2014 (6) TMI 1077 - AT - Income Tax

Validity of order passed u/s 144C (13) - gross violation of the principle of natural justice - As per assessee order of DRP as passed in the absence of non appreciation of arguments, evidence in support of assessee s claim as agitated before the Panel - HELD THAT - According to us, the order of TPO may be upheld in case the arguments of AR before DRP are same as before the TPO. In case before us, the fact is otherwise as the assessee has raised further arguments, gave further evidence before the DRP. In such a situation, upholding the order of TPO ignoring various contentions along with evidence to that effect is not justified. The reasoning is the soul of the order, which is missing in this case. Such an approach cannot be encouraged. The essence of principles of natural justice is to provide an opportunity of being heard to the assessee and after hearing, the same should be duly incorporated in the order of judicial authority. In the absence of reasoned finding on the contentions/evidence of the assessee, the order amounts to nonspeaking one which cannot be upheld. See Atotech India Ltd 2011 (1) TMI 112 - ITAT, DELHI AND M/S SYMANTEC SOFTWARE SOLUTIONS PRIVATE LIMITED 2012 (8) TMI 590 - ITAT, MUMBAI AND GEODIS OVERSEAS (P) LTD. 2011 (3) TMI 860 - ITAT, DELHI So following the same reasoning we set aside the order of DRP and restore the issue to the DRP with a direction to decide the same as per fact and law after providing due opportunity of being heard to the assessee. The assessee is directed to co-operate in the proceedings before the DRP. Appeal filed by the assessee is allowed for statistical purposes.

Summary

Issues:
1. Validity of the order passed by DCIT and AO under Section 143(3) and Section 144C (13) of the Act.
2. Direction given by DRP in violation of natural justice and Section 144C provisions.
3. Validity of direction given by DRP without considering arguments, evidence, and factual errors.
4. Discrepancy in assessed income compared to declared income by the assessee.
5. Addition made by DCIT based on Transfer Pricing Officer's determination.
6. Disallowance of prior period expenses.
7. Disallowance of depreciation on Computer Peripherals.
8. Incorrect determination of Transactional Net Margin (TNM) by DRP and AO.

Analysis:
1. The appeal challenges the orders of DCIT and AO for the assessment year 2006-07. The appellant contests the validity of the orders under Section 143(3) and Section 144C (13) of the Act, claiming them to be legally flawed and factually incorrect. The grounds of appeal raise concerns regarding the lawfulness of the assessments made by the authorities.

2. The appellant further challenges the directions given by the DRP, alleging a breach of natural justice principles and the provisions of Section 144C. The appellant argues that the DRP's directions were issued without due consideration of the appellant's arguments, evidence, and factual errors. This issue highlights the procedural irregularities in the decision-making process.

3. The appellant asserts that the DRP's directions were invalid and legally unsound as they were issued without taking into account the appellant's arguments, evidence, and objections. The appellant contends that the DRP failed to provide reasons for accepting or rejecting the appellant's submissions, indicating a lack of proper consideration and justification in the decision-making process.

4. The discrepancies in the assessed income, as determined by the DCIT, compared to the income declared by the assessee, form a significant issue in the appeal. The appellant challenges the DCIT's assessment, alleging errors both factually and legally in determining the income figures, which raises concerns regarding the accuracy and validity of the assessment process.

5. The addition made by the DCIT based on the Transfer Pricing Officer's determination is contested by the appellant. The appellant argues that the addition of a specific amount as a difference in arm's length price was unjustified, especially considering the detailed transfer pricing study conducted by the appellant to determine the arm's length price. This issue questions the basis and justification for the additional amount included in the assessment.

6. The disallowance of a specific amount as prior period expenses by the DCIT is challenged by the appellant. The appellant contests the treatment of this amount, arguing that it was wrongly categorized and disallowed. This issue delves into the classification and treatment of expenses in the assessment process.

7. The appellant disputes the disallowance of depreciation on Computer Peripherals by the DCIT, citing an error in restricting the depreciation rate. The appellant argues that the depreciation rate applied was lower than the permissible rate as per the law, leading to an unwarranted addition to the assessment. This issue focuses on the correct application of depreciation rates in the assessment.

8. The incorrect determination of Transactional Net Margin (TNM) by the DRP and AO is raised as an issue in the appeal. The appellant challenges the TNM calculation, asserting that the figures used were inaccurate and deviated from the correct TNM based on published data of comparable cases. This issue questions the accuracy and reliability of the TNM calculation in the assessment process.