DCIT 2(3)(1), MUMBAI vs. TATA AIA LIFE INSURANCE CO. LTD, MUMBAI

On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A)/AO / TPO erred in re-computing the arm's length price as NIL in respect of the international transactions pertaining to allocation of global e-mail charges, blackberry services and Internet and other network charges. This resulted in a transfer pricing adjustment of INR 8,67,68,740. The Appellant prays that the book value of the said transaction be held to be the arm's length and that the aforesaid adjustment be deleted.

On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) / AO /TPO erred in re-computing the arm's length price of the international transaction with respect to allocation of costs for system maintenance and support services. This resulted in a transfer pricing adjustment of INR 26, 90,709 The Appellant therefore prays that the above adjustment be deleted.

On the facts and circumstances of the case, and in law, the Hon'ble CIT(A) / AO erred in confirming the surplus as calculated in Form 1 of the Insurance Regulatory and Development Act, 1999 instead of the surplus in the actuarial report as per the Insurance Act 1938, to be the income of the Appellant in terms of section 44 of, read with Rule 2 in the First Schedule to, the Act.

On the facts and circumstance of the case, and in law, the Hon'ble CTT(A) erred in not adjudicating the ground No 6 raised before him on the tax rate of 12.5% applicable to life insurance companies.

On the facts and circumstance of the case, and in law, the Hon'ble CIT(A) erred in not allowing the set off of brought forward losses available to the Appellant

On the facts and circumstances of the case, and in law, the Hon'ble CIT(A) erred in not allowing deduction towards the amount of transfer from linked fund from the surplus disclosed in Form 1. 8. On the facts and the circumstances of the case, and in law, the Hon'ble CIT(A) erred in not adjudicating the ground no. 11 raised before him regarding the exemption claimed by the Appellant under section 10(34) of the Act towards dividend income of INR 1,27,69,632. 9. On the facts and the circumstances of the case, and in law, the Hon'ble CIT(A) ought to have directed the ACIT to drop the penalty proceedings. The Appellant craves leave to add to or alter, by deletion, substitution or otherwise, any or all of the above grounds of appeal at or before the hearing of the appeal.”

Fact in brief is that return of income declaring loss of Rs.5,34,92,04,468/- was filed on 11.09.2009. The case was subject to scrutiny assessment and notice u/s 143(2) of the Act was issued on 23.08.2010. The assessee company is a joint venture between Tata Sons Ltd. with 74% stake and American International Group (Inc) with 26% stake. The assessee is engaged in providing an array of life insurance product and solutions to individuals, business and corporations. During the year under consideration the assessee has reported the international transaction with its associated enterprise in Form 3CEB, therefore, the A.O referred the international transaction entered by the assesse u/s 92CA(1) to the transfer pricing officer vide order u/s 92CA(3) dated 30.01.2013. The TPO has made arm’s length adjustment of Rs.8,94,59,449/- as under:

During the course of assessment the A.O also observed that in the business of life insurance the profit and gains of any business or insurance as per Sec. 44 of the Income Tax Act shall be computed in accordance with the Rules contained in the first schedule. The A.O has referred rule 2 of first schedule for computing business income of life insurance business which is reproduced as under: “The profits and gains of life insurance business shall be taken to be the annual average of the surplus arrived at by adjusting the surplus or deficit disclosed by the actuarial valuation made in accordance with the Insurance Act, 1938 (4 of 1938), in respect of the last inter-valuation period ending before the commencement of the assessment year, so as to exclude from it any surplus or deficit included therein which was made in any earlier inter-valuation period.” In this regard, the A.O has referred actuarial report for the year ended 2009 as per which surplus of Rs.1,95,57,43,000/- was reported. The surplus for the year ended 2008 as per actuarial report was Rs.1,87,34,17,000/-. Therefore, the AO was of the view that profit/income of the assessee for the year should have been Rs.8,23,26,000/- (Rs.1,95,57,43,000/- (-) Rs.1,87,34,17,000/-). On query, the assesse contended that the surplus as per actuarial report cannot be treated as income of the assesse. Since, surplus in actuarial report as per Insurance Act 1938 would not have included shareholders funds transferred to the policy holders account. However, the A.O has not agreed with the submission of the assessee and stated that as per Rule 2 of schedule 1 the income of the assessee in the business of the life insurance would be the surplus shown in the actuarial report as reduced the surplus of the actuarial of the previous year. Therefore, the A.O held that surplus shown in the actuarial report consists of surplus fund is of no help to the assessee as Rule 2 does not provide for any reduction of such funds from the surplus as shown in the actuarial

Aggrieved, the assesse filed the appeal before the ld. CIT(A). The ld. CIT(A) has partly allowed the appeal of the assessee.

