The assessee contended that the ITAT’s original order for AY 2021-22 incorrectly stated that foreign AEs should be treated as comparables, which is contrary to settled transfer pricing principles. It was submitted that foreign AEs can only be considered as tested parties, and the observation was a clerical error.

The Revenue submitted through a Miscellaneous Application (‘MA’) that the observation of the Tribunal’s order was factually incorrect and contrary to law, as foreign AEs cannot be treated as comparables under transfer pricing provisions.

The Chennai ITAT held that the observation in the original order was a clerical/typographical error apparent on record and liable for rectification under section 254(2).

The assessee further submitted that the direction issued in the original order could lead to an incorrect application of TNMM, if foreign AEs were treated as comparables.

The Revenue argued that rectification was necessary to align the order with settled judicial precedents and correct transfer pricing principles.

The Tribunal clarified that foreign AEs cannot be treated as comparables, though they may be considered as tested parties, where appropriate.

The assessee requested that the matter be restored for proper verification of facts and application of correct methodology.

The Revenue supported remand of the issue to ensure correct application of law after rectification.

Accordingly, the issue was remitted back to the TPO with a direction to apply TNMM by treating foreign AEs as tested parties, subject to verification of additional evidence regarding the nature of services received.