Tribunal deems assessment time-barred due to illegal TPO referral, supports revised return.

The Tribunal held that the reference to the Transfer Pricing Officer (TPO) by the Assessing Officer (AO) was illegal, as it did not comply with CBDT instructions. This rendered the assessment time-barred, leading to the allowance of additional grounds raised by the assessee. The Tribunal also supported the acceptance of the revised return filed by the assessee and disagreed with the TPO's methods and selection of comparables. As a result, the appeal of the assessee was allowed, and the assessment was deemed unsustainable.

---

---

Issues Involved:
1. Legality of the reference to the Transfer Pricing Officer (TPO) by the Assessing Officer (AO).
2. Validity of the revised return filed by the assessee.
3. Appropriateness of the method used by the TPO to determine the Arm's Length Price (ALP).
4. Selection of comparables by the TPO.
5. Depreciation on computer accessories and peripherals.
6. Disallowance under Section 10A of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Legality of the Reference to the TPO:
The assessee argued that the reference to the TPO was illegal as the quantum of the international transaction was below Rs. 5 crore, and the AO did not seek approval from the Commissioner, which was contrary to Instruction No. 3/2003 issued by the CBDT. The Tribunal agreed with the assessee, noting that the Instruction was binding on the AO. Citing the Andhra Pradesh High Court in CIT Vs. Nayana P Dedhia and the Supreme Court in UCO Bank Vs. CIT, the Tribunal held that the reference to the TPO was not sustainable. Consequently, the assessment became time-barred, and the additional ground raised by the assessee was allowed.

2. Validity of the Revised Return:
The assessee filed a revised return within the period prescribed under Section 139(5) of the Income Tax Act. The Tribunal noted that the revised return should replace the original return and be considered for all purposes. The AO's failure to consider the revised return was incorrect. The Tribunal cited cases such as A Bico Engineering Ltd Vs. CIT and CIT Vs. Rana Polycot to support the position that the revised return should be accepted.

3. Appropriateness of the Method Used by the TPO:
The assessee contended that the TPO wrongly applied the Transactional Net Margin Method (TNMM) instead of the Comparable Uncontrolled Price (CUP) method. The Tribunal noted that the assessee had provided a comparative chart demonstrating the similarity of services provided to both associated enterprises (AE) and independent parties. The Tribunal agreed with the assessee that internal CUP was the best method for computing ALP, as supported by OECD Guidelines and the decision in Inter garden (Bangalore).

4. Selection of Comparables by the TPO:
The assessee argued that the TPO wrongly selected Bodh Tree Consulting Ltd. and SPI Technologies as comparables. The Tribunal noted that these companies were not comparable to the assessee due to differences in business lines and maturity stages. The Tribunal agreed with the assessee that the sample size was too small to be statistically meaningful and that the TPO failed to apply the FAR (Functions, Assets, and Risks) test correctly.

5. Depreciation on Computer Accessories and Peripherals:
The Dispute Resolution Panel (DRP) directed the AO to segregate details relating to accessories and peripherals that could work only in connection with or with the aid of computers and allow admissible depreciation accordingly. The Tribunal did not provide a detailed analysis on this issue as the primary ground regarding the reference to the TPO was decided in favor of the assessee.

6. Disallowance under Section 10A:
The AO disallowed the claim of the assessee under Section 10A and made additions on account of ALP adjustments. However, since the Tribunal decided the primary ground regarding the reference to the TPO in favor of the assessee, it did not delve into the merits of the disallowance under Section 10A.

Conclusion:
The Tribunal allowed the appeal of the assessee, holding that the reference to the TPO was not sustainable and the assessment had become time-barred. Consequently, the Tribunal did not decide on the merits of the other issues raised. The order was pronounced in the Open Court on 23rd March 2018.

---