During the course of appellate proceedings before us the ld. Counsel filed additional ground of appeal as follows: “The assessment order dated 25 April 2013 passed by the learned Assistant Commissioner of Income tax-2(3), Mumbai under section 143(3) read with section 144C(3) of the Income tax Act, 1961 is void and bad in law as it has been passed beyond the period of limitation referred to in section 153 of the Act. The Appellant craves leave to add, alter, vary, omit, substitute or amend the ground of appeal, at any time before or at, the time of hearing of the appeal, so as to enable the Hon’ble Income-tax Appellate Tribunal to decide this appeal according to law.”

The ld. Counsel submitted that the order passed by the transfer pricing officer on 30.01.2013 is time barred by 1 day since the impugned order would have been passed on or before 29.01.2013. The ld. Counsel further submitted that as per provisions of Sec. 92CA(3A) of the Act in a case where the reference is made to the TPO, the TPO is required to pass order u/s 92CA(3A) of the Act at any time before 60 days prior to the date on which period of limitation referred to in Sec. 153 for making the assessment order expires. The ld. Counsel also submitted that the period of limitation for making of order of assessment as per Sec. 153 of the Act is two years and where a case is referred u/s 92CA of the Act to the TPO the period of limitation shall be 3 years from the end of the assessment year in which the income was first assessable. He further submitted that in the case of the assessee in accordance with provisions of Sec. 153 of the Act the period of limitation for completion of the assessment as per provisions of Sec. 153 of the Act is 31.03.2013, therefore, the time limit for passing the order u/s 92CA(3A) of the Act is before 60 days prior to the date on which limitation for passing the assessment order is expired. As per the computation shown by the ld. Counsel the order u/s 92CA(3) of the Act ought to be passed on or before 29.01.2013. However, the TPO has passed the same order on 30.01.2013. Therefore, the ld. Counsel vehemently contended that impugned order passed u/s 92CA(3) is time barred by 1 day. The ld. Counsel has placed reliance on the following judicial pronouncements of Hon’ble Madras High Court i.e Pfizer Healthcare India Pvt. Ltd. Vs. JCOIT, 433 ITR 028 (Mad); DCIT Vs. Saint Gobain India P. Ltd. 137 taxmann.com 215 (Mad) and also placed

Heard both the side and perused the material on record with regard to the limited issue of validity of order passed by the TPO u/s 92CA(3) of the Act and the subsequent proceedings arises therefrom. During the course of appellate proceedings the ld. Counsel has filed computation of period of limitation as under: Sr. No. Particulars Relevant Date period Assessment Year 2009-2010

Extension of period of limitation in case a 12 months reference is made u/s 92CA of the At 3. Date on which reference was made to the 17.02.2011 Transfer Pricing Officer

Assessment Proceedings should be completed 31.03.2013 on or before

Date prior to the date on which period of 30.03.2013 limitation expires (stated in Sr. No. 3 above) 6. 60 days period expires on: 30.01.2013 March = 30 days (excluding 31.03.2013) February = 28 days January = 2 days

Transfer Pricing Order u/s 93CA(3) of the Act 29.01.2013 ought to be passed on or before

Date on which Transfer Pricing Order u/s 30.01.2013 92CA(3) is passed

Date on which Final Assessment was passed. 26.04.2013

No words or expressions used in any statute can be said to be redundant or superfluous. In matters of interpretation one should not P a g e | 10 Tata AIA Life Insurance Co. Ltd. Vs. The ACIT-2(3) ITA No.2860 & 2613/Mum/2015 concentrate too much on one word and pay too little attention to other words. No provision in the statute and no word in any section can be construed in isolation. Every provision and every word must be looked at generally and in the context in which it is used. It is said that every statute is an edict of the legislature. The elementary principle of interpreting any word while considering a statute is to gather the mens or sententia legis of the legislature. Where the words are clear and there is no obscurity, and there is no ambiguity and the intention of the legislature is clearly conveyed, there is no scope for the court to take upon itself the task of amending or alternating (sic altering) the statutory provisions. Wherever the language is clear the intention of the legislature is to be gathered from the language used. While doing so, what has been said in the statute as also what has not been said has to be noted. The construction which requires for its support addition or substitution of words or which results in rejection of words has to be avoided. As stated by the Privy Council in Crawford v. Spooner [(1846) 6 Moore PC 1 : 4 MIA 179] "we cannot aid the legislature's defective phrasing of an Act, we cannot add or mend and, by construction make up deficiencies which are left there". In case of an ordinary word there should be no attempt to substitute or paraphrase of general application. Attention should be confined to what is necessary for deciding the particular case. This principle is too well settled and reference to a few decisions of this Court would suffice. (See : Gwalior Rayons Silk Mfg. (Wvg.) Co. Ltd. v. Custodian of Vested Forests [1990 Supp SCC 785 : AIR 1990 SC 1747] , Union of India v. Deoki Nandan Aggarwal [1992 Supp (1) SCC 323 : 1992 SCC (L&S) 248 : (1992) 19 ATC 219 : AIR 1992 SC 96] , Institute of Chartered Accountants of India v. Price Waterhouse [(1997) 6 SCC 312] and Harbhajan Singh v. Press Council of India [(2002) 3 SCC 722 : JT (2002) 3 SC 21] .)”

