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Facts
The assessee, Inlogic Technologies Pvt. Ltd., engaged in software development services, contended that its Associated Enterprise (AE) relationship with Medtech Global Ltd., Australia, existed for only 2 months (April-May 2020) during FY 2020-21 due to a common director's resignation. Consequently, it claimed that international transactions subject to Transfer Pricing (TP) provisions should be limited to Rs. 1.86 Crores, supported by a revised Form 3CEB and additional evidence. However, the TPO and DRP disregarded these submissions, considering the AE relationship for the entire 12 months and rejecting the revised documents citing procedural irregularities.
Held
The Tribunal acknowledged the procedural irregularities but emphasized that justice should not be denied due to such issues, noting that audit reports can be filed at a later stage. It remanded the case back to the TPO, directing them to provide the assessee an opportunity to file a revised Form 3CEB and the additional evidence (TP Documentation and Segmented Profit & Loss Account) and to adjudicate the issue afresh in accordance with law after a proper hearing.
Key Issues
The key issues were the duration of the AE relationship for transfer pricing purposes (2 months vs. 12 months), the acceptance of revised Form 3CEB and additional evidence despite procedural irregularities, and the appropriate method for benchmarking international transactions.
Sections Cited
143(3), 144C(13), 144B, 92CA(3), 153, 92A(2)(j), 92E, 92C(3), 92, 92A, 92B(1), 80J, 263
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Income Tax Appellate Tribunal, ‘D’ BENCH, CHENNAI
Before: SHRI GEORGE GEORGE K, HON’BLE & SHRI S.R. RAGHUNATHA, HON’BLE
Inlogic Technologies Pvt. Ltd., The Deputy Commissioner of Ground Floor, Admin Block, V. Income Tax, Elnet Software City, Corporate Circle 1(1), Rajiv Gandhi Road, Chennai. Taramani, Chennai – 600 113. [PAN:AAACI-9746-E] (अपीलाथ�/Appellant) (��थ�/Respondent) अपीलाथ� की ओर से/Appellant by : Shri Vikram Vijayaraghavan, Advocate ��थ� की ओर से/Respondent by : Shri A. Sasikumar, CIT सुनवाई की तारीख/Date of Hearing : 17.03.2025 घोषणा की तारीख/Date of Pronouncement : 09.06.2025 आदेश /O R D E R PER S. R. RAGHUNATHA, AM:
This appeal filed by the assessee is directed against the final assessment order passed by the Assessment Unit, Income Tax Department, u/s. 143(3) r.w.s. 144C(13) r.w.s.144B of the Income Tax Act, 1961 (hereinafter the ‘Act’) for the assessment year 2021-22 dated 23.10.2024 in pursuant to the directions of the Dispute Resolution Panel-2, Bengaluru dated 28.09.2024.
The assessee has raised the following grounds of appeal: GROUND 1 & 2- GENERAL
1. The final assessment order dated 23 October 2024 passed by the Learned AO under section 143(3) read with section l44C(13) read with section 144B of :-2-: ITA. No:3323/CHNY/2024 the Income-tax Act. 1961 ("Act") is barred by limitation as per section 153 of the Act and is void and hence, deserves to be quashed forthwith.
2. The impugned order of the Ld. AO passed under section 143(3) r.w.s 92CA(3) r.w.s 144C(13) r.w.s 144B of the Act dated 21.10.2024 is contrary to the law, facts and circumstances of the case. GROUNDS 3 TO 7- relationship of AE existed only for 2 months 3. The Ld. TPO/ the Ld. DRP have failed to appreciate that the appellant and Medtech Global Limited, Australia (Medtech) were Associated Enterprises (AE) only for two months during the subject AY (i.e. April 2020 to May 2020) and the international transactions were INR 1,86,55,212/- ( i.e. pertaining to 2 months).
4. The Ld. TPO/ Ld. DRP have disregarded the fact the appellant has mentioned the value of international transactions in the Audited Financial Statements of the subject AY in the "Related Parties Transaction'" disclosure as INR 1,86,55,212/- ( i.e. pertaining to 2 months) 5. The Ld TPO/ Ld. DRP have disregarded the fact and documents furnished before them during the proceedings to prove that the AE relationship existed between the Appellant and Medtech only for 2 months merely on the ground the value of international transactions were mentioned for whole of the year in Form 3CEB as INR 11,20,16,432/-, which was not revised by the appellant.
