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Issues: (i) Whether the assessment was barred by limitation in the restored proceedings; (ii) whether the assessment should be annulled for the alleged failure to issue a show-cause notice on the transfer-pricing variation; (iii) whether the nil arm's-length price for intra-group services could be sustained; (iv) whether the voluntary exempt-income disallowance could be withdrawn and a further disallowance made where no exempt income was earned; (v) whether the computation sheet could include income unsupported by the assessment order.
Issue (i): Whether the assessment was barred by limitation in the restored proceedings.
Analysis: The earlier remand was addressed jointly to the assessing officer and transfer pricing officer. The assessing officer made a reference during the restored proceedings before expiry of the ordinary limitation period under section 153. Section 153 provides an additional twelve months where the applicable reference is made during assessment proceedings. The retrospective clarification in section 144C preserves the requirement that the draft assessment be forwarded within the section 153 period, while governing the subsequent period for the panel proceedings and final assessment separately.
Conclusion: The assessment was not barred by limitation. The issue is against the assessee.
Issue (ii): Whether the assessment should be annulled for the alleged failure to issue a show-cause notice on the transfer-pricing variation.
Analysis: The notice on record addressed other proposed variations, while the transfer-pricing adjustment had been separately considered by the transfer pricing officer. The adjustment required a fresh limited examination, with an opportunity to respond to any proposed prejudicial variation under section 144B.
Conclusion: No separate annulment was granted. Any proposed prejudicial variation must be communicated in the fresh proceedings. The annulment issue is against the assessee.
Issue (iii): Whether the nil arm's-length price for intra-group services could be sustained.
Analysis: The binding remand directions recognised the service documentation but required benchmarking rather than automatic acceptance of the contractual charges. A prescribed pricing exercise required examination of the cost pool and allocation for information services and the transactional net margin analysis for the other services. Tested party selection required consideration of functions, assets, risks, relative complexity and reliable comparable data; foreign location alone was insufficient. Certificates required evaluation of their basis and underlying records.
Conclusion: The nil determination was set aside and the arm's-length price remitted for limited benchmarking. The issue is in favour of the assessee for statistical purposes.
Issue (iv): Whether the voluntary exempt-income disallowance could be withdrawn and a further disallowance made where no exempt income was earned.
Analysis: The assessee had identified and quantified the expenditure in its return, and the earlier remand required the claim for withdrawal to be examined in accordance with law. The statutory clarification was noted in assessing that voluntary computation, without treating its retrospective application to impose a fresh disallowance as conclusively settled.
Conclusion: The voluntary disallowance was retained; no further disallowance may be made where exempt income is nil. The withdrawal issue is against the assessee, while the restriction on further disallowance is in the assessee's favour.
Issue (v): Whether the computation sheet could include income unsupported by the assessment order.
Analysis: A computation sheet gives effect to the income determined in the assessment order and does not independently create an addition. The stated totals differed and required reconciliation with the actual computation sheet.
Conclusion: The figures were remitted for reconciliation and removal of any unsupported excess. The issue is in favour of the assessee for statistical purposes.
Final Conclusion: The assessment remains effective, while the transfer-pricing valuation and the computation discrepancy require fresh examination within the specified limits. The voluntary disallowance remains in place, with a restriction on any further disallowance.
Ratio Decidendi: A nil arm's-length price cannot be based on a general assumption that an independent enterprise would pay nothing in place of the prescribed benchmarking exercise.
Intra-group service pricing requires proper benchmarking, not a nil value based on assumptions about independent enterprise payments.
Transfer pricing for intra-group services requires prescribed benchmarking rather than a nil arm's-length price based on an assumption that an independent enterprise would pay nothing. Benchmarking examines service costs, allocations and transactional net margins; tested-party selection considers functions, assets, risks, relative complexity and reliable comparables, not foreign location alone. A qualifying transfer-pricing reference made during assessment proceedings extends the section 153 limitation period by twelve months; the draft assessment must still be forwarded within that period. Proposed prejudicial assessment variations require communication and an opportunity to respond. Where no exempt income is earned, a voluntary expenditure disallowance may be retained without a further disallowance; retrospective application of the statutory clarification to a fresh disallowance remains unsettled. A computation sheet gives effect to the assessment order and cannot independently create an addition.
