2026 (2) TMI 369 - HC - Income Tax

Transfer pricing testedparty selection challenged; remand ordered for fresh AO/TPO examination, appeal dismissed thereafter.

Transfer pricing adjustment concerned selection of tested party; assessee argued that associated enterprises qualify as least complex entity and should be ... TP Adjustment - Assessee raised an additional ground that the Associated Enterprises are least complex entity and should be allowed as tested party - ITAT considering the submission of the Assessee, restored the issue raised in the additional ground to the file of AO / TPO for examining the issue afresh after considering all the material available on record and by calling the information and documents from the Assessee as well as by making own inquiry in the data base or otherwise. HELD THAT:- Having gone through the well reasoned order, we are satisfied that the present Appeal does not involve any substantial question of law. It is further pointed out that pursuant to the remand made by the Tribunal to the Assessing Officer, a fresh order has been passed by the AO. As Assessee submits that the order passed by the AO pursuant to the remand has been challenged before the competent forum by filing appropriate proceedings. In such view of the matter, the Appeal is dismissed. Issues: Whether the Income Tax Appellate Tribunal was justified in admitting the assessee's additional ground (raising that Associated Enterprises be treated as the tested party) raised for the first time before the Tribunal and remitting the issue to the Assessing Officer/Transfer Pricing Officer for fresh consideration.Analysis: The Tribunal noted that factual material about the assessee's Associated Enterprises (names, relationships, business descriptions and TP study documents/Form 3CEB) was on the record before it and that the assessee sought admission of the additional ground based on additional evidence filed before the Tribunal. The Tribunal applied transfer pricing principles, including the arm's length principle and the OECD concept of 'tested party' (least complex entity with reliable comparables), and examined precedent allowing admission of additional grounds where facts are on record and the Tribunal is the last fact-finding authority. The Tribunal directed the AO/TPO to examine the issue afresh, call for documents, make inquiries, and afford the assessee opportunity to cooperate. The High Court reviewed the ITAT's reasoning, found no substantial question of law arising from the ITAT's remand, observed that a fresh order pursuant to remand has been challenged by appropriate proceedings, and concluded that the Revenue's appeal did not raise a substantial question of law warranting interference.Conclusion: The additional ground admitting the contention that the Associated Enterprises be treated as the tested party was rightly admitted by the Tribunal and remitted for fresh consideration; the Revenue's appeal challenging that order is dismissed.