2016 (7) TMI 1682 - AT - Income Tax

Challenged assessment order on international transactions & arm's length pricing under Income-tax Act

The appeal challenged an assessment order by the Dy. Commissioner of Income Tax, Corporate Circle I(2), Chennai, under section 143(3) r.w.s. 92CA(3) of ... Validity of adjustment proposed by TPO u/s 92CA (5) - order of the DRP as not in consonance with the provisions of sec.144C - HELD THAT:- DRP in this case, against the provisions of the Act, passed a very non-speaking order, though the assessee’s counsel made a voluminous submission before the DRP against the draft assessment order. It is accepted by the DRP that it has to be considered every point of dispute and pass a speaking order. Contrary to this, the order passed by the DRP very critic and there is no addressing the issues raised by the assessee mentioned herein above and it was not properly adjudicated. Being of, we are not in a position to uphold the order of the DRP as it is not consistent with the provisions of sec.144C of the Act. We find that the Supreme Court in the case of Sahara India [2008 (4) TMI 4 - SUPREME COURT] has held that even “an administrative order has to be consistent with the rules of natural justice”. The same view has been taken in the case of GAP International Sourcing India (P) Ltd. vs. DCIT [2010 (12) TMI 94 - ITAT, NEWDELHI] Further, in the case of M/s. Adobe Systems India Private Ltd. [2011 (1) TMI 933 - ITAT NEW DELHI] held that when the DRP passed the order in cursory and laconic order without going into the details of the submissions, it should be decided afresh. Considering all these facts and circumstances, we are inclined to the remit the issues back to the DRP to pass a speaking order on the disputed issues. Hence, we remit the issue back to the file of DRP to consider the objections of the assessee in proper perspective and pass a speaking order. Issues:1. Assessment order under section 143(3) r.w.s. 92CA(3) and section 144C(12) of the Income-tax Act.2. Adjustment in arm’s length price (ALP) of international transactions.3. Rejection of economic analysis and Profit Level Indicator (PLI) by DRP/TPO.4. Operating Profit Margin calculations and ALP determination.5. Working capital adjustments consideration.6. Selection of comparables for benchmarking international transactions.7. Set off of business losses against profits under section 10B.8. Compliance with provisions of sec.144C by DRP.Analysis:1. The appeal challenges an order by the Dy. Commissioner of Income Tax, Corporate Circle I(2),Chennai, under section 143(3) r.w.s. 92CA(3) of the Act, emanating from a DRP direction, concerning the assessment year 2011-12.2. The appellant contests the addition of Rs. 1,83,00,000 to its total income due to ALP adjustment of international transactions with its Associated Enterprise (AE).3. Dispute arises from the rejection of economic analysis and Profit Level Indicator (PLI) by DRP/TPO, impacting ALP determination.4. Concerns raised regarding Operating Profit Margin calculations, ALP adjustments, and taxing notional income.5. Working capital adjustments were not considered, crucial for differences in capital among comparable companies and the tested party.6. Issues raised on the selection of comparables for benchmarking, including functional differences and segmental results consideration.7. Non-compliance with DRP directions on setting off business losses against profits under section 10B.8. Lack of proper adjudication by DRP, necessitating a speaking order in line with sec.144C provisions, leading to remittance of issues for reconsideration.This detailed analysis covers the various issues raised in the legal judgment, highlighting the key arguments and decisions made by the authorities involved in the case.