ITAT deletes transfer pricing adjustment where AO wrongly applied another entity's TPO findings to assessee company

ITAT Delhi allowed the assessee's appeal and deleted the transfer pricing adjustment made by the AO. The assessee, incorporated in March 2017, had no business operations during FY 2016-17 and no TPO reference was made. The AO erroneously applied TPO findings from Boeing Corporation India Ltd. (BCIL) to make identical additions against the assessee. Since BCIL merged with the assessee only on April 1, 2017, it remained an independent entity until March 31, 2017. The international transaction in question was undertaken by BCIL, not the assessee, making the assessment order liable to be quashed.

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Issues involved:
The appeal challenges the assessment order passed under section 143 (3) r.w.s. 144C read with section 144B of the Income-tax Act, 1961 for the Assessment Year 2017-18, involving issues related to transfer pricing adjustments, interest on outstanding receivables, levy of interest under section 234A, and merger implications.

Transfer Pricing Adjustment:
The assessee, incorporated during FY 2016-17, filed a return declaring nil income. The Assessing Officer (AO) proposed a transfer pricing adjustment of INR 21,52,899 without any reference to the Transfer Pricing Officer (TPO). Despite objections raised before the Dispute Resolution Panel (DRP), no relief was granted. The appeal contends that the adjustment related to another entity, Boeing Corporation India Ltd. (BCIL), which merged with the assessee post the subject year. As the transaction in question was not entered by the assessee and the TPO order referred to pertained to BCIL, the Tribunal held that the assessment order, based on BCIL's transaction, was liable to be quashed. Consequently, the transfer pricing adjustment was deleted.

Interest on Outstanding Receivables:
The assessee argued that since it did not engage in business operations during FY 2016-17, the issue of interest on outstanding receivables did not apply for that year. The AO's decision to levy interest under section 234A was contested, highlighting that the return of income was filed within the specified due date under section 139 (1) of the Act. However, the Tribunal's decision did not specifically address this issue as the focus was on the transfer pricing adjustment.

Merger Implications:
The merger of BCIL with the assessee, approved in FY 2017-18, raised concerns regarding the treatment of transactions and adjustments made in BCIL's assessment in the hands of the assessee. The Tribunal emphasized that as BCIL was an independent entity until March 31, 2017, any adjustment related to BCIL should not impact the assessment of the assessee. The Tribunal concluded that the assessment order, based on BCIL's transactions, was not applicable to the assessee post-merger, leading to the deletion of the transfer pricing adjustment.

Conclusion:
The Tribunal allowed the appeal, setting aside the orders of the lower authorities and directing the deletion of the transfer pricing adjustment. The decision was based on the lack of TPO reference for the assessee, the non-applicability of BCIL's transactions post-merger, and the absence of entered transactions by the assessee for the subject year. The Tribunal's ruling focused on the specific issue of transfer pricing adjustment, highlighting the importance of accurate attribution of transactions and adjustments in merger scenarios.

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