2023 (12) TMI 406 - AT - Income Tax

Assessee's application for additional evidence on transfer pricing comparables allowed under Rule 29 despite general bar

The ITAT Delhi allowed the assessee's application for admission of additional evidence regarding transfer pricing comparables. The assessee had ... Admission of additional evidence under Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963 - discretion of the Tribunal to admit additional evidence in the interest of justice / for any other substantial cause - obligation of the Transfer Pricing Officer to determine arm's length price under Section 92CA(3) read with Section 92C - remand to the TPO/AO for fresh determination of ALP and verification of a new TPSR - power of the Tribunal under Section 254(1) to pass such orders as it thinks fit - application of contemporary comparable data in transfer pricing benchmarkingAdmission of additional evidence under Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963 - discretion of the Tribunal to admit additional evidence in the interest of justice / for any other substantial cause - power of the Tribunal under Section 254(1) to pass such orders as it thinks fit - Application for admission of additional evidence filed by the assessee was allowed. - HELD THAT: - The Tribunal held that Rule 29 generally bars production of fresh evidence at the appellate stage but permits admission where the Tribunal requires documents or for 'any other substantial cause'. That limited discretion must be exercised judicially and is to be read with the wider powers conferred by Section 254(1) to pass such orders as it thinks fit. In the present facts the Tribunal found merit in the assessee's contention that both the assessee and the TPO had earlier relied on comparables of the wrong segment and that subsequent years' consistent approach of using 'business support services' comparables showed an error in the initial benchmarking. The fresh TPSR relied on contemporary data relevant to the year in issue and required verification by the TPO; delay in filing was not determinative and no mala fide was alleged. For these reasons the Tribunal exercised its discretion to admit the additional evidence and allowed the application. [Paras 9, 10, 11, 12, 13]Additional evidence admitted and the assessee's application allowed.Obligation of the Transfer Pricing Officer to determine arm's length price under Section 92CA(3) read with Section 92C - remand to the TPO/AO for fresh determination of ALP and verification of a new TPSR - application of contemporary comparable data in transfer pricing benchmarking - Assessment set aside and matter remanded to the TPO/AO for fresh consideration of ALP using the admitted TPSR and comparables. - HELD THAT: - Having admitted the fresh TPSR and comparable set, the Tribunal directed that the assessment order be set aside and the matter restored to the TPO for independent enquiry and determination of ALP under Section 92C read with Rule 10B. The Tribunal recognised the TPO's right to verify and rebut the newly admitted comparables and instructed that the TPO, after giving the assessee further opportunity of hearing, pass a fresh order. The assessee was permitted to raise incidental issues afresh before the TPO/AO. [Paras 7, 10, 11, 13]Assessment set aside; matter remanded to TPO/AO for fresh ALP determination and verification of the admitted TPSR; appeal allowed for statistical purposes.Final Conclusion: The Tribunal admitted the assessee's additional transfer pricing evidence under Rule 29, set aside the impugned assessment, and remanded the matter to the TPO/AO to verify the newly admitted TPSR and determine the arm's length price afresh under Section 92C read with Rule 10B, after affording the assessee further opportunity of hearing; appeal allowed for statistical purposes. Issues involved:1. Admission of additional evidence under Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963.2. Correctness of the functional profile and comparables used for benchmarking the international transaction.Summary:Issue 1: Admission of additional evidence under Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963.The Assessee filed an application for admission of additional evidence under Rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963. The Revenue opposed this application, arguing that the additional evidence was filed after a significant delay and was an attempt to take advantage of subsequent assessments. The Tribunal noted that Rule 29 restricts the right to produce additional evidence but allows it if required by the Tribunal for passing orders or for any substantial cause. The Tribunal found that the powers under Rule 29 should be read in consonance with Section 254(1) of the Act, which gives the Tribunal wide discretion to pass orders as it thinks fit. The Tribunal concluded that the additional evidence was necessary for a just decision and allowed the application, directing the TPO to accept the fresh evidence and report of the assessee.Issue 2: Correctness of the functional profile and comparables used for benchmarking the international transaction.The Assessee argued that it had erroneously considered comparable companies engaged in financial and leasing services instead of business support services for benchmarking the international transaction. The Tribunal found that the TPO had accepted the comparables of the financial services segment without questioning the functional profile of the Assessee. However, from AY 2008-09 onwards, the TPO had changed the comparables to those engaged in providing business support services. The Tribunal noted that there was no change in the functional profile of the Assessee from AY 2004-05 to 2019-20, and the comparables of the business support services segment were binding on the TPO. The Tribunal concluded that both the Assessee and the TPO had mistakenly taken comparables of the wrong segment, and a fresh look into all issues was required. The Tribunal set aside the impugned final assessment order and directed the TPO to accept the fresh evidence and report of the Assessee, giving further opportunity of hearing to the Assessee.Conclusion:The Tribunal allowed the application for admission of additional evidence and directed the TPO to re-examine the benchmarking of the international transaction using the correct functional profile and comparables. The appeal of the Assessee was allowed for statistical purposes.