Cross-appeals remanded for fresh assessment on transfer pricing issue for assessment year 2011-12 Cross appeals were filed by the assessee and revenue against the CIT(A)'s order for the assessment year 2011-12. The Tribunal directed the TPO to issue a ...
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Cross-appeals remanded for fresh assessment on transfer pricing issue for assessment year 2011-12
Cross appeals were filed by the assessee and revenue against the CIT(A)'s order for the assessment year 2011-12. The Tribunal directed the TPO to issue a show cause notice with proposed comparables and conduct a de novo assessment considering all evidence. The issue of aggregating expenses in the licensed manufacturing segment was remanded for a fresh assessment in compliance with Transfer Pricing provisions, ensuring the appellant's right to be heard. Both appeals were allowed for statistical purposes.
Issues: Cross appeals filed by assessee and revenue against the order dated 30/09/2016 passed by Ld. CIT(A)-1, Bangalore for assessment year 2011-12.
Detailed Analysis:
1. The appellant, a subsidiary of a company in the Netherlands, undertook projects for Indian Railways and entered into international transactions. Dispute arose regarding expenses incurred in the licensed manufacturing segment, leading to proposed adjustments by the TPO.
2. The TPO aggregated certain expenses with the manufacturing segment, proposing adjustments. The AO disallowed a notional forex loss, which was challenged by the appellant before the CIT(A).
3. The CIT(A) upheld the aggregation of expenses but deleted the notional forex loss adjustment. Both the appellant and revenue appealed the CIT(A)'s decisions.
4. The appellant highlighted delays in project completion due to various reasons, incurring substantial losses. Additional evidence was presented to demonstrate losses were not due to transactions with associated enterprises.
5. During Transfer Pricing assessment, the TPO's selection of comparables was questioned for lack of basis and FAR similarities discussion. Request was made for a de novo assessment.
6. The Tribunal considered both appeals together and addressed the primary issue of aggregating expenses in the licensed manufacturing segment. Lack of reasoning for aggregation and failure to follow due process in proposing comparables were noted.
7. The TPO was directed to issue a show cause notice with proposed comparables and assess the margin considering all material evidence. The appellant was instructed to provide necessary documents to support its claims.
8. The issue was remanded for de novo assessment in compliance with Transfer Pricing provisions, ensuring the appellant's right to be heard.
9. Both appeals were allowed for statistical purposes, and the order was pronounced on 27th Oct, 2020.
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