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Income Tax Appellate Tribunal, DELHI ‘I’ BENCH,
Before: SHRI CHANDRA MOHAN GARG, & SHRI N.K. BILLAIYA
PER N.K. BILLAIYA, ACCOUNTANT MEMBER:-
These two separate appeals by the assessee are preferred against a consolidated order of the ld. CIT(A)-1, Noida dated 21.12.2015 by which the ld. CIT(A) has disposed of the appeals of the assessee for Assessment Years 2009-10 to 2012-13. The captioned appeals are for Assessment Years 2011-12 and 2012-13 preferred against that order of the ld. CIT(A).
Since both the representatives fairly stated that the facts in both the appeals are identical, therefore, on such concession, we have considered the facts in for Assessment Year 2011-12.
Briefly stated, the facts of the case are that the assessee company is engaged in Advisory Services and was incorporated on 29.08.2005. Advisory Services are provided by the assessee to its Associated Enterprises [AE]. In Assessment Year 2011-12, the assessee filed return of income on 24.02.2014 pursuant to the notice u/s 153A of the Income-tax Act, 1961 [hereinafter referred to as 'The Act'] declaring income of Rs. 3,38,78,370/-.
Similarly, for Assessment Year 2012-13, return was filed on the same date declaring an income of Rs. 4,37,01,990/-.
During the course of scrutiny assessment proceedings and taking a leaf out of the proceedings for Assessment Years 2008-09 to 2010-11, the Assessing Officer found that the assessee’s case was referred to the TPO and additions in income of the assessee were made as per arm’s length price. The Assessing Officer found that margins in the case of the assessee was as under:
2008-09 35.15% 2009-10 33.97% 2010-11 51.49%
The Assessing Officer took average of the above margin at 40.20% and adopted the same to compute the total income of the assessee by holding that there is no change in the facts of the case, circumstances of the case and there is no change in law. Accordingly, addition of Rs. 2,32,94,488/- was made in Assessment Year 2011-12 and Rs. 2,54,40,900/- in Assessment Year 2012-13.
Assessments were challenged before the ld. CIT(A) but without any success.
Before us, the ld. counsel for the assessee vehemently stated that the Assessing Officer has not followed the mandatory provisions of the Act for determining the ALP of international transaction. It is the say of the ld. counsel for the assessee that even the basic mandate of applying the most appropriate method has not been adhered to by the Assessing Officer making his order erroneous.
The ld. counsel for the assessee pointed out that the Assessing Officer has done nothing but has taken the average of three years margin for making the impugned addition and since the ld. CIT(A) without considering the relevant provisions of the Act confirmed the assessments, therefore, the order of the ld. CIT(A) is also erroneous and deserves to be quashed.
In support of his contention, the ld. counsel for the assessee placed reliance on three decisions of the Hon'ble Bombay High Court in the case of Lever India Exports Ltd 292 CTR 393, Merck Ltd 389 ITR 70 and Kodak India [P} Ltd 288 CTR 46.
Per contra, the ld. DR strongly stated that it cannot be stated that the Assessing Officer has not determined the ALP by applying most appropriate method. It is the say of the ld. DR that the Assessing Officer has taken a leaf from the proceedings of the TPO for Assessment Years 2008-09 to 2010-11 and has adopted TNMM as the most appropriate method, in fact, has accepted most appropriate method taken by the assessee.
However, the ld. DR fairly conceded that the Assessing Officer has framed assessment by not identifying the comparables for the year under consideration but has made additions by taking average margin of three previous Assessment Years. Therefore, the impugned quarrel may be restored back to the Assessing Officer with suitable directions.
We have given thoughtful consideration to the rival contentions and have carefully perused the orders of the authorities below. The undisputed fact is that the Assessing Officer jumped into the driving seat of TPO and without following the scheme of the Act for determination of ALP, in respect of an international transaction, as envisaged by the Legislature under Chapter X of the Act, and in particular, to the provisions of section 92C of the Act, framed assessment order for the captioned Assessment Years which is not only erroneous but full of flaws.
We find that even if the Assessing Officer assumed himself to be TPO, accordingly erred in taking average margin of previous three Assessment Years instead of making any independent comparable analysis for determination of ALP in respect of the impugned international transaction.
Having said all that, on a perusal of the TP report of the assessee, we find that after discussing the various provisions of the Act in his TP study report and after discussing the methodology and eliminating most appropriate methods one by one, as mentioned in Rule 10 of the IT Rules, concluded that TNMM is the most appropriate method, computed the ALP by taking 8 comparables and computation was based on three years figures making the margin analysis of the comparable companies erroneous.
Since the assessment order and margin analysis done by the assessee are both flawed, in the interest of justice and fair play, we deem it fit to restore the quarrel to the file of the Assessing Officer.
The Assessing Officer is directed to determine afresh the ALP of the impugned international transaction by taking TNMM as the most appropriate method. The Assessing Officer is further directed to consider the business model of the assessee as accepted by this Tribunal in dated 07.11.2014 for Assessment Year 2008-09 as the facts and circumstances, and law are same for the years under consideration.
The assessee is directed to do a fresh analysis margin of comparables by taking contemporary data. We find that in Assessment Year 2008-09, some comparables were used by the assessee, which have not been disturbed with by the TPO. Therefore, contemporary data of those comparables may be taken by both the sides and the Assessing Officer is further directed to follow the mandatory provisions of determination of ALP of an international transaction as provided under Chapter X of the Act and after giving reasonable and adequate opportunity of being heard to the assessee.
With these directions, both these appeals are allowed for statistical purposes.
In the result, the appeal of the assessee in & 1379/DEL/2016 are allowed for statistical purposes.
The order is pronounced in the open court on 17.10.2022.