Transfer pricing method changed without notice in 92CA(3) order, despite late DRP objections; assessment remanded for fresh review

Where objections to the draft assessment were filed beyond the 30-day period, the DRP rejected them as time-barred, leaving the AO to pass the final order u/s 144C(3) without DRP directions; however, the transfer pricing determination was vitiated because the TPO altered the assessee's transfer pricing method without issuing a show-cause notice or affording reasonable opportunity, contrary to principles of natural justice reflected in the order u/s 92CA(3). Consequently, the transfer pricing issue and resultant assessment were set aside and remanded to the AO/TPO for fresh adjudication after due opportunity, and the appeal was allowed for statistical purposes.

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ISSUES PRESENTED AND CONSIDERED

1. Whether the transfer pricing adjustment and consequent assessment could be sustained when the Transfer Pricing Officer changed the transfer pricing method without issuing a show cause notice and without providing reasonable opportunity of being heard.

2. What relief should follow on the above procedural infirmity-whether the assessment/transfer pricing order should be set aside and the matter remanded for fresh adjudication.

ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of transfer pricing determination in absence of show cause notice and reasonable opportunity

Legal framework (as discussed): The Court noted that the Assessing Officer had made a reference to the Transfer Pricing Officer under the provision referred to in the order, and that the Transfer Pricing Officer passed an order determining the arm's length price. The decision turned on compliance with procedural fairness in the course of the transfer pricing proceedings.

Interpretation and reasoning: The Court recorded a categorical factual finding that the Transfer Pricing Officer did not issue a show cause notice before deciding to change the transfer pricing method adopted by the assessee. The Court further found that reasonable opportunity of being heard was not provided, and treated this as evident from the transfer pricing order itself. Given these findings, the Court considered the process leading to the adjustment to be procedurally deficient.

Conclusion: The transfer pricing determination (and the consequential action founded upon it) was not sustained due to lack of show cause notice and lack of reasonable opportunity.

Issue 2: Appropriate relief-whether to set aside and remand

Legal framework (as discussed): The Court addressed the consequence of the identified procedural lapse within the transfer pricing/assessment framework and considered the proper course "in the interest of justice".

Interpretation and reasoning: In light of the factual scenario-particularly the absence of show cause notice and reasonable opportunity at the transfer pricing stage-the Court held that the matter required reconsideration by the tax authorities after following due process. Instead of adjudicating the transfer pricing merits (including method/comparables) itself, the Court chose to restore the matter to the Assessing Officer/Transfer Pricing Officer for a fresh decision.

Conclusion: The Court set aside the order(s) of the Assessing Officer/Transfer Pricing Officer and restored the matter for fresh adjudication; the appeal was allowed for statistical purposes.

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