Limitation in transfer-pricing remand assessments - Time limit for final assessment pursuant to DRP directions - Show-cause opportunity for transfer-pricing variations in faceless assessment - Intra-group services-Prescribed arm's length benchmarking - Withdrawal of voluntary section 14A disallowance-Absence of exempt income - Unsupported additions in assessment computation - Premature challenge to initiation of penalty proceedings Limitation in transfer-pricing remand assessments - Actual reference pursuant to joint AO/TPO remand - Availability of the additional limitation period under section 153(4) where a joint AO/TPO remand is implemented through an actual reference during restored assessment proceedings - HELD THAT: - Where the operative joint remand requires the AO to refer the transfer-pricing component to the TPO during restored assessment proceedings, the reference attracts section 153(4). Receipt of the earlier order by the Principal Commissioner remained the starting point for limitation. The ordinary period ended on 31.03.2024, and the reference made on 02.05.2023 preceded its expiry. The authorities concerning a direct remand to the TPO, or a superfluous reference after completion of the remand exercise, were distinguishable. The conclusion rested on the operative joint direction and the actual reference, not on treating every remand as a deemed reference. [Paras 9, 11, 14, 15] The extended period expired on 31.03.2025. The TPO's order and the draft assessment order were within that period, and the objection to the availability of the extension was rejected. Time limit for final assessment pursuant to DRP directions - Retrospective clarification of assessment limitation - Application of section 144C(13A) to a final assessment completed after the section 153 period where the draft assessment was made within that period - HELD THAT: - Section 144C(13A), inserted retrospectively with effect from 01.04.2009, makes sections 144C(12) and (13) govern the further period for DRP proceedings and the consequential assessment once the draft assessment satisfies the section 153 time limit, notwithstanding section 153. It does not extend or revive an expired period for issuing the draft. Here, the draft was within the extended section 153 period. Even reckoning receipt of the DRP directions in July 2025, the final assessment was within the period ending on 31.08.2025 under section 144C(13). [Paras 17] The contention that the final assessment also had to be completed by 31.03.2025 was rejected. Show-cause opportunity for transfer-pricing variations in faceless assessment - Claim for annulment of the assessment for absence of an AO show-cause notice covering the transfer-pricing variation under section 144B - HELD THAT: - The notice on record concerned income reconciliation and section 14A; its mere existence did not answer the objection concerning the transfer-pricing variation. Since the arm's length determination was itself being restored for a limited fresh examination, the AO was required to comply with the applicable section 144B procedure in that exercise. This direction did not proceed on the footing that a hearing before the DRP dispensed with mandatory procedure before the AO. [Paras 20] No separate annulment of the entire assessment was granted. In the fresh exercise, the AO must communicate any proposed prejudicial variation and afford an effective opportunity to respond before forwarding the draft assessment order. Intra-group services - Prescribed arm's length benchmarking - Compliance with binding remand directions - Sustainability of nil arm's length valuation of Global Information Services, management services and multinational client co-ordination services without the benchmarking required by the earlier remand - HELD THAT: - The earlier findings rejecting a wholesale dismissal of the service documentation remained operative, there being no High Court order staying or modifying them. Those findings did not, however, establish the contractual payments as the arm's length price. Repetition of general objections concerning need, receipt and benefit, without addressing the identified material and undertaking a prescribed pricing exercise, did not implement the remand. Rule 10AB requires consideration of prices in comparable uncontrolled transactions; recovery at cost alone does not establish an arm's length charge without examining the cost pool and allocation. For management and client co-ordination services, selection of a foreign AE as the tested party depends on functions, assets, risks, relative complexity and reliable financial and comparable data, not foreign location alone. Nor does the stated mark-up establish the suitability of the tested party or comparables. Certificates must be examined by reference to their basis, scope, underlying records and reconciliation, rather than rejected merely because the issuer was remunerated by the assessee or AE. [Paras 29, 30, 31, 32, 33] The nil valuation was set aside, without accepting the contractual charges as the final arm's length price. The issue was restored for limited benchmarking of the GIS cost pool and allocation and the TNMM analysis for the other services, with specific reasons and an opportunity to address identified deficiencies, subject to the High Court's orders. Withdrawal of voluntary section 14A disallowance - Absence of exempt income - Withdrawal of a voluntary disallowance of investment-related expenditure under section 14A on the plea that no exempt income was earned - HELD THAT: - The earlier remand required examination of the withdrawal claim according to law; it had not itself deleted the voluntary disallowance. The assessee's own identification and quantification of investment-related expenditure was a relevant circumstance that could not be disregarded. The Explanation inserted by the Finance Act, 2022 was noticed in that context, without treating its retrospective application to the year as settled or invoking it to impose a fresh disallowance. Having regard to the voluntary computation and the scope of the earlier direction, sufficient reason to disturb the amount already disallowed was not established. [Paras 37] The voluntary disallowance was retained. Any further disallowance was restricted to the exempt income earned, with no further disallowance where such income was nil. Unsupported additions in assessment computation - Adoption in the computation sheet of income exceeding that determined in the assessment order without a corresponding finding - HELD THAT: - A computation sheet must give effect to the income determined in the assessment order and cannot independently introduce an addition unsupported by that order. The discrepancy therefore required reconciliation with the actual computation sheet before recomputation in accordance with the substantive findings. [Paras 39] The AO was directed to reconcile the figures and remove any excess having no basis in the assessment order. The computation grounds were allowed for statistical purposes. Verification of corporate tax rate, surcharge and cess - Consequential recomputation of advance-tax interest - Verification of the applicable corporate tax rate and consequential surcharge, cess and interest under section 234B - HELD THAT: - The applicable rate required verification under the relevant Finance Act for the year, with surcharge and cess applied to the correctly determined tax liability. Interest under section 234B was consequential upon the income, tax liability and credits determined while giving effect to the order. [Paras 40, 41] The AO was directed to verify and apply the correct rate after allowing an opportunity to explain the discrepancy, and to recompute interest, if leviable. No particular rate or interest quantum was determined on merits. Verification of foreign-tax relief and tax-payment credits - Verification and reconciliation of foreign-tax relief under section 91, TDS credit and refunds stated to have been adjusted against the assessment demand - HELD THAT: - The claims required examination of the foreign-tax documents and applicable section 91 conditions, the TDS particulars and the records of refund adjustments. Relief or credit found due was to be granted after reconciliation, ensuring that no credit was omitted or duplicated. [Paras 42] The claims were restored for verification and grant of relief or credit found due, after furnishing of the necessary particulars and a reasonable opportunity to the assessee. Entitlement was not determined on merits. Premature challenge to initiation of penalty proceedings - Maintainability of a challenge to initiation of penalty proceedings under section 270A where no order imposing penalty was under appeal - HELD THAT: - With no order imposing penalty under appeal, the challenge to mere initiation of proceedings was premature. No finding was recorded on the merits of any separate penalty proceedings. [Paras 43] The penalty ground was dismissed as premature. Final Conclusion: The appeal was partly allowed for statistical purposes on the terms and limited remand directions specified.
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