HAZIRA PORT PRIVATE LIMITED,AHMEDABAD vs. DY.COMMISSIONER OF INCOME TAX, CICLE-2(1)(1), AHMEDABAD

4. That on the facts and circumstances of the case and in law, the Learned AO/TPO/DRP has erred in making a downward adjustment of INR 33,24,35,034 on Transfer Pricing issues. While making the said downward adjustment, the Learned AO/TPO/DRP have erred in: i. Not accepting the TP documentation maintained by the Appellant in the manner as contemplated under the Act and Income-Tax Rules, 1962 (‘Rules’). ii. Not respecting the provisions of section 92C(3) which provides that the Learned TPO/AO can proceed to determine the arm's length price only in circumstances enumerated under clause (a) to (d) provided therein for the following transactions; • Provision of port facility services; • Repayment of unsecured Loan iii. Making several observations and findings which are based on an incorrect interpretation of law and without appreciating and understanding the intricacies and criticalities of the facts of the case. Transfer Pricing Adjustment on Provision of Port Facility Services 5. The Learned AO/TPO/DRP have erred in making a downward adjustment of INR 20,60,40,000 in relation to provision of port facility services by the Appellant to its domestic Associated enterprise ("AE"). While making the adjustment, on the facts and circumstances of the case and in law, the Learned AO/TPO/DRP have erred in: 5.1 Not appreciating the functional profile and precise nature of Assessee's capital intensive business 5.2 Rejecting the methodology followed by the Assessee and substituting with its own methodology for the purpose of making adjustment 5.3 Holding that the Assessee did not file any documentation in support of determination of ALP for the subject transaction of provision of port facility services 5.4 Rejecting the TP documentation on the erroneous claims that the Assessee has not furnished the following: • the detailed methodology of benchmarking analysis, • the search process followed by the Assessee in benchmarking the transaction, • detailed computations of the Profit level indicator ('PLI') • the definition of financial indicators and other such information 5.5 Rejecting the detailed Transfer Pricing Planning report prepared by the firm of Independent Chartered Accountants, based on certain incorrect observations, surmises, and conjectures. 5.6 Holding that the PLI used by the Assessee, i.e. Return on Capital Employed ("ROCE") for comparability analysis is not appropriate, and adopting operating profit on operating cost ("OP/OC") as the revised PLI for benchmarking the subject transaction, despite the fact that Assessee operates in a capital-intensive LNG & Port industry which involves long gestation period and ROCE is the correct benchmark. 5.7 Arbitrarily rejecting one of the functionally comparable companies selected by the Assessee, namely Ennore Port Limited (now known as Kamarajar Port Limited) on account of earning higher profits 5.8 Computing the incorrect margins of certain companies considered in the final set (Without prejudice) 6. That on the facts and circumstances of the case and in law, the Ld. TPO failed to provide a reasonable opportunity of being heard to the Appellant, thus violating the principles of natural justice, and concluding the proceedings in a haste causing prejudice to the Appellant.

7. That on the facts and circumstances of the case and in law, the Ld. DRP/TPO have erred in rejecting the additional ground of objection filed by the Appellant without considering the same on merits or providing any logical rationale for its rejection. Transfer Pricing Adjustment on Repayment of Unsecured Loan 8. The Ld. AO/ TPO/ DRP have erred in making a downward adjustment of INR 12,63,95,034 in relation to accrued interest on repayment of unsecured loans. While making the aforementioned adjustment, on the facts and circumstances of the case and in law, the AO/ TPO/ DRP have erred in: 8.1 Not appreciating the fact that the subject transaction is in the nature of quasi-capital contribution from the AE and thus the economic substance should prevail over the real form of transaction, as also enunciated by the OECD guidelines 8.2 Not appreciating important facts of case such as huge losses in initial years were incurred by the Assessee since it operates in a capital-intensive industry 8.3 Ignoring the well laid test of commercial expediency and not appreciating the commercial rationale behind non-charging of interest from AEs 8.4 Holding that the Assessee had sufficient funds to repay the interest on loan based on incorrect assumptions and not considering the fact that the rationale for obtaining the interest free loan by the Assessee was the financial distress. 8.5 Without prejudice, the AO/ TPO/ DRP has erred in not appreciating that a downward adjustment warranting a reduction of Assessee's income chargeable to tax is not permissible as per the provisions of Section 92(3) of the Act 8.6 Without prejudice, the search results provided by the TPO consist of several defects, and AO/ TPO/ DRP erred in not providing detailed search strategy to Assessee and explaining how such agreements/arrangements are comparable to the Assessee's transaction. 8.7 Adopting Incorrect value for 12-month USD LIBOR and ad-hoc addition of 1 percent on account of forex risk without providing any reasons for such action (Without prejudice) 8.8 Not appreciating that no international transaction of obtaining loan from AEs was undertaken during the AY 2017-18 however only repayment of existing loans was undertaken 8.9 Not following the principle of consistency as laid down in several judicial precedents.

