Sections 92C and 144C – Transfer pricing – Computation of arm’s length price (Reasoned order) – Order passed by DRP u/s. 144C (5) must contain discussion of facts and independent findings on those facts by DRP – Mere extraction of rival contentions will not satisfy requirement of consideration

Sections 92C and 144C – Transfer pricing –
Computation of arm’s length price (Reasoned order) – Order passed by DRP u/s.
144C (5) must contain discussion of facts and independent findings on those
facts by DRP – Mere extraction of rival contentions will not satisfy
requirement of consideration

The assessee filed return
of income by computing arm’s length price of international transactions. The
TPO rejected economic adjustments claimed by the assessee and proposed certain
transfer pricing adjustments. Based on order of the TPO, the Assessing Officer
passed draft assessment order. The assessee filed objections before the DRP
u/s. 144C objecting additions made by the TPO. The DRP passed impugned order
accepting conclusion arrived at by the TPO.

Madras High Court allowed
the writ petition filed by the assessee challenging the validity of the order
of the DRP and held as under:

“i)    Perusal of the impugned order of the first respondent would
clearly indicate that apart from extracting each objection raised by the
petitioner and the relevant portion of the order passed by the Transfer Pricing
Officer dealing with such objection, the first respondent has not further
discussed anything on the said objection in detail as to how the objections
raised by the petitioner cannot be sustained or as to how the findings rendered
by the Transfer Pricing Officer on such issue have to be accepted.

ii)    It is seen from section 144C that the assessees shall file their
objections if any, to such variation made in the draft order of assessment
within 30 days to the Dispute Resolution Panel and the Assessing Officer as
contemplated u/s. 144C(2). Sub-section (5) of section 144C contemplates that
the Dispute Resolution Panel shall issue such directions as it thinks fit for
the guidance of the Assessing Officer to enable him to complete the assessment.
But such directions referred to in sub-section (5) shall be issued by the
Dispute Resolution Panel only after considering the following as provided under
sub-section (6), viz., (a) draft order; (b) objection filed by the assessee;
(c) evidence furnished by the assessee; (d) report, if any, of the Assessing
Officer, Valuation Officer or Transfer pricing Officer or any other authority;
(e) records relating to the draft order; (f) evidence collected by or cause to
be collected by, it; and (g) result of any enquiry made by or caused to be made
by it. Sub-section (7) of section 144C further contemplates that the Dispute
Resolution Panel may make such further enquiry as it thinks fit or cause any
further enquiry to be made by any Income tax authority before issuing any
directions. Perusal of the procedure contemplated under sub-section (6) and
sub-section (7), thus, would clearly indicate that issuance of such directions
as contemplated under sub-section (5), cannot be made mechanically or as an
empty formality and on the other hand, it has to be done only after considering
the above-stated materials. Therefore, the consideration of the above materials
by the Dispute Resolution Panel must be apparent on the face of the order and
such exercise would be evident only when the order contains the discussion of
facts and independent findings on those facts, by the Dispute Resolution Panel.
Certainly mere extraction of the rival contentions will not satisfy the
requirement of consideration. In the absence of any such independent reasoning
and finding, it should be construed that the Dispute Resolution Panel has not
exercised its power and issued directions by following the mandatory
requirements contemplated u/s. 144C(6) and (7). In this case, it is found that
the Dispute Resolution Panel had failed to do such exercise. Thus, it is
evident that the first respondent has passed a cryptic order, which in other
words, can be called as an order passed with non-application of mind.

iii)    Therefore, the matter has to go back to the first respondent for
consideration of the objections raised by the assessee in detail and to pass a
fresh order on merits and in accordance with law with reasons and independent
findings.”