ROLLS-ROYCE INDIA PRIVATE LIMITED ,DELHI vs. DCIT TP 3(2)(1), DELHI

erred in upholding addition made in respect of Employees' contribution to Provident Fund of Rs. 90,00657/- (out of which Rs 42,04,777 for the month of September 2016 was paid on 17 October 2016 and Rs 47,95,880 for the month of December 2016 was paid on 17 January 2017) without appreciating the fact that these dues were paid before the due date of filing the return of income and hence the same are to be allowed as deduction in the computation of income. 13. should have appreciated that Employees contribution to Provident Fund was made after the statutory due date but within the same Financial Year and hence the same should be allowed as deduction in computation of income. 14. erred in considering the due date for payment of provident fund under The Employees' Provident Fund and Miscellaneous Provisions Act, 1952 (herein after referred to as 'EPF Act') for the month of December 2016 as 15 January 2017 (i.e. within 15 days from the close of the month) thereby ignoring the grace period of 5 days granted by Employees' Provident Fund Organization ('EPFO') vide Circular No. WSU/9(1)2013/Settlement of Claims/26308 dated 12 January 2017. 15. erred in not allowing credit of tax collectedat source (TCS) of INR 19,633 as claimed by the Appellant in its return of income. Initiation of Penalty proceedings under section 270A of the Act 16. erred in proposing initiation of penalty proceedings under section 270A of the Act. The above grounds of appeal are without prejudice to each other. That the Appellant reserves its right to add, alter, amend or withdraw any ground of appeal either before or at the time of hearing of this appeal.”

Facts of the case may be concisely described as that the assessee/appellant is a private limited company and part of Rolls Royce Group engaged in Aero Engine Products and Services. It carries out liaison activities for the Rolls Royce Group in India including Marketing Support, Engineering and Design Services and other support Services. Return of income was filed 17.11.2017 declaring total income of Rs. 14,00,62,060/- which was processed u/s 143(1) of the Act, at an income of Rs. 14,90,62,720/-. Thereafter the case was selected for scrutiny for verification of a few issues including verification of large value of International Transactions. Since the issue was related to determination of Transfer Pricing, a reference was made to the Transfer Pricing Officer for determination of Arm's Length Price u/s 92CA(3) of the Act.

The Learned TPO unit-3(2)(1), New Delhi vide its order dated 27.01.2021 passed u/s 92CA(3) of the Act made adjustment of Rs. 10,96,24,191/- on account of Marketing support Services, Engineering and Design Services, supply chain management ITA No.- 252/Del/2022 Rolls- Royce India Pvt. Ltd. services and interest amount on delayed average receivable.In view of these adjustments draft order U/s 144C of the Act was issued on 24.03.2021 by proposing adjustment of Rs. 10,96,24,191/- to the total income. Aggrieved with the same, assessee filed objections and the Learned DRPvide its order dated 21.09.2021 issued directions to the Learned TPO. (The adjustments proposed by the Learned TPO in the original order dt.27.01.2021 amounting to Rs. 10,96,24,191/- were revised in rectification order passed by the Learned TPO U/s 154/92CA(5)dt. 15.09.2021 vide order no.ITBA/COM/F/17/2021-22/1035593341(1) and the adjustments were rectified to Rs. 11,11,80,266/-).

Consequent to the Learned DRP's direction the DCIT TPO 3(2)(1), Delhi, passed giving effect order on 29.10.2021. Accordingly, the arm's length price adjustment of Rs. 11,11,80,266/-proposed u/s 154/92CA(5) of the Act has been revised to Rs.6,06,67,245/ and in view of these facts final order passed and the income is assessed as under:

Heard rival contentions and perused the material available on record.

The Ld. AR submitted that the Learned AO erroneously passed the final assessment order dated 18.11.2021 U/s 143(3) r.w.s. 144C(13) of the Act, pursuant to the directions passed by the DRP u/s 144C(5) of the Act, dated 21.09.2021, beyond the prescribed time limit and thereby making the entire assessment as void-ab- initio and liable to be quashed and also submitted that by way of ground number 2, validity of the final assessment order have been challenged, which is the root of the case and sufficient to disposal of present appeal.

Per contra, the Ld. DR relied upon the impugned orders of the authorities below.

