2014 (3) TMI 848 - HC - Income Tax

High Court sets aside Tribunal decision on Transfer Pricing, emphasizes need for proper assessment

COMMISSIONER OF INCOME TAX Versus M/s. MANAKSIA LTD.

The High Court ruled in favor of the appellant, setting aside the Tribunal's decision that deleted additions made by the Assessing Officer based on ... Validity of adjustment made by the TPO – Need for remitting back in case of no other comparable company - Held that:- Assessee contended that some justification that the matter was referred to the TPO u/s 92CA of the Act and based on the findings of TPO, a draft assessment was made which the assessee challenged before the DRP u/s 144C of the Act - the TPO had taken MALCO as a comparable unit. DRP has also accepted that MALCO was a comparable unit - because there is no other comparable company, there was no necessity of remanding the matter - the contention made by the assessee must prevail - Whether there was any other comparable unit or any other method, might be a question to be considered by the TPO once the matter is remanded to him. It was not a proper exercise of discretion on the part of the learned Tribunal to have given a quietus to the matter after deleting the additions. Issues:1. Challenge to the judgment and order dated 14th March, 2013 by the Tribunal.2. Determination of comparable unit for Transfer Pricing purposes.3. Consideration of comparables and disclosure of particulars by the assessee.4. Remand of the matter to the Transfer Pricing Officer (TPO) by the Tribunal.Analysis:1. The appeal before the High Court challenged the judgment and order of the Tribunal which set aside the findings of the Disputes Resolution Panel (DRP) and deleted the additions made by the Assessing Officer based on the adjustments by the Transfer Pricing Officer (TPO). The DRP had granted relief to the assessee by directing the TPO to make proportionate adjustments on total sales to Associated Enterprises (AE) only. The Tribunal set aside the DRP's decision, leading to the present appeal.2. The Tribunal had opined that MALCO could not be considered a comparable unit to the assessee for Transfer Pricing purposes. The High Court noted that the DRP and the TPO had considered MALCO as a comparable unit, but certain comparables cited by the assessee were not tested due to the omission of required particulars. The High Court held that if the Tribunal found MALCO unsuitable as a comparable, the matter should have been remanded to the TPO for further assessment, as the omission nullified the process under Section 92CA of the Income Tax Act.3. The respondent argued that since there were no other comparable companies besides the assessee and MALCO, there was no need for a remand by the Tribunal. However, the High Court disagreed, emphasizing that the question of other comparables or methods should be considered by the TPO upon remand. The Court found the Tribunal's decision to delete the additions without proper consideration of comparables and remand to be erroneous in law, leading to setting aside of the order and remanding the matter back to the TPO for proper assessment.4. In conclusion, the High Court ruled in favor of the appellant, emphasizing the importance of proper consideration of comparable units and the necessity of remand to the TPO for a thorough assessment in Transfer Pricing matters. The Court's decision highlighted the procedural errors in the Tribunal's judgment and the need for a more comprehensive evaluation in such cases, ultimately remanding the matter for further proceedings.