QUINTILES RESEARCH (INDIA) PVT. LTD.,BANGALORE vs. THE DY.CIT, CIRCLE-3(1)(2),, AHMEDABAD

The assessee challenges the assessment order being barred by limitation. On merits, the assessee and the ld. AO both are in appeal before us.

The brief facts of the case pointed out before us is that the assessment year involved is 2011-12, the period of limitation for passing the assessment order as per section 153 of the Act is 2 years from the end of the assessment year. The above period is further extended by 12 months as there is a reference made u/s. 92CA of the Act, thus the assessment proceedings should have been completed on or before 31.3.2015. Thus the period of limitation expires on 30.3.2015. The TP order u/s. 92CA(3) of the Act is required to be passed on or before 60 days from the date of limitation. Thus as the 60 days period expires on 30.1.2015 being 2 days of January, 28 days of February & 30 days of the month of March, 2015, thus the limitation expires on 30th January, 2015 and therefore the TP order u/s. 92CA(3) is required to be passed on 29.1.2015. However, in the impugned case, the TP order has been passed on 30.1.2015. Thus, the order passed by the ld. TPO is beyond the period of limitation and thus the whole assessment of the ALP of the international transaction deserves to be quashed. In this case, the total adjustment made by the ld. TPO after the settlement of US & UK MACP Mutual Agreement Procedure [MAP] remains of Rs.54,56,230.

The ld. AR vehemently supported the above ground stating that as the TP order is barred by limitation, the issue is squarely covered in favour of the assessee by the Hon’ble Madras High Court decision in the case of Pfizer Healthcare India Pvt. Ltd. v. JCIT, 433 ITR 28 and DCIT v. Saint Gobain India (P) Ltd., 446 ITR 636. He further relied on the decision of the Hon’ble Karnataka High Court in the case of PCIT v. Tata Power Solar Systems Ltd. [2024] 166 taxmann.com 16 (Karn) dated 12.8.2024. He submits that in that case also, the assessment year involved is AY 2011-12 and the orders are also passed in similar manner. He therefore submitted that the issue is squarely covered in favour of the assessee.

1. “1. The sole bone of contention left in the instant case is whether the Transfer Pricing Order made by the Transfer Pricing Officer ('TPO') dated 30.01.2015 for Assessment Year 2011-12 ('A.Y 2011-12') was barred by limitation within the meaning of Section 92CA(3A) of the Income Tax Act, 1961 (hereinafter 'IT Act' or 'Act' for brevity). To look at the issue, the provisions of Section 92CA(3A) of the I.T Act are reproduced below for ready reference: *["(3A) Where a reference was made under sub-section (1) before the 1st day of June, 2007 but the order under sub-section (3) has not been made by the Transfer Pricing Officer before the said date, or a reference under sub-section (1) is made on or after the 1st day of June, 2007, an order under sub-section (3) may be made at any time before sixty days prior to the date on which the period of limitation referred to in section 153 , or as the case may be, in section 153B for making the order of assessment or reassessment or recomputation or fresh assessment, as the case may be, expires.] (Emphasis supplied) *Inserted by the Finance Act 2007 w.e.f 1-06-2007 2. A number of issues emanate from the above section. Firstly, the time limitation for the TP orders i.e when does the time limitation under Section 153 'expire'. Secondly, interpretation of the word 'may' used in the section i.e whether it should be construed as order 'may' be made or 'shall' be made. Thirdly, what is the meaning of the word 'made' itself i.e whether the TP order is to be 'made, 'passed' or 'served'. These will be subsequently discussed. However, what is essential is to understand the context in which the words in the section have been used. And what better way to understand the context than by perusing the Memorandum to the Finance Bill, 2007 vide which section 92CA (3A) was introduced in the statute.