In the course of hearing, the Ld. AR relied upon the orders of the Co-ordinate Bench in in the case of APM Terminals India Private Limited vs. DCIT, dated 08.03.2023, in which held that where the final assessment order is passed beyond prescribed limit, the same is liable to be quashed ITA No.- 252/Del/2022 Rolls- Royce India Pvt. Ltd. and also relied upon the order of the Co-ordinate Bench in in the case of BBC World Service India Pvt. Ltd. vs. ACIT (Delhi), in which held that the final assessment order passed by the Ld. AO u/s 143(3) read with Section 144C(13) of the Act is liable to be quashed as time barred. The relevant para no. 4 of the order is reproduced as under:

Likewise, in order to strengthen the plea , the Learned AR also relied upon the judgment(2022) 139 taxmann.com 335 (Bombay), in the caseof Shell India markets (P.) Ltd.vs. ACIT, National Assessment Centre, New Delhi, in which Hon’ble High Court of Bombay held that where the direction of DRP in case of assessee ITA No.- 252/Del/2022 Rolls- Royce India Pvt. Ltd. were received by Ld. AO on 20.03.2021 and time limit for completion of assessment u/s 144C(13) was 30th April, 2021 and relaxation under TOLA would be inapplicable and, hence, assessment order passed on 30thSeptember, 2021 was time barred and the relevant para no. 22 to 24 is reproduced as under:

In the circumstances, we are inclined to allow the petition in terms of prayer clause (a), which reads as under :- "(a) that this Hon'ble Court be pleased to issue a Writ of Certiorari or any other writ order or direction under Article 226 of the Constitution of India calling for the records of the case leading to and passing of the impugned assessment order (Exhibit I) dated 30th September 2021 under section 143(3) read with section 144C(13) and 144B of the Act for the assessment year 2016-17, Computation of Income (Exhibit 1-1) and the Demand Notice dated 30th September 2021 (Exhibit 1-2) issued under section 156 of the Act and Penalty Notice dated 30th September 2021 (Exhibit I-3) issued under section 274 read with section 270A of the Act and after going through the same and examining the question of legality thereof quash, cancel and set aside the impugned assessment order (Exhibit I) dated 30th September 2021 passed under section 143(3) read with section 144C(13) and 144B of the Act for the assessment year 2016-17, 10 ITA No.- 252/Del/2022 Rolls- Royce India Pvt. Ltd. Computation of Income (Exhibit I-1) and the Demand Notice dated 30th September 2021 (Exhibit 1-2) issued under section 156 of the Act and Penalty Notice dated 30th September 2021 (Exhibit 1-3) issued under section 274 read with section 270A of the Act."

In support of argument, the Ld. AR also emphasised upon another order of Co-ordinate Bench in ITA No.-812/Del/2022, in the case of Fiberhome India Pvt. Ltd. vs. DCIT, New Delhi in which date of order of the DRP was 16th December, 2021 and date of assessment order 26th February, 2022 and it is held that the final order passed by the Ld. AO was beyond the period of limitation as provided u/s 144C of the Act and liable to be dismissed as null and void. The Revenue has challenged above order by way of appeal and while deciding the appeal, the Hon’ble Jurisdictional High Court, Delhi, dismissed the appeal, by observing as follows:

In terms of sub-section (13) of section 144C of the Act, the AO is mandated to complete the assessment "in conformity with the directions" as framed by the DRP. That very provision commands the AO to complete the assessment within one month from the end of the month in which such a direction is received.

This is evident from Section 144C of the Act which is extracted hereinbelow:- 17. As is manifest from a reading of sub-section (13) of section 144C of the Act, the AO is not accorded any discretion in the framing of an order of assessment once directions have come to be framed by the DRP. In fact, the provision requires the AO to frame an order of assessment in conformity with those directions and without providing any further opportunity of hearing to the assessee. This principle of law has been affirmed by the Bombay High Court in the aforenoted paragraphs of Vodafone Idea and in Shell India Markets Private Limited v. Additional Commissioner of Income Tax Officer, National Faceless Assessment Centre & Ors. The relevant paragraph of the decision in Shell India are extracted hereinbelow: "10. Sub-section (13) of section 144C, therefore, is very clear inasmuch as the Assessing Officer shall, upon receipt of the directions issued under sub-section (5), in conformity with the directions, complete the assessment within one month from the end of the month in which such direction is received. Sub-section (13) also provides that the Assessing Officer can complete the assessment without providing any further opportunity of being heard to the assessee. This means that the moment the Assessing Officer receives the directions under sub-section (5), he has to straightaway complete the assessment and he does not even have to hear the assessee. The Assessing Officer shall simply comply with the directions received from the DRP within one month from the end of the month in which such direction is received."

