Transfer Pricing Comparables Excluded After Uncomplied Remand, with arm's length price recomputed for correction

In transfer pricing proceedings, the Tribunal required five disputed comparables to be excluded where its earlier remand had not been complied with in substance. It noted that a remand direction in an appeal where only the assessing officer is the respondent must be addressed to the assessing officer, and that the draft-assessment objection process under the Dispute Resolution Panel framework must operate through the assessee's objections. Because the earlier direction to reconsider the comparables had not been properly carried out, the transfer pricing computation was treated as irregular and the arm's length price adjustment was ordered to be recomputed after removing those comparables.

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Issues: Whether the five disputed comparables had to be excluded from the transfer pricing exercise because the earlier remand by the Tribunal to the Dispute Resolution Panel was not complied with and the adjustment therefore required recomputation.

Analysis: The Tribunal held that, in an appeal where the assessing officer alone was the respondent, any remand direction had to be addressed to the assessing officer and not to the Transfer Pricing Officer or the Dispute Resolution Panel, since neither was a party before it. It further noted that the Dispute Resolution Panel's statutory role under the draft-assessment framework is activated through the assessee's objections, but in the present proceedings the five comparables directed to be reconsidered were ultimately not dealt with in accordance with the Tribunal's earlier remand. In these circumstances, the Tribunal found that the assessee's transfer pricing computation had suffered an irregularity requiring correction.

Conclusion: The five comparables were directed to be removed for computation of the arm's length price, and the software development services adjustment was ordered to be recomputed accordingly.

Ratio Decidendi: In set-aside transfer pricing proceedings, where a remand issue is not complied with in substance, the affected comparables must be excluded and the arm's length price adjustment recomputed.

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