The assessee’s argument, with regard to the sale of shares in AITPL, that the TPO was bound by the CCI guidelines on valuation of shares is also not acceptable because the CCI guidelines were issued for a totally different purpose and cannot be transported into a pricing methodology prescribed for fixing ALP. Instead, the Discounted Cash Flow method for valuation is an accepted international methodology for valuing enterprises and for determining the value of the holding of an investor. Investors are interested in ascertaining the present value of their investments, considering the future earning potential of the underlying asset. Ascertaining the net present value of future earnings is more appropriate where market value of an investment is not readily ascertainable by conventional methods

U/s 275(1)(a), the AO cannot pass an order imposing penalty u/s 271(1)(c) if the relevant assessment is subject matter of appeal before the CIT(A). The same analogy will apply where the CIT(A) initiates penalty and the first appeal is pending before the Tribunal. Accordingly, the assessee’s request that the penalty proceedings should be stayed till the disposal of appeal by the Tribunal is not unreasonable. If the CIT(A) is allowed to proceed with the penalty proceedings, prejudice will be caused to the assessee as it will have to face multiplicity of proceedings. In case the assessee succeeds in the quantum appeal, the penalty order passed by the CIT(A) will have no legs to stand while if the assessee fails in the quantum appeal, the CIT(A) will get ample time of six months to dispose of the penalty proceedings. Therefore, to prevent multiplicity of proceedings and harassment to the assessee, the CIT(A) is directed to keep the penalty proceedings in abeyance till the disposal of quantum appeal by the Tribunal (CIT vs. Wander (Bom) referred)

In GKN Driveshafts 259 ITR 19 (SC) it was held that the AO is bound to furnish the reasons recorded for reopening the assessment within a reasonable time so that the assessee can file its objections thereto. Even as per the rules of natural justice, the assessee is entitled to know the basis on which the AO has formed an opinion that income has escaped assessment. There is no justifiable reason for the AO to deprive the assessee of the recorded reasons. If the reasons are not furnished to the assessee during the assessment proceedings, then the subsequent furnishing of the reasons after completion of assessment proceedings serves no purpose and amounts to the assessee being denied its right to raise objections to the validity of the reopening proceedings. A reassessment order passed without furnishing the recorded reasons is not sustainable in law. The furnishing of reasons after completion of assessment does not make good the defect/invalidity with which the initiation of proceedings u/s 147/148 is tainted (K V Venkataswamy Reddy (Bang) (attached), Tata International Ltd (ITAT Bom) & Videsh Sanchar Nigam Ltd 340 ITR 66 (Bom) (SLP dismissed) followed)

The issue whether the TPO’s order could be revised by the CIT or by the DIT is not considered as it does not arise in the present case though as the CIT has no administrative jurisdiction over the TPO, he could not have revised the s. 92CA(3) order passed by the TPO. There seems to be no clarity about the authority competent to modify the TPO’s order in case it is is prejudicial to the interests of the revenue. The CIT cannot exercise jurisdiction over the TPO as the TPO functions separately under the DIT (TP). The DIT should have initiated the s. 263 proceedings himself instead of sending a proposal to the CIT for revising the TPO’s order though the question would also arise whether the DIT can revise an order which he himself has approved as per the Board’s Circular

U/s 92C & Rule 10B(2), there is no bar to considering companies with either abnormal profits or abnormal losses as comparable to the tested party, as long as they are functionally comparable. This issue does not arise in the OECD guidelines and the US TP regulations because they advocate the quartile method for determining ALP under which companies that fall in the extreme quartiles get excluded and only those that fall in the middle quartiles are reckoned for comparability. Cases of either abnormal profits or losses (referred to as outliners) get automatically excluded. However, Indian regulations specifically deviate from OECD guidelines and provide Arithmetic Mean method for determining ALP. In the arithmetic mean method, all companies that are in the sample are considered, without exception and the average of all the companies is considered as the ALP. Hence, while the general rule that companies with abnormal profits should be excluded may be in tune with the OECD guidelines, it is not in tune with Indian TP regulations. However, if there are specific reasons for abnormal profits or losses or other general reasons as to why they should not be regarded as comparables, then they can be excluded for comparability. It is for the Assessee to demonstrate existence of abnormal factors. On facts, as the assessee has not shown any factors for abnormal profits, no comparable can be excluded for that reason (contra view in Quark Systems & Sap Labs noted)