regard to the Arm's length price determined under sub- section (3) by the Transfer Pricing Officer. It has been proposed to amend said sub-section (4) of section 92CA so as to provide that, on receipt of the order under subsection (3) of section 92CA, the Assessing Officer shall proceed to compute the total income of the assessee under sub-section (4) of section 92C in conformity with the Arm's length price determined under sub-section (3) of section 92CA by the Transfer Pricing Officer. These amendments will take effect from 1st June, 2007 and shall also be applicable in cases where a reference to the Transfer Pricing Officer was made prior to 1.7.2007 but the Transfer Pricing Officer did not pass the order under sub- section (3) of section 92CA before the said date. [Clauses 25,39 and 40]" (emphasis supplied) 4. Two points clearly stand out from the above excerpt showing the legislative intent for the proposed amendment: First is that the TPO shall determine the Arm's Length Price at least 2 months before the expiry of the new time limit for making assessment and secondly, on receipt of the TPO's order, the AO shall proceed to compute the total income of the assessee in conformity with the Arm's length Price ('ALP'). The first point envisages that the TPO will also have a limitation of 60 days before the time limitation for the assessment expires. And the second point showcases that the AO shall finalise the assessment order in conformity with the ALP, which essentially means, the AO cannot make any variations from the TPO's computation of ALP. 4.1 Dealing with first issue of limitation of 60 days, the legislative intent is clear that at least 60 days should be left with the AO to pass the assessment order after the TPO's order which means if the assessment order is getting time barred by 31st March, the TPO should pass the TP order by 30th January, which will leave the AO with atleast 60 days to pass the assessment order (viz. 31 days of March + 28 days of February + 1 day of January, assuming a non-leap year). Without prejudice to this calculation, and taking into account the second issue above of the assessment order being in conformity with the ALP, it is noteworthy that the day of 30th January is also available with the AO to pass the order because if the AO has no other issues to deal with apart from the TP issues, he can very well pass the assessment order the very same day he receives the TP order i.e in this case on 30th January itself. Therefore, if that is the case, the total number of days available with the AO to pass the assessment order would be 61 days (by including 30th January also as discussed above).

Now, coming back to the issue of use of words 'may', 'made' and 'expires' in the Act, it is noteworthy that even though the statute says that the TP order 'may' be made, yet essentially it means 'shall' be made so that the TPO follows the prescribed time limitations lest the legislative intent would be defeated. Speaking with respect to order to be 'made', the Act doesn't provide for order to be 'passed' or 'served'. So, does that imply that the TPO should not pass the order and just 'make' it and sit on it? It seems obvious that this is again not the intention of the legislature and the TPO is expected to make and pass the order. Then, what about the phrase used in the section 'period of limitation....expires'? When does the limitation expire under section 153? For the case at hand, is it 31st March 2015? It is my humble submission that the time limitation expires means that the AO will not be able to make or pass an order on that date. However, it is a known fact that the assessment order can be passed on 31st March. Therefore, the limitation is not 'expiring' on 31st March. Does it then mean that the limitation expires on 1St April. No, because any order passed after midnight of 31st March would be barred by limitation. Therefore, it is in the context of the situation, legislative intent and the entirety of facts that the issue in hand needs to be looked at. As submitted earlier, the legislative intent is to give atleast 60 days for the AO to make the assessment order and if the AO can pass assessment order on 31st March, the TPO can pass the TP order latest by 30th January because after this date (i.e after 30th January), the AO will have at least 60 days to make the assessment order.

Without prejudice to the above submissions, as explained in the Memorandum to the budget of 2007-08, the AO should have at least 2 months or 60 days with him to pass the assessment order. If assessee's contention is to be accepted (i.e if 29th January is the time barring for the TPO's order), then the number of days remaining with the AO would be — : a. 30th and 31st January (2 days) b. February (28 days) c. March (31 days) Total : 61 days Now, as can be seen, extension of time limitation for making assessment cannot be 61 days and the legislature wouldn't have visualized or intended to give to the AO 61 days for passing the assessment order.

Further, it is submitted that, the Hon'ble Karnataka High Court, in Pr. Commissioner of Income Tax vs M/S Tata Power Solar Systems Limited in ITA 527 of 2022 dated 12/08/2024, has NOT got into the merits of the case and didn't admit Revenue's appeal on the time-barring issue stating that it is a matter of fact, which is to be decided by the Tribunal and no substantial question of law arises. However, as stated above, the facts of the case and the position in law is clear that the time-barring date for the TPO's order is 30th January and not 29th January as claimed by the assessee. Without prejudice, it can also be argued that the time barring date for the TPO is 31st January since atleast 2 months (words used in the Memorandum) are available to the AO for making assessment after passing of the TPOs order.

Furthermore, very importantly, it is also humbly submitted that the TPO order does not incur any liability or adverse effect on the assessee since it is not enforceable by itself. It has no legs to stand on unless the AO passes the assessment order incorporating the variations made in the ALP, if any, by the TPO. No tax demand can be enforced merely by passing the TP order. The TPO's order is neither the final assessment order nor is the TPO's order appealable. So, no prejudice is caused to the assessee on passing of the TP order. Further, it is beyond doubt that the assessment order passed by the AO was well within the time limitations. Therefore, the matter needs to be seen in this context as well.

Hence, respectfully following the same, we also hold that the TP order passed by the ld. TPO is beyond the time limit prescribed and therefore same deserves to be quashed. As the order of the ld. TPO is time barred, the whole TP adjustment deserves to be deleted. In view of the above facts, we allow the grounds raised by the assessee at sl.No.1.

In the result, the appeal by the assessee is partly allowed and the departmental appeal is dismissed.