Transfer pricing comparables and assessment computations remitted for fresh verification after challenges to double addition and set-off errors.

Transfer pricing computations and comparable selection required fresh verification where the assessee alleged double addition, incorrect set-off of brought forward losses and unabsorbed depreciation, and functional dissimilarity in the benchmark set. The ITAT Delhi therefore remitted the matter to the assessing authority for reconsideration in accordance with law after granting a fair opportunity of hearing. The disputed additions were not finally decided on merits, and the appeal succeeded only to the extent of remand.

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Issues: (i) Whether the transfer pricing adjustment and the computation of business income suffered from a double addition and incorrect set-off of brought forward losses and unabsorbed depreciation; (ii) Whether the selection and exclusion of comparables for benchmarking the international transactions under the arm's length principle required interference.

Issue (i): Whether the transfer pricing adjustment and the computation of business income suffered from a double addition and incorrect set-off of brought forward losses and unabsorbed depreciation.

Analysis: The assessment computation was challenged on the ground that the same transfer pricing adjustment had been brought to tax twice and that the set-off of brought forward losses and unabsorbed depreciation had not been correctly given effect. In view of the concession from the Revenue and the nature of the computational issue, the matter required fresh verification by the assessing authority.

Conclusion: The issue was set aside and restored to the assessing authority for fresh adjudication in accordance with law after giving the assessee a fair opportunity of hearing.

Issue (ii): Whether the selection and exclusion of comparables for benchmarking the international transactions under the arm's length principle required interference.

Analysis: The assessee disputed the inclusion of certain comparables on the basis of functional dissimilarity, differences in assets employed and risks assumed, and also relied on differences in product profile and depreciation methodology. The comparability exercise therefore required reconsideration by the assessing authority in the transfer pricing proceedings.

Conclusion: The transfer pricing adjustment was set aside and the matter was restored to the assessing authority for fresh decision in accordance with law after affording due opportunity to the assessee.

Final Conclusion: The appeal succeeded only to the extent of remand and the disputed additions were not finally adjudicated on merits.

Ratio Decidendi: Where the computational basis of the assessment or the comparability exercise in transfer pricing is found to require fresh verification, the proper course is to remit the matter for reconsideration after granting a fair hearing.

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