2024 (12) TMI 550 - AT - Income Tax

Assessee's transfer pricing adjustment deleted without proper consideration of arm's length price determination methodology remanded for fresh examination

ITO, Angul Ward, Angul Versus M/s NCC-SMASL-JRT (JV) C/o-Sainik Mining and Allied Services Ltd. And M/s NCC-SMASL-JRT (JV) C/o-Sainik Mining and Allied Services Ltd. Versus ITO, Angul Ward, Angul

ITO, Angul Ward, Angul Versus M/s NCC-SMASL-JRT (JV) C/o-Sainik Mining and Allied Services Ltd. And M/s NCC-SMASL-JRT (JV) C/o-Sainik Mining and Allied ... Issues Involved:1. Justification of the CIT(A) in deleting the addition made by the AO based on the TPO's determination of arm's length price (ALP).2. Appropriateness of the method used for determining ALP (CUP vs. TNMM).3. Admissibility of additional evidence by CIT(A) without following Rule 46A.4. Classification of the assessee as an Association of Persons (AOP) and its tax implications.5. Non-deposit of employees' contribution to Provident Fund (PF) within the due date.Issue-wise Detailed Analysis:1. Justification of CIT(A) in Deleting the Addition:- The CIT(A) deleted the addition of Rs. 3,05,45,593/- made by the AO, which was based on the TPO's adjustment of domestic transactions. The CIT(A) held that the services rendered by the assessee to its associated enterprises were the same as those rendered to independent parties, thereby justifying the use of the Comparable Uncontrolled Price (CUP) method as the best input for determining ALP. The CIT(A) found the comparables used by the TPO to be mismatched with the profile of the assessee.2. Appropriateness of the Method for Determining ALP:- The TPO applied the Transaction Net Margin Method (TNMM) to determine the ALP, resulting in an adjustment. However, the CIT(A) favored the CUP method, citing a similar case (Calance Software Pvt. Ltd.) where back-to-back transactions justified the CUP method. The Tribunal noted that the assessee did not provide detailed workings under the CUP method, and the CIT(A) did not perform such calculations either. The Tribunal found that without internal comparables, the CUP method could not be applied, leading to a remand for re-examination by the AO and TPO to determine the best suitable method for ALP.3. Admissibility of Additional Evidence:- The CIT(A) admitted additional evidence without following the procedure under Rule 46A, which requires recording reasons for admission and allowing the AO to verify such evidence. The Tribunal highlighted the violation of principles of natural justice and remanded the issue back to the AO for proper verification and adjudication.4. Classification as an Association of Persons (AOP):- The assessee argued that it should not be classified as an AOP and therefore not a taxable entity. The CIT(A) did not address this issue comprehensively. The Tribunal noted the lack of clarity on whether the assessee was an AOP and remanded the issue back to the AO for a fresh examination, considering the tax neutrality argument presented by the assessee.5. Non-deposit of Employees' Contribution to PF:- The AO made an addition for the non-deposit of employees' PF contribution within the due date. The CIT(A) deleted this addition, relying on decisions applicable to employers' contributions, which was challenged by the revenue. The Tribunal remanded this issue for re-examination by the AO to ensure compliance with the relevant provisions and case laws.Conclusion:The Tribunal set aside the CIT(A)'s order and remanded the matter back to the AO for fresh adjudication on all issues, emphasizing the need for proper verification, adherence to procedural rules, and determination of the most appropriate method for ALP computation. The appeals were allowed for statistical purposes, and the cross-objection by the assessee was dismissed.