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Facts
The appeal was filed against an assessment order passed by the Transfer Pricing Unit. The assessee argued that the assessment order was void as it did not conform to the binding directions of the Dispute Resolution Panel (DRP) as per Section 144C of the Income Tax Act.
Held
The Tribunal considered the arguments of both parties and relevant case laws. It found that the AO passed the assessment order without incorporating the DRP's directions, making it legally questionable. The Tribunal decided to remand the matter back to the AO.
Key Issues
Whether the assessment order passed without incorporating the DRP's directions is void and liable to be quashed, or if it should be remanded for rectification.
Sections Cited
143(3), 144C, 144B, 153, 253, 270A, 92CA
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Income Tax Appellate Tribunal, DIVISION BENCH, ‘A’ CHANDIGARH
Before: SHRI RAJPAL YADAV & SHRI KRINWANT SAHAY
Appeal in this case has been filed against the order dated 25.10.2024 passed by the ld. A.O. Transfer Pricing Unit (Faceless) of the Income Tax Department for assessment year 2021-22.
ITA No. 1201/CHD/2024 A.Y. 2021-22 2
Grounds of appeal taken by the assessee are as under:
“Centrient Pharmaceutical India Private Limited ('Appellant') respectfully craves leave to prefer an appeal under section 253(1)(d) of the Income-tax Act, 1961 (Act), against assessment order dated 25 October 2024 ("impugned order") passed by the Assessment Unit, Income Tax Department (Ld. 'AO") under section 143(3) read with section 144C read with section 1448 of the Act in pursuance of directions dated 26 September 2024 issued by Ld. Dispute Resolution Panel (DRP).
In facts and circumstances of the case and in law, Ld. AO/ Transfer Pricing Officer (TPO) and Ld. DRP have:
erred in making transfer pricing adjustment of INR 166,00,63,165 to total income declared by Appellant.
Transfer Pricing Grounds:
Legal grounds Ground 1: That on the facts and circumstances of the case and in law, the impugned order passes by the Ld. AO is barred by limitation in terms of section 153(1)/(4) and therefore, is liable to be quashed.
Ground 2: Based on the facts and circumstances of the present case and in law, the Final Order passed by Ld. Assessing Officer ('Ld. AO) being passed not in conformity with the directions issued by the Dispute Resolution Panel ('Hon'ble DRP'), is bad in law as per provisions of section 144C(10) r.w.s. 144C(13) of the A.Y. 2021-22 3 Income-tax Act, 1961 (the Act) and hence liable to be quashed.
Common grounds for all segments Ground 3: The Ld. TPO/AO have erred, in law and in facts, by rejecting/modifying the economic analysis undertaken by the Assessee.
Trading Segment Ground 4: The Ld. TPO/AO have erred, in law and in facts, by rejecting the comparable companies identified by the Assessee as comparable in the TP documentation for trading of finished goods.
Ground 5: The Ld. TPO/AO have erred, in law and in facts, by adding certain companies to the final set of comparables on an ad-hoc basis without due consideration to the functional, assets and risk profile of the Assessee in the trading segment.
Ground 6: The Assessee would like to propose certain companies as comparables considering the functional, assets and risk profile of the Assessee in the trading segment.
IT Enabled Services Ground 7: The Ld. TPO/AO have erred, in law and in facts, by rejecting the comparable companies identified by the Assessee as comparable in the TP documentation for benchmarking IT enabled services.
Ground B. The Ld. TPOIAO have erred, in law and in facts by adding certain companies to the final set of A.Y. 2021-22 4 comparables on an ad-hoc basis without due Assessee in benchmarking IT enabled services due consideration to the functional, assets and risk profile of then Assessee in benchmarking IT enabled services.
Contract R&D Services Ground 9. The Ld. TPΟΙΛΟ have erred in law and in facts, by adding certain companies to the final set of comparables on an ad-hoc basis without due consideration to the functional assets and risk profile of the Assessee in benchmarking contract R&D services Ground 10. The Ld. TPO/AO have erred, in law and in facts by doing a calculation error while computation of arm's length range by considering operating revenue as operating cost to determine the ALP Ground 11. The Assessee would like to propose certain companies as comparables considering the functional, assets and risk profile of the Assessee for Contract R&D services Intragroup Services Ground 12. The Ld. AO/ TPO erred in law and on facts, concluding that the Appellant has not been able to prove substantially that the services have actually been rendered to it and disregarded the factual information submitted in relation to receipt of such services.
Ground 13. The Ld. TPO/AO have erred, in law and in facts, by applying CUP as the Most Appropriate Method to benchmark IGS and determining the ALP of IGS as NIL Royalty A.Y. 2021-22 5 Ground 14. The Ld. TPO/AO have erred, in law and in facts, by rejecting the comparable companies identified by the Assessee as comparable in the TP documentation for payment of royalty Ground 15. The Ld. TPO/AO have erred, in law and in facts, by adding certain companies to the final set of comparables on an ad-hoc basis without due consideration to the functional, assets and risk profile of the Assessee in payment of royalty Manufacturing Activities.
