Tribunal directs re-adjudication of issues by AO/TPO for appeals, emphasizing natural justice and evidence consideration.

The Tribunal allowed the appeals for statistical purposes, directing the AO/TPO to re-adjudicate the issues on merits, ensuring compliance with principles of natural justice and proper consideration of all contentions and evidence presented by the assessee.

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Issues Involved:
1. Validity of Transfer Pricing (TP) adjustments.
2. Inclusion and exclusion of comparables for benchmarking.
3. Use of multiple-year data for benchmarking.
4. Consideration of extraordinary costs in determining Arm's Length Price (ALP).
5. Disallowance of foreseeable losses.

Detailed Analysis:

1. Validity of Transfer Pricing (TP) Adjustments:
The assessee challenged the TP adjustments made by the Assessing Officer (AO) based on the Transfer Pricing Officer’s (TPO) order. The primary argument was that the TPO failed to serve a proper show cause notice complying with Section 92CA(3) read with Section 92C(3) of the Income-tax Act, 1961. The Dispute Resolution Panel (DRP) dismissed this objection, stating that any deficiency in opportunity was rectified during the DRP proceedings.

2. Inclusion and Exclusion of Comparables for Benchmarking:
The assessee contested the inclusion of Nitin Fire Protection Industries Ltd. and the exclusion of Kidde India Ltd. as comparables. The TPO rejected Kidde India Ltd. due to its consistent losses and lack of data for the financial year 2009-10. The DRP upheld this rejection, noting Kidde India Ltd.'s substantial related party transactions and changes in business operations. Conversely, the TPO included Nitin Fire Protection Industries Ltd., which the assessee argued was not functionally comparable due to its involvement in manufacturing and trading activities. The DRP directed the TPO to consider both Nitin Fire Protection Industries Ltd. and Kidde India Ltd. with data for FY 2009-10 alone.

3. Use of Multiple-Year Data for Benchmarking:
The assessee argued for the use of multiple-year data, citing the long-term nature of its projects. The DRP dismissed this argument, referencing the Special Bench decision in M/s. Aztec Software Vs. ACIT, which held that data for the relevant period alone should be considered. The DRP found no specific facts in the assessee's case to justify the use of multiple-year data.

4. Consideration of Extraordinary Costs in Determining ALP:
The assessee claimed that extraordinary costs incurred due to project delays should be excluded when determining the ALP. The DRP rejected adjustments to the Profit Level Indicator (PLI) of the tested entity, citing various ITAT decisions that such adjustments are not permissible under domestic transfer pricing provisions. The DRP emphasized that adjustments could only be made to comparables, not the tested party itself.

5. Disallowance of Foreseeable Losses:
The AO disallowed an amount of Rs. 17,61,702/- claimed as foreseeable loss, considering it contingent in nature. The assessee argued that this loss was due to delays in project completion and was accounted for following AS 7 issued by the Institute of Chartered Accountants of India. The DRP dismissed the objection, noting the lack of supporting details to substantiate the claim.

Tribunal's Decision:
The Tribunal dismissed grounds 1, 2, 3, 9, and 12 as not being pressed by the assessee. For grounds 4-8, 10, and 11, the Tribunal restored the matter to the file of the AO/TPO for fresh adjudication on merits. The Tribunal directed the AO/TPO to consider all contentions and provide proper and adequate opportunities for the assessee to present evidence and explanations. The decision in ITA no. 1889/Mum/2015 was applied mutatis mutandis to ITA no. 1888/Mum/2015, allowing both appeals for statistical purposes.

Conclusion:
The Tribunal allowed the appeals for statistical purposes, directing the AO/TPO to re-adjudicate the issues on merits, ensuring compliance with principles of natural justice and proper consideration of all contentions and evidence presented by the assessee.

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