2019 (2) TMI 1783 - AT - Income Tax

Assessee's Appeal Allowed for Fresh Consideration on Arm's-Length Price

M/s. Nymphea Developers Pvt. Ltd. Versus ACIT, Circle-19 (1), New Delhi

The appeal of the assessee was allowed for statistical purposes, and the matter was remanded back to the AO/TPO for fresh consideration, adhering to the ... TP Adjustment - specified domestic transaction of collaboration expenses has been benchmarked by the assessee following the other method as most appropriate method - authority of the TPO while benchmarking international transaction - assessee has valued the transaction at which the third-party has made payment for the transaction - HELD THAT:- TPO instead of benchmarking the transaction in accordance with the law, he simply taken the value of the specified transaction at nil observing that reliable data was not available. In our opinion, the learned TPO is not justified in rejecting the benchmarking of the assessee in this manner. If data is not available then there are two options before him. First option is to gather the data available in public domain. If data is not available in public domain, he should collect from private domain by way of issue notice under section 133(6) of the Act and confront the same to the assessee and then decide the arm’slength price of the specified domestic transaction. The second option is that if no data is available, then accept the benchmarking carried out by the assessee. The TPO has no authority to hold that this transaction should not have taken place. See M/S. CUSHMAN AND WAKEFIELD (INDIA) PVT. LTD. [2014 (5) TMI 897 - DELHI HIGH COURT] As the TPO has not carried out exercise of determining the arm’s-length price of the specified domestic transaction in accordance with law, in the interest of justice, we feel it appropriate to restore this issue back to the file of the Ld. AO/TPO for deciding afresh is directed above. It is needless to mention that the assessee shall be afforded adequate opportunity of being heard. The grounds of the appeal of the assessee are accordingly allowed for statistical purposes. Issues Involved:1. Rejection of the application for stay of demand and request for early hearing by ITAT.2. Confirmation of addition made by the AO/TPO of Rs. 68,80,48,216/-.3. Determination of the arm’s-length price (ALP) of specified domestic transactions by the TPO.Issue-wise Detailed Analysis:1. Rejection of the application for stay of demand and request for early hearing by ITAT:The Hon’ble Delhi High Court directed the Income Tax Appellate Tribunal (ITAT) to hear the appeal on 28/01/2020, framing the following questions of law:- Whether ITAT erred in law by rejecting the application for the stay of demand and the request for an early hearing made by the appellantRs.- Whether ITAT erred in holding that the appellant could not prove her case for an early hearingRs.The High Court answered these questions in favor of the appellant and directed the Tribunal to hear the appeal.2. Confirmation of addition made by the AO/TPO of Rs. 68,80,48,216/-:The assessee, engaged in real estate activities, filed a return declaring a total income of Rs. 1,19,64,540/-. The case was selected for scrutiny, and the Assessing Officer (AO) referred the benchmarking of specified domestic transactions to the Transfer Pricing Officer (TPO). The TPO observed discrepancies in the values recorded at different places for the transaction and rejected the benchmarking by the assessee, labeling it a 'colourable device' to avoid taxes. Consequently, the TPO valued the specified domestic transaction at nil, leading to an addition of Rs. 68,80,48,216/- to the income of the assessee.The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO/TPO’s decision, stating that the transaction between related parties was a specified domestic transaction and should follow market principles to ensure correct calculation of income and profit.3. Determination of the arm’s-length price (ALP) of specified domestic transactions by the TPO:The assessee argued that the TPO should not decide whether the transaction should have taken place but should only benchmark the specified domestic transaction. The assessee relied on the Delhi High Court's decision in the case of M/s Cushman and Wakefield (India) P Ltd, asserting that the TPO should determine the ALP and not question the existence or necessity of the transaction.The Tribunal found that the TPO, instead of benchmarking the transaction according to the law, took the value of the specified transaction at nil due to the absence of reliable data. The Tribunal opined that the TPO should have either gathered data from the public or private domain or accepted the benchmarking carried out by the assessee if no data was available. The Tribunal cited the Delhi High Court’s judgment in Cushman and Wakefield (India) P. Ltd., emphasizing that the TPO’s role is limited to determining the ALP, not questioning the transaction itself.The Tribunal restored the issue to the AO/TPO for fresh determination of the ALP of the specified domestic transaction, ensuring the assessee is afforded adequate opportunity of being heard.Conclusion:The appeal of the assessee was allowed for statistical purposes, and the matter was remanded back to the AO/TPO for fresh consideration, adhering to the principles laid down by the Delhi High Court regarding the determination of the arm’s-length price. The Tribunal emphasized the correct division of jurisdiction between the AO and the TPO, ensuring that the TPO’s authority is confined to determining the ALP without questioning the transaction’s existence or necessity.