AO cannot deviate from TPO's determination without justification when computing Arm's Length Price under Section 92CA(4)

The ITAT Delhi ruled in favor of the assessee regarding a TP adjustment dispute. The AO made an addition for short term capital gain by adopting a different sale consideration than declared by the assessee, despite the TPO proposing no adjustment under Section 92CA(3). The AO substituted sale consideration based on subsequent year transactions without proper verification of assets. The tribunal held that under Section 92CA(4), the AO must compute Arm's Length Price in conformity with TPO's determination and cannot deviate without justification. The AO's interpolation of sale consideration figures was deemed impermissible under law, violating natural justice principles. The assessee's grounds were allowed.

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Issues Involved:
1. Jurisdiction of the Assessing Officer (AO) in deviating from the Transfer Pricing Officer (TPO) findings.
2. AO's failure to follow Dispute Resolution Panel (DRP) directions.
3. Rejection of financials of Wormhole Technology (Singapore) Private Limited.
4. Substitution of sale consideration without statutory basis.
5. Denial of relief for stamp duty expenses.
6. Levying of interest under section 234B.
7. Initiation of penalty proceedings under section 270A.

Summary:

1. Jurisdiction of the AO:
The AO exceeded his jurisdiction by not following the TPO's findings and the DRP's directions. The AO substituted his own figure of sale consideration, which is not justified. As per Section 92CA(4) of the Income-tax Act, 1961, the AO is required to compute the total income in conformity with the arm's-length price determined by the TPO. The AO's deviation from the TPO's order is not permissible under law, as supported by judicial pronouncements like Cushman & Wakefield (P.) Ltd. v. ACIT.

2. AO's Failure to Follow DRP Directions:
The AO did not abide by the DRP's binding directions to verify the claim that the entire value of Wormhole is not derived from its investments in Orbgen Technologies Private Limited. The DRP had directed the AO to exclude the value relating to other investments in the determination of full value of consideration and to compute capital gains in accordance with Section 48 of the Act.

3. Rejection of Financials of Wormhole:
The AO erred in rejecting the financials of Wormhole for the period ending March 31, 2018, alleging that they pertain to the next financial year and are not relevant for the assessment year in question. The financial statements submitted included values for both FY 2016-17 and FY 2017-18, substantiating that Wormhole holds other assets amounting to USD 2,993,060.

4. Substitution of Sale Consideration:
The AO substituted the sale consideration without giving reference to any provision or section of the Act. The Act does not embody provisions for substitution of sale consideration for the subject year, as Section 50CA, which provides such power, was inserted by the Finance Act, 2017, effective from AY 2018-19.

5. Denial of Relief for Stamp Duty Expenses:
The AO did not provide relief for expenses of INR 489,969 borne by the assessee in relation to stamp duty on the acquisition of shares. As per judicial principles, any cost incurred to acquire an asset can be considered as its cost of acquisition.

6. Levying of Interest Under Section 234B:
The AO erred in levying interest under section 234B of the Act.

7. Initiation of Penalty Proceedings Under Section 270A:
The AO mechanically initiated penalty proceedings under section 270A of the Act based on the additions/disallowances made.

Conclusion:
The AO's actions were found to be erroneous and contrary to law, leading to the appeal being allowed in favor of the assessee. The AO's deviation from the TPO's findings and DRP's directions, along with the rejection of financials and substitution of sale consideration without statutory basis, were not sustained. The grounds raised by the assessee were allowed, and the appeal was decided in their favor.

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