M/S.SEOYON E-HWA SUMMIT AUTOMOTIVE INDIA PRIVATE LIMITED ,KANCHIPURAM vs. NFAC,CIT , DELHI

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ITTPA 3/CHNY/2022Status: DisposedITAT Chennai14 June 2023AY 2017-183 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal held that the DRP's order was cryptic and lacked specific adjudication on the assessee's objections regarding the selection of comparable entities. The Tribunal observed that the DRP's reasoning was repetitive and did not demonstrate a specific application of mind to the assessee's detailed submissions. While the DRP correctly noted that comparability must be assessed year-on-year, it failed to provide a specific analysis for each comparable entity raised by the assessee. Consequently, the Tribunal set aside the impugned orders and restored the issue of Transfer Pricing adjustment back to the file of the TPO for fresh adjudication. The TPO was directed to afford a reasonable opportunity of hearing to the assessee. All issues were kept open for fresh consideration. The appeal was allowed for statistical purposes.

What were the facts?

The assessee, M/s. Seoyon E-Hwa Summit Automotive India Pvt. Ltd., filed an appeal against the order of the Dispute Resolution Panel (DRP) for Assessment Year 2017-18. The Transfer Pricing Officer (TPO) rejected the assessee's aggregation approach for benchmarking international transactions and separately benchmarked the purchase of raw materials and sale of finished goods. The TPO proposed an adjustment of Rs. 163.51 Lacs based on a mean margin of 6.8% from comparable entities, while the assessee reported a margin of 3.09%. The assessee's objections to the TPO's findings, particularly regarding the selection of comparable entities, were submitted to the DRP. The DRP passed a cryptic order, largely repeating similar reasoning for rejecting the assessee's submissions.

What were the issues?

1. Whether the Dispute Resolution Panel (DRP) erred in passing a cryptic order without dealing with the assessee's specific objections regarding the selection of comparable entities in the transfer pricing assessment for Assessment Year 2017-18, as required under the Income Tax Act, 1961? Assessee's Contention: The assessee argued that the DRP's order was cryptic and lacked specific adjudication on its objections concerning the selection or non-selection of comparable entities. The assessee provided comprehensive details to support its objections, but these were not specifically addressed. The assessee contended that there was a non-application of mind by the DRP to its objections. Revenue's Contention: The judgment does not record specific arguments from the revenue regarding the DRP's order. However, the DRP's reasoning, which was upheld in principle by the revenue's representative, stated that comparability of an entity cannot be determined based on decisions from other assessment years as business factors are dynamic and differ each year. Judicial precedents from other years need not be followed blindly.

Which sections of the Income-tax Act were involved?

Section 68

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘D’ BENCH, CHENNAI

Before: HON’BLE SHRI MAHAVIR SINGH & HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM

आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. During hearing of captioned appeal, it emerges that Ld. DRP has passes a very cryptic order without dealing with assessee’s specific objections with respect to comparable entities. It also emerges that the assessee’s various objections in this respect was also not considered by Ld. Transfer Pricing Officer. Further, the search process as selected by Ld. TPO was not furnished to the assessee. Having heard rival

IT(TP)A No.3/Chny/2022 - 2 - submissions and upon perusal of case records, the appeal is disposed- off as under. 2. Upon perusal of Ld. TPO’s order dated 27.01.2021, it could be seen that the assessee had benchmarked international transactions under TNMM method and offered no adjustment since its own margins were more than the margins of comparable entities. The Ld. TPO rejected the aggregation approach and separately benchmarked transactions of purchase of raw material and sale of finished goods. The Ld. TPO computed mean margin of 5 comparable entities @6.8% as against assessee’s margin of 3.09% and proposed adjustment of Rs.163.51 Lacs. 3. The Ld. DRP disposed-off assessee’s objections in 54 pages. However, the perusal of the same would show that the reasoning given by Ld. DRP to reject the assessee’s submission is very cryptic and similar reasoning has been cut and pasted for majority of grounds of appeal. Regarding selection of comparable entities, It has been held that the comparability of an entity could not be determined with regard to the decisions of the appellate bodies rendered for some other year since the business and factors are dynamic and different in each year. Whether a particular entity is a comparable or not, is an exercise which has to be carried out each year considering the facts of that specific year. The judicial precedents with respect to earlier or subsequent year need not be followed blindly. Accordingly, the assessee’s submissions on all the comparable entities have been rejected on similar reasoning. However, there is no specific adjudication on assessee’s objection to selection or non-selection of various comparable entities despite the fact that the assessee provided comprehensive details in support of the

IT(TP)A No.3/Chny/2022 - 3 - same. Prima facie, there is non-application of mind to the assessee’s objections. 4. Not at all convinced with the directions of Ld. DRP, we set-aside the impugned orders and restore the issue of Transfer Pricing adjustment back to the file of Ld. TPO for fresh adjudication after affording reasonable opportunity of hearing to the assessee. All the issues are kept open. 5. The appeal stand allowed for statistical purposes. Order pronounced on 14th June, 2023.

Sd/- Sd/- (MAHAVIR SINGH) (MANOJ KUMAR AGGARWAL) उपा23 /VICE PRESIDENT लेखा सद; / ACCOUNTANT MEMBER चे7ई / Chennai; िदनांक / Dated : 14-06-2023 DS आदेश की Wितिलिप अ8ेिषत/Copy of the Order forwarded to : 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. आयकर आयु�त/CIT 4. �वभागीय ��त�न�ध/DR 5. गाड� फाईल/GF

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