Exclusion of OTL Comparable while Benchmarking Engineering, Technical and Inspection Segment which was Accepted by the TPO: Delhi HC directs ITAT to Decide u/s 254

The Delhi High court has directed the Income Tax Appellate Tribunal (ITAT) to decide the issue under Section 254 of Income Tax Act 1961 on exclusion of Onward Technologies Limited (OTL) comparable while benchmarking engineering, technical and inspection segments which was accepted by the Transfer Pricing Officer (TPO).

the Transfer Pricing Officer (TPO) had accepted OTL as a comparable, which was embedded in the appellant/assessee’s, UOP India Private Limited transfer pricing study report. The record also shows that the appellant/assessee had carried the matter in appeal before the Commissioner of Income Tax (Appeals) on other grounds, not connected with the exclusion of OTL as a comparable.

The CIT(A), via order excluded two comparable, i.e., L&T Ramboll Engineering Consulting Services and Mitcon Consultancy Services. This resulted in both the appellant/assessee as well as the respondent/revenue preferring appeals with the Tribunal. The Tribunal, passed operative directions excluding comparable such as Mitcon Consultancy Services L&T Ramboll Consulting Engineers Ltd, Onward Technologies Ltd, HCCA Business Services Pvt. Ltd, Killick Agencies & Mktg. Limited, Cyber Media India Online Limited, Times Innovative Media Limited, Global Procurement Consultants Limited and Indiacom Limited”

In the course of the proceedings conducted by the Tribunal, the following additional grounds were entertained by the Tribunal, including that the “CIT(A) should have also removed the comparable namely Onward Technology Ltd as this comparable could also be considered to be functionally different since it was predominantly in the automobile engineering segment. If the assessee was allowed to remove Mitcon Consultancy Services and L&T Rambol Consulting Engineers Ltd. on the grounds of functional dissimilarity, then, on the same analogy, Onward Technologies Ltd. should also have been removed.”

Deepak Chopra, on behalf of the assessee submitted that, once the TPO accepted the comparable OTL, it could not have been excluded by the Tribunal in the exercise of powers under Section 254 of the Income Tax Act. he further contended that the AO had no option but to accept the order passed by the TPO. if the respondent/revenue was aggrieved, it could have, at a relevant point in time, exercised revisionary power. 

Aseem Chawla, on behalf of the revenue submitted that, the Tribunal under Section 254 of the Income Tax Act had the same plenary power as the first appellate authority and contended that since facts were in dispute, the Tribunal could have entertained the additional grounds referred to hereinabove by us and excluded OTL as a comparable. Clearly, even according to Chawla, the TPO had accepted the comparable OTL

The Division Bench comprising JUSTICE RAJIV SHAKDHER and JUSTICE GIRISH KATHPALIA observed that the Tribunal, without discussing the scope and ambit of its power under Section 254 of the Income Tax Act, had proceeded to issue operative directions, which, inter alia, excluded OTL as a comparable.

The Bench set aside the impugned order holding that the matter needed a relook by the Tribunal, with regard to the scope and ambit of its power under Section 254 of the Income Tax Act. 15. Accordingly, the question of law, as framed, is answered in favour of the appellant/assessee for statistical purposes.

Accordingly, the Tribunal was directed to decide the issue as regards the scope and ambit of its powers under Section 254 of the Income Tax Act and then, having regard to the facts on record, reach a conclusion one way or the other, as to the validity of OTL’s exclusion as a comparable.

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