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2018 (3) TMI 1310 - AT - Income TaxTPA - whether AO should have decided the issue of international transaction himself instead of referring it to Transfer Pricing Officer as the quantum of International Transaction is below the monetary limit of ₹ 5 crore? - Held that - The Special Bench of this Tribunal in case of Aztec Software & Technology Services Ltd. vs. ACIT 2007 (7) TMI 50 - ITAT BANGALORE held that CBDT directions are mandatory and binding on the Assessing Officer and CIT. Jurisdictional High Court in case of CIT vs. SPL s Siddhartha Ltd. (2011 (9) TMI 640 - DELHI HIGH COURT) held that Section 116 of the Act also defines the income-tax authorities as different and distinct authorities. Such different and distinct authorities have to exercise their powers in accordance with law as per the powers given to them in specified circumstances. If powers conferred on a particular authority are arrogated by other authority without mandate of law, it will create chaos in the administration of law and hierarchy of administration will mean nothing. Satisfaction of one authority cannot be substituted by the satisfaction of the other authority. It is trite that when a statue requires, a thing to be done in a certain manner, it shall be done in that manner alone and the court would not expect its being done in some other manner. Additional Ground of the assessee is allowed. At this juncture, the assessment has become time barred as the reference made to TPO itself is not sustainable and the Assessing Officer should have passed Assessment Order at the prescribed time provided under the statute. We are not deciding on the merit of the case as the additional ground is decided in favour of the assessee.
Issues Involved:
1. Legality of the reference to the Transfer Pricing Officer (TPO) by the Assessing Officer (AO). 2. Validity of the revised return filed by the assessee. 3. Appropriateness of the method used by the TPO to determine the Arm's Length Price (ALP). 4. Selection of comparables by the TPO. 5. Depreciation on computer accessories and peripherals. 6. Disallowance under Section 10A of the Income Tax Act. Issue-wise Detailed Analysis: 1. Legality of the Reference to the TPO: The assessee argued that the reference to the TPO was illegal as the quantum of the international transaction was below ?5 crore, and the AO did not seek approval from the Commissioner, which was contrary to Instruction No. 3/2003 issued by the CBDT. The Tribunal agreed with the assessee, noting that the Instruction was binding on the AO. Citing the Andhra Pradesh High Court in CIT Vs. Nayana P Dedhia and the Supreme Court in UCO Bank Vs. CIT, the Tribunal held that the reference to the TPO was not sustainable. Consequently, the assessment became time-barred, and the additional ground raised by the assessee was allowed. 2. Validity of the Revised Return: The assessee filed a revised return within the period prescribed under Section 139(5) of the Income Tax Act. The Tribunal noted that the revised return should replace the original return and be considered for all purposes. The AO's failure to consider the revised return was incorrect. The Tribunal cited cases such as A Bico Engineering Ltd Vs. CIT and CIT Vs. Rana Polycot to support the position that the revised return should be accepted. 3. Appropriateness of the Method Used by the TPO: The assessee contended that the TPO wrongly applied the Transactional Net Margin Method (TNMM) instead of the Comparable Uncontrolled Price (CUP) method. The Tribunal noted that the assessee had provided a comparative chart demonstrating the similarity of services provided to both associated enterprises (AE) and independent parties. The Tribunal agreed with the assessee that internal CUP was the best method for computing ALP, as supported by OECD Guidelines and the decision in Inter garden (Bangalore). 4. Selection of Comparables by the TPO: The assessee argued that the TPO wrongly selected Bodh Tree Consulting Ltd. and SPI Technologies as comparables. The Tribunal noted that these companies were not comparable to the assessee due to differences in business lines and maturity stages. The Tribunal agreed with the assessee that the sample size was too small to be statistically meaningful and that the TPO failed to apply the FAR (Functions, Assets, and Risks) test correctly. 5. Depreciation on Computer Accessories and Peripherals: The Dispute Resolution Panel (DRP) directed the AO to segregate details relating to accessories and peripherals that could work only in connection with or with the aid of computers and allow admissible depreciation accordingly. The Tribunal did not provide a detailed analysis on this issue as the primary ground regarding the reference to the TPO was decided in favor of the assessee. 6. Disallowance under Section 10A: The AO disallowed the claim of the assessee under Section 10A and made additions on account of ALP adjustments. However, since the Tribunal decided the primary ground regarding the reference to the TPO in favor of the assessee, it did not delve into the merits of the disallowance under Section 10A. Conclusion: The Tribunal allowed the appeal of the assessee, holding that the reference to the TPO was not sustainable and the assessment had become time-barred. Consequently, the Tribunal did not decide on the merits of the other issues raised. The order was pronounced in the Open Court on 23rd March 2018.
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