of reasoning on the point. Relief sought in the Miscellaneous Application would certainly amount to review of earlier order which is beyond the jurisdiction of the Tribunal and scope of Section 254(2) - Decided against assessee

Issues Involved:
1. Whether a foreign party/Associated Enterprise (AE) of the assessee can be a tested party for the computation of Arm's Length Price (ALP) in respect of international transactions.
2. Whether the Tribunal erred in not considering certain decisions relied upon by the assessee.
3. Whether the Tribunal should refer the matter to a Special Bench if it disagrees with the view taken by the Co-ordinate Bench.
4. Whether the Tribunal can rectify the alleged mistakes in its order under Section 254(2) of the Income Tax Act.

Detailed Analysis:

1. Foreign Party as Tested Party for ALP Computation:
The Tribunal considered whether a foreign party/AE of the assessee can be a tested party for determining the ALP. The Tribunal noted that the Transfer Pricing Officer (TPO) rejected the ALP determined by the assessee on the grounds that it did not comply with Section 92 of the Income Tax Act. The Tribunal elaborated on the Transfer Pricing provisions under Section 92 and Rule 10B, emphasizing that the profit margin realized by the Indian assessee from transactions with its foreign AE must be compared with that of comparable uncontrolled transactions. The Tribunal concluded that under Indian law, the profit realized by the foreign AE from ultimate customers cannot be used for determining the ALP of transactions between the Indian enterprise and its foreign AE. Therefore, the Tribunal found no merit in the assessee's contention that a foreign party could be a tested party.

2. Non-Consideration of Decisions Relied Upon by the Assessee:
The assessee argued that the Tribunal failed to consider decisions in the cases of Ranbaxy Laboratories Limited and Development Consultants Private Limited. The Tribunal noted that these decisions did not address the scope of Chapter-X provisions for determining the ALP by considering a foreign entity/AE as a tested party. Hence, the Tribunal concluded that these decisions were not relevant to the issue at hand and did not affect the Tribunal's findings based on the Indian Transfer Pricing Regulation.

3. Reference to Special Bench:
The assessee contended that if the Tribunal disagrees with the Co-ordinate Bench's view, it should refer the matter to a Special Bench. The Tribunal, however, did not find it necessary to refer the matter as it had already decided the issue on merits by considering relevant facts and legal provisions. The Tribunal emphasized that the principle of consistency or res judicata does not apply to Transfer Pricing matters, which are factual in nature and must be determined based on the specific circumstances of each case.

4. Scope of Rectification under Section 254(2):
The Tribunal addressed whether it could rectify the alleged mistakes in its order under Section 254(2). It clarified that the scope of Section 254(2) is limited to rectifying mistakes that are apparent, manifest, and patent on the face of the order. The Tribunal cannot re-evaluate or re-appreciate evidence and facts in rectification proceedings. The Tribunal concluded that the relief sought by the assessee amounted to a review of the earlier order, which is beyond the Tribunal's jurisdiction under Section 254(2). Therefore, the Tribunal dismissed the Miscellaneous Application filed by the assessee.

Conclusion:
In conclusion, the Tribunal dismissed the Miscellaneous Application filed by the assessee, holding that the request for rectification amounted to a review of the earlier order, which is not permissible under Section 254(2). The Tribunal upheld its findings that a foreign party cannot be a tested party for ALP computation under Indian Transfer Pricing Regulations and that the decisions relied upon by the assessee were not relevant to the issue at hand. The Tribunal also clarified that the principle of consistency does not apply to Transfer Pricing matters, and the matter did not require reference to a Special Bench.

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