CIT(A) must decide transfer pricing on merits, not treat assessment as ex parte; assessee given hearing

ITAT MUMBAI - AT held that CIT(A) erred in treating the assessment as ex parte and incorrectly restoring the matter to the AO; instead CIT(A) should have adjudicated the transfer-pricing issue on merits. The Tribunal set aside the CIT(A) order and directed CIT(A) to decide the TP issue afresh on merits, ensuring the assessee is given an opportunity of being heard. The assessee's appeal is allowed.

---

---

ISSUES PRESENTED AND CONSIDERED

1. Whether the delay in filing the appeal (211 days) should be condoned.

2. Whether the CIT(A) correctly set aside the assessment order as ex parte under section 144 where the Assessing Officer's order, on its face, incorrectly referenced section 144 but the body/last paragraph recorded completion under section 143(3) read with section 144B after considering the assessee's submissions.

3. Whether the Transfer Pricing adjustment of Rs. 4,20,051/- in respect of guarantee commission (ALP) required fresh adjudication by the AO by reason of the CIT(A)'s remand, or whether the appellate authority should have adjudicated the TP ground on merits after expunging the inadvertent reference to section 144.

ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Condonation of Delay

Legal framework: The Tribunal has jurisdiction to condone delay in presenting appeals where sufficient cause for delay is shown; considerations include bona fides and unintentionality.

Precedent Treatment: No prior authority was invoked or considered in the judgment.

Interpretation and reasoning: The Tribunal reviewed the assessee's explained reasons for the 211-day delay and found them to be unintentional and bona fide.

Ratio vs. Obiter: Ratio - delay was condoned as the Tribunal found sufficient cause and bona fide reasons.

Conclusion: The delay in filing the appeal is condoned; the appeal is admitted to consideration on merits.

Issue 2 - Whether CIT(A) erred in treating the assessment as ex parte under section 144 and remanding the matter

Legal framework: Section 144 pertains to ex parte assessments; section 143(3) read with section 144B governs completion of assessment after considering submissions, and section 250 empowers appellate authority to decide or remit matters; principles of appellate adjudication permit correction of clerical or inadvertent errors and require appellate authorities to decide substantive grounds where possible.

Precedent Treatment: No precedents were cited in the judgment; the Tribunal applied principles of correct characterization of assessment orders and appellate duty.

Interpretation and reasoning: The Tribunal examined the assessment order and found an obvious inadvertent reference on the first page to section 144 read with section 144C(3) and 144B, while the operative concluding paragraph expressly stated the assessment was completed under section 143(3) read with section 144B after accepting the assessee's explanations. On that basis the Tribunal concluded the assessment was not ex parte and the CIT(A)'s blanket remand treating the assessment as ex parte was a mechanistic and mistaken approach. The Tribunal held that where an appellate authority incorrectly characterises an order as ex parte on account of an apparent clerical error, the appellate authority should expunge the erroneous reference and proceed to adjudicate substantive grounds rather than remand as a reflexive remedy.

Ratio vs. Obiter: Ratio - where an assessment order on its face contains an inadvertent or erroneous sectional reference but the record/operative part demonstrates the assessment was concluded after considering submissions (i.e., not ex parte), the appellate authority should not mechanically set aside the order as ex parte; instead it should correct/expunge the erroneous reference and decide the substantive issues on merits or direct appropriate action consistent with the facts and law.

Conclusion: The CIT(A) erred in restoring the matter solely on the basis of an incorrect sectional reference and treating the assessment as ex parte; the CIT(A) order is set aside to the extent it remanded without adjudicating the TP issue on merits.

Issue 3 - Duty to adjudicate Transfer Pricing (TP) adjustment on merits vs. remand

Legal framework: Under section 92CA and related TP provisions, ALP adjustments determined by the TPO/AO must be subject to consideration of submissions and benchmarking; appellate authorities under section 250 must adjudicate grounds raised unless remand is necessary for fulfillment of procedural fairness or fresh evidence requiring AO determination.

Precedent Treatment: No specific TP precedents were invoked; the Tribunal applied statutory roles of AO/TPO and appellate duty to decide contested adjustments where facts and record permit.

Interpretation and reasoning: The Tribunal noted the AO/TPO had proposed and recorded a TP adjustment of Rs. 4,20,051/- after disregarding the assessee's benchmarking of 1.25% and adopting 1.50% p.a. The Tribunal found that since the AO had considered the assessee's submissions and the assessment was completed under section 143(3) read with section 144B, the CIT(A) should have expunged the typographical reference to section 144 and adjudicated the ALP/TP ground on merits rather than remanding the matter. The Tribunal directed the CIT(A) to consider and decide the TP issue on merits and emphasized that the assessee must be given due opportunity of being heard upon remand.

Ratio vs. Obiter: Ratio - where the record shows AO/TPO considered submissions and completed assessment under the non-ex parte provision, the appellate authority must adjudicate TP grounds on merits (or expunge clerical errors) instead of remanding mechanically; remand is inappropriate where the mistake is merely in sectional citation and substantive adjudication can be undertaken by the appellate forum.

Conclusion: The Tribunal set aside the CIT(A)'s remand order and directed the CIT(A) to consider and decide the TP adjustment of Rs. 4,20,051/- on merits, ensuring the assessee is afforded an opportunity of being heard; the appeal is allowed to this extent.

---