M/S. L AND T THALES TECHNOLO vs. COMMISSIONER OF INCOME TAX ,

TCA.No.547 of 2019 In the High Court of Judicature at Madras Dated : 06.8.2019 Coram : The Honourable Mr.Justice T.S.SIVAGNANAM and The Honourable Mrs.Justice V.BHAVANI SUBBAROYAN Tax Case Appeal No.547 of 2019 M/s.L&T Thales Technology Services Private Limited (formerly known as Thales Software India Private Ltd.), Chennai-32. ...Appellant Vs The Commissioner of Income Tax, Corporate Circle-3, Chennai-34. ...Respondent APPEAL under Section 260A of the Income Tax Act, 1961 against the order dated 23.11.2016 made in ITA.No.1663/Mds/2015 on the file of the Income Tax Appellate Tribunal, Madras 'D' Bench for the assessment year 2008-09. For Appellant: Mr.N.V.Balaji For Respondent: Mr.S.Rajesh, JSC Judgment was delivered by

T.S.Sivagnanam,J

We have elaborately heard Mr.N.V.Balaji, learned counsel for the appellant – assessee. Mr.S.Rajesh, learned Junior Standing accepts notice for the respondent - Revenue. 1/10 http://www.judis.nic.in TCA.No.547 of 2019 2. This appeal, filed by the assessee under Section 260A of the Income Tax Act, 1961 (for short, the Act), is directed against the order dated 23.11.2016 made in ITA.No.1663/Mds/2015 on the file of the Income Tax Appellate Tribunal, Madras 'D' Bench for the assessment year 2008-09. 3. The assessee has filed this appeal by raising the following substantial questions of law : “i. Whether, on the facts and the circumstances of the case and law, the Tribunal was right in concluding that the assessment order passed by the Assessing Officer was not barred by limitation ? ii. Whether, on the facts and the circumstances of the case and law, the Tribunal was right in not quashing the assessment order passed by the Assessing Officer in violation of the provisions of Section 144C(13) of the Act? And iii. Whether, on the facts and the circumstances of the case and law, the Tribunal was right in concluding that non compliance with the directions of an Appellate Authority was a curable defect?” 4. The short issue, which falls for consideration, is as to whether the assessment done by the Assessing Officer pursuant to the directions issued by the Disputes Resolution Panel (DRP) as implemented by the Transfer 2/10 http://www.judis.nic.in TCA.No.547 of 2019 Pricing Officer (TRP) dated 10.2.2015 is time barred. 5. The assessee filed their return of income for the assessment year under consideration claiming a loss of Rs.3,06,16,652/-. Along with the return of income, the international transactions of the assessee were duly reported in the accountant's report in form No.3CEB filed in terms of the provisions of the Indian Transfer Pricing Regulations adopting Transactional Net Margin Method (TNMM). The Assessing Officer referred the case to the TPO under Section 92CA of the Act for determination of the arm's length nature of the assessee's international transactions. The TPO rejected the transfer pricing documents placed by the assessee and made an upward adjustment of Rs.6,72,00,000/-. 6. A draft assessment order was passed under Section 143(3) read with Section 144C(1) of the Act in conformity with the adjustment made by the TPO. The assessee filed their objections before the DRP. However, the DRP issued directions on 09.8.2012 rejecting the arguments of the assessee and upholding the findings of the TPO as implemented by the Assessing Officer. The Assessing Officer passed the final assessment order under Section 143(3) read with Section 144C(13) of the Act vide order dated 31.10.2012. 7. As against the final assessment order dated 31.10.2012, the assessee 3/10 http://www.judis.nic.in TCA.No.547 of 2019 preferred an appeal before the Tribunal, which, by order dated 22.5.2013, set aside the order of the DRP and restored the matter back to the file of the DRP to pass a speaking order stating all the objections of the assessee and disposing them of by giving cogent reasons for adjudication of the objections of the assessee. It was further stated in the order dated 22.5.2013 that the DRP, before adjudicating the issues, should afford reasonable and proper opportunity of hearing to the assessee. There was also a direction that after receiving the order of the DRP, the Assessing Officer would again pass an order under Section 144C(13) of the Act. 8. Thus, the matter went back to the DRP for a fresh consideration. The DRP, by order dated 12.3.2014, modified its earlier order by stating that the TPO would compute margins of the comparables based on the annual reports of the respective comparable company, that M/s.KALS Information Systems Limited was excluded from the comparable set and that M/s.VJIL Consulting Limited was included in the comparable set. The order passed by the DRP dated 12.3.2014 was marked to the assessee, the Assessing Officer and the Transfer Pricing Officer concerned. Thereafter, the giving effect to order was passed on 10.2.2015 and the final assessment order was passed on 26.2.2015 by the Assessing officer. 9. As against the final assessment order dated 26.2.2015, the assessee 4/10 http://www.judis.nic.in TCA.No.547 of 2019 filed an appeal before the Tribunal on the ground that it was time barred, as it was passed beyond the time limit mentioned in Section 144C(13) of the Act. However, the Tribunal, by order dated 23.11.2016, rejected the contention advanced by the assessee that the final assessment order dated 26.2.2015 was time barred and this is how the assessee is before us by way of this appeal. 