CUMMINS INDIA LIMITED,,PUNE vs. DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE - 1(1),, PUNE

आदेश / ORDER

PER R.S. SYAL, VP : These two appeals by the assessee relating to the assessment years 2016-17 & 2017-18 arise out of the final orders passed by the Assessing Officer (AO) u/s.143(3) read with section 144C(13) of the Income-tax Act, 1961 (hereinafter also called ‘the Act’) on 29-06-2021 & 21-02-2022 respectively. Since some of the issues raised in these appeals are common, we are, ergo, proceedings to dispose them off by this consolidated order for the sake of convenience.

2 ITA Nos.388/PUN/2021 & 236/PUN/2022 Cummins India Limited A.Yrs. 2016-17 & 2017-18

mention that the appeal of the assessee for the A.Y. 2015-16 was

a part of batch of three appeals, including the two under

consideration. All the three appeals were listed for hearing on

26-09-2022. The lead appeal for the A.Y. 2015-16 was heard at

length on that date. For paucity of time, the instant appeals could

not be taken up on that day and hence were adjourned for today.

Some of the issues raised in the current batch of appeals are

similar to those in the appeal for the A.Y. 2015-16. Both the sides

relied on their respective arguments made for the preceding year

relevant to the issues in the appeals under consideration.

A.Y. 2016-17 :

of the final assessment order due to non-service of the Dispute

Resolution Panel’s (DRP) directions. Referring to Rule 11 of

Income-tax (Dispute Resolution Panel) Rules, 2009, which

provides for the communication of the direction also to the

eligible assessee, the ld. AR contended that the directions given

by the DRP u/s.144C(5) was not served on the assessee. The final

assessment order passed in such circumstances was thus claimed

to be vitiated. Per contra, the ld. DR submitted that the direction

3 ITA Nos.388/PUN/2021 & 236/PUN/2022 Cummins India Limited A.Yrs. 2016-17 & 2017-18

was properly served on the assessee, which was clear from the

DIN.

relevant material on record, it is seen that section 144C(5) of the

Act states that: `The Dispute Resolution Panel shall, in a case

where any objection is received under sub-section (2), issue such

directions, as it thinks fit, for the guidance of the Assessing

Officer to enable him to complete the assessment.’ On going

through the prescription of sub-section (5) of section 144C, it is

manifest that the direction is for the guidance of the AO for

enabling him to complete the assessment. Such a direction is

issued, in terms of sub-section (6), by the DRP after considering,

amongst others, the draft order; objections filed by the assessee;

evidence furnished by the assessee; report, if any, of the

Assessing Officer, Valuation Officer or Transfer Pricing Officer

or any other authority; and records relating to the draft order.

This shows that the direction is issued by the DRP after giving

full opportunity of hearing to the assessee, which is further

ostensible from sub-section (11), unequivocally providing to that

extent, by stating that no direction under sub-section (5) shall be

issued unless an opportunity of being heard is given to the

4 ITA Nos.388/PUN/2021 & 236/PUN/2022 Cummins India Limited A.Yrs. 2016-17 & 2017-18

assessee on such directions which are prejudicial to the interest of

the assessee. Sub-section (13) of 144C provides that: `Upon

receipt of the directions issued under sub-section (5), the

Assessing Officer shall, in conformity with the directions,

complete, notwithstanding anything to the contrary contained

in section 153 or section 153B, the assessment without providing

any further opportunity of being heard to the assessee, within one

month from the end of the month in which such direction is

received’. On an overview of the above sub-sections of section

144C, it is vivid that - the opportunity of hearing to the assessee is

required to be given by the DRP before deciding on the objections

raised before it; the direction is given for the guidance of the AO;

and after the receipt of the direction, the AO has to straight away

pass the final assessment order without providing any further

opportunity of hearing to the assessee. This deciphers that the

communication of the direction to the AO is essential as the latter

has to pass the final assessment order in conformity with such

direction and that too, without giving any opportunity of hearing

to the assessee. Insofar as the assessee is concerned, the

requirement is to give opportunity of hearing before issuing the

direction and there is no further statutory requirement of

5 ITA Nos.388/PUN/2021 & 236/PUN/2022 Cummins India Limited A.Yrs. 2016-17 & 2017-18

communicating such direction to him. The AO is required to pass

the final order in conformity with the direction. There is no

specific legal recourse available to the assessee against the

adverse direction of the DRP except for filing an appeal against

the final assessment order giving effect to such direction. The

service of the direction by the DRP on the assessee, in terms of

Rule 11 of Income-tax (Dispute Resolution Panel) Rules, 2009, is

only a procedural requirement put in place by delegated

legislation, without any corresponding provision in the enactment.

