The Tribunal held that the Transfer Pricing Officer (TPO) must strictly adhere to Dispute Resolution Panel (DRP) directions regarding the selection of comparable companies, verification of financial filters (such as Trading Sales ratios and RPT thresholds), and the granting of working capital adjustments in benchmarking international transactions.

ORDER

PER VIKAS AWASTHY, J.M.:

The appeal by the assessee is directed against the Assessment Order dated 29.09.2024, passed u/s 143(3) r.w.s. 144C(13) r.w.s. 144B of the Income Tax Act, 1961 [hereinafter referred to as, “the Act”], for Assessment Year 2021-22.

The assessee in appeal has assailed the Assessment Order on following grounds:

“1. That the AO erred in passing the impugned assessment order dated 29 September 2024 under section 143(3) r.w.s. 144C(13) read with section 144B of the Act, pursuant to the directions of the Hon'ble DRP in assessing the income of the Appellant as INR 11,968,128/- for Assessment Year ("AY") 2021-22 as against the returned income of INR 6,746,700 declared by the Appellant.

2. On facts and in law, the impugned order passed by AD and order dated 26 September 2024 passed by TPO after giving effect to Hon'ble DRP's directions u/s 144C of the Act, is in clear contravention to directions issued by the DRP.

a. That the TPO/AO, while imputing the TP adjustment, have erred in incorrectly computing the quantitative filters of certain comparable companies, despite the explicit direction given by the DRP for re-verification of such filters, and disregarding the Appellant's submission on the corrected computation from the respective audited financial statement of such companies

b. That the TPO/ AO have erred in incorrectly computing the operating profit margin of certain comparable companies, which have been finally selected for determining the arm's length price, and in complete ignorance of the data available as per audited financials of the comparables, despite explicit direction given by the DRP for doing the needful.

c. That TPO/AO have erred in not allowing the working capital adjustment to the Appellant, despite explicit direction given by the DRP for doing the needful, thereby contravening the provisions of Rule 10B(1)(e)(iii) and 10B(3) of the Rules.

3. That the DRP/TPO erred in not accepting the economic analysis carried out by the Appellant and modifying screening criteria applied by the Appellant in the TP Documentation.

4. That the DRP/ TPO erred on facts and in law, in rejecting companies that are functionally comparable to the Appellant in terms of the functions performed, assets employed and risks assumed and even such approach is in violation of section 92C(3) of the Act read with Rule 108(2) of the Rules.

5. That the DRP TPO, erred on facts and in law, in selecting companies that are not comparable to the Appellant in terms of functions performed, assets employed and risks assumed, and even such approach is in violation of section 92C(3) of the Act read with Rule 10B(2) of the Rules.

6. That the IPO erred on facts and in law in incorrectly computing the quantitative filters of the comparable/s which have been finally selected for determining the arm's length price of the international transaction, and in complete ignorance of the Appellant's submission on the corrected computation from the respective audited financial statement of such companies.

7. That the TPO erred on facts and in law in incorrectly computing the margins of the comparable/s which have been finally selected for determining the arm's length price of the international transaction, and in complete ignorance of the data available as per audited financials of the comparable/s.

8. That the TPO/AO erred on facts and in law in not allowing the working capital adjustment to the Appellant despite there being a significant difference in the working capital levels of the Appellant vis-a-vis Comparable Companies whilst thereby contravening the provisions of Rule 108(1)(e)(iii) and Rule 10B(3) of the Rules.

9. That the jurisdictional AO, Ward 8(1) Delhi, and TPO, DC/ACIT TP 1(2)(2) Delhi have erred in not disposing off the rectification petition filed dated 23 October 2024 filed u/s 154 of the Act.

10. Without prejudice to the above grounds, the transfer pricing adjustment/addition as imputed in the Lisel assessment order is excessiv