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Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI N.V. VASUDEVAN, VICE PRESEIDENT & SHRI PADMAVATHY S
O R D E R Per Padmavathy S., Accountant Member This appeal is against the order of the CIT(Appeals)-1, Bengaluru dated 01.12.2017 for the AY 2008-09.
The brief facts of the case are that the assessee is a subsidiary of Bateman India Engineering B.V., engaged in providing engineering and project management services to minerals and metals processing industries. The services rendered by the assessee include contracts for supply and commissioning of plant & machinery, process technology and technical solution services.
During the FY 2007-08, the assessee entered into certain international transactions with its Associated Enterprises [AEs]. Two of the major international transactions that took place during the year are rendering of engineering design services and reimbursement towards insurance and bank guarantee charges, advertisement and business promotion, travel, etc.
The assessee filed its return of income on 31.9.2008 declaring NIL income. The case was selected for scrutiny. The Assessing Office (AO) made a reference to the Transfer Pricing Officer (TPO) in order to determine the arm’s length price [ALP] of the international transactions. The TPO made an adjustment of Rs.4,29,96,646 as Transfer Pricing adjustment, based on which the AO passed the draft assessment order. Since the assessee exercised the option of appeal before the CIT(Appeals), it requested the AO vide letter dated 24.12.2011 to complete the assessment as per the provisions of the Income-tax Act, 1961 [the Act]. Accordingly, the AO passed the final assessment order on 17.1.2012. In pursuant to a rectification application u/s.154 made by the assessee, the TPO passed a rectification order u/s. 92CA(5) r.w.s. 154 of the Act on 18.1.2012 determining an altogether new adjustment of Rs.5,40,33,031. In the said order, the TPO determined a new adjustment in respect of engineering design services rendered and also engineering design services availed by the assessee.
Aggrieved the assessee filed an appeal before the CIT(Appeals) raising grounds pertaining to the final assessment order as well as fresh adjustments made by the TPO in the rectification order u/s. 92CA r.w.s. 154 of the Act.
The CIT(Appeals) dismissed the appeal with the following observations:-
“4.0 From the appeal filed in Form 35, it is observed that the appellant has filed the appeal against the impugned order dated 17.1.2012 passed under Section 143(3) read with Section 144C of the Act by the Joint Commissioner of Income tax (OSD), Circle 11(2), Bangalore, consequent to the TP order dated 31-10-2011 passed under Section 92CA of the Act. ******* ******* However, in the grounds of appeal and submissions, the appellant has assailed the revised order u/s. 92CA(5) RWS 154 of the Act, dated 19.01.2012 passed by the Deputy CIT (Transfer Pricing)-V, Bangalore, rectifying the original order under Section 92CA of the Act, dated 31-10-2011. Each order is independent and has to be challenged by way of separate proceedings. The appellant, by filing an appeal against one specific order, cannot challenge any revised order passed subsequently. Considering the same, I dismiss the appeal as not maintainable.”
7. The assessee is in appeal before the Tribunal against the order of the CIT(Appeals). The assessee raised 12 grounds and several sub- grounds pertaining to the TP adjustment made by the TPO given effect in the final assessment order and also pertaining to the revised TP adjustment done in the rectification order passed by the TPO. In Ground No.13 which is extracted below the assessee has challenged the dismissal of the appeal by the CIT(A) without considering any of the grounds raised by the assessee before him -
13 The Commissioner of Income-tax (Appels) [‘CIT(A)'] has erred in law in not adjudicating on the Grounds of Appeal raised by the Appellant before him. The CIT(A) has also erred in law in dismissing the appeal of the Appellant on the basis that the appeal before him was against the order under section 143(3) read with section 144C of the Act dated 17 January 2012 whereas in the Grounds of Appeal and submissions the Appellant has assailed the order passed under section 92CA of the Act read with section 154 of the Act dated 19 January 2012 notwithstanding that the AO did not give effect to such order of rectification passed by the TPO.
8. During the course of hearing, the ld. AR submitted that if ground No.13 relating to dismissal of the appeal by the CIT(Appeals) without adjudication of the grounds raised before him is allowed by the Tribunal, then rest of the grounds would become academic in nature. He therefore made submissions on this ground stating that in the appeal filed against the final assessment order, the assessee had raised grounds challenging the adjustment in the original TP order, however, out of abundant caution the assessee also raised grounds challenging the revised adjustment determined by the TPO in his order passed u/s. 154 of the Act. The ld. AR submitted that the CIT(Appeals) ought not to have dismissed the appeal without considering any of the grounds with respect to the final assessment order placed before him and he ought to have adjudicated these grounds. He therefore prayed that the CIT(Appeals) may be directed to consider the grounds raised with regard to final assessment order.
