Rule of consistency supports settled income computation, while transfer pricing adjustment needs a final hearing before finalisation.

Income from film distribution may be computed on the basis of the settled 1987 Board settlement principles where no material change is shown, and the rule of consistency can justify continued application of that method. In the absence of books being produced for examination, the Tribunal accepted the Revenue's stand on estimation of income. Separately, a transfer pricing adjustment under Chapter X cannot be finalised without giving the assessee a final opportunity of hearing after the TPO's determination; the matter was therefore restored to the Assessing Officer for fresh decision after hearing the assessee.

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Issues: (i) Whether the Assessing Officer was justified in estimating the assessee's income from film distribution at 25 per cent of gross film rentals and whether the settlement principles reflected in the Board's 1987 letter continued to apply. (ii) Whether the transfer pricing adjustment under Chapter X could be sustained without giving the assessee a final opportunity of hearing, and whether the matter required remand.

Issue (i): Whether the Assessing Officer was justified in estimating the assessee's income from film distribution at 25 per cent of gross film rentals and whether the settlement principles reflected in the Board's 1987 letter continued to apply.

Analysis: The assessee had maintained that its income was to be computed on the basis of regular books, while the Revenue relied on the earlier settlement practice and the assessee's own treatment in an earlier year. The Tribunal noted that no material was produced to show that the books of account had been placed before the authorities for examination, and held that the earlier decision and the special bench view supported application of the settlement principles. In the absence of any material change, the Tribunal applied the rule of consistency and accepted the Revenue's stand that the 1987 settlement principles continued to govern the computation.

Conclusion: The issue was decided against the assessee and in favour of the Revenue.

Issue (ii): Whether the transfer pricing adjustment under Chapter X could be sustained without giving the assessee a final opportunity of hearing, and whether the matter required remand.

Analysis: The Tribunal held that after the Transfer Pricing Officer's determination, the Assessing Officer was required to afford a formal opportunity to the taxpayer before finalising the adjustment. Since no such opportunity had been given, the adjustment could not be sustained on the existing record. The Tribunal therefore set aside the transfer pricing determination and restored the matter to the Assessing Officer for fresh decision after hearing the assessee.

Conclusion: The issue was decided in favour of the assessee to the extent of remand and against the Revenue's completed adjustment.

Final Conclusion: The Revenue succeeded on the income-computation issue, while the transfer pricing matter was remitted for fresh adjudication after hearing the assessee, and the connected cross-objections were disposed of on the same footing.

Ratio Decidendi: In the absence of a material change, a settled and consistently followed method of income computation may be applied by virtue of the rule of consistency, but a transfer pricing adjustment cannot be finalised without giving the assessee a fair opportunity of being heard after the TPO's determination.

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