2023 (5) TMI 108 - AT - Income Tax

TP Adjustment - TP documentation adopted by the Ld. TPO - HELD THAT - The argument of the Ld. AR deserves consideration on the fact that the assessee has not been provided an opportunity to rebut the comparables selected by the Ld. TPO, since the CD containing the comparables and the computation of the ALP was provided to the assessee along with the TP order. Argument of the Ld. AR that wherein the objections raised by the assessee were not considered by the Ld. TPO and also the Ld. DRP deserves consideration. AR in his written submissions has stated that with respect to sundry balances written back which was considered as non-operating income by the Ld. TPO without providing an opportunity to the assessee. AR also contended before us that the loan processing charges was considered as operating expenses by the Ld. TPO without providing an opportunity to the assessee. Similar treatment was also given in inventory valuation and adjustment on account of extraordinary cost and capacity adjustment wherein the assessee was not provided any opportunity to represent before the Ld. TPO. We therefore find that plea of the Ld. AR that matter may be remitted back to the file of the Ld. TPO deserves consideration. We consider it deem and fit to remit the matter back to the file of the Ld. TPO and thereby the assessee may be provided opportunity to make its submissions and rebut the TP documentation adopted by the Ld. TPO - Appeal of the assessee is allowed for statistical purposes.

Summary

Issues:
Appeal against final assessment order under Income Tax Act for AY 2014-15, rejection of Transfer Pricing documentation, selection of comparables without proper reasons, rejection of additional grounds by DRP, delay in PF payment addition.

Analysis:
1. The appellant, engaged in the manufacture and distribution of ladies inner ware and readymade garments, filed an appeal against the final assessment order for AY 2014-15, challenging the adjustments made by the Transfer Pricing Officer (TPO) and the Additional Commissioner of Income Tax. The appellant had initially admitted NIL income after setting off brought forward losses. The TPO determined an adjustment of Rs. 17,98,23,483 based on international transactions with Associated Enterprises (AEs) amounting to Rs. 236.04 Crs during the relevant assessment year. Additionally, an amount of Rs. 32,04,997 was added for the delay in payment of employees' PF contributions.

2. The appellant contended that the TPO rejected comparables without providing valid reasons and did not allow an opportunity to rebut the independent search of comparables conducted by the TPO. The TPO's order lacked detailed reasoning and did not consider objections raised by the appellant before the Dispute Resolution Panel (DRP). The appellant requested the matter to be remitted back to the TPO for fresh consideration and proper opportunity to be provided for TP assessment.

3. The DRP upheld the TPO's order, rejecting additional grounds raised by the appellant citing delay in filing. The TPO's selection of comparables differed from the ones chosen by the appellant, leading to a significant adjustment. The appellant's arguments regarding non-consideration of objections, improper treatment of certain items, and lack of opportunity to represent before the TPO were found valid by the Tribunal.

4. The Tribunal, after considering both parties' submissions and the discrepancies in the TP documentation, held that the matter should be remitted back to the TPO for a fair reconsideration. Upholding the principles of natural justice, the Tribunal allowed the appellant's appeal for statistical purposes, granting an opportunity to rebut the TP documentation and address the issues raised before the TPO.

5. Ultimately, the Tribunal allowed the appeal of the appellant for statistical purposes, emphasizing the importance of providing a fair opportunity for the appellant to present its case and address the concerns regarding the TP assessment. The judgment was pronounced on 16th February 2023 by the Appellate Tribunal ITAT Visakhapatnam.