ECOM COMMODITIES INDIA PRIVATE LIMITED,BENGALURU vs. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 2(2)(1), BENGALURU

During the hearing, the learned Authorised Representative (“learned AR”), at the outsetin respect of ground no. 9.3 raised in the present appeal, submitted that the final assessment order is bad in law, as the same has not been passed in conformity with the directions issued by the learned DRP, and thus, is in contravention of the provisions of section 144C(13) of the Act.

On the other hand, the learned Departmental Representative duly supported the final assessment order passed in the present case.

We have considered the submissions of both sides and perused the materials available on record.

The brief facts of the case are that the assessee is engaged in the trading of agricultural produce, i.e., coffee beans, raw cashew nuts, and the provision of IT-enabled services. For the year under consideration, the assessee filed its return of income on 29.11.2022, declaring a total income of Rs. 3,92,32,630/- and book profit under section 115-JB of the Act of Rs. 10,54,95,416/-. The return filed by the assessee was selected for scrutiny, and statutory notices under section 143(2) and section 142(1) of the Act were issued and served on the assessee. Pursuant to the reference made to the Transfer Pricing Officer (“TPO”), an order under section 92CA(3) of the Act was passed on 27.01.2025 proposing a transfer pricing adjustment of Rs. 6,72,32,796/-. In conformity with the order passed by the TPO, the Assessing Officer (“AO”), vide draft assessment order dated 03.03.2025, proposed to assess the total income of the assessee at Rs. 10,64,65,426/- and book profit under section 115-JB of the Act at Rs. 17,27,28,217/-.

Being aggrieved by the additions/adjustments proposed by the TPO/AO, the assessee filed detailed objections before the learned DRP. Vide its directions dated 27.12.2025 issued under section 144C(5) of the Act, the learned DRP, inter alia, partially agreed with the submissions of the assessee and directed re-computation of interest on receivables by adopting LIBOR with a markup of 450bps.

The AO, vide impugned final assessment order, in the absence of any order giving effect by the TPO pursuant to the directions issued by the learned DRP regardingrecomputation of the transfer pricing adjustment in respect of international transaction pertaining to interest on delayed receivables, proceeded to assess the total income of the assessee equivalent to the total income proposed vide draft assessment order. Further, while computing the book profit of the assessee under section 115-JB of the Act, the AO also did not consider the specific directions of the learned DRP to delete the adjustments proposed to the book profit determined under section 115-JB of the Act. Being aggrieved, the assessee is in appeal before us.

During the hearing, the learned AR submitted that non-compliance with the directions issued by the learned DRP is in clear violation of the provisions of section 144C(13) of the Act, which specifically mandates the passing of a final assessment order in conformity with the directions issued by the learned DRP. The learned AR further submitted that mere non- receipt of the TPO’s order giving effect to the directions issued by the learned DRP does not absolve the AO from complying with the directions issued under section 144C(5) of the Act. It was also submitted that a similar issue came up for consideration before the Hon’ble Jurisdictional High Court in PCIT vs Flextronics Technologies (India)(P.)Ltd., reported in [2023] 459 ITR 493 (Karnataka). It was further submitted that in another decision, the Hon’ble Jurisdictional High Court in PCIT vs. M/S VMWARE Software India Pvt. Ltd., in ITA No. 221/2023, vide its order dated 26.09.2023, dismissed the appeal filed by the Revenue on a similar issue by following its earlier decision in Flextronics Technologies (India)(P.) Ltd. (supra).

We find that while considering a similar issue, wherein the AO passed the final assessment order not in conformity with the directions issued by the learned DRP due to non-receipt of the order giving effect by the TPO, the Hon’ble Jurisdiction High Court in Flextronics Technologies (India)(P.)Ltd. (supra) agreed with the submissions of the assessee that under section 144C of the Act, the AO is bound by the directions issued by the DRP and is required to pass the assessment order in conformity with the directions so issued. We further find that in a Special Leave Petition filed by the Revenue against the decision of the Hon’ble Jurisdictional High Court in M/S VMWARE Software India Pvt. Ltd. (supra), the Hon’ble Supreme Court vide its order dated 14.11.2024 passed in SLP(C) Diary No.47414 of 2024dismissed the Special Leave Petition, finding no good reason to interfere with the decision of the Hon’ble High Courtin ITA No. 221/2023.

As in the present case vide impugned final assessment order, the AO did not comply with the specific directions of the learned DRP, respectfully following the decisions of the Hon’ble Karnataka High Court (supra), we are of the considered view that the same is in clear violation of the provisions of section 144C(13) of the Act. Accordingly, the final assessment order passed by the AO is quashed. As a result, ground no. 9.3 raised in assessee’s appeal is allowed.

Since the relief has been granted to the assessee on this short issue, the other grounds raised by the assessee are rendered academic, and therefore are kept open.

In the result, the appeal by the assessee is allowed. Order pronounced in the open court on 5th June, 2026.