9. That the AO erred in law while making & DRP erred in upholding the downward adjustment in respect of repayment of unsecured Loan based upon the adjustment made by the TPO/ DRP, without appreciating that it was beyond the TPOs jurisdiction to make such adjustment owing to combined reading of Section 92(3), Section 92BA and Section 80IA(10) of the Act. Corporate Tax Grounds 10. That on the facts and circumstances of the case and in law, the Ld. AO has grossly erred in not providing the credit of taxes already paid by the Assessee in the notice of demand & tax computation sheet accompanied with the Second Assessment order.

11. That on the facts and circumstances of the case and in law, the Ld. AO has erred in levying consequential interest under Sections 234B and 234C of the Act.

Hazira Port Pvt. Ltd. vs. DCIT Asst.Year –2017-18 - 5– 3. This is an appeal filed by the assessee against the order passed by Assessing Officer under Section 143(3) r.w.s. 144C of the Act dated 31.05.2022. The issue for consideration before us is the validity of the aforesaid assessment passed by the Assessing Officer. The assessee is a Joint Venture entity between Shell Gas BV (“SGBV”) holding 74% of the share capital and Total Gaz Electricite Holdings (“Total”), holding the remaining 26% of the share capital. During the subject assessment year, the assessee was engaged in the business of developing, owning, operating and maintaining port facilities at Hazira under the Gujarat Maritime Board Act. The assessee filed it’s return of income on 29.11.2017, declaring total income of Rs. 10,22,66,750/-. The case of the assessee was selected for scrutiny and during the course of assessment, the Assessing Officer made a reference to the Transfer Pricing Officer (TPO). The TPO passed order under Section 92CA(3) of the Act, wherein certain additions were proposed. The Assessing Officer passed draft assessment order under Section144C of the Act on 22.07.2021. The assessee objected to the additions made by the Assessing Officer before Dispute Resolution Panel (DRP), vide email dated 20.08.2021. Since, the DRP offices closed early on that date due to heavy rains in Mumbai, the Counsel for the assessee submitted that DRP staff informed the assessee that it will be provided with filing confirmation vide an email response on 23.08.2021. Furthermore, given the Covid-19 situation at the relevant time, the DRP permitted the assessee to file objections over email. Vide email dated 21.08.2021 the assessee intimated the concerned Assessing Officer about filing of DRP objections. Further, the assessee also received email confirmation / acknowledgement from DRP for provisional acceptance wherein the Hazira Port Pvt. Ltd. vs. DCIT Asst.Year –2017-18 - 6– assessee was also asked to file hard copies on record. However, despite the aforesaid procedure followed by the assessee, the Assessing Officer proceeded to pass final assessment order under Section 143(3) r.w.s. 144C(3) r.w.s. 144B of the Act vide order dated 15.09.2021. The assessee filed appeal against the aforesaid order before Ld. CIT(A) on 11.10.2021. The said appeal filed by the assessee against the assessment order dated 15.09.2021 is still pending disposal before the concerned Ld. CIT(A). Thereafter, on 13.01.2022, the assessee was in receipt of notice of hearing from DRP. Vide letter dated 14.03.2022, the assessee filed application for withdrawal of DRP objections, but DRP rejected the application for withdrawal of objection and issued directions disposing of the objections raised by the assessee. Thereafter, the Assessing Officer passed final assessment order pursuant to DRP directioins, in which certain transfer pricing adjustments were made vide order dated 31.05.2022. The assessee filed appeal before us, against the said final assessment order dated 31.05.2022.

