2012 (7) TMI 181 - AT - Income Tax

Determination of arms length price - assessee contested that TPO rejected certain comparables, economic performance data - Held that - Set of comparable companies the TPO has relied on this information gathered for non public domain by using powers u/s 133(6) and this information is neither contained in the annual reports nor in the public domain data base and is not not supplied to assessee to enable it to meet the objections - direction to TPO to arrive at the ALP after providing the assessee adequate opportunity of being heard in accordance with law -decided in favour of assessee.

Summary

Issues:
1. Determination of arms length price (ALP) of international transactions.
2. Rejection of certain comparables and economic performance data.
3. TPO's use of powers under section 133(6) to obtain non-public domain information.
4. Adoption of data of certain companies on an ad hoc basis.

Analysis:
Issue 1: The appellant challenged the determination of the arms length price (ALP) of international transactions. The appellant raised 17 grounds of appeal, primarily contesting the rejection of certain comparables and economic performance data. The main contentions included the TPO's reliance on non-public domain information obtained through section 133(6) powers and the adoption of data from specific companies on an ad hoc basis.

Issue 2: The appellant argued that the TPO utilized information for comparability from companies not in the public domain. The information was gathered through section 133(6) notices, but not provided to the assessee for objections or verification. The principle of natural justice requires that material used against the assessee should be supplied, and objections should be heard before making a decision. This view was supported by previous ITAT cases, leading to the decision that information gathered under section 133(6) should be provided to the assessee for verification and objections before determining the ALP.

Issue 3: The appellant contended that the TPO's comparability analysis based on non-public domain information was erroneous and contrary to the methodology prescribed by Rule 10B(2). It was argued that the TPO should have furnished the information to the assessee and considered their objections before arriving at the ALP. The case law of M/s Genisys Integrating Systems (India) Pvt. Ltd. and M/s Kodiak Networks (India) Pvt. Ltd. was cited to support the argument for providing information to the assessee and hearing objections before finalizing the ALP.

Issue 4: The appellant requested the deletion of the transfer pricing adjustment or, alternatively, the restoration of the issue to the TPO for a fresh examination after providing the assessee with the material used against them. The decision emphasized the importance of natural justice and the right of the assessee to verify and object to information used in determining the ALP. As a result, the matter was set aside back to the file of AO/TPO for further proceedings in accordance with the law.

In conclusion, the appeal was allowed for statistical purposes only, and the decision highlighted the significance of providing the assessee with information and an opportunity to be heard before making transfer pricing adjustments based on non-public domain data gathered under section 133(6).