The language employed is simple. 31-12-2019 is the last date for the assessing officer to pass his order under section 153. The TPO has to pass order before 60 days prior to the last date. The 60 days is to be calculated excluding the last date because of the use of the words "prior to" and the TPO has to pass order before the 60th day. In the present case, the word "before" used before "60 days" would indicate that an order has to be passed before 1-11-2019 i.e on or before 31-10-2019 as rightly held by the Learned Judge.

Even considering for the purpose of alternate interpretation, the scope of section 9 of the General Clauses Act, it is to be noted that an inverted calculation of the period of limitation takes place here. If the last date is taken to be the first date from which the period of 60 days is to be calculated, reading down the provision with the use of the word "from", which denotes the starting point or period of direction in general parlance, would mean that 60 days "from the last date". Even going by section 9 of the General Clauses Act, when the word "from" is used, then, that date is to be excluded, implying here that 31-12-2019 must be excluded. After excluding 31- 12-2019, if the period of 60 days is calculated, the 60th day would fall on 1-11-2019 and the TPO must have passed the order on or before 31-10-2019 as orders are to be passed before the 60th day. Therefore, either way the contention of the Revenue is a fallacy and has no legs to stand. Mandatory or Directory

The next contention that has been raised by the learned senior standing counsel for the appellants is that the usage of the word "may" in section 92CA (3A) indicates that the time fixed is only directory, a guideline, not mandatory and is for the sake of internal proceedings.

Let us now examine the relevant procedures relating to Transfer Pricing. After an international transaction is noticed subject to satisfaction of section 92B, a reference is made to the TPO under sub-section (1) of section 92CA of the Act. The TPO after considering the documents submitted by the assessee is to pass an order under section 92CA (3) of the Act. As per section 92CA(3A), the order has to be passed before the expiry of 60 days prior to the date on which the period of limitation under section 153 expires. As per 92CA(4), the assessing officer has to pass an order in conformity with the order of the TPO. After receipt of the order from the TPO determining ALP, the assessing officer is to forward a draft assessment order to the assessee, who has an option either to file his acceptance of the variation of the assessment or file his objection to any such variation with the Dispute Resolution Panel and also the Assessing Officer. Sub- section (5) of section 144C of the Act provides that if any objections are raised by the assessee before the Dispute Resolution Panel, the Panel is empowered to issue such direction as it thinks fit for the guidance of the Assessing Officer after considering various details provided in Clauses (A) to (G) thereof. Sub- section (13) of section 144C of the Act provides that upon receipt of directions issued under sub-section (5) of section 144C of the Act, the Assessing Officer shall in conformity with the directions complete the assessment proceedings. It goes without saying that if no objections are filed by the Assessee either before the DRP or the assessing officer to the determination by the TPO, section 92CA(4) would come into operation. Therefore, it is very clear that once a reference is made, it would have an impact on the assessment unless a decision on merits is taken by DRP rejecting or varying the determination by the TPO.

It would only be apropos to note that as per proviso to section 92CA (3A), if the time limit for the TPO to pass an order is less than 60 days, then the remaining period shall be extended to 60 days. This implies that not only is the time frame mandatory, but also that the TPO has to pass an order within 60 days.

Further, the extension in the proviso referred above, also automatically extends the period of assessment to 60 days as per the second proviso to section 153. 35. Also, but for the reference to the TPO, the time limit for completing the assessment would only be 21 months from the end of the assessment year. It is only if a reference is pending, the department gets another 12 months. Once reference is made and after availing the benefit of the extended period to pass orders, the department cannot claim that the time limits are not mandatory. Hence, the contention raised in this regard is rejected.

