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 erroneously selected companies engaged in financial and leasing services instead of business support services to benchmark international transactions. The Tribunal found both the assessee and TPO were mistaken about the functional profile, leading to incorrect comparable selection. Despite Rule 29 generally barring additional evidence, the Tribunal exercised discretion given the substantial cause and contemporaneous nature of the evidence. The assessment order was set aside, directing the TPO to accept fresh evidence and pass a new order after providing hearing opportunity. The appeal was allowed for statistical purposes.

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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.

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