2025 (5) TMI 693 - AT - Income Tax

Transfer pricing adjustment upheld with 3.32% revised margin under sections 143(3), 144C(13), 144B and 92CA(3)

PCL Foods Private Limited Versus ACIT Circle 19 (1), C.R. Building, I.P. Estate, ITO, New Delhi.

The ITAT Delhi upheld the final assessment order passed under sections 143(3), 144C(13), and 144B involving transfer pricing adjustments under section ... Validity of final assessment order passed u/s 143(3), 144C(13), and 144B - Transfer Pricing adjustments u/s 92CA(3) - adjustment made with the revised margin of 3.32% after giving effect to the Hon'ble DRP's direction - HELD THAT:- None of the above findings of the Assessing Officer were rebutted with evidences before us. Thus, we see no infirmity in the order passed by the Assessing Officer. The grounds raised by the assessee are rejected. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Tribunal include:Whether the delay in filing the appeals by the assessee was justified and if the delay should be condoned.The validity and correctness of the rectification order passed under section 154 read with section 143(3)/144C(13) of the Income Tax Act, specifically whether the rectification order was void ab initio and whether there were mistakes apparent from the record in the rectification order and the Transfer Pricing Officer's (TPO) order.Whether the Assessing Officer and TPO correctly applied transfer pricing provisions, including the application of the Comparable Uncontrolled Price (CUP) method using the TIPS database.Whether the rejection of the assessee's original search process in the transfer pricing study was justified and whether the fresh search process conducted by the TPO was valid.Whether the Profit Level Indicators (PLIs) of comparables were correctly computed and whether export incentives should be treated as operating or non-operating items.Whether adjustments for interest-free advances granted by the Associated Enterprise (AE) to the assessee were correctly denied.Whether the variation between the arm's length price determined and the actual transaction price exceeded the three percent threshold under the third proviso to section 92C(2) of the Act, thus warranting transfer pricing adjustments.Whether inadvertent computational errors in the assessment order affected the correctness of total income determination.2. ISSUE-WISE DETAILED ANALYSISDelay in Filing AppealsRelevant legal framework and precedents: The Tribunal considered principles governing condonation of delay in filing appeals, which require the appellant to demonstrate sufficient cause or bona fide reasons for delay.Court's interpretation and reasoning: The assessee explained that the delay was caused due to extraordinary circumstances arising from the COVID-19 pandemic and the liquidation of its foreign holding company, which led to loss of records, resignation and death of key personnel, and difficulties in information gathering. The Tribunal found these reasons bona fide and sufficient to justify condonation.Application of law to facts: Considering the detailed explanation and supporting documents, the Tribunal condoned the delay in filing the appeals.Validity of Rectification OrderRelevant legal framework: Rectification orders under section 154 of the Income Tax Act can be issued to correct mistakes apparent from the record.Court's interpretation and reasoning: The assessee contended that the rectification order was void ab initio because the notice for rectification referred to a draft transfer pricing order and not the final order following DRP directions. Further, the assessee pointed out inadvertent mistakes in the rectification order, including incorrect total income computation and double transfer pricing adjustments.Key evidence and findings: The Tribunal observed that the grounds raised pointed to possible errors in the rectification order and the TPO's order. However, since these required detailed examination, the Tribunal restored all grounds to the file of the Assessing Officer/TPO for fresh adjudication after providing the assessee an opportunity to be heard.Conclusion: The appeal against the rectification order was allowed for statistical purposes, meaning it was remitted for reconsideration without the Tribunal deciding on merits.Transfer Pricing Adjustments and Search ProcessRelevant legal framework and precedents: Transfer pricing provisions under sections 92C and 92CA of the Income Tax Act govern determination of arm's length price (ALP) for international transactions. Rule 10CA prescribes methods for computing adjustments, including use of comparables and application of Profit Level Indicators (PLIs). The third proviso to section 92C(2) provides a threshold of three percent variation below which no adjustment is warranted.Court's interpretation and reasoning: The assessee challenged the rejection of its original search process and the TPO's fresh search process without justifiable reasons. It also contended that the TPO and DRP erred in ignoring correct PLIs, misclassifying export incentives as non-operating items, and denying adjustments for interest-free advances.Key evidence and findings: The Assessing Officer and TPO, following DRP directions, excluded certain comparables found functionally different, recalculated operating profit and cost by excluding non-operating items, and computed revised PLIs averaging 3.32%. The TPO applied this margin to operating cost to determine ALP and made an addition of Rs. 8,26,43,027/- to the assessee's income. The Tribunal noted that the assessee did not provide evidence to rebut these findings.Application of law to facts: The Tribunal upheld the TPO's and Assessing Officer's approach as consistent with statutory provisions and DRP directions. It observed that the variation between ALP and actual price exceeded the three percent threshold, justifying the adjustment.Treatment of competing arguments: The Tribunal rejected the assessee's contentions regarding the use of TIPS database for CUP method and the classification of export incentives, noting absence of cogent evidence and speaking orders from authorities on these points.Conclusion: The appeal against the assessment order was dismissed, affirming the transfer pricing adjustments and the total income determination.Computational Errors and Miscellaneous GroundsCourt's reasoning: The assessee pointed out inadvertent computational errors in total income figures in both rectification and assessment orders. The Tribunal acknowledged these claims in respect of the rectification order and remitted the matter for fresh consideration. However, for the assessment order, since the assessee failed to produce evidence to rebut the Assessing Officer's computations, these grounds were rejected.3. SIGNIFICANT HOLDINGS'The assessee had reasonable causes in filing these appeals and the delay in filing these appeals is condoned.''All the grounds raised in the appeal before us are restored to the file of the Assessing Officer/TPO who shall examine the contentions of the assessee and decide afresh after providing adequate opportunity of being heard.''None of the above findings of the Assessing Officer were rebutted with evidences before us. Thus, we see no infirmity in the order passed by the Assessing Officer. The grounds raised by the assessee are rejected.'Core principles established include the necessity of bona fide reasons for condonation of delay, the requirement that rectification orders must be free from mistakes apparent on record and subject to opportunity of hearing, and that transfer pricing adjustments must be supported by proper application of methods and comparables consistent with statutory provisions and DRP directions.Final determinations:Delay in filing appeals was condoned.The appeal against the rectification order was allowed for statistical purposes and remitted for fresh adjudication.The appeal against the assessment order, including transfer pricing adjustments, was dismissed, affirming the additions made by the Assessing Officer.