In that view of the matter, it cannot be said that non-service of the

direction of the DRP to the assessee would vitiate the final

assessment order itself.

admitted before the Tribunal that, on the assessee writing to the

DRP about non-communication of the direction, the DRP

responded by mentioning that direction dated 11-03-2021 was

promptly e-mailed to the assessee on that very date itself. No

adverse contrary evidence has been brought to our notice on

behalf of the assessee. Under such circumstances, we are satisfied

that this ground is devoid of merit and hence deserves the fate of

dismissal. We order accordingly.

6 ITA Nos.388/PUN/2021 & 236/PUN/2022 Cummins India Limited A.Yrs. 2016-17 & 2017-18

pricing addition of Rs.12.35crore in the international transaction

of `Payment of Royalty for use of technology’. The facts of this

issue are that the assessee paid Royalty to its foreign-based

Associated Enterprise (AE), which was clubbed with other

international transactions under the “Manufacturing Segment” for

determining the Arm’s Length Price (ALP) on an aggregate basis.

The Transfer Pricing Officer (TPO) did not accept the assesee’s

aggregation approach. He segregated the international transaction

of payment of Royalty. It was further noted by him from the

Agreement that the rates at which the Royalty was paid on

domestic sales to non-AEs were much less than the rates on

exports made to AEs. He, therefore, bifurcated the transaction of

Royalty payment into two parts, viz., on domestic-sales and on

exports; and made the transfer pricing adjustment in respect of

Royalty paid by the assessee on export sales to its AEs. The DRP

did not give any reprieve to the assessee, which led to the passing

of the final assessment order by making transfer pricing

adjustment of 12.35 crore.

circumstances for the year under consideration are similar to those

7 ITA Nos.388/PUN/2021 & 236/PUN/2022 Cummins India Limited A.Yrs. 2016-17 & 2017-18

for the A.Y. 2015-16. Rather, they adopted their respective

arguments made for the A.Y. 2015-16 without making any

separate submission for the year under consideration.

in which the TPO’s approach of segregating the payment of

Royalty transaction from the other international transactions

under the combined ‘Manufacturing segment’ has been

countenanced and the matter concerning the determination of the

ALP of the Royalty payment in respect of export sales has been

sent back to the DRP for disposing of the assessee’s objections

raised before it, which were inadvertently omitted to be disposed

of. Following the view taken by the Tribunal for the A.Y. 2015-

16, we approve the segregation of payment of Royalty from other

international transactions under the ‘Manufacturing segment’ and

send the matter to the DRP for disposing of the assessee’s

objections on the further segregation of Royalty payment on

exports and domestic sales and the consequential transfer pricing

adjustment in respect of export sales to the AEs.

confirmation of disallowance u/s.14A of the Act. Both the sides

fairly agreed that the facts and circumstances of this ground are

8 ITA Nos.388/PUN/2021 & 236/PUN/2022 Cummins India Limited A.Yrs. 2016-17 & 2017-18

similar to those for the A.Y. 2015-16. No separate submissions

were advanced. Following the view taken in the order for the

A.Y. 2015-16, we remit the matter to the file of the AO for

deciding this issue afresh in the light of the directions given by

the Tribunal in its order for the A.Y. 2012-13.

Education Cess and Secondary higher education cess is again

similar to that of the A.Y. 2015-16, which has been dismissed by

the Tribunal. Following the precedent, we decide this issue

against the assessee.

amounting to Rs.6.00 crore. The facts anent to this issue are that

the assessee claimed deduction u/s.80G for a sum of Rs.6.00 crore

in the computation of income. The AO did not dispute the

deduction and adopted the total income offered by the assessee

(after deduction u/s.80G) for making certain disallowances and

computed the total income accordingly. This was done in the

draft as well as the final assessment orders. However, in the

Computation sheet, the AO omitted to grant the deduction of

Rs.6.00 crore, as is apparent from column no.12 showing the

figure of ‘zero’ against the total deduction against Chapter VI-A.

