2011 (11) TMI 111 - AT - Income Tax

Tribunal Remands Tax Dispute, Orders Detailed Explanation

Evalueserve. Com (P.) Ltd. Versus Income-tax Officer, Ward-11 (2), New Delhi 5

The Tribunal found that the Dispute Resolution Panel's order lacked specific reasoning and failed to address the assessee's objections adequately, ... Transfer pricing - Order of Dispute Resolution Panel (DRP) - Non-speaking order not stating the objections raised by the assessee and the reasons have also not been given, simply the order of TPO and Assessing Officer are referred. - Held That:- In view of the decision of hon'ble Delhi HC in VODAFONE ESSAR LTD. versus DISPUTE RESOLUTION PANEL-II and ORS (2011 -TMI - 207599 - Delhi High Court) wherein it was held that, when a quasi-judicial authority deals with a lis, it is obligatory on its part to ascribe cogent and germane reasons as the same is the heart and soul of the matter and further, the same also facilitates appreciation when the order is called in question before the superior forum. - Matter remanded back to DRP. Issues Involved:1. Validity of the order passed by the Assessing Officer (AO) and Transfer Pricing Officer (TPO).2. Rejection of comparables by the TPO.3. Denial of working capital and capacity adjustments.4. Use of current year data.5. Limitation of deduction under Section 10A of the Income Tax Act.6. Levy of interest and initiation of penalty proceedings under Section 271(1)(c).Detailed Analysis:1. Validity of the Order Passed by the AO and TPO:The assessee argued that the order passed by the AO was 'bad in law and void ab-initio.' It was contended that the reference made by the AO to the TPO suffered from jurisdictional error as the AO did not record any reasons in the draft assessment order to justify the necessity of referring the matter to the TPO for computation of the arm's length price, as required under Section 92CA(1) of the Income Tax Act.2. Rejection of Comparables by the TPO:The TPO rejected two comparables, B 2 K Corp (P) Ltd. and NIIT Smart Service Ltd., which had incurred losses. The TPO adopted the remaining four comparables and calculated an arithmetical mean of 30.08%, leading to an adjustment of Rs.16,24,01,920. The assessee's objections to this rejection were upheld by the Dispute Resolution Panel (DRP) without detailed reasoning, merely referring to the TPO's and AO's orders.3. Denial of Working Capital and Capacity Adjustments:The DRP upheld the TPO's denial of working capital and capacity adjustments, stating that the denial was based on 'cogent reasoning.' However, the DRP did not provide specific details or reasoning in its order, which was contested by the assessee.4. Use of Current Year Data:The DRP supported the use of current year data by the TPO, rejecting the assessee's request for a fresh search, stating that there were no valid reasons for such a search. The DRP's order did not elaborate on the rationale behind this decision.5. Limitation of Deduction Under Section 10A:The assessee raised objections regarding the limitation of deduction under Section 10A of the Income Tax Act, arguing that the deduction should be based on the gross total income rather than the profit and gains of the eligible undertaking. The DRP upheld the AO's computation without providing detailed reasoning.6. Levy of Interest and Initiation of Penalty Proceedings Under Section 271(1)(c):The DRP found it premature to issue any directions regarding the proposed levy of interest and initiation of penalty proceedings under Section 271(1)(c), as these issues were not ripe for adjudication at that stage.Conclusion:The Tribunal noted that the DRP's order was a 'non-speaking order,' failing to address the specific objections raised by the assessee and merely referring to the TPO's and AO's orders. Citing the Delhi High Court's decision in the case of Vodafone Essar Ltd. v. Dispute Resolution Panel-II, the Tribunal emphasized the necessity for quasi-judicial authorities to provide 'cogent and germane reasons' for their decisions. Consequently, the Tribunal restored the matter to the file of the DRP to pass a detailed order addressing each of the assessee's objections with specific reasoning. The Tribunal set aside the present assessment order and directed the AO to pass a new order in conformity with the DRP's revised directions. The appeal filed by the assessee was allowed for statistical purposes, and the stay application was dismissed as infructuous due to the restoration of proceedings to the DRP.