THERMO FISHER SCIENTIFIC INDIA P. LTD,MUMBAI vs. ITO-15(3)(1), MUMBAI

Fact in brief is that return of income declaring total income of Rs. Nil after set off of brought forward losses/depreciation of Rs. 12,64,93,185/- was filed on 30.11.2016. The case was subject to scrutiny assessment and notice u/s 143(2) of the Act was issued and duly served on the assessee company. The assessee company is engaged in the business of manufacturing, installation and sale (including trading) of scientific/medical laboratories equipments and chemicals. During the course of assessment, the assessing officer noticed that assessee company has entered into international transaction with associated enterprises amounting to Rs. 501,73,08,760/-. The Transfer Pricing Officer (TPO), DCIT, (TP) 4(2)(1), Thermo Fisher Scientific India Private Limited A.Y. 2016-17 Mumbai vide order dated 01.11.2019 has made adjustment to the international transaction amounting to Rs. 33,83,31,881/-. Accordingly, the assessing officer has made an adjustment of the above amount and added to the total income of the assessee. The assessing officer also noticed that assessee has claimed depreciation on manufacturing/supply contracts and maintenance contracts of Rs. 2,30,91,400/-. The assessing officer has disallowed the claim of depreciation on the basis of similar disallowance made in the earlier years. After making aforesaid additions, the assessing officer has passed draft assessment order u/s 144C of the Act on 23.12.2019.

The assessee has filed objections before the Dispute Resolution Panel (DRP) against the additions proposed by the assessing officer in the draft assessment order. The DRP issued direction vide order u/s 144C(5) of the Act dated 26.02.2021. In accordance with the direction of the DRP, the assessing officer has revised the adjustment to the amount of Rs. 14,05,00,568/- as against of Rs. 33,83,31,881/- recommended by the TPO as referred above in this order. Following the direction of the DRP the AO has also disallowed the claim of Rs. 2,30,91,400/- in the final assessment order. The final assessment order was passed by the assessing officer on 30.03.2021 and total income of the assessee was assessed at Rs. 30,02,91,672/-. The assessee has also filed the following additional ground of appeal:

During the course of appellate proceedings, at the outset, the ld. Counsel contested the additional ground of appeal filed by the assessee that Transfer Pricing Officer order passed u/s 92CA(3A) of the Act on 01.11.2019 was time barred. In this regard, the ld. Counsel has placed reliance in the case of Pfizer Healthcare India Private Limited vs JCIT 433 ITR 028 (Madras) and various decisions of ITAT, Mumbai on the similar issue as under:

Heard both the sides and perused the material on record with regard to the limited issue of validity of order passed by the TPO u/s 92CA(3A) of the Act and subsequent proceedings arises therefrom. During the course of appellate proceedings before us, the ld. Counsel has filed computation period of limitation along with the comparable data in the case of Pfizer Healthcare India Private Limited adjudicated by (Hon’ble Madras High Court) as under:

Further the decision of division bench of the Hon’ble Madras High Court in the case of DCIT Vs. Saint Gobain India P. Ltd. as referred supra by the ld. Counsel is reproduced as under:

The language employed is simple. 31-12-2019 is the last date for the assessing officer to pass his order under section 153. The TPO has to pass order before 60 days prior to the last date. The 60 days is to be calculated excluding the last date because of the use of the words "prior to" and the TPO has to pass order before the 60th day. In the present case, the word "before" used before "60 days" would indicate that an order has to be passed before 1-11-2019 i.e on or before 31-10-2019 as rightly held by the Learned Judge.

Even considering for the purpose of alternate interpretation, the scope of section 9 of the General Clauses Act, it is to be noted that an inverted calculation of the period of limitation takes place here. If the last date is taken to be the first date from which the period of 60 days is to be calculated, reading down the provision with the use of the word "from", which denotes the starting point or period of direction in general parlance, would mean that 60 days "from the last date". Even going by section 9 of the General Clauses Act, when the word "from" is used, then, that date is to be excluded, implying here that 31-12-2019 must be excluded. After excluding 31- 12-2019, if the period of 60 days is calculated, the 60th day would fall on 1-11-2019 and the TPO must have passed the order on or before 31-10-2019 as orders are to be passed before the 60th day. Therefore, either way the contention of the Revenue is a fallacy and has no legs to stand.

The next contention that has been raised by the learned senior standing counsel for the appellants is that the usage of the word "may" in section 92CA (3A) indicates that the time fixed is only directory, a guideline, not mandatory and is for the sake of internal proceedings.

Let us now examine the relevant procedures relating to Transfer Pricing. After an international transaction is noticed subject to satisfaction of section 92B, a reference is made to the TPO under sub-section (1) of section 92CA of the Act. The TPO after considering the documents submitted by the assessee is to pass an order under section 92CA (3) of Thermo Fisher Scientific India Private Limited A.Y. 2016-17 the Act. As per section 92CA(3A), the order has to be passed before the expiry of 60 days prior to the date on which the period of limitation under section 153 expires. As per 92CA(4), the assessing officer has to pass an order in conformity with the order of the TPO. After receipt of the order from the TPO determining ALP, the assessing officer is to forward a draft assessment order to the assessee, who has an option either to file his acceptance of the variation of the assessment or file his objection to any such variation with the Dispute Resolution Panel and also the Assessing Officer. Sub-section (5) of section 144C of the Act provides that if any objections are raised by the assessee before the Dispute Resolution Panel, the Panel is empowered to issue such direction as it thinks fit for the guidance of the Assessing Officer after considering various details provided in Clauses (A) to (G) thereof. Sub-section (13) of section 144C of the Act provides that upon receipt of directions issued under sub-section (5) of section 144C of the Act, the Assessing Officer shall in conformity with the directions complete the assessment proceedings. It goes without saying that if no objections are filed by the Assessee either before the DRP or the assessing officer to the determination by the TPO, section 92CA(4) would come into operation. Therefore, it is very clear that once a reference is made, it would have an impact on the assessment unless a decision on merits is taken by DRP rejecting or varying the determination by the TPO.