In this backdrop, we note that both the judgments of the Bombay High Court in Shell India and Vodafone Idea construe the time lines as provided in Section 144C to be mandatory in character. In our considered opinion, this interpretation is in accord with the intent behind insertion of that provision and the bare text and spirit of that section. Thus, we accord our approval to the interpretation as set out in the aforenoted decisions of the Bombay High Court.

In support of arguments, the Learned AR also relied upon the judgment passed by the Hon’ble High Court of Delhi in the case of ITA No.- 252/Del/2022 Rolls- Royce India Pvt. Ltd. Louis Dreyfus Company India Pvt. Ltd. vs. DCIT (W.P.(C) [2024] 159 taxmann.com 244 (Delhi), wherein observed as under: - “ 18. In this backdrop, we note that both the judgments of the Bombay High Court in Shell India Markets (P.) Ltd's case (supra) and Vodafone Idea Ltd's case (supro) construe the time lines as provided in Section 1440 to be mandatory in character. In our considered opinion, this interpretation is in accord with the intent behind insertion of that provision and the bare text and spirit of that section. Thus, we accord our approval to the interpretation as set out in the aforenoted decisions of the Bombay High Court.

Further, the procedure of assessment as provided under section 144C does not envisage or contemplate the interdiction or involvement of the TPO once a directive has been framed by the DRP. The role of the TPO comes to an end once an order as contemplated under section 92 CA(4) of the Act has come to be framed and remitted to the AO. There was thus no occasion for the TPO having resumed proceedings post the passing of the direction by the DRP on 20 June 2022.

Undisputedly, the directive of the DRP came to be uploaded on the ITBA portal on 24 June 2022. It is additionally stated to have been dispatched through Speed Post to the third respondent (TPO) and the fourth respondent (Additional/Joint/Deputy/Assistant Commissioner of Income Tax, National Faceless Assessment Centre, New Delhi) on 27 June 2022. It is thereafter that the TPO appears to have passed the order dated 25 July 2022.

We, however note that paragraph 4(2) of the E-as, 2019 makes the following salient provisions:- "4(2). All communication among the assessment unit, review unit, verification unit or technical unit on with the assesse or any other person with respect to the information or documents or evidence or any other details, as may be necessary for the purposes of making an assessment under this Scheme shall be through the National e- assessment Centre."

It is thus manifest that as per the provisions of E-as, 2019, all orders, notices and decisions have to b necessarily uploaded on the ITBA portal and as part of the larger faceless assessment regime which now hold the field. The uploading of the directive of the DRP on the ITBA portal would thus constitute valid ana sufficient service and the period of limitation as prescribed in Section 144C(13) of the Act would be liable t be computed bearing that crucial date in mind. Once the aforesaid 14 ITA No.- 252/Del/2022 Rolls- Royce India Pvt. Ltd. position becomes clear, it is evident that the order of assessment, if at all could have been framed lastly by 31 July 2022. There has thus been an object failure on the part of the first respondent to comply with the mandatory timelines as incorporated in theaforenoted provisions. Accordingly, the writ petition is liable to be allowed and the impugned order of assessment and the consequential penalty proceedings are thus liable to be set aside on this short score alone.

The writ petition is allowed. The order of assessment dated 24 August 2022 as well as the penalty show cause notice dated 24 August 2022 are quashed and set aside. For reasons aforenoted and consequent to a failure on the part of the respondents to implement the directives of the DRP, the return as submitted by the petitioner would be deemed to have been accepted and the tax liability worked accordingly.”

For the sake of convenience, we reproduced section 144Cof the Act:

On the basis of foregoing fact situation and by following the principles of law laid down in the abovecited judicial precedents, we find that final assessment order dated 18.11.2021 has been framed beyond the prescribed time limit u/s 144C(13) of the Act and, so, it 18 ITA No.- 252/Del/2022 Rolls- Royce India Pvt. Ltd. is time barred, and accordingly, the impugned final assessment order is quashed being void ab initio. Consequently, the ground no. 2 is hereby deserves to be allowed.