The ld. DR submitted that there was no final assessment order pursuant to the revised order passed by the TPO and therefore the assessee cannot raise the plea against the adjustment made in the revised TPO order u/s. 154 without a final assessment order giving effect to it passed by the AO. Therefore, he submitted that the CIT(Appeals) has rightly dismissed the appeal.
We have considered the rival submissions and perused the material on record. We will first look at the sequence of events in this case. During the course of the Transfer Pricing proceedings initiated vide notice dated 04/02/2011 passed an order dated 31/10/2011 under section 92CA of the Act and made the following adjustments and arrived at an adjustment of Rs.42,996,646:
• Arm's length NCP of the comparables at 24.75% for the engineering design services segment, which was construed as IT enabled functions.
• Treated the insurance and bank guarantee charges and secondment of employees as intra-group in nature.
Subsequently, the AO issued a draft assessment order under section 143(3) read with 144C, dated 25/11/2011, in terms of proviso to section 92((3) of the Act proposing a transfer pricing adjustment of Rs.42,996,646. The assessee filed a letter dated 24/12/2011, requesting the AO to pass the final assessment order so that it can file an appeal before the Commissioner of Income Tax (Appeals). The AO issued the final assessment order under section 143(3) read with section 144C of the Act, on 17/01/2012. In the final assessment order the AO retained the TP adjustment of Rs. 42,996,646 proposed in the draft order.
In the meantime the assessee filed an application on 16/01/2012 u/s. 154 of the Act requesting the TPO to rectify the mistake in the TP Order apparent from record. The assessee highlighted the arithmetical error in the TP order while computing the TP adjustment as under:
Particulars Adjustment as Actual adjustment per TP Order Provision of engineering 5,369,837 9,258,428 design services Intra-group services 9,831,689 9,831,689 Secondment of employees 4,086,695 4,086,695 42,996,646 23,176,812 Total adjustment Further to the rectification application u/s.154 of the Act, the TPO on 19/01/2012 passed a revised order, enhancing the transfer pricing adjustment to Rs.54,033,031. The said adjustment was arrived by the TPO as under: • The TPO revised the set of comparable companies proposed in the original TP order for the engineering design services segment, which was construed as IT enabled functions. The NCP of the revised set of comparables was determined to be 49.88% and computed the TP adjustment at Rs. 25,674,536; and • The TPO determined the ALP of the transaction of availing engineering design services from AEs at NI and thereby an amount of Rs. 28,358,595 was treated as TP adjustment. The assessee while filing the appeal before the CIT(A) against order of the AO under section 143(3) read with section 144C of the Act, dated 17/01/2012, had raised grounds pertaining to the revised TP adjustments made by the TPO vide order dated 19/01/2012.
The CIT(Appeals) has dismissed the appeal on the reasoning that the assessee has besides the final assessment order, assailed the revised order u/s. 92CA(5) r.w.s. 154 of the Act in the appeal filed and that each order is independent and has to be challenged by separate proceedings. Though we find merit in this observation of the CIT(Appeals) that the grounds pertaining to TPO’s revised order cannot be adjudicated, we are of the considered view that the appeal on the other issues pertaining to the final assessment order cannot be dismissed merely on the fact that the assessee has raised grounds pertaining to the revised order of the TPO also in addition to the grounds challenging the final assessment order of the AO. Raising extra grounds which cannot be adjudicated in the appeal is not reason enough for dismissing the entire appeal without adjudicating any of the grounds. We are of the view that it is only fair that the CIT(Appeals) ought to have been examined and adjudicated the grounds raised against the final order of AO, on merits. We therefore restore the appeal back to the CIT(Appeals) for adjudication of the grounds raised by the assessee against the final assessment order passed by the AO on merits in accordance with law, after giving reasonable opportunity of being heard to the assessee. Having restored the appeal to the CIT(Appeals) on this issue, the other grounds raised by the assessee become academic in nature and dismissed accordingly.
In the result, the appeal by the assessee is partly allowed.
Pronounced in the open court on this 30th day of June, 2022..