2016 (11) TMI 327 - AT - Income Tax

Tribunal reinstates transfer pricing addition, emphasizes comparability rules for valid analysis.

The Tribunal allowed the Revenue's appeal against the deletion of transfer pricing addition of Rs. 1,14,27,114/- by including Datamatics Ltd. in the list ... Transfer pricing addition - inclusion of M/s Datamatics Ltd. with calibrated OP/TC margin of 1.76% from the list of comparables - Held that:- We find that the assessee simply challenged a few issues of transfer pricing adjustment before the ld. CIT(A) as is apparent from Form No. 35. Some of such issues were not decided by the authority for the reason of relief allowed on the inclusion of Datamatics Ltd. Under such circumstances, when we are sending the examination of Datamatics Ltd. to the TPO/AO and suppose if due to one reason or the other, this company is either not included or after inclusion of its OP/TC, the relief as allowed by the ld. CIT(A) is wiped out or reduced, then the scope of the proceedings be extended to encompass the consideration of other issues which were challenged by the assessee before the first appellate authority, but remained undisposed off. The ambit of fresh proceedings cannot be extended beyond that. We, ergo, refuse to accept the contention put forth on behalf of the assessee for an altogether de novo determination of the ALP of the international transaction. It is hereby directed in the ultimate analysis that the fresh examination in the case of eventuality as discussed above, be confined only to the issues agitated before the ld. CIT(A), which were not dealt with by him. With these observations, we set aside the impugned order and remit the matter to the file of AO for doing the needful as indicated above, after allowing a reasonable opportunity of being heard to the assessee. Issues Involved:Revenue's appeal against deletion of transfer pricing addition of Rs. 1,14,27,114/- by including Datamatics Ltd. with calibrated OP/TC margin of 1.76% from the list of comparables.Detailed Analysis:Issue 1: Inclusion of Datamatics Ltd. in the list of comparables- The Revenue challenged the inclusion of Datamatics Ltd. by the CIT(A) based on irregular annual pattern.- The CIT(A) held that the financial results of Datamatics Ltd. could be adjusted to coincide with the appellant's financial year.- The CIT(A) considered Datamatics Ltd.'s OP/TC of 1.76% as fair and reasonable, in line with norms.- The Tribunal disagreed with the CIT(A) and emphasized that valid comparison requires data for the same period as the assessee.- The Tribunal referred to Rule 10B(4) stating comparability analysis must use data from the financial year of the international transaction.- The Tribunal held that if data for the same financial year is not available for a functionally comparable company, it cannot be included in comparables.- The Tribunal ordered verification of Datamatics Ltd.'s OP/TC by AO/TPO based on relevant data for the financial year ending 31.3.2005.Issue 2: Fresh examination of transfer pricing adjustment- The AR contended that if Datamatics Ltd. is found unsuitable, the entire transfer pricing exercise should start afresh.- The Tribunal invoked Rule 27 of ITAT Rules allowing the respondent to support the order on grounds decided against him.- The Tribunal clarified that if Datamatics Ltd. is excluded or its inclusion affects the relief, only issues challenged before CIT(A) will be reconsidered.- The Tribunal rejected the request for a complete de novo determination of ALP, limiting the scope of fresh proceedings to unresolved issues before CIT(A).Conclusion:- The Tribunal allowed the appeal for statistical purposes, setting aside the CIT(A)'s order and remitting the matter to the AO for necessary action based on the issues discussed.- The Tribunal emphasized adherence to rules for comparability analysis and limited the scope of fresh examination to unresolved transfer pricing issues challenged before the CIT(A).This detailed analysis provides a comprehensive understanding of the judgment's key issues, arguments, and the Tribunal's decision, maintaining the legal terminology and significant phrases from the original text.