ITAT admits segmental financial statements as additional evidence for benchmarking domestic transactions with associated enterprise

ITAT Delhi allowed appellant's application to admit additional evidence comprising segmental financial statements for benchmarking specified domestic transactions with associated enterprise LPTPL. The tribunal found that segmental accounts, now certified by independent accountant, were necessary to properly evaluate internal TNMM method for determining arm's length pricing. DRP had earlier rejected these statements as unaudited and unreliable. ITAT held that without considering segmental analysis comparing transactions with LPTPL versus third party ARBL, rejection of internal TNMM method would violate natural justice principles. Additional evidence was admitted for statistical purposes as it had direct bearing on determining appropriate transfer pricing method.

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Issues:
Admission of additional evidence under Rule 29 of ITAT Rules for A.Y. 2013-14 regarding enhancing income under Section 80-IA(10) of the Income Tax Act, 1961.

Detailed Analysis:
The assessee filed an application for admission of additional evidence under Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963, in connection with Ground Nos. 4, 5, and 6 of the appeal. The application sought to present a segmental financial statement certified by an independent accountant to substantiate the arm's length price of goods sold to LPTPL. The DRP had rejected the segmental financial statement earlier, citing lack of reliability. The assessee argued the necessity of the evidence for proper adjudication of the case (para 2-4).

The assessee relied on various High Court cases to support the admission of additional evidence, emphasizing the importance of the segmental financial statement in determining ordinary profits under Section 80-IA(10) of the Act. The DR opposed the admission, citing the belated filing of the CA's report and Supreme Court decisions restricting the appellate court from considering new evidence. The AR countered, stating the need for additional evidence was realized after filing the appeal and argued in favor of admission based on relevant legal precedents (para 5-10).

After hearing both parties and examining the documentary evidence, the Tribunal considered the relevance of the segmental financial statement in benchmarking specified domestic transactions. The DRP had rejected the statement earlier due to lack of audit, but the current certification by an independent accountant added credibility. The Tribunal found the evidence essential for proper appreciation and comparison of transactions, leading to the admission of additional evidence under Rule 29 (para 11-13).

The Tribunal referred to legal precedents from various High Courts and the Supreme Court to justify the admission of additional evidence. The decisions highlighted the Tribunal's discretion to allow new evidence if it is crucial for deciding the appeal or serves substantial justice. The Tribunal concluded that the segmental financial statement had a direct bearing on the main issue and was necessary for proper adjudication, thus admitting the evidence in the interest of natural justice (para 14-19).

Ultimately, the Tribunal allowed the application of the assessee for admitting additional evidence for statistical purposes in ITA No. 6997/DEL/2017. The decision was based on the direct relevance of the evidence to the issue at hand and the principles of natural justice (para 20).

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