2021 (9) TMI 1545 - AT - Income Tax

TP Adjustment - comparable selection - assessee restricted his pleadings only qua wrongful inclusion of two comparables M/s. HSIL Ltd and M/s. Cera Sanitary Ware Limited by the Transfer Pricing Officer (TPO) - HELD THAT - DR fails to dispute that the DRP herein has nowhere taken into consideration the assessee's detailed objections quoting functional similarity, lack of the relevant segmental financials and engagement of the said twin entities in R D activities, whilst declining the impugned objection in a cryptic manner. Faced with this situation, we deem it appropriate to restore the assessee's instant substantive grounds back to the DRP for its afresh adjudication on merits after considering all the detailed evidence filed; as per law within three effective opportunities of hearing. Assessee's appeal is partly accepted for statistical purposes.

Summary

Issues:
Appeal against assessment framed by DCIT, Circle 3(1), Hyderabad for Asst. Year 2014-15 based on DRP's direction regarding selection of comparables by TPO under Income Tax Act, 1961.

Analysis:
The appeal before the Appellate Tribunal ITAT Hyderabad concerned the assessment for the Assessment Year 2014-15 by the DCIT, Circle 3(1), Hyderabad, based on the direction of the Dispute Resolution Panel (DRP)-I, Bangaluru. The issue revolved around the selection of comparables by the Transfer Pricing Officer (TPO) in his order dated 31.10.2017 and upheld in the DRP's direction dated 5.9.2018. The assessee contended that two comparables, M/s. HSIL Ltd and M/s. Cera Sanitary Ware Limited, were wrongfully included by the TPO. The DRP upheld the selection of these comparables without considering the detailed objections raised by the assessee regarding functional similarity, lack of relevant financials, and engagement in R & D activities.

The Appellate Tribunal noted that the DRP did not adequately address the assessee's objections and decided to remand the issue back to the DRP for fresh adjudication. The Tribunal directed the DRP to consider all detailed evidence filed by the assessee and provide three effective opportunities of hearing as per the law. As a result, the Tribunal partly accepted the assessee's appeal for statistical purposes, focusing specifically on the issue of the selection of comparables. The other substantive grounds raised by the assessee were rejected as consequential in nature due to the remand of the main issue back to the DRP.

In conclusion, the Appellate Tribunal's judgment emphasized the importance of proper consideration of objections raised by the assessee in transfer pricing matters. By remanding the issue back to the DRP for fresh adjudication, the Tribunal ensured that all relevant evidence and arguments would be properly evaluated in accordance with the law. The decision highlighted the significance of a fair and thorough review process in transfer pricing assessments to uphold the principles of natural justice and procedural fairness.