2023 (12) TMI 406 - AT - Income Tax

TP Adjustment - comparable selection - Application for admission of additional evidences - assessee submitted that in the present AY, being first year, the assessee had erroneously considered the comparable companies engaged in financial and leasing services (hire purchase and leasing services, investment services, other financial services, other consultancy services) to benchmark the subject international transaction instead of considering comparable companies engaged in providing business support services . HELD THAT - Section 92CA(3) rests obligation on TPO to determine the arm s length price in relation to the international transaction in accordance with sub-section (3) of section 92C. This exercise at one end is to accept or discredit the TPSR of the assessee on the other hand obliges the TPO to make an independent enquiry of his own on the question of determination of ALP. The point is that in present AY the TPO accepted the comparables of segment taken by assessee without questioning if the assessee was right in taking up comparable of segment financial services/ selling of financial products however in same set and scope of business activity and model when accepted in AY 2008-09 onwards the assessee s changed stand with comparables of different segment of business support services . Thus the comparables of segment AY 2008-09 onwards are binding on the TPO and if those are accepted the whole TPSR becomes defective and that causes prejudice to both the parties. In any case, if additional evidence of fresh TPSR on new set of comparables is allowed, the TPO will still have a right to not consider the same and allege that in present AY the comparables of right segment were taken. Admissibility of additional evidence we are of the considered view that Rule 29, bars the right of parties to the appeal to produce additional evidence either oral or documentary. However, if the Tribunal requires any documents to be produced or any witness to be examined or any affidavit to be filed to enable it to pass orders, the additional evidence can be called for. Further the Rule 29 provides that for any other substantial cause also the Tribunal can allow the additional evidences. in the case in hand the facts and circumstances establish that either both TPO and the assessee or the TPO only hand failed to take comparables of correct segment. Thus, there is force in the contention of assessee that both the assessee and TPO were mistaken on facts of the functional profile of the assessee to consider comparables engaged in financial and leasing services instead of business support services . Hence at the end, before us, neither the assessee nor the Revenue can completely justify the comparables accepted by them. Assessee has sought indulgence of the Bench to allow the additional evidences of new set of comparables, but, the same require verification as the whole exercise has to be done again by the TPO who has right to rebut the same. Thus, the question of admissibility of these evidences as to the assessee had opportunity to lead this evidence at the first instance or that the assessee has created this evidence subsequently is not of much consequences. The evidence is from the contemporary data of relevant AY only so there is no question of assessee taking advantage of subsequent facts or something created by assessee ex post facto. The nature of fresh set of comparables require a fresh look into all the issues, substantially and incidentally involved due to erroneously taking comparables of wrong segment by both the assessee and the TPO. Thus, we are inclined to allow the application of the assessee. Impugned final assessment order is set aside and the TPO is directed to accept the fresh evidence and report of the assessee for the purpose of Section 92C of the Act r.w. Rule 10B of the Income-tax Rules, 1962 and, after giving further opportunity of hearing to the assessee pass a fresh order. The assessee will be at liberty to raise further incidental issues afresh before the TPO/AO. In the result, the appeal of the assessee be considered allowed for statistical purposes.

Summary

Issues involved:
1. Admission of additional evidence under Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963.
2. Correctness of the functional profile and comparables used for benchmarking the international transaction.

Summary:

Issue 1: Admission of additional evidence under Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963.

The Assessee filed an application for admission of additional evidence under Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963. The Revenue opposed this application, arguing that the additional evidence was filed after a significant delay and was an attempt to take advantage of subsequent assessments. The Tribunal noted that Rule 29 restricts the right to produce additional evidence but allows it if required by the Tribunal for passing orders or for any substantial cause. The Tribunal found that the powers under Rule 29 should be read in consonance with Section 254(1) of the Act, which gives the Tribunal wide discretion to pass orders as it thinks fit. The Tribunal concluded that the additional evidence was necessary for a just decision and allowed the application, directing the TPO to accept the fresh evidence and report of the assessee.

Issue 2: Correctness of the functional profile and comparables used for benchmarking the international transaction.

The Assessee argued that it had erroneously considered comparable companies engaged in financial and leasing services instead of business support services for benchmarking the international transaction. The Tribunal found that the TPO had accepted the comparables of the financial services segment without questioning the functional profile of the Assessee. However, from AY 2008-09 onwards, the TPO had changed the comparables to those engaged in providing business support services. The Tribunal noted that there was no change in the functional profile of the Assessee from AY 2004-05 to 2019-20, and the comparables of the business support services segment were binding on the TPO. The Tribunal concluded that both the Assessee and the TPO had mistakenly taken comparables of the wrong segment, and a fresh look into all issues was required. The Tribunal set aside the impugned final assessment order and directed the TPO to accept the fresh evidence and report of the Assessee, giving further opportunity of hearing to the Assessee.

Conclusion:

The Tribunal allowed the application for admission of additional evidence and directed the TPO to re-examine the benchmarking of the international transaction using the correct functional profile and comparables. The appeal of the Assessee was allowed for statistical purposes.