6. Both the Ld TP0 and the Ld. DRP have disregarded the fact the appellant has furnished the revised 3CEB in the form of Addendum as INR 1,86,55,212/- ( i.e. pertaining to 2 months) during the proceedings.
Both the Ld. TPO and the Ld. DRP have erred in benchmarkíng the transactions between the appellant and its AE (i.e.Medtech) for whole of the years for the purpose of Chapter X of the Act. when the AE relationship exists between them for only 2 months, which is against the provisions of the Act. GROUNDS 8 TO 12 - failed to appreciate the transactions are at arm's length 8. Both the Ld. TPO and the Ld. DRP have failed to appreciate that the appellant has provided the split profit & loss account for the first 2 months where the AE relationship exists and the balance 10 months period before the Ld.TPO itself during the proceedings and not as additional evidence.
9. Both the Ld. TPO and the Ld. DRP have failed to appreciate that the transactions between the appellant and its AE (i.e.Medtech) for the first 2 months are at arm's length even under the TNMM with 22% operating margin.
Both the Ld. TPO and the Ld. DRP have erred in not appreciating that the appellant has the right to choose a different method as the most appropriate method during the proceedings to demonstrate that the transactions between the appellant and its AE (i.e.Medtech) are at arm's length.
Both the Ld. TPO and the Ld. DRP have erred in not appreciating the alternate submission of the appellant during the proceedings that the transactions between the appellant and its AE (ie.Medtech) could be regarded as having done at arm's length by using CUP Method as the most appropriate method. I2. The Ld. DRP have erred in not accepting the alternate submission of the appellant that the CUP Method could be used as the most appropriate method by stating the no documentation, sufficient information and reason for adopted CUP Method by the appellant, which is incorrect. GROUNDS 13 & 14 - Erroneous exclusion of comparable – applying <25% RPT filter :-3-: ITA. No:3323/CHNY/2024 - Seshachal Technologies Ltd - Cadsys (Inda) Ltd - Daffgdil Software Pvt. Ltd - Geojit Technologies Pvt. Ltd 13. The Ld. DRP have erred in dismissing the contention of the appellant that the abovementioned comparable companies satisfies the RPT filter <25%% applied by the- Ld.TPO and excluded the several comparable companies, when such comparable companies satisfies the employees cost filter >25% adopted by the appellant.
The Ld Ld. DRP has erroneous understanding the TPO has adopted the employees cost filter >25% as against the using of employees cost filter >60% and wrongly upheld the exclusion of comparable companies by the Ld.TPO, which are otherwise to be included as comparable companies. GROUNDS 15 16 - Erroneous exclusion of comparables – loss making companies - Xeplomac Design And Tech Ltd - Mindpo0l Technologies Ltd - DRC Systemms India Ltd -Cranes Software International Ltd - Highbar Technocrat Ltd - Octaware Technologies Ltd - Intellect Commerce Ltd I5. Both the Ld. TPO and the Ld. DRP have erred in not considering the fact that a comparable company is considered to be a persistent loss making company only when it incurs losses in three consecutive years including the current year.
16. Both the Ld. TPO and the Ld. DRP have erred in not considering the fact that when a comparable has made profits in one year out of the three consecutive years, such a company cannot be considered as a persistent loss maker and not to have rejected such a company which is an otherwise comparable company. GROUND 17 - Erroneous inclusion of comparable by ld.TPO excluded by the ld.DRP - Smartstream Technologies India Pvt Ltd 17. Th Ld. TPO has erroneously included the abovementioned company as comparable in the final comparable set when the Ld. DRP has directed to exclude that company. Ground 18 – Others 18. Your appellant craves the indulgence of the Hon’ble Income Tax Appellant Tribunal to add/alter and supplement the grounds of appeal as well as file additional grounds of appeal to support the case of the appellant.
The brief facts of the case are that the Inlogic Technologies Private Ltd is a company incorporated on 19.10.2000 and engaged in the business of providing software development services. The Company was the subsidiary of Inlogic Holdings
:-4-: ITA. No:3323/CHNY/2024 Pte Ltd, Singapore. The international transaction of the assessee was Provision of Software Development Services.