Ground 16: The Ld. TPO/AO have erred, in law and in facts, by rejecting the comparable companies identified by the Assessee as comparable in the TP documentation for benchmarking manufacturing activities without giving any reason.
Ground 17: The Ld. TPO/AO have erred, in law and in facts, by adding certain companies to the final set of comparables on an ad-hoc basis without due consideration to the functional, assets and risk profile of the Assessee in benchmarking contract manufacturing activities.
Ground 18: The Assessee would like to propose certain companies as comparables considering the functional, assets and risk profile of the Assessee in the manufacturing segment.
Others A.Y. 2021-22 6 Ground 19: The Hon'ble DRP has erred, in law and in facts, by mentioning the wrong Assessment year in DRP Directions dated 26 September 2024.
Ground 20: The Ld. TPO/AO have erred, in law and in facts, by not providing consequential relief of reducing Intragroup Services ('IGS") from operating cost of the Assessee in case of manufacturing and trading segment.
Ground 21: The Ld. TPO/Ld. AD has erred in facts and in law, by not making appropriate adjustments to account for differences in working capital employed by the Assessee vis-a-vis the companies considered as comparables in the order issued under section 92CA of the Act.
Ground 22: The Ld. AO has erred in initiating penalty proceedings u/s 270A of the Act for "Under Reporting Income Above grounds may be considered independent and without prejudice to each other.
The Appellant craves leave to add, alter, vary, omit, amend or delete one or more of the above grounds of appeal at any time before, or at the time of hearing of the appeal, so as to enable the Hon'ble Tribunal to decide this appeal according to law to law.”
3. At the very outset, the ld. counsel of the assessee pressed the legal grounds taken that the final assessment order is bad in law and void as it does not confirm to binding directions of A.Y. 2021-22 7 ld. DRP. He referred a new section inserted u/s 144C which reads as under:
(10) Every direction issued by the Dispute Resolution Panel shall be binding on the Assessing Officer. (11) No direction under sub-section (5) shall be issued unless an opportunity of being heard is given to the to the interest of the assessee or the interest of the revenue, respectively. (12) No direction under sub-section (5) shall be issued after nine months from the end of the month in which the draft order is forwarded to the eligible assessee. (13) 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 15.3, 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.
Briefly stated in this case, the A.O. passed an order u/s 143(3) r.w.s. 144B of the Income Tax Act vide order dated 25.10.2024, in the assessment order the A.O. has observed as under:
“5. Income computation table in the draft order:
The additions suggested by the TPO totaling to Rs. 166,00,63,165/- as stated above is added to the total income for the AY 21-22. The assessment was proposed to be completed as under:
A.Y. 2021-22 8 Description Amount (Rs) Total income as per return of 147,97,31,970 income and as per section 143(1) of the IT Act Add: Addition (Adjustments) 166,00,63,165 proposed by TPO Assessed total Income u/s 313,97,95,135 143(3) r.w.s 144C 6.1 The above quantified income was sent to the assessee as Draft assessment order u/s 144C(1) of the IT Act, 1961 vide DIN & order No ITBA/AST/F/144C/2023-24/1059061224(1) dated 26/12/23.
6.2 The assessee filed its objections before the Dispute Resolution Panel in Form 35A and the Dispute Resolution Panel vide order dated 26/9/24 in DIN No ITBA/DRP/M/144C(5)/2024-25/1069123639(1) has given directions u/s 144C(5) of the IT Act, 19.
6.3 The order giving effect to the directions of the Hon'ble DRP has not been passed by the Transfer Pricing Officer, DCIT, 1(2)(2), New Delhi till now and hence the final order in the case is being finalized without giving effect to the directions of the Hon'ble DRP in the case of the assessee as the time limit for completion of the final order expires by 31/10/2024. However, this final order may be rectified accordingly, once the order giving effect to the directions of the Hon'ble DRP is passed by the concerned TPO in the case.”
