2018 (10) TMI 375 - HC - Income Tax

Transfer pricing - Validity of order passed by the TPO without considering the objection raised by the petitioner - Power of the Dispute Resolution Panel (DRP) u/s 144C in giving direction to AO - Manner in which such power has to be exercised - Held that - Perusal of the procedure contemplated under Sub-Section 6 and Sub-Section 7 of section 144C thus, would clearly indicate that issuance of such directions as contemplated under Sub-Section 5, cannot be made mechanically or as an empty formality and on the other hand, it has to be done only after considering the above stated materials. Consideration of the above materials by the Dispute Resolution Panel must be apparent on the face of the order and such exercise would be evident only when the order contains the discussion of facts and independent findings on those facts, by the Dispute Resolution Panel. Certainly mere extraction of the rival contentions will not satisfy the requirement of consideration. In the absence of any such independent reasoning and finding, it should be construed that the Dispute Resolution Panel has not exercised its power and issued directions by following the mandatory requirements contemplated under Section 144C(6) and (7). This Court is fully convinced that the matter has to go back to the first respondent for consideration of the objections raised by the petitioner in detail and to pass a fresh order on merits and in accordance with law with reasons and independent findings.

Summary

Issues:
Challenging orders of Dispute Resolution Panel regarding transfer pricing adjustments for assessment year 2013-14.

Analysis:
The manufacturer and distributor separately challenged orders of the Dispute Resolution Panel for the assessment year 2013-14. The Transfer Pricing Officer objected to the overseas tested party approach adopted by the manufacturer, leading to proposed transfer pricing adjustments. The Assessing Officer then made adjustments based on the Transfer Pricing Officer's order. The manufacturer's rectification petition was dismissed, prompting objections before the Dispute Resolution Panel. The Panel's order upheld the Transfer Pricing Officer's decision, leading to the Assessing Officer recalculating adjustments for the distributor as well. Both petitioners contested the Panel's decisions, arguing that the Panel failed to consider objections in detail and merely accepted the Transfer Pricing Officer's findings without independent analysis.

The High Court noted that the petitioners raised detailed objections before the Dispute Resolution Panel, but the Panel's order lacked substantive discussion on these objections. The Court highlighted the legal requirements for the Panel's decision-making process under Section 144C of the Income Tax Act, emphasizing the need for thorough consideration of objections, evidence, and independent findings before issuing directions to the Assessing Officer. The Court found that the Panel's order was superficial and lacked the necessary reasoning and analysis, indicating a lack of proper application of mind.

Consequently, the Court set aside the Panel's orders and directed the matter to be reconsidered by the Panel. The Court stressed the importance of the Panel providing a detailed, reasoned decision based on a thorough examination of the objections raised by the petitioners. Only after such a comprehensive review and decision by the Panel, with independent findings and reasons, can the Assessing Officer proceed with the assessment. The Court did not express any opinion on the merits of the claims but emphasized the need for a lawful and well-reasoned decision-making process by the Panel.

In conclusion, the Court allowed both writ petitions, overturned the Panel's orders, and remitted the matter back to the Panel for a fresh consideration of the objections raised by the petitioners. The Panel was instructed to issue a new order within eight weeks, following a detailed review and providing independent reasons and findings.