Mr.Vinogopal Ramayah was a common director of Inlogic Technologies and Medtech Global Ltd, Australia. Hence, Medtech Global Ltd was considered as an AE under Section 92A(2)(j). However, Mr. Vinogopal Ramayah resigned from his position at Medtech Global Ltd on June 1, 2020. Hence, after June 1, 2020, Medtech Global Ltd was no longer an AE of Inlogic Technologies.
During the FY 2020-21, the assessee has provided software development services to Medtech Global Ltd, Australia amounting to Rs.10.95 Crores. However, the International Transactions for the period until June 1, 2020 (April and May 2020) amounted to Rs.1.86 Crores.
The assessee submitted before the TPO/DRP that the AE relationship with Medtech Global Ltd, Australia, existed solely for the two-month period of April and May 2020. On 01.06.2020 the common director resigned from Medtech Global Ltd and the shares in Medtech Global Ltd were sold by him. Subsequently, Medtech Global Ltd no longer qualified as an AE, and the relationship between Medtech Global Ltd and the assessee was terminated. Hence, the assessee submitted that only the international transactions for the two-month period should be considered, rather than those for the entire period of 12 months. The assessee submitted the following details / documents before the TPO / DRP to substantiate that the AE relationship existed only for 2 months:
- On 20.10.2023 the assessee submitted the addendum to Form 3CEB with an updated international transaction value of Rs.1.86 Crores (Apr and May 2020) (Paper Book – Pg.No. 240)
:-5-: ITA. No:3323/CHNY/2024 - On 20.09.2023 the assessee submitted the following details w.r.t change in shareholding structure: i. Organisation Structure before and after sale of shares (PB – Pg No.154) ii. Australian Securities and Investment Commission Report of Medtech Global Ltd. (PB – Pg. No.172) iii. Securities Transfer Form of Medtech Global Ltd. (PB– Pg.No.169) iv. Notice of Resignation of Mr. Vinogopal Ramayah (Director) from Medtech Global Ltd, Australia (PB – Pg.No.171) On 15.07.2024, the assessee submitted the TP Documentation and Certified Segmented Profit & loss (2 months and 10 months period) account as additional evidences before the DRP.
Summary of the Actions of the TPO / DRP
A) The TPO disregarded the addendum to Form 3CEB submitted by the assessee. B) The TPO disregarded the evidences submitted to substantiate the change in shareholding structure. C) Consequently, TPO rejected the assessee’s contention that AE relationship existed only for 2 months and computed the margins for entire period of 12 months. The TPO conducted a fresh benchmarking analysis by comparing the external comparable margins with the margins of Inlogic Technologies for the entire year. D) DRP disregarded the TP Documentation and Certified Segmentation submitted by the assessee as additional evidences. E) DRP disregarded the alternate CUP Method proposed by the Appellant.
:-6-: ITA. No:3323/CHNY/2024 F) The DRP remanded the case back to the TPO, who subsequently disregarded all submissions made by the assessee and issued the remand report. The DRP then upheld the TPO's order.
Ground 1 & 2: General ground Ground 3 - 7: AE Relationship of AE existed only for 2 months 7. The assessee had AE relationship with Medtech Global Ltd, Australia only for the period of 2 months during FY 2020-21. After the resignation of Common Director from Medtech Global Ltd on 01.06.2020. Subsequently, Medtech Global Ltd no longer qualified as an AE, and the relationship between Medtech Global Ltd and the Appellant ceased to exist. The assessee initially filed Form 3CEB, disclosing entire transactions with Medtech Global Ltd, Australia. Subsequently, during the TPO proceedings the assessee submitted an Addendum to Form 3CEB, updating the value of international transactions for the 2 months period. Further, the assessee submitted that the related party transaction as per financial statements reflects only the 2 months transactions. Hence, the assessee submitted that only the international transactions for the two-month period should be considered, rather than those for the entire period of 12 months.
