Tribunal remands case for fresh adjudication, directs detailed reasons & fair hearing for assessee

The Tribunal set aside the DRP's order and remanded the case for fresh adjudication, instructing the DRP to provide detailed reasons for its decisions. The DRP was directed to allow the assessee a fair hearing before issuing new directions. The Assessing Officer will subsequently issue a new order under section 144C(13) of the Act. The appeal was allowed for statistical purposes, and the matter was sent back to the DRP for a thorough re-evaluation of the assessee's objections.

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Issues Involved:
1. Rejection of adjustment for extraordinary cost towards unutilized space.
2. Rejection of adjustment for extraordinary travel costs during start-up phase.
3. Rejection of adjustment for inauguration expenses incurred during start-up phase.
4. Determination of higher ALP by TPO.
5. Percentage adjustment.
6. Interest under section 234B of the Act.

Issue-wise Detailed Analysis:

1. Rejection of Adjustment for Extraordinary Cost Towards Unutilized Space:
The assessee argued that the DRP did not consider detailed submissions on each ground raised. The DRP reduced the claimed adjustment from 24% to 10.88%, directing the TPO to work out the excess rent payment for 7 months. The DRP's decision was based on the quantum of excess rent payment rather than the concept of adjustment itself.

2. Rejection of Adjustment for Extraordinary Travel Costs During Start-up Phase:
The DRP rejected the adjustment for high travel costs, deeming them normal costs unrelated to the start-up phase. The panel found the claim of these costs being extraordinary for transfer pricing purposes illogical. Therefore, no interference with the TPO's decision was deemed necessary.

3. Rejection of Adjustment for Inauguration Expenses Incurred During Start-up Phase:
Similarly, the DRP found no infirmity in the TPO's rejection of adjustment for inauguration expenses. These were also considered normal costs not warranting special treatment as start-up costs.

4. Determination of Higher ALP by TPO:
The assessee contested the comparables used by the TPO, who applied single-year data as per Rule 10B(4) of the Income-tax Rules, 1962. The DRP upheld the TPO's use of single-year data, stating that the assessee did not demonstrate any extraordinary market situations justifying the use of multi-year data. The DRP also reviewed and adjusted the list of comparables, removing some functionally dissimilar entities and retaining others deemed appropriate.

5. Percentage Adjustment:
The DRP clarified that the 5% adjustment is not a standard deduction but a limit to encourage market price dealings with AEs. The panel cited various rulings to support that the benefit of +/-5% is not universally applicable and is only available when the assessee computes the ALP. The assessee's ALP fell beyond the 5% margin, thus invalidating this objection.

6. Interest Under Section 234B of the Act:
The DRP stated that interest under section 234B is mandatory and compensatory, requiring the assessee to pay it. This ground of objection was thus dismissed.

Non-Speaking Order by DRP:
The Tribunal noted that the DRP's order was non-speaking, lacking detailed reasons for rejecting the assessee's submissions and case laws. Citing a similar case (Evalueserve Com (P.) Ltd. v. Ward 11(2)), the Tribunal emphasized the necessity for the DRP to provide cogent reasons for its decisions.

Tribunal's Decision:
The Tribunal set aside the DRP's order and remanded the matter for fresh adjudication, instructing the DRP to pass a detailed, speaking order addressing all objections with proper reasoning. The DRP is to allow the assessee a reasonable opportunity for a hearing before issuing its directions. Following the DRP's revised order, the Assessing Officer will pass a new order under section 144C(13) of the Act.

Conclusion:
The appeal was allowed for statistical purposes, and the matter was remanded to the DRP for a detailed re-evaluation of the assessee's objections.

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