10. Mr.N.V.Balaji, learned counsel for the assessee would vehemently contend that the Assessing Officer was in receipt of the directions issued by the DRP on 21.3.2014, the same date, on which, the TPO received the directions and the due date for passing the final assessment order as per Section 144C(13) of the Act was 30.4.2014 whereas the final assessment order was passed on 26.2.2015, which is clearly beyond the time limit prescribed under Sub-Section (13) of Section 144C of the Act. 11. After referring to Sub-Sections (8), (9), (11) and (12) of Section 144C of the Act, it is submitted by the learned counsel for the assessee that if the view taken by the Tribunal is adopted, then unilaterally the limitation prescribed under the Statute would be extended and if the TPO does not pass orders within reasonable time, then the statutory time limit prescribed under Sub-Section (13) of Section 144C of the Act loses its significance. In the first round of litigation, the TPO understood the legal position in a proper manner 5/10 http://www.judis.nic.in TCA.No.547 of 2019 and passed orders giving effect to the directions issued by the DRP and the final assessment order was passed by the Assessing Officer within the time limit under Sub-Section (13) of Section 144C of the Act. However, in the second round, both the TPO as well as the Assessing Officer slept over the matter and they cannot now extend the time limit thereby acting prejudicial to the interest of the assessee. 12. Though, at the first blush, the arguments of Mr.N.V.Balaji, learned counsel for the assessee appear to be convincing, on a closer reading, we find the arguments to be not acceptable. We support our conclusion with the following reasons : First, we should take not of the factual position. In the first round, directions were issued by the DRP under Section 144C(5) of the Act on 09.8.2012. Thereafter, the assessee went before the TPO and made their submissions vide letter dated 13.9.2012 wherein they specifically requested to record their submissions and give effect to the directions of the DRP. The TPO passed an order dated 19.10.2012 giving effect to the directions of the DRP and this was communicated to the Assessing Officer. Those directions were in terms of Sub-Section (5) of Section 144C of the Act. Upon receipt of the directions, the Assessing Officer implemented the same by passing the final assessment order dated 31.10.2012. 6/10 http://www.judis.nic.in TCA.No.547 of 2019 13. Challenging the final assessment order dated 31.10.2012, the assessee preferred an appeal before the Tribunal. The Tribunal, after taking into consideration the submissions made by the assessee and after hearing the Revenue, came to the conclusion that the DRP did not deal with the objections raised by the assessee in a proper manner and that no reasons were assigned in support of its conclusion and therefore, remanded the matter to the DRP for considering the objections raised by the assessee and for passing a speaking order. The DRP, on remand, took up the contentions raised by the assessee before it and passed an order dated 12.3.2014 under Section 144C(5) read with Section 144C(8) of the Act. 14. Interestingly, the DRP did not compute as to what was the arm's length price and whether there was an upward adjustment or otherwise. The DRP directed the TPO to compute margins of the comparables based on the annual reports of the respective comparable company and issued two other directions as well. The assessee fully understood that the directions were to the TPO and not to the Assessing Officer since, obviously, the computation could not be done by the Assessing Officer. 15. In the earlier round, the TPO implemented the DRP's directions, which, in turn, were given effect to by the Assessing Officer. Thus, the assessee, having understood the factual and legal position in a proper 7/10 http://www.judis.nic.in TCA.No.547 of 2019 manner, on their own volition, submitted before the TPO a representation dated 10.4.2014 requesting to take on record their submissions and give effect to the directions of the DRP. Further, the assessee undertook to provide any clarifications required. 16. The TPO took into consideration the modified order passed by the DRP and the submissions of the assessee, passed a giving effect to order dated 10.2.2015 and communicated the same to the Assessing Officer, who, in turn, passed the final assessment order dated 26.2.2015. In the light of the above factual position, we are of the clear view that the Tribunal was right in holding that there is no jurisdictional error to invalidate the proceedings in toto and the communication of a copy of the directions of the DRP dated 12.3.2014 to the Assessing Officer, stated to have been received by the Assessing Officer on 21.3.2014, is not a direction within the scope of Sub-Section (5) of Section 144C of the Act. The directions issued by the DRP were to the TPO, who was, in turn, required to do the computation after considering the objections of the assessee and it is thereafter they mature into directions under Sub-Section (5) of Section 144C of the Act, which were required to be implemented in terms of Sub-Section (5) of Section 144C of the Act. 17. On facts, we are of the clear view that the Tribunal was right in 8/10 http://www.judis.nic.in TCA.No.547 of 2019 rejecting the plea raised by the assessee before it. Furthermore, the case of the assessee has to be tested for its correctness in the light of the earlier proceedings and more particularly the order of the Tribunal, which remanded the matter for a fresh consideration. Thus, the assessee has not made out any ground to interfere with the order of the Tribunal. 18. Accordingly, the above tax case appeal is dismissed. The substantial questions of law are answered against the assessee. No costs. 19. After we dictated the judgment, Mr.N.V.Balaji, learned counsel for the assessee submits that the directions issued by the Tribunal in the impugned order may be directed to be implemented by the DRP within a time frame. 20. Considering the fact that this is the second round of litigation and the fact that the assessment is of the year 2008-09, we direct the DRP to give early hearing to the assessee in terms of the directions issued by the Tribunal and conclude the proceedings preferably within a period of three months from the date of receipt of a copy of this judgment. 06.8.2019 9/10 http://www.judis.nic.in TCA.No.547 of 2019 T.S.SIVAGNANAM,J AND V.BHAVANI SUBBAROYAN,J RS Internet: Yes To 1.The Income Tax Appellate Tribunal, Chennai 'D' Bench. 2.The Commissioner of Income Tax, Corporate Circle 3, Chennai-34. TCA.No.547 of 2019 06.8.2019 10/10 http://www.judis.nic.in