Contention of the TPO: 8. The TPO in his Order u/s.92CA(3) disregarded the assessee’s submission and made the following comments: (Para 7 – Page No. 7 of the TPO Order) “On perusal of Form 3CEB, the following points has been noticed: 9. the entire amount of Rs.11,20,16,432/- which was the receipt for software services to AE Medtech Global Ltd, was reported as AE transaction. No, breakup or segmentation as per AE and non-AE was provided by the assessee.
:-7-: ITA. No:3323/CHNY/2024 ii. Also, pt. no. 18 of Form 3CEB asks about the transactions arising out/being part of business restructuring or reorganizations. But, no disclosure of business restructuring was made in Form 3CEB. iii. Also, as per sec 92E of IT Act, 1961 “Every person who has entered into an international transaction or specified domestic transaction during a previous year shall obtain a report from an accountant and furnish such report on or before the specified date in the prescribed form duly signed and verified in the prescribed manner by such accountant and setting forth such particulars as may be prescribed.” Hence, the Form 3CEB which the assessee is duty bound to file for AE transaction and after verification by accountant is mandated by Statute and holds utmost significance with regards to the disclosure of International transaction undertaken by the assessee and hence, the disclosure by the assessee can be taken as true until proven otherwise.
Without prejudice to the above, no revised Form 3CEB is filed, till date, had the claim of the assessee is true. Assessee was given enough opportunity to represent its case, but assessee has failed in even filing response to the initial notices of TP proceedings and TP study Report also. The assessee could have filed a revised Form 3CEB, manually alongwith the Affidavit from the accountant who had earlier filed the Form 3CEB. But, in the absence of such documents the certification by the accountant who has filed the Form 3CEB could not be overlooked. 9. When the assessee has failed to establish the change of shareholding structure and that it had non-AE transaction for remaining 11 months, the usage of CUP method is not relevant as in accordance, with Form 3CEB filed, the assessee has sale transaction only with AE. Hence, the CUP method adopted by the assessee to benchmark the transaction is rejected as per sec 92C(3) of the IT Act, 1961. In the absence of the evidences with respect to change of Holding Structure, the assessee’s contention can’t be accepted and from the facts stated in Form 3CEB can’t be denied also. ………………………………….. 8. Thus, the ALP of the transaction is determined at Rs.14,35,31,813/- and an upward adjustment of Rs.1,99,18,010/- is proposed on the international transaction relating to Software development services
:-8-: ITA. No:3323/CHNY/2024 Rebuttal to Point No. (i) of the above TPO Comments 9. The ld.AR submitted that on 20.09.2023, the assessee submitted the segmented profit and loss statements for the two-month period (April and May 2020) and for the remaining balance period to the TPO. Further the assessee also submitted comprehensive details, including the organizational structure, the notice of resignation of the director from the AE, and the ASIC report to substantiate the change in shareholding with effect from 01.06.2020.
Rebuttal to Point No. (ii) of the above TPO Comments 10. The ld.AR stated that the common director has resigned from the AE and that restructuring has occurred at the AE company. The assessee further submits that no such restructuring has taken place at the assessee’s company. Therefore, there is no requirement to report the transaction as business restructuring in the assessee’s Form 3CEB.
Rebuttal to Point No. (iii) and iv of the above TPO Comments 11. The ld.AR submitted that on 20.10.2023, the assessee submitted an Addendum to Form 3CEB, updating the value of international transactions to Rs.1.86 Crores for April and May 2020. The assessee submits that this addendum was provided in lieu of a Revised Form 3CEB, as there is no option to file a Revised Form 3CEB after the due date. The failure to file Form 3CEB is only a procedural defect. Further, ld.AR prayed to grant an opportunity to file / submit the Revised Form 3CEB for FY 2020-21. The ld.AR submitted that there are various judicial precedents which states that the failure to furnish any audit report is only the procedural defect and the same can be filed during the Appellate proceedings. This :-9-: ITA. No:3323/CHNY/2024 principle was upheld in the case of CIT Vs. Shahzadanand Charity Trust wherein the court allowed the submission of the audit report at the appellate stage.
Rebuttal to Point No. (v) of the above TPO Comments 12. The ld.AR further submitted that to benchmark the international transactions, the assessee proposed an alternative method, the Comparable Uncontrolled Price (CUP) method, demonstrating that it consistently charged an hourly rate of AUD 20 to Medtech Global Ltd, Australia, throughout the year, irrespective of its status as an AE. TPO rejected the CUP Method stating that AE relationship existed for entire year hence CUP Method cannot be adopted. Further, TPO computed the margins for entire period of 12 months and conducted a fresh benchmarking analysis by comparing the external comparable margins with the margins of Inlogic Technologies for the entire year.
