2023 (6) TMI 1368 - AT - Income Tax

Validity of the order passed u/s. 92CA(3) - period of limitation - HELD THAT - As per provision of Sec. 92CA(3A) the TPO is required to pass an order u/s 92CA(3) of the Act at any time before 60 days prior to the date on which the period of limitation referred to in Sec. 153 for making the assessment order on assessment or reassessment or re-computation or fresh assessment as the case may be expires. After taking into consideration the material placed on record it is undisputed fact that transfer pricing officer has passed order u/s 92CA(3) on 01.11.2019 whereas the limitation for passing the said order u/s 92CA(3) expires on 31.10.2019 Therefore, taking into consideration the provision of the Act and decision of Hon ble Madras High Court in the cases Pfizer Healthcare Ltd. 2021 (2) TMI 1152 - MADRAS HIGH COURT and Saint Gobain India P. Ltd. 2022 (4) TMI 808 - MADRAS HIGH COURT the order u/s 92CA(3) of the Act is time barred by 1 day. Thus as the order of the TPO was barred by limitation, therefore, there was no eligible assessee in the case of the assessee in terms of provisions of subsection (15) to Sec. 144C of the Act. Appeal of the assessee is allowed.

Summary

Issues Involved:
1. Validity of the Transfer Pricing Order due to the prescribed time limit.
2. Arm's Length Principle and Transfer Pricing Adjustments.
3. Methodology for Profit Level Indicator (PLI).
4. Exclusion of Pass-Through Costs.
5. Selection of Comparable Companies.
6. Charge of Interest under Section 234A and 234B.
7. Penalty Proceedings under Section 271(1)(c).

Summary:

1. Validity of the Transfer Pricing Order:
The primary issue was whether the Transfer Pricing Order dated 01.11.2019 was passed within the time limit prescribed under section 92CA(3A) read with section 153 of the Income-tax Act, 1961. The Tribunal found that the order was time-barred by one day, as it should have been passed on or before 31.10.2019. Consequently, the draft assessment order dated 07.12.2019 and the final assessment order dated 30.04.2021 were also deemed invalid.

2. Arm's Length Principle and Transfer Pricing Adjustments:
The assessee contested the addition of INR 65,03,77,598/- to its income, arguing that its international transactions in the freight forwarding segment adhered to the arm's length principle. The Tribunal upheld the assessee's position, noting that the adjustments made were not justified.

3. Methodology for Profit Level Indicator (PLI):
The assessee argued that the economic rationale for using "Operating Profit/Value Added Expenses" as the PLI was disregarded by the authorities, who instead used "Operating Profit/Total Cost (OP/TC)." The Tribunal found merit in the assessee's argument, indicating that the chosen PLI should reflect the economic reality of the transactions.

4. Exclusion of Pass-Through Costs:
The Tribunal noted that the authorities erred in not excluding pass-through costs for AY 2016-17, which inflated the cost base for computing the operating margin (OP/TC) of the assessee.

5. Selection of Comparable Companies:
The Tribunal found that the authorities erred in disregarding all comparable companies selected by the assessee and including Om Logistics Limited, which was functionally incomparable, in the final set of comparable companies.

6. Charge of Interest under Section 234A and 234B:
The Tribunal noted that the AO erred in charging interest under sections 234A and 234B of the Act. The interest charges were directed to be deleted.

7. Penalty Proceedings under Section 271(1)(c):
The Tribunal found that the initiation of penalty proceedings under section 271(1)(c) was unjustified as the assessee had neither concealed any particulars of its income nor furnished inaccurate particulars. The penalty proceedings were directed to be dropped.

Conclusion:
The appeal of the assessee was allowed, and the additional grounds raised were accepted, rendering the transfer pricing order, draft assessment order, and final assessment order null and void. Other grounds were left open for future adjudication if necessary.