DRP's cryptic order on transfer pricing comparable selection lacked proper reasoning, remanded for detailed consideration

ITAT Bengaluru held that the DRP's order on transfer pricing comparable selection was cryptic and lacked proper reasoning. The DRP failed to specifically address the assessee's objections regarding six comparables, only mentioning four in its decision, demonstrating non-application of mind. The DRP merely followed the TPO's reasoning without considering the assessee's contentions. The tribunal remanded the entire transfer pricing issue back to the DRP with directions to pass a reasoned and speaking order addressing all comparable selection objections. The assessee's appeals were allowed for statistical purposes.

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Issues:
- Appeal against Assessing Officers' orders under section 143(3) r.w.s.144C(13)
- Exclusion and inclusion of comparable cases for transfer pricing adjustment
- Consideration of software development services and ITeS
- Reasoning and non-application of mind by the Dispute Resolution Panel (DRP)
- Cryptic and stereotyped order by the DRP
- Remand of the transfer pricing issue to the DRP

Analysis:
1. Appeal against Assessing Officers' orders: The appeal was filed by the assessee against the orders of the Assessing Officers passed under section 143(3) r.w.s.144C(13) in compliance with the directions of the Dispute Resolution Panel (DRP).

2. Exclusion and inclusion of comparable cases: The DRP considered objections raised by the assessee regarding the selection of comparable cases for transfer pricing adjustment. The DRP directed the Transfer Pricing Officer (TPO) to exclude certain cases as they were functionally different from the assessee. The DRP also instructed the TPO to include specific cases as comparables and recalculate the transfer pricing adjustment accordingly.

3. Consideration of software development services and ITeS: The issue of software development services and ITeS was raised in the appeals, and the assessee argued that recent pronouncements favored their position. The assessee requested that binding decisions be considered by the DRP while remanding the matters.

4. Reasoning and non-application of mind by the DRP: The DRP's order was criticized for being unreasoned and showing a total non-application of mind. Discrepancies were noted in the DRP's mention of objections against six comparables but only listing four in the table, indicating a lack of attention to detail.

5. Cryptic and stereotyped order by the DRP: The order passed by the DRP was deemed cryptic, stereotyped, and lacking in reasoning. It was observed that the DRP followed the TPO's reasoning without adequately addressing the assessee's objections. The DRP's failure to provide a reasoned and cogent finding led to the decision to remand the transfer pricing issue back to the DRP.

6. Remand of the transfer pricing issue to the DRP: Due to the deficiencies in the DRP's order, the Tribunal remanded the entire transfer pricing issue, concerning the inclusion/exclusion of comparables, back to the DRP. The DRP was directed to pass a reasoned and speaking order, following the procedures under the Act and Rules, to address the assessee's contentions effectively.

In conclusion, the Tribunal allowed the assessee's appeals for statistical purposes, emphasizing the importance of a well-reasoned and detailed decision-making process by the DRP in transfer pricing matters.

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