2019 (4) TMI 1658 - AT - Income Tax

TPA - appropriate method adopted by the assessee for benchmarking in international transaction in the form of export sales to its AE - HELD THAT - CIT(A) had made an observation that the assessee had not filed the statement of facts before him while filing the appeal in form No.35. But from the perusal of the documents placed on record, we find that the assessee had indeed enclosed statement of facts and grounds of appeal in brief before the CIT(A). CIT(A) had not issued any defect memo in this regard to the assessee. Hence, the observation of CIT(A) in this regard is totally unwarranted. We find from the perusal of the assessment order that there is no mention about examination of most appropriate method adopted by the assessee for benchmarking its international transaction in the form of export sales to its AE. We deem it fit and appropriate, in the interest of justice and fair play, to remand this appeal to the file of the ld. AO for denovo adjudication for determination of arm s length price in respect of international transaction in the form of export sales made to AE by the assessee, in accordance with law. The assessee is at liberty to furnish additional evidences, if any, either in the form of transfer pricing study report or any other evidences, if they so desire, in support of its contentions. Accordingly, the grounds raised by the assessee are allowed for statistical purposes.

Summary

Issues Involved:
1. Adequacy of hearing granted by the CIT(A) to the assessee.
2. Arm's length price determination for international transactions.

Issue 1: Adequacy of hearing granted by the CIT(A) to the assessee:
The appellant contended that the CIT(A) did not provide sufficient opportunities for a hearing, leading to an ex-parte order despite the appellant's attendance and requests for jurisdiction transfer. The CIT(A) detailed the numerous notices issued for hearings and the appellant's adjournment requests. The Tribunal found that the appellant had valid reasons for seeking adjournments, contrary to the CIT(A)'s assertion of dilatory tactics. The Tribunal concluded that the CIT(A)'s observation was unwarranted, considering the circumstances.

Issue 2: Arm's length price determination for international transactions:
The assessee, engaged in computer-aided services, had a service agreement with its Associated Enterprise (AE) for rendering services at cost plus 10%. The AO rejected this agreement, citing all exports to the AE and a net profit rate of 24.72%. Consequently, an adjustment of ?77,23,796 was made to the arm's length price. The CIT(A) merely upheld the AO's decision without providing any independent findings. The Tribunal noted the absence of a detailed examination of the appropriate benchmarking method by the AO. In the interest of justice, the Tribunal remanded the case to the AO for a fresh determination of the arm's length price, allowing the assessee to submit additional evidence if needed.

In summary, the Tribunal addressed the issues of hearing adequacy and arm's length price determination. It found the CIT(A)'s observation on the appellant's conduct unwarranted and remanded the case for a fresh determination of the arm's length price, emphasizing the need for a thorough examination of the benchmarking method.