5. In response, the Ld. DR submitted that the first assessment order dated 15.09.2021 was passed by the Faceless Assessing Officer (FAO) strictly in accordance with Section 144C(3) of the Act, as the assessee had failed to validly intimate the filing of objections with the DRP. Although the assessee claimed to have sent such intimation via email and physical submission, the Ld. DR contended that these were not in compliance with the statutory requirements under Section 144B of the Act, as the communications were not sent through the registered account on the designated e-filing portal and were made to non- designated email addresses from an unregistered email ID. Therefore, these communications never reached the FAO and could not be treated as valid. The Ld. DR submitted that the entire faceless assessment mechanism depends on communications being routed through proper electronic channels, and any deviation renders such communications Hazira Port Pvt. Ltd. vs. DCIT Asst.Year –2017-18 - 9– legally ineffective. Since no valid response was received from the assessee within the prescribed time of 30 days, the FAO was right in concluding that no objections had been filed and in proceeding to pass the final assessment order on 15.09.2021. The Ld. DR also pointed out that the order sheet clearly recorded the lack of response from the assessee, and that the system used in faceless assessments could only recognize communications made through the designated registered account. With respect to the second legal ground, the Ld. DR submitted that the second assessment order dated 31.05.2022 was passed only to give effect to the directions of the DRP issued on 28.04.2022, which were based on the mistaken belief that the assessee had filed a valid intimation with the AO. It was further submitted that the assessee misrepresented facts before the DRP and failed to disclose that the objections were never actually served upon the FAO. Nonetheless, the DRP, following the High Court rulings such as SRF Ltd. and Anand NVH Products, proceeded with the matter in a manner that it believed would ensure fairness. The Ld. DR further argued that the DRP’s reliance on Delhi and Karnataka High Court decisions, which interpreted Section 144C as a procedural and beneficial provision for the assessee, was misplaced in this case due to the assessee’s failure to comply with the mandatory procedural requirements. The Ld. DR highlighted that despite the procedural lapses, the assessee gained substantial relief through the DRP’s directions, resulting in a reduced TP adjustment of nearly ₹35 crores. Therefore, it was unjust and contradictory for the assessee to now contend that both the assessment orders dated 15.09.2021 and 31.05.2022 are invalid. Finally, the Ld. DR submitted that if the Tribunal accepts the Hazira Port Pvt. Ltd. vs. DCIT Asst.Year –2017-18 - 10– assessee's intimation as valid and holds the second order to be in accordance with law, then the assessee must withdraw the legal grounds raised against it. The assessee cannot claim both orders are invalid as this amounts to forum shopping. Hence, the Ld. DR requested that either the legal grounds be decided at the outset, or in the alternative, the proceedings be adjourned until the disposal of the assessee’s pending appeal before the CIT(A) against the first order dated 15.09.2021, as the matter involves significant revenue and broader implications.

6. The issue / controversy before us is that for the impugned assessment year, the Assessing Officer has passed two assessment orders: the first assessment order is dated 15.09.2021 and appeal against such order is pending disposal before Ld. CIT(A). Thereafter, the Assessing Officer passed another assessment order, pursuant to directions of DRP dated 31.05.2022, against which the appeal is pending before us. Before us, the Counsel for the assessee submitted that the final assessment order passed by the Assessing Officer dated 31.05.2022 is bad in law and void-ab-initio since the Act only allows the Assessing Officer to pass one final assessment order under Section 143(3) of the Act for any particular assessment year, while the same has already been passed / issued by the Assessing Officer vide order dated 15.09.2021. The appeal against the said order is pending adjudication before Ld. CIT(A). It was submitted that the issuance of two assessment orders in respect of the same assessment year is clearly against the provisions of the Act. The assessee relied on judicial precedents in support of the contention that once the assessment proceedings have been finalized, the Assessing Officer does not have Hazira Port Pvt. Ltd. vs. DCIT Asst.Year –2017-18 - 11– jurisdiction to pass another assessment order for the same year. It was submitted that once the final order dated 15.09.2021 was passed by the Assessing Officer, DRP had no jurisdiction to proceed with the objections by rejecting the withdrawal application filed by the assessee. The Counsel for the assessee placed reliance on judicial precedence in which it was held that DRP has powers to give directions only in pending assessment proceedings. In response, the Ld. D.R. vide submission dated 07.06.2024 also submitted that the first order passed by the Assessing Officer on 15.09.2021 is a valid order because the assessee failed to serve the FAO with the intimation regarding filing of objections before DRP. Accordingly, it was submitted that the second order passed by the Assessing Officer on 31.05.2022 is not a valid order.