Arm Embedded Technologies: assessment order quashed for ignoring DRP directions on transfer pricing adjustment

5-Second Takeaway

The assessment order was quashed because the Assessing Officer did not pass the final order in conformity with the Dispute Resolution Panel’s directions and instead incorporated the draft assessment order. The assessee’s case that, on the DRP-directed figures, the international transactions were at arm’s length was noted as supporting the conclusion that no adjustment was warranted.

The case concerned a final assessment order that did not follow the directions issued by the Dispute Resolution Panel. Instead of giving effect to the DRP’s conclusions, the Assessing Officer substantially carried forward the draft assessment order.

The assessee pointed out that if the DRP directions were applied, the profit level indicators in the software development and MSS segments would stand at levels showing the transactions to be at arm’s length. On that basis, no transfer pricing adjustment would survive.

The court held that the final assessment order was not in conformity with the DRP’s directions. Since the Assessing Officer had ignored those directions, the order could not be sustained.

The assessment order was accordingly quashed.