2024 (8) TMI 1497 - HC - Income Tax

TP Adjustment - using multiple air data for the purpose of determining the margins of comparables for the year 2008-2009 - appellant has strenuously argued that the order passed by the TPO was in conformity with the provisions of Rule 10B (2) and 10B(4) of the Income Tax Rules, 1962 and both CIT(Appeals) and the ITAT have erred in setting aside the order - HELD THAT - TPO on identical facts of the Assessees case for the subsequent assessment proceedings of 2010-2011, 2011-2012, 2012-2013 and 2013-2014 had rejected the comparables. Once the TPO himself has not accepted the said comparable which were considered for assessment proceedings in question while examining the subsequent assessment proceedings, we do not find any justification to allow the inclusion of such comparables for the first time for the year 2009-2010. Moreso, as even for the previous years, the comparables which may have taken into consideration as accepted by the TPO, the departure of course be made for each year assessment but as noticed by both the appellate authorities, the Revenue would have to establish compelling reasons for such departure. No substantial question of law which needs to be examined afresh by this Court after the concurrent findings of the both the appellate authorities.

Summary

Issues:
1. Interpretation of Rule 10B (2) and 10B(4) of the Income Tax Rules, 1962.
2. Validity of working capital adjustment in international transactions.
3. Consideration of comparables in transfer pricing analysis.
4. Justification for departure from settled positions by the revenue.

Detailed Analysis:
1. The judgment pertains to an appeal challenging the order of the Income Tax Appellate Tribunal (ITAT) confirming the decision of the Commissioner of Income Tax (Appeals) setting aside the order of the Transfer Pricing Officer-II (TPO). The TPO's order was contested on the grounds that there was no material change justifying the revenue to take a different view, and the revenue had accepted certain facts over time relevant to establishing the arm's length price. The appellant argued that the TPO's order was in conformity with Rule 10B (2) and 10B(4) of the Income Tax Rules, 1962, and both the CIT(A) and ITAT erred in setting it aside.

2. The appellant contended that the TPO rightly rejected the taxpayer's submissions regarding the use of multiple data for determining comparables, emphasizing that Rule 10B(4) mandates using data from the financial year of the international transaction. The appellant argued that the TPO correctly applied the current data for determining the arm's length price for international transactions with associated enterprises, as the provision does not allow for excluding successive year's data.

3. The judgment also addressed the issue of working capital adjustment in international transactions. The CIT(A) allowed the working capital adjustment based on precedents and the need to neutralize differences in carrying inventory, trade payables, and receivables. The Tribunal upheld the CIT(A)'s decision, noting that the Revenue failed to provide any distinguishing features or material to challenge the working capital adjustment. The Tribunal dismissed the Revenue's appeal, emphasizing the necessity of compelling reasons for departing from settled positions.

4. The Court found that the TPO had rejected comparables in subsequent assessment proceedings for the same assessee, indicating inconsistency in accepting comparables for the year under review. The judgment highlighted the requirement for the Revenue to establish compelling reasons for departing from settled positions, especially when the TPO had not accepted similar comparables in subsequent assessments. The Court upheld the decisions of the appellate authorities and dismissed the appeal, concluding that no substantial question of law warranted further examination.

Overall, the judgment delves into the interpretation of tax rules, the validity of adjustments in international transactions, the consideration of comparables, and the justification for revenue's departure from settled positions, providing detailed analysis and reasoning for each issue raised in the appeal.