2019 (5) TMI 308 - HC - Income Tax

Scope of remand proceeding - issues remanded back by High Court before Tribunal with direction with further remand if needed - Though tribunal make further remand but order appear to decided merit of case which prejudice the remand - fresh reconsideration relating to advertising, marketing and promotion (AMP) expenses - assessee is aggrieved that though characterized as an interim order and not conclusive of the merits, yet, the finality precludes the assessee/petitioner from urging the grounds with respect to the precise issues - HELD THAT - This Court is of the opinion that till the remand directed by the ITAT is worked out and a report on that aspect is received, the ITAT s observations in the impugned order, particularly the ones quoted above, or any other observation like them which tend to indicate finality, shall in no way be treated as conclusive of the merits. All rights and contentions of the parties are accordingly kept open. The concerned Bench of the ITAT dealing with the final merits shall be uninfluenced by the said observations.

Summary

Issues:
1. Determination of arm's length price of royalty payment.
2. Validity of ITAT's observations regarding comparability analysis.
3. Finality of ITAT's observations in the impugned order.

Analysis:
1. The High Court directed a remand to the ITAT for fresh reconsideration of issues related to advertising, marketing, promotion expenses, and benchmarking of international transactions concerning royalty payments. The ITAT was instructed to examine if AMP expenses involve international transactions and determine the arm's length price of royalty payments. The ITAT was directed to conduct necessary inquiries and submit a remand report by a specified date.

2. The ITAT, following the remand, found discrepancies in the quantitative filters applied by the assessee for royalty payments. It observed that the comparability analysis was unjustified due to significant differences in royalty payments between the assessee and the comparable transaction. The ITAT conducted its research on the comparable agreement between two foreign parties and deemed the transfer pricing study document prepared by the assessee as lacking credibility.

3. The petitioner contended that the ITAT's observations in the impugned order, though interim, appeared conclusive and hindered further remand and inquiry by the TPO. The High Court clarified that until the remand directed by the ITAT is completed, the observations in the impugned order should not be considered final. All rights and contentions of the parties were to remain open, and the ITAT was instructed to proceed with final merits uninfluenced by any premature conclusions.

In conclusion, the High Court disposed of the writ petition, emphasizing the need for the ITAT to follow through with the remand directions and not treat interim observations as conclusive. The judgment maintained the importance of completing the remand process before drawing final conclusions on the issues at hand.