It would only be apropos to note that as per proviso to section 92CA (3A), if the time limit for the TPO to pass an order is less than 60 days, then the remaining period shall be extended to 60 days. This implies that not only is the time frame mandatory, but also that the TPO has to pass an order within 60 days.

Further, the extension in the proviso referred above, also automatically extends the period of assessment to 60 days as per the second proviso to section 153.

Also, but for the reference to the TPO, the time limit for completing the assessment would only be 21 months from the end of the assessment year. It is only if a reference is pending, the department gets another 12 months. Once reference is made and after availing the benefit of the extended period to pass orders, the department cannot claim that the time limits are not mandatory. Hence, the contention raised in this regard is rejected.

As rightly pointed out by Mr. Ajay Vohra, learned senior counsel for the respondents in WA. Nos.1148 and 1149/2021, the word "may" has to be sometimes read as "shall" and vice versa depending upon the context in which it is used, the consequences of the performance or failure on the Thermo Fisher Scientific India Private Limited A.Y. 2016-17 overall scheme and object of the provisions would have to be considered while determining whether it is mandatory or directory.

At this juncture, it is noteworthy to mention the commentary of Justice G.P.Singh on the interpretation of statutes, Principles of Statutory Interpretation (1st Edn., Lexis Nexis 2015), which is quoted below for ready reference: ' The intention of the legislature thus assimilates two aspects: In one aspect it carries the concept of "meaning" i.e. what the words mean and in another aspect, it conveys the concept of "purpose and object" or the "reason and spirit" pervading through the statute. The process of construction, therefore, combines both literal and purposive approaches. In other words the legislative intention i.e. the true or legal meaning of an enactment is derived by considering the meaning of the words used in the enactment in the light of any discernible purpose or object which comprehends the mischief and its remedy to which the enactment is directed. This formulation later received the approval of the Supreme Court and was called the "cardinal principle of construction".'

In case of assessments involving transfer pricing, fixing of time limits at various stages sets forth that the object of the provisions is to facilitate faster assessment involving such determination. In the present case, as rightly held by the learned Judge in paragraphs 22 to 29 of the order dated 7-9-2020, the order of the TPO or the failure to pass an order before 60 days will have an impact in the order to be passed by the Assessing Officer, for which an outer time limit has been prescribed under sections 144C and 153 and is hence mandatory. What is also not to be forgotten, considering the scheme of the Act, the inter-relatability and inter-dependency of the provisions to conclude the assessment, is the consequence or the effect that follows, if an order is not passed in time. When an order is passed in time, the procedures under 144C and 92CA(4) are to be followed. When the determination is not in time, it cannot be relied upon by the assessing officer while concluding the assessment proceedings.

Upon consideration of the judgments and the scheme of the Act, we are of the opinion that the word "may" used therein has to be construed as "shall" and the time period fixed therein has to be scrupulously followed. The word "may" is used there to imply that an order can be passed any day before 60 days and it is not that the order must be made on the day before the 60th day. The impact of the proviso to the subsection clarifies the mandatory nature of the time schedule. The word "may" cannot be interpreted to say that the legislature never wanted the authority to pass an order within 60 days and it gave a discretion. Therefore, the learned Judge rightly held the orders impugned in the writ Thermo Fisher Scientific India Private Limited A.Y. 2016-17 petitions as barred by limitation, as the Board, in the Central Action Plan, has specified 31-10-2019 as the date on which orders are to be passed by the TPO, reiterating the time limit to be mandatory.”

In this regard, we find that coordinate bench of the ITAT on the similar issue on identical facts in the cases i.e (i) Strides Shasum Limited Vs. DCIT, Circle 15(3)(2) vide dated 28.02.2023 (ii) M/s Mondelez India Foods Private Limited Vs. Ad. CIT, Range 5(1) vide 1576 & 2340/Mum/2015 dated 14.11.2022 and (iii) M/s Tubacex Prakash India Pvt. Ltd. Vs. The ACIT/JCIT/DCIT/ACIT-national E-assessment Centre, Delhi and DCIT, Thermo Fisher Scientific India Private Limited A.Y. 2016-17 circle 14(1)(2), dated 24.03.2023 held that the order of the TPO and draft assessment order are barred by limitation, therefore, resulting in assessee not being a eligible assessee u/s 144C(15)(b)(i) of the Act. Consequently, the final assessment was also bad in law. Therefore, since the issue on hand being squarely covered on similar fact and circumstances, therefore, we find merit in the submission of the assessee and allow the additional ground raised by the assessee. No argument was made by the ld. Counsel for the assessee in respect of the original ground of appeal, other than additional ground of appeal therefore they are left open for adjudication if the need arises.

In the result, appeal of the assessee is allowed.