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2022 (12) TMI 414 - AT - Income Tax


Issues Involved:
1. Justification of the Dispute Resolution Panel (DRP) in passing the impugned order dated 22nd April 2021.
2. Justification of the Transfer Pricing Officer (TPO) in giving effect to the DRP's directions.
3. Justification of the Assessing Officer (AO) in making an arm's length price (ALP) adjustment of Rs 6,68,10,000 based on the rectification order.

Issue-wise Detailed Analysis:

1. Justification of the DRP in Passing the Impugned Order:
The core issue was whether the DRP was justified in passing the impugned order dated 22nd April 2021. The DRP had initially concluded that the transaction between the assessee and its associated enterprise (AE) was at arm's length and did not require any upward adjustment. However, the TPO filed a petition seeking rectification of various mistakes in the DRP's order. The DRP, after considering the TPO's petition and the assessee's submissions, found that the petition was based on incorrect facts and circumstances. The DRP noted that there is no provision under the Income Tax Act or DRP Rules for filing a miscellaneous application (MA) before the DRP. Therefore, the MA was rejected as ultra vires. The DRP further stated that it only has the power to rectify mistakes apparent on record under Rule 13 of the DRP Rules. After careful perusal, the DRP found no mistakes apparent on record in its directions dated 3rd November 2020. Consequently, the DRP's directions dated 22nd April 2021 were held to be unsustainable in law.

2. Justification of the TPO in Giving Effect to the DRP's Directions:
The TPO had moved a petition for rectifying mistakes in the DRP's order, pointing out various alleged errors. However, the DRP found that the TPO's petition was not maintainable as there is no provision for such a petition under the DRP Rules. The DRP also noted that the TPO's petition was based on incorrect facts and circumstances and did not constitute mistakes apparent on record. The DRP's directions to the TPO to take actual payments and compare them with the actual payments in the comparable transaction, and to consider the exclusion of service tax, were found to be beyond the scope of rectification of mistakes apparent on record. Therefore, the TPO's order giving effect to these directions was quashed.

3. Justification of the AO in Making an ALP Adjustment:
The AO had made an ALP adjustment of Rs 6,68,10,000 based on the rectification order passed by the DRP and the TPO's order giving effect to the DRP's directions. However, since the DRP's directions dated 22nd April 2021 were found to be unsustainable in law, the resultant TPO's order and the AO's rectification order were also quashed. The Tribunal noted that the DRP's directions were issued without a finding of a mistake apparent in the directions, which is a prerequisite for invoking jurisdiction under Rule 13. Consequently, the original assessment order dated 30th March 2021, which did not include the ALP adjustment, was restored.

Additional Grievances:
The assessee also raised grievances against the depreciation allowance on Gas Turbine Generators (GTGs) and the incorrect levy of education cess, which were part of the original assessment order. However, since these issues were part of the original assessment order and not the rectification order, the Tribunal did not address them in this appeal. The assessee was advised to pursue these grievances through appeals against the original assessment order.

Conclusion:
The Tribunal quashed the DRP's directions dated 22nd April 2021, the TPO's order giving effect to these directions, and the AO's rectification order. The original assessment order dated 30th March 2021 was restored. The appeal was partly allowed, and the assessee was granted relief to the extent of quashing the rectification order and related adjustments.

 

 

 

 

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