The Ld. TPO rejected the assessee’s submissions regarding the change in shareholding structure and the notice of resignation of the common director to substantiate that the AE relationship existed only for 2 months, which were submitted one month (20 September 2023) prior to the TPO’s Order (20 October 2023). Additionally, he rejected the Addendum to Form 3CEB submitted on the day the TPO Order was passed.
Directions of the DRP: 14. With respect to Objections of the assessee, the DRP in its Directions dated 28.09.2024 held as follows: Para 2.1 (Pg. No. 3 of the Directions) Panel: Having considered the submissions, it is observed that the subject issue has been taken up by the TPO after the assessee, in response to the show cause notice, has submitted its reply, on 20.09.2023 and contested the subject issue arguing that Medtech Global Pty Ltd, Australia ("Medtech") was no :-10-: ITA. No:3323/CHNY/2024 longer the AE of the assessee since 01.06. 2020. However, the TPO has noted that as per the Act, the assessee who has entered into an international transaction, is bound to file the Form 3CEB explaining the details of such transactions and related details, duly verified by the accountant as mandated by Statute and thus the disclosure is sacrosanct and held to be true until proven otherwise. He further noted that since the Form 3CEB has neither been revised till date, even after giving enough opportunities the assessee had not submitted the TPSR, nor such revised form 3CEB has been filed with an affidavit from the accountant, who had earlier filed and certified the original Form 3CEB, the evidence in relation to change of holding structure has been held as unacceptable. Accordingly, it is held that the facts stated in Form 3CEB cannot be denied. Para 2.7 (Pg No. 9 of the Directions)– Additional Evidence rejected by DRP ……………..Documents submitted claiming to be additional evidence, without any accompanying application, is not admitted, as not filed in the format as per the DRP Rules, and the issue is being adjudicated on the basis of documents and arguments other than ones related to the additional evidence. However, on without prejudice basis and purely in the interest of natural justice, the documents were sent to the TPO for his comments. After perusal of the documents it is evident that the same are not reliable as being discussed further….. Para 2.10 (Pg No. 18 of the Directions) ……TPO is held to be correct to consider the international transaction of INR 11.2 Crores for the TP Analysis and subsequent ALP adjustment. Para 3.10 (Pg No. 18 of the Directions) Panel: Having considered the submissions, we note that the assessee wants to use CUP method as the Most Appropriate Method (MAM) for benchmarking the transactions with the AE. On this issue the TPO has already rejected the use of CUP method stating that there is no breakup or segmentation as per AE and non-AE was provided by the assessee. Also, there is no disclosure of business restructuring was made in form 3CEB.
In summary, the DRP disposed of all the Objections of the assessee and upheld the TPO’s adjustment.
The ld.AR stated that the assessee reproduced all the evidences and details to the DRP that had previously been submitted before the TPO.
:-11-: ITA. No:3323/CHNY/2024 Rebuttal to Para 2.1 of the DRP’s Directions: 17. The ld.AR submitted that the common director resigned from the AE, and no restructuring events have occurred within the company. Hence, there is no need for reporting the transaction as business restructuring in the Form 3CEB. The assessee submitted an addendum to Form 3CEB before the TPO on 20.10.2023 in which the international transaction value has been updated as Rs.1.86 Crores for the 2 months period. However, TPO / DRP rejected the addendum submitted. If so, the ld.AR requested to grant an opportunity to file a Revised Form 3CEB.
The ld.AR further stated that on 15.07.2024, the assessee submitted the certified segmented profit and loss for the 2 months period (Apr & May 2020) and for the remaining balance period as additional evidence before the DRP.
The ld.AR submitted that the TP Study and Certified Profit & Loss Account as additional evidence before the Hon’ble DRP on 15.07.2024. The same has been rejected by DRP.