As rightly pointed out by Mr. Ajay Vohra, learned senior counsel for the respondents in WA. Nos.1148 and 1149/2021, the word "may" has to be sometimes read as "shall" and vice versa depending upon the context in which it is used, the consequences of the performance or failure on the overall scheme and object of the provisions would have to be considered while determining whether it is mandatory or directory.

At this juncture, it is noteworthy to mention the commentary of Justice G.P.Singh on the interpretation of statutes, Principles of Statutory Interpretation (1st Edn., Lexis Nexis 2015), which is quoted below for ready reference: ' The intention of the legislature thus assimilates two aspects: In one aspect it carries the concept of "meaning" i.e. what the words mean and in another aspect, it conveys the concept of "purpose and object" or the "reason and spirit" pervading through the statute. The process of construction, therefore, combines both literal and purposive approaches. In other words the legislative intention i.e. the true or legal meaning of an enactment is derived by considering the meaning of the words used in the enactment in the light of any discernible purpose or object which comprehends the mischief and its remedy to which the enactment is directed. This formulation later received the approval of the Supreme Court and was called the "cardinal principle of construction".'

In case of assessments involving transfer pricing, fixing of time limits at various stages sets forth that the object of the provisions is to facilitate faster assessment involving such determination. In the present case, as rightly held by the learned Judge in paragraphs 22 to 29 of the order dated 7-9-2020, the order of the TPO or the failure to pass an order before 60 days will have an impact in the order to be passed by the Assessing Officer, for which an outer time limit has been prescribed under sections 144C and 153 and is hence mandatory. What is also not to be forgotten, considering the scheme of the Act, the inter-relatability and inter-dependency of the provisions to conclude the assessment, is the consequence or the effect that follows, if an order is not passed in time. When an order is passed in time, the procedures under 144C and 92CA(4) are to be followed. When the determination is not in time, it cannot be relied upon by the assessing officer while concluding the assessment proceedings.

Upon consideration of the judgments and the scheme of the Act, we are of the opinion that the word "may" used therein has to be construed as "shall" and the time period fixed therein has to be scrupulously followed. The word "may" is used there to imply that an order can be passed any day before 60 days and it is not that the order must be made on the day before the 60th day. The impact of the proviso to the subsection clarifies the mandatory nature of the time schedule. The word "may" cannot be interpreted to say that the legislature never wanted the authority to pass an order within 60 days and it gave a discretion. Therefore, the learned Judge rightly held the orders impugned in the writ petitions as barred by limitation, as the Board, in the Central Action Plan, has specified 31-10-2019 as the date on which orders are to be passed by the TPO, reiterating the time limit to be mandatory.” After taking into consideration the material placed on record it is undisputed fact that transfer pricing officer has passed order u/s 92CA(3) on 30.01.2013 whereas the limitation for passing the said order u/s 92CA(3) expires on 29.01.2013. Therefore, taking into consideration the provision of the Act and decision of Hon’ble Madras

In this regard, we find that coordinate bench of the ITAT on the similar issue on identical facts in the cases i.e (i) Strides Shasum Limited Vs. DCIT, Circle 15(3)(2) vide ITA No. 2877/Mum/2014 dated 28.02.2023 (ii) M/s Mondelez India Foods Private Limited Vs. Ad. CIT, Range 5(1) vide ITA Nos. 1492, 1576 & 2340/Mum/2015 dated 14.11.2022 and (iii) M/s Tubacex Prakash India Pvt. Ltd. Vs. The ACIT/JCIT/DCIT/ACIT-national E-assessment Centre, Delhi and DCIT, circle 14(1)(2), dated 24.03.2023 held that the order of the TPO and draft assessment order are barred by limitation, therefore, resulting in assessee not being a eligible assessee u/s 144C(15)(b)(i) of the Act. Consequently, the final assessment was also bad in law. Therefore, since the issue on hand being squirely covered on similar fact and circumstances, therefore, we find merit in the submission of the assessee and allow the additional ground raised by the assesee. No argument were made by the ld. Counsel for the assessee in respect of the original ground of appeal, other additional ground of appeal therefore they are left open for adjudication if the need arises.

In the result, the appeal of the assessee is allowed.

Since, we have allowed the additional ground of appeal of the assesse, therefore, the appeal of the revenue become infructuous and the same require not any adjudication accordingly the same stand dismissed.

In the result, the appeal of the assessee is partly allowed and the appeal of the revenue stand dismissed. Order pronounced in the open court on 27.04.2023 (Amit Shukla) (Amarjit Singh) Judicial Member Accountant Member Place: Mumbai Date 27.04.2023 Rohit: PS