9 ITA Nos.388/PUN/2021 & 236/PUN/2022 Cummins India Limited A.Yrs. 2016-17 & 2017-18

Under such circumstances, we direct the AO to verify the

assessee’s contention and allow deduction of Rs.6.00 crore, if not

earlier allowed, after due opportunity of hearing to the assessee.

amounting to Rs.3,51,818/-. The AO is directed to verify the

assessee’s contention and allow the necessary credit, if not earlier

allowed.

u/s.271(1)(c) is premature and hence dismissed.

A.Y. 2017-18 :

in terms of section 144B of the Act. The ld. AR fairly admitted

that statutory amendment has been carried out by the Finance Act,

2022 with retrospective effect and the assessee’s ground has,

therefore, become infructuous. This ground is thus dismissed.

adjustment of Rs.11,95,85,010/- in the international transaction of

payment of Royalty. Both the sides are in agreement that the

facts and circumstances of this ground are similar to those of the

preceding two years. We follow the order rendered for the A.Y.

10 ITA Nos.388/PUN/2021 & 236/PUN/2022 Cummins India Limited A.Yrs. 2016-17 & 2017-18

2015-16 and order accordingly, as briefly mentioned above for

the A.Y. 2016.

during the scrutiny assessment u/s.143(3). The AO observed in

the draft order that the assessee e-filed its return on 30-11-2017

showing income of Rs.498.57 crore, which was processed

u/s.143(1) of the Act by the CPC, Bengaluru at total income of

Rs.562.17 crore. The draft order was notified by taking the

starting point of the computation of total income as Rs.561.17

crore, as processed u/s.143(1), and thereafter the additions were

made. The assessee contended before the DRP that the income

was enhanced u/s.143(1) by Rs.63.60 lakh without giving

opportunity to the assessee during the assessment proceedings. It

was further contended that the assessee has filed rectification

application before the concerned AO. The DRP upheld the

adoption of income at Rs.562.17 crore as processed u/s.143(1) as

base point for computing total income. It, however, directed that:

“in case the CPC passes any rectification order revising the total

income computed u/s.143(1) of the Act in future, the AO is

directed to adopt the figure as per such rectification order”. The

ld. AR contended that the application u/s.154 has still not been

11 ITA Nos.388/PUN/2021 & 236/PUN/2022 Cummins India Limited A.Yrs. 2016-17 & 2017-18

disposed of. Under such circumstances, we direct the disposal of

the application made by the assessee u/s.154 of the Act and then

make suitable changes to the figure of income u/s.143(1) as the

base figure for determining income u/s.143(3), if warranted.

amounting to Rs.29,52,565/-. The AO is directed to verify the

asssessee’s contention and decide the issue accordingly.

to Rs.31,76,153/-. The only prayer of the assessee is that the

computation part of interest u/s.234C be checked. We order

accordingly and direct the AO to examine if the interest has been

computed correctly in terms of section 234C.

u/s.271(1)(c) is premature and hence, not allowed.

2022.

Sd/- Sd/- (S.S.VISWANETHRA RAVI) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; िदनांक Dated : 28th September, 2022 सतीश

ITA Nos.388/PUN/2021 & 236/PUN/2022 Cummins India Limited A.Yrs. 2016-17 & 2017-18

आदेश की �ितिलिप अ�ेिषत/Copy of the Order is forwarded to: अपीलाथ� / The Appellant; 1. ��थ� / The respondent 2. 3. The CIT(A)-13, Pune 4. The PCIT-5, Pune 5. DR, ITAT, ‘C’ Bench, Pune गाड� फाईल / Guard file. 6.

आदेशानुसार/ BY ORDER,

// True Copy //

Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune

Date 1. Draft dictated on 28-09-2022 Sr.PS 2. Draft placed before author 28-09-2022 Sr.PS 3. Draft proposed & placed before JM the second member 4. Draft discussed/approved by JM Second Member. 5. Approved Draft comes to the Sr.PS Sr.PS/PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order.

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