Rebuttal to Para 2.10 of the DRP’s Directions: 20. The ld.AR stated that the related party transaction value in the signed financial statements is Rs.1.86 Crores and the same should be considered as international transactions. Further, the Segmented Profit & Loss Account has been certified by External CA in which the international transaction for the 2 months period has been mentioned as Rs.1.86 Crores.
Rebuttal to Para 2.7 of the DRP’s Directions: 21. The ld.AR submitted that the TP Study and Certified Segmented Profit & Loss Account on 15.07.2024. Further, the assessee request via email on 23.07.2024 to :-12-: ITA. No:3323/CHNY/2024 consider the additional evidences submitted before the DRP. However, the Dispute Resolution Panel (DRP) rejected the submission, citing non-compliance with DRP rules. The assessee contends that the substance of the submission should be considered, rather than focusing solely on procedural aspects. Hence, the ld.AR prayed to consider the additional evidence submitted.
Without prejudice to the above contention, the Hon’ble DRP remanded the case back to the TPO. The TPO did not consider the submissions made and reiterated the same points in the Remand Report (Pg. no. 10 of DRP Directions – Para 2.7) as in the TPO Order. Therefore, the assessee’s contention, as stated above, applies to this matter as well.
Rebuttal to Para 3.10 of the DRP’s Directions: 23. Further, the ld.AR stated that the DRP rejected the alternative method (CUP method) proposed by the assessee without considering the fact that assessee has consistently charged an hourly rate of AUD 20 to Medtech Global Ltd, Australia, throughout the year, irrespective of its status as an AE. The assessee submits that there is no business restructuring happened in the company. The ld.AR stated that restructuring has occurred at the AE company and no such restructuring has taken place in the assessee’s company. Therefore, no business restructuring has occurred that would warrant the rejection of the CUP method.
The Hon’ble DRP rejected the assessee’s submissions concerning the change in shareholding structure, the notice of resignation of the common director to substantiate that the AE relationship existed only for two months, the TP Study, and the Certified Segmented Profit and Loss Account. Consequently, the DRP upheld the TPO’s order.
:-13-: ITA. No:3323/CHNY/2024
Further, it is submitted that only an “international transaction” can be subjected to arm’s length price computation as per plain reading of Section 92 of the Act which says “Any income from an International transaction.....” and an international transaction is only that which is entered into between associated enterprises (AEs) as per plain reading of Section 92B(1) which reads “international transaction” means a transaction between two or more associated enterprises…” with associated enterprise being defined in Section 92A of the Act. The assessee was an AE of Medtech Global Ltd, Australia only for the duration of two months and therefore, all the transactions entered into outside the two-month duration will not be an “international transactions” and therefore not subjected to transfer pricing provisions of the Act. The phrase “at any time during the previous year” is in section 92A(2) cannot be interpreted to mean that the assessee is to be subjected to transfer pricing provisions even at times during which it was not an AE. All it posits is that the AE relationship may happen anytime during the year depending on facts and circumstances and it is only for that time period the international transactions between AE’s are subject to TP which in the instant case is 2 months of April and May 2020.
Based on the aforementioned contentions, the ld.AR submitted that the AE relationship with Medtech Global Ltd, Australia, existed only for 2 months during AY 2021-22, rather than the entire 12 months. Therefore, the international transaction amounting to only Rs.1.86 Crores for those 2 months should be considered and not the entire 12 months period.
The ld.AR further submitted that mere procedural irregularities cannot inflict upon the assessee a burden that is not provided for in the statute. The manner
:-14-: ITA. No:3323/CHNY/2024 and mode of submission of the Revised Form 3CEB cannot hinder the assessee from obtaining just remedy when there were no international transactions between the assessee and Medtech Global Ltd, Australia beyond two months. Thus, the ld.AR prayed to set aside and grant an opportunity to file / submit the Revised Form 3CEB for FY 2020-21 for consideration by the TPO with directions that the TP provisions are only applicable to the relevant two-month period where AE relationship existed between assessee and Medtech Global Ltd. Australia, subject to verification of the same by the TPO.
Per contra, Ld.DR for the revenue supported the orders of the TPO and DRP and prayed for confirming the same.
We have heard the rival contentions perused the material available on record and gone through the orders of the authorities along with submissions and case laws relied upon by both the parties.
Ground No. 1 and 2 are general in nature and do not require specific adjudication.
