Tribunal directs fresh transfer pricing assessment, upholds deduction deletion, and remands for readjudication.

The Appellate Tribunal directed the Assessing Officer to refer the matter to the Transfer Pricing Officer again for fresh determination, treating the assessee as involved in engineering, design, and drawing services. The Tribunal upheld the deletion of disallowance under Section 80HHE, emphasizing that deductions cannot be made for income enhancements. The matter for AY 2005-06 was restored to the Assessing Officer for readjudication, with both the Revenue's and assessee's appeals allowed for statistical purposes.

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Issues involved:
1. Deletion of addition on account of Arm's Length Price.
2. Disallowance of deduction under Section 80HHE of the I.T. Act.
3. Restriction of addition made on account of Arm's Length Price.

Issue 1: Deletion of addition on account of Arm's Length Price:
The appeal by the Revenue challenged the deletion of an addition of Rs. 6,93,21,169 made on account of Arm's Length Price for the AY 2004-05. The assessee argued that the business involved designing engineering projects, not IT/IT-enabled services. The CIT(A) accepted the assessee's contention, but the Revenue sought a set-aside to the TPO for a fresh determination. The Tribunal set aside the orders, directing the Assessing Officer to refer the matter to the TPO again, treating the assessee as involved in engineering, design, and drawing services.

Issue 2: Disallowance of deduction under Section 80HHE of the I.T. Act:
The Revenue's appeal contested the deletion of disallowance of Rs. 11,95,737 under Section 80HHE. The Assessing Officer recalculated the deduction by increasing the total turnover based on adjustments by the TPO and reimbursement of expenses. The Tribunal held that the Assessing Officer unjustly enhanced the total turnover, as Section 92C(4) prohibits deductions under Chapter VI-A for income enhancements. The Tribunal relied on a previous decision for AY 2001-02 & 2002-03, supporting the exclusion of reimbursement of expenses from turnover. The Tribunal upheld the CIT(A)'s decision on this point, dismissing the Revenue's appeal.

Issue 3: Restriction of addition made on account of Arm's Length Price:
The Revenue's appeal for AY 2005-06 challenged the restriction of an addition to Rs. 4,58,56,978 against the initial addition of Rs. 9,36,70,152 on account of Arm's Length Price. The Tribunal found the facts similar to AY 2004-05 and restored the matter to the Assessing Officer for readjudication, ensuring adequate opportunity for the assessee to be heard. The Tribunal deemed the Revenue's appeal for AY 2004-05 partly allowed, dismissed the assessee's cross-objection, and allowed both the Revenue's and assessee's appeals for AY 2005-06 for statistical purposes.

This detailed analysis of the judgment from the Appellate Tribunal ITAT DELHI covers the issues related to the deletion of additions on account of Arm's Length Price, disallowance of deductions under Section 80HHE, and the restriction of additions made for AY 2005-06.

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