5. The ld. counsel of the assessee has filed a brief of case laws like 1 to 10 is as under:
ITA No. 1201/CHD/2024 A.Y. 2021-22 9 SI. Particulars Page Number No. From To 1 Flextronics Technologies (India) Pvt. Ltd - OF 2019 l 8 (Karnataka High Court, Bengaluru Bench) 2 ESPN Star Sports Mauritius S.N.C. Et Compagnie. - W.P.(C) 9 25 2384/2015 & CM No. 4277/2015 & W.P.(C) 2397/2015& CM No. 4298/2015- Delhi High Court 3 Trivium eSolutions Pvt. Ltd.- IT(TP)ANo. 444/Bang/2022 26 31 4 Xchnging Solutions Limited - IT(TP)A No.2664/Bang/20i7 32 41 5 July Systems & Technologies Pvt. Ltd. - IT(TP)A 42 53 No.368/Bang/20i6 & IT(TP)A No.479/Bang/20i6 6 Baseware Corporation India- ITA I28g/Chd/2019 & 64 123/Chd/2017 7 Olympus Medical Systems Pvt. Ltd - SA No. 162/DEL/2021 [In 65 86 ITA No. 873/DEL/2021) & ITA No. 873/DEL/2021 8 Software Paradigms Infotech (P.) Ltd. 87 94 9 Global One India (P.) Ltd. 95 105 10 Nomura Research Institute Financial Technologies Ind Pvt Ltd 106 115 I.T.A. No. 1548/K0I/2019 On the basis of such case laws, he has argued that since the directions given by the TPO have not been considered and incorporated in the assessment order, therefore as per the mandatory requirement of section 144C of the Income Tax Act, the order of the A.O. is void and needs to be quashed.
6. Per contra, the ld. DR has also brought on record, many case laws in which it has been clearly brought out by different coordinate benches of the Tribunal as well as different Hon'ble High Courts in which it has been clearly A.Y. 2021-22 10 held that even if the A.O. does not comply with the directions of the DRP, the order automatically will not become void that they have remanded the matter back to the file of the A.O. in order to incorporate directions of the TPO and pass an order afresh.
7. The ld. DR brought on record, the following case laws as under:
S. No. Particulars 1. Anand NVH Products Pvt. Ltd. Vs National E-Assessment Centre Delhi & ANR. dated 06.08.2021 - WP(C) 7936/Del/2021 2. Fiberhome India Vs National E Assessment Centre ANR 15.12.2021 - WP(C) 11609/2021 3. SFR Ltd. Vs National Faceless Assessment Centre, Delhi & ANR - WP(C) 6484/2021 4. M/s Ford India Pvt. Ltd. Vs National E Assessment Centre & ANR - WP(C) 12701/2021
Hitachi Astemo Haryana Pvt. Ltd. Vs DCIT, Circle 22(2), Delhi -ITA No. 1005/Del/2022 In order of the Delhi Tribunal in the case of Hitachi Astemo Haryana Pvt. Ltd. Vs DCIT, Circle 22(2), Delhi -ITA No. 1005/Del/2022 it is squarely covered this issue in which it has been mentioned that the facts of this case are very similar to the facts of the Hitachi Astemo Haryana Pvt. A.Y. 2021-22 11 Ltd. case (supra). Relevant portions of the Hitachi order are reproduced as under:
“AO in his final assessment order commented that DRP's directions to the TPO/has to be given effect by the TPO and the same was communicated to the TPO requesting to pass order giving effect of DRP's order dated 23.02.2022. Though the order giving effect of DRP's direction passed by the TPO is also dated 30.03.2022, the same was not received by the AO. AO could not incorporate the same in the assessment order. However, he passed the order subject to the modified order of the TPO which is yet to be passed and the necessary modification with regard TP adjustment which would be made by passing rectification order on receipt of the TPO order in due course. Thus, in the above facts, it is emanating that the final assessment order is without incorporating of DRP's directions. As stated above, the reason is that DRP has given certain directions which were to be given effect by the TPO. The AO till passing the final assessment order has not received the order giving effect by the TPO. In this regard, stating that such an order passed by the AO is not legal in the eyes of law, Id. Counsel of the assessee has placed reliance on the following Tribunal orders and also on the Hon'ble Karnataka High Court in the case of Pr. CIT vs. M/s. Flextronics Technologies (India) Pvt. Ltd. in of 2019 order dated 9 January 2023:-
(i) Flextronics Technologies (India) Private Ltd. vs. ACIT IT (TP) A No.832/Bang/2017; A.Y. 2021-22 12 (ii) Sof tware Paradigms Infotech (P.) Ltd. vs. ACIT (2018) 89 taxmann.com 339 (Bangalore-Trib.); (iii) M/s. Global One India Pvt. Ltd. vs. DCIT (iv) M/s. Olympus Medical Systems Pvt. Ltd. vs. ACIT: ITA No.873/Del/2021; (v) Yokogawa India Ltd. vs. ACIT ITA (TP) A No.1715 & 692/Bang/2016 & MP.No.136/Bang/2021; and (vi) July Systems & Technologies Pvt. Ltd. vs. DCIT: IT (IP) A.No.368/Bang/2016.
