2026 (3) TMI 233 - HC - Income Tax

Principles of natural justice breached where assessment ignored taxpayer replies to new comparables, requiring remand for fresh consideration.

An assessment-related order issued after proposing new transfer pricing comparables under Section 92C(3) was held vitiated by breach of the principles of ... Validity of TP order - allegation of Breach of principles of natural justice - failure to consider material/replies - opportunity to reply to proposed comparables - Whether the Transfer Pricing Officer's order was passed in breach of natural justice by not considering the petitioner's replies and by not granting adequate time to collate material in respect of newly proposed comparables? - HELD THAT: - The Court found that the show cause notice proposed new comparables and that the petitioner sought time to collate and furnish relevant material. The petitioner filed a partial reply, thereafter filed further material on 8th September, 2025 for the ITes sector which was neither considered nor referred to by the Transfer Pricing Officer, and additional material for the IT sector was supplied after the impugned order. The Revenue did not dispute these facts. On these findings the Court concluded there was an inadequate opportunity afforded to the petitioner and the replies and collated material were overlooked. The procedural breach of natural justice was therefore established and was decisive of the challenge to the impugned order. Consequently the impugned order could not be sustained and the matter required fresh examination after giving the petitioner an opportunity to reply to the show cause notice proposing new comparables. [Paras 5, 7, 8] Final Conclusion: The High Court held that the Transfer Pricing Officer breached principles of natural justice by failing to grant adequate time and by not considering the petitioner's replies and collated material; the order for Assessment Year 2023-24 is set aside and remitted for fresh consideration after affording the petitioner an opportunity to reply, with specified timelines for re decision and consequent assessment. Issues: Whether the impugned order dated 11th September, 2025 passed by the Transfer Pricing Officer is vitiated by a breach of the principles of natural justice for failing to consider the petitioner's replies and for not giving adequate time to collate material in respect of newly proposed comparables under Section 92C(3) of the Income-tax Act, 1961.Analysis: The Transfer Pricing Officer issued a show cause notice proposing new comparables under Section 92C(3). The petitioner furnished a partial reply and sought time to collate additional material relevant to the newly proposed comparables. The petitioner subsequently filed material for the 'ITes' sector and later provided materials for the 'IT' sector, but the impugned order was passed without referring to or considering the reply filed on 8th September, 2025 or affording adequate opportunity to supply and have considered the additional information. The factual sequence shows that the petitioner's submissions and collated material were not given consideration before passing the assessment-related order, resulting in a denial of a meaningful opportunity to be heard.Conclusion: The impugned order is set aside on the ground of breach of the principles of natural justice. The matter is remanded to the Transfer Pricing Officer to examine the issue afresh after giving the petitioner an opportunity to reply to the show cause notice dated 18th August, 2025, and pass a fresh order within three months.Ratio Decidendi: An assessment-related order passed without giving adequate time to collate and consider material filed in response to a show cause notice proposing new comparables under Section 92C(3) of the Income-tax Act, 1961, constitutes a breach of the principles of natural justice and vitiates the order, requiring remand for fresh consideration.