With respect to the Ground Nos.3 to 6, firstly, upon careful consideration, we observe that there have been certain procedural irregularities committed by the assessee, as rightly pointed out by the TPO and DRP, such as filing the addendum to the Form 3CEB instead of filing an entire set of revised Form 3CEB for the fresh consideration (though in substance the addendum to Form 3CEB contained the amended quantum of international transactions). But it is settled law that such irregularities, especially in audit reports, should not lead to substantial justice being denied to the assessee. We find that the Hon’ble Supreme Court, in the case of :-15-: ITA. No:3323/CHNY/2024 Sambhaji and Others v. Gangabai and Others, reported in (2008) 17 SCC 117, held that: “that procedure cannot be a tyrant but only a servant. It is not an obstruction in the implementation of the provisions of the Act, but an aid. The procedures are handmaid and not the mistress. It is a lubricant and not a resistance. A procedural law should not ordinarily be construed as mandatory; the procedural law is always subservient to and is in aid to justice”.
Similarly in Mangalore Chemicals & Fertilizers Ltd. v. Deputy Commissioner, (1992 Supp (1) Supreme Court Cases 21) Apex Court held that “The mere fact that it is statutory does not matter one way or the other. There are conditions and conditions. Some may be substantive, mandatory and based on considerations of policy and some others may merely belong to the area of procedure. It will be erroneous to attach equal importance to the non- observance of all conditions irrespective of the purposes they were intended to serve”
Further, it is pertinent to note that Form 3CEB being an audit report, is directory in nature and can always be filed at a later stage. There is a plethora of cases in this regard including CIT v. Jayant Patel (2001) 248 ITR 199 wherein the Hon’ble jurisdictional High Court held that filing of audit report for claiming deduction u/s.80J is directory and not mandatory. The Hon’ble High Court held an audit report produced before the appellate authority is sufficient compliance with section 80J. Similarly, the Gujarat HC in Zenith Processing Mills v. CIT (219 ITR 721) while considering a case where audit report for claiming of deduction u/s.80J was not filed before the AO but at the time of revisionary proceedings before the CIT u/s.263 of the Act, the audit report was produced and the Hon’ble High Court held furnishing of audit report before the CIT was sufficient compliance. Also, the Chennai ITAT in Ashok Leyland Ltd. vs. DCIT (ITA No. 2086/MDS/2010) remanded the matter back with directions to consider the revised Form 3CEB that had been filed.
:-16-: ITA. No:3323/CHNY/2024 34. Secondly, the TPO & DRP hold that there is no disclosure of business restructuring in the Form 3CEB. We do not find merit in this argument because there is no business restructuring of the Indian assessee company itself. Merely a sale of shares by a Director’s foreign company to a third party thereby causing a deemed AE relationship of assessee company with Medtech Pty from 01.06.2020 to no longer exist. We find that this does not constitute a business restructuring for the assessee company to be reported in Form 3CEB. Therefore, the observation of the TPO / DRP in this regard is factually not correct.
Thirdly, we note that the assessee has submitted the TP Documentation and Segmented Profit and Loss Account only before the DRP on 15.07.2024 as additional evidence. The DRP in its Directions initially rejected the same based on the finding that the procedure for filing an additional evidence before it had not been followed but has then, without prejudice, considered the evidence and rejected it on merits based on a remand report by TPO which seems to reiterate the very same earlier positions taken by the TPO in his Order dated 20.10.2023.
Thus, looking at the totality of facts and circumstances of the instant case, we are of the view that in the interests of justice the matter is sent back to the TPO for a proper re-look and adjudication with all the relevant documents in place in proper form. Hence, we direct the TPO to provide an opportunity to the assessee to file a revised Form 3CEB along with the additional evidence filed (namely TP Documentation and Segmented Profit & Loss Account) that were submitted by the Assessee before the DRP and decide the issue afresh in accordance with law, after affording due opportunity of being heard to the assessee.
:-17-: ITA. No:3323/CHNY/2024 37. In light of our above findings, the remaining grounds raised by the assessee become academic in nature and do not require separate adjudication.
In the result, the appeal of the Assessee is partly allowed for statistical purposes. Order pronounced in the open court on 09th June, 2025 at Chennai.