5. Per contra, Id. DR for the Revenue relied upon the orders of the Hon'ble jurisdictional High Court of Delhi and decision of Hon'ble Madras High Court as under :-
(1) Anand NVH Products Pvt. Ltd. vs. National E Assessment Centre ANR dated 06.08.2021-WP (C) 7936/Del/2021; (ii) Fiber Home India vs. National E Assessment Centre ANR 15.12.2021-WP (C) 11609/2021; (iii) SRF Ltd. vs. National E Assessment Centre and ANR WP (C) 6484/2021; and (iv) Ford India Pvt. Ltd. vs. National E Assessment Centre - WP (C) 12701/2021.
5.1 Referring to these case laws, Id. DR for the Revenue has submitted that the facts of the present case and the case laws cited are similar. AO in these cases passed the order without incorporating the DRP's direction. In all the above cases, the Hon'ble High Courts did not quash the entire A.Y. 2021-22 13 proceedings and only the final assessment order along with the demand notice were set aside and proceedings restored to the level of DRP/AO. He reiterated that even though the assessment orders have been passed without incorporating the DRP's directions and in complete violation of mandatory procedure u/s 144C of the Act, but still the Hon'ble High Court did not treat it as f atal error which cannot be corrected. Ld. DR for the Revenue further pleaded that from the orders of Hon'ble High Court, it can be inferred that the Hon'ble High Court treated it as technical/procedural default and to cure the same, restored the proceedings at the level of DRP and given Department, the opportunity to pass a f resh assessment order af ter incorporating the DRP's directions.
We have heard both the parties and perused the records. We have given very thoughtful consideration to the above submissions and case laws. We find that the Id. Counsel of the assessee relied upon the Tribunal decisions and one decision from Hon'ble Karnataka High Court (supra). On the other hand, Id. DR for the Revenue has relied upon three case laws from Hon'ble jurisdictional High Court and one decision from Hon'ble Madras High Court. We find that Hon'ble jurisdictional High Court is binding on the Tribunal, hence we adjudicate this issue with reference to the orders of the Hon'ble jurisdictional High Court referred above, as the facts are similar.
In the case of Anand NVH Products Pvt. Ltd. (supra), we noted that assessment order has been passed under section 143(3) read with section 144C of the Act without waiting for the decision of the DRP. Hon'ble High Court in that case set aside the final assessment order along with A.Y. 2021-22 14 notice of demand and restored the matter to the level of DRP.
7.1 In the case of SRF Ltd. (supra), the final assessment order was passed without incorporating the DRP's directions. Hon'ble High Court, in such a situation, quashed the final assessment order and the demand of notice and remitted the matter to DRP for consideration under section 144C of the Act. Thereafter, it was directed that the assessment order shall be passed in accordance with the procedure stipulated under section 144B(1) as well as section 144(C) of the Act.
7.2 In the case of Fibrehome India Pvt. Ltd. (supra) also, the final assessment order was passed without incorporating the directions of the DRP. In that case also, Hon'ble jurisdictional High Court remitted the matter to DRP keeping in view of the scheme of section 144C of the Act. In this decision, Hon'ble jurisdictional High Court inter alia referred to the decisions of Hon'ble jurisdictional High Court in the cases of Anand NVH Products Pvt. Ltd. and SRF Ltd. (supra).
Thus, from the above reading of Hon'ble jurisdictional High Court decisions, it is emanating that in the final assessment order passed without incorporating the DRP's directions, the matter has been remanded to the DRP by the Hon'ble High Court to give effect to the scheme of section 144C of the Act. Hence, following the same, we remit the issue to the file of AO. AO shall pass an order incorporating DRP's directions which has been given effect by the TPO.”
A.Y. 2021-22 15 8. We have considered the findings given by the A.O. in the assessment order and we find that the A.O. has accepted the fact that he has not passed the order as per the directions received from the DRP. It was because the matter was getting time-barred, he had to pass an order. We have also considered different case laws brought on record by the counsel of the assessee as well as case laws brought on record by the ld. DR. We find that the findings given by the Delhi Tribunal in Hitachi Astemo Haryana Pvt. Ltd. case (supra) is very similar and relevant for this case and the issues under consideration. We also find that the Hon'ble High Court in the case of Anand NVH Products Pvt. Ltd. (supra), in the case of SFR Ltd. (supra) and in the case of Fiberhome India (supra) have held that once the order is passed by the A.O. without taking into consideration and/giving effect to all the directions of the DRP, the matter should be remanded back to the A.O. to enable him to pass an order afresh incorporating DRP directions/directions.
A.Y. 2021-22 16 9. Accordingly, in our considered view, this matter also deserves to be remanded back to the A.O. for passing a fresh order incorporating the directions of the DRP/after giving full and adequate opportunity to the assessee of being heard as required by law. Thus, keeping in view of natural justice, this case is remanded back to the file of the A.O.
10. As we have remanded back this case to the file of TPO on legal ground raised by the assessee, therefore, we are not giving any finding on other issues/ground of appeal (on merit) raised in this appeal.
In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced on 26.03.2025.