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TMI Blog2022 (12) TMI 241X X X X Extracts X X X X X X X X Extracts X X X X ..... ed only in one of the three circumstances namely, (a) suo motu, i.e. on its own by the DRP; (b) on an application made by the eligible assessee, or (c) on an application made by the Assessing Officer. The scheme of rule 13 does not visualize any rectification of mistake, by the Dispute Resolution Panel, on an application by the TPO. The application filed by the Transfer Pricing Officer before the Dispute Resolution Panel, irrespective of its nomenclature, was liable to be dismissed for this short reason itself. As for the observations of the Dispute Resolution Panel on the nomenclature of the application filed by the Transfer Pricing Officer, whatever be the nomenclature, it was unambiguously a petition seeking rectification of mistake as evident from his opening words in the first paragraph to the effect (t)his MA is being filed for rectifying various mistakes apparent on record in the order of the learned DRP which are being delineated in the following paragraphs . When the object and purpose of the application is unambiguous, nothing really turns on the terminology used to describe the said application. We have noted that the Dispute Resolution Panel, having rejected the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oner of Income Tax, under section 154 read with sections 143(3) and 144C(13) of the Income Tax Act, 1961, for the assessment year 2016-17. As this order is passed pursuant to, and to give effect to, the directions dated 22nd April 2021 of the Dispute Resolution Panel, this appeal is directly filed before us. 2. The core issues requiring our adjudication in this case, as learned representatives agree, are (i) whether the Dispute Resolution Panel was justified in passing the impugned order dated 22nd April 2021, (ii) whether the Transfer Pricing Officer was justified in given effect, vide his order dated 31st May 2021, to the directions contained in the said order, and, (iii) whether, based on this rectification order passed by the Dispute Resolution Panel and based on the TPO‟s resultant order giving effect thereto, and, whether the Assessing Officer was justified in, based on these order, passing the impugned order dated 2nd June 2021 making an addition of Rs 6,68,10,000 as an arm‟s length price adjustment. 3. To adjudicate on these grievances, only a few material facts need to be taken note of. The assessee before us is a domestic company incorporated on 29th Oct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I offered as comparable; (iii) ratio of annual lease charges pertaining to FPSO vessel to Charter Rate in the case of two incomparable vessels cannot be used to benchmark the transactions; (iv) in considering, in the case of Husky transaction, operating day rate pertaining to FPSO vessel as hire/lease day rate paid for the FPSO vessel; (v) erroneous assumption behind the present value (PV); (vi) no internal comparability involved as claimed by the DRP; (vii) documents filed by the assessee on 27.8.2020 treated by the learned DRP to be not in the nature of evidence, and yet relied upon to delete TP adjustment made by the TPO; (viii) no opportunity given by the TPO to offer comments on documents submitted by the assessee on 27.08.2020; (ix) no restriction on benchmarking ALP without comparable(s) under the Other Method, as claimed by the DRP; (x) restricting application of second criterion of Other Method to when comparables are not available; (xi) obverse interpretation of Rule 10B(2)(b); and (xii) other miscellaneous points. A copy of this petition was forwarded, on 19th February 2021, to the assessee. The assessee, vide letter dated 24th February 2021, made detailed submissions on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vessel as terms of the arrangements of the assessee vis- -vis the comparable were similar, and specific detailed reasons, meeting all the points raised under this heading, were met by the assessee one by one; (v) as regards alleged erroneous assumption behind the present value adopted, it was pointed out that SBI PLR, which was adopted by the assessee, represents indicative rate for discounting on the facts of this case, and, even if LIBOR plus 3 percent or LIBOR plus 4 percent were to be adopted, the conclusion would not have been any difference, and that estimated life of 7 years for the FPSO vessel, with insignificant residual value, was a correct assumption on the peculiar facts of this case; (vi) as regards the point of internal comparability, it was pointed out that, firstly, wrong nomenclature, even if that be so, would not vitiate the conclusions, and, secondly, this transaction was between a group company and an independent party which was a valid comparable; (vii) as regards the point that documents filed by the assessee on 27.8.2020 treated by the learned DRP to be not in the nature of evidence, and yet relied upon to delete TP adjustment made by the TPO, it was pointed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d before the DRP. Therefore, the MA is rejected/ not accepted because of its being ultra vires in character. 3. We would like to state that the DRP has only power to 'rectify, mistakes/ errors apparent in direction' u/r 13 of the DRP Rules. Therefore, we decide to take the MA as application for rectification of apparent mistake/ error in the direction u/r 13 of the DRP Rules. Consequently, the assessee was given opportunity to present its say in this regard. The assessee filed its written submission on 24.02.2021. The TPO filed his written rejoinder dated 02.03.2021.Two virtual hearings were held on 25.02.2021 and 03.03.2021. In the virtual hearings the Addl. CIT (TP) 4(1). Mumbai, the TPO and the assessee presented their say with regard to the MA filed by the TPO. The matters/ issues were discussed in detail. The assessee vehemently pleaded for rejection of each point of the MA. 4. After careful perusal of the MA, the assessee's submission and the rejoinder of the TPO, we find that the MA is based on incorrect facts and circumstances as well as incorrect appreciation of the provisions of law and procedure, such as: (i) The name of M/s. Husky-CNOOC Mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ratio @ 46.80: 53.20. We benchmarked the revenue split ratio using the same contractual terms/ conditions comparing it to the revenue split ratio in a similar business based on their contractual terms/ conditions relating to hire charges. Taking average day rate was essential because the day rates were different in each of the seven-year duration in the assessee/ AE agreement as against the uniform day rate in each year in the comparable agreement. Resorting to comparison of the contractually agreed payments/ charges was a legitimate exercise to benchmark the revenue split ratio. (Refer to para 3.4.2(ii)/ 3.4.3 of the MA) (ix) The TPO has himself worked out a new ratio 18.57:81.43 for revenue split between the assessee and the AE in AY 2017-18, instead of 46.80:53.20 in the instant AY 2016-17 after referring our directions. (Refer para 4 of the MA) (x) Jurisprudence‟ is science of law‟. Any kind of arbitrariness‟ is anathema to jurisprudence‟. The decisions/orders based on arbitrary exercise of a discretion would never help in development of TP jurisprudence‟. (Refer to para 3.9.2 to 3.9.7) (xi) The TPO ignored the second additio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is concerned, the TPO may decide the issue, as per law, after carrying out the above directions. (v) The TO is directed to afford to the assessee a proper opportunity of being heard and present its case and relevant documents with regard to the above directions, before passing the consequential order. 7. The assessing officer shall give effect to the above directions as per provisions of section 144C (13) of the Act read with rule 13 of the DRP Rules, 2009. 6. The assessee is aggrieved and is in appeal before us. 7. We have heard the rival contentions, perused the material on record and duly considered the facts of the case in the light of the applicable legal position. 8. We find that under section 144C(14) of the Act, the Central Board of Direct Taxes may make rules for the purposes of the efficient functioning of the Dispute Resolution Panel and expeditious disposal of the objections filed under sub-section (2) by the eligible assessee . In exercise of these powers, and vide notification no. 84/2009 [F.NO. 142/22/2009-TPL]/S.O. 2958(E) dated 20-11-2009, the Central Board of Direct Taxes has notified the Income-tax (Dispute Resolution Panel) Rules, 2009 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... short ground, as discussed in the foregoing paragraph, that the scheme of rule 13 does not visualize, or permit, a rectification application being entertained from a person other the assessee or the Assessing Officer. In any event, the rectification of mistakes, as permitted under rule 13, is only with respect to mistake or error is apparent in such direction (issued by the DRP) . That is precisely what Section 154 of the Act also covers inasmuch as it covers mistake apparent from the record , the connotations of a mistake apparent in such direction‟ cannot be any broader than the connotations of a mistake apparent from the record‟. As to what does the scope of a mistake apparent from the record‟ covers, we can do no better than to reproduce the words of the landmark judgment of the Hon‟ble Supreme Court, in the case of ITO Vs Volkart Brothers [(1971) 82ITR 50 (SC)], to the effect that ..A mistake apparent on the record must be an obvious and patent mistake and not something which can be established by a long-drawn process of reasoning on points on which there may conceivably be two opinions. this court while spelling out the scope of the powe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch can be established by a long-drawn process of reasoning on points on which there may conceivably be two opinions . Similarly, an error to consider an argument advanced by either party for arriving at a conclusion is not an error apparent on the record, although it may be an error of judgment , in the light of the guidance of Hon‟ble jurisdictional High Court, is not something which can be treated as mistake apparent from record and rectified as such. In the light of this legal position, and when we take into account categorical and uncontroverted findings of the learned DRP to the effect We can infer with certainty from the detailed MA, the detailed response by the assessee, the detailed rejoinder by the TO and para 4 of this order (supra), that no 'mistakes/errors apparent‟ are made out as such in the DRP's direction dated 03.11.2020 for AY 2016-17 (Emphasis, by underlining, supplied by us; paragraph 5 of the DRP s order extracted earlier), it is beyond any dispute or controversy that there was no occasion for the Dispute Resolution Panel to pass the directions dated 22nd April 2021- not only because the rectification proceedings in question were on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the rectification proceedings under rule 13 of the DRP Rules, but, given our findings above, it is not really necessary to deal with those nuances of law at this stage. 10. As we part with the matter, we may add that apart from the grievance against the impugned the arm‟s length price adjustment of Rs 6,68,10,000- including, of course, against the issuance of directions dated 22nd April 2021 by the Dispute Resolution Panel, the assessee has also raised a grievance against the depreciation allowance on Gas Turbine Generators (GTGs) of Rs 25,29,89,877 at 15% instead of 80%, but as this addition was made in the original assessment order dated 30th March 2021, and the order impugned in the present appeal is the rectification order dated 2nd June 2021, we are not in a position to deal with the said grievance of the assessee. It is for the assessee to pursue the grievances against any additions or disallowances made in the original assessment proceedings in appeals against the original assessment order, and in the case, for whatever reasons, the said appeal has been inadvertently missed out, it is for the assessee to file the appeal at least now, along with the condonation pe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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