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Income Tax Appellate Tribunal, DELHI BENCH ‘I’ NEW DELHI
Before: SHRI I.C. SUDHIR & SHRI L.P. SAHU
ORDER
Per L.P. Sahu, Accountant Member:
This appeal has been filed by the assessee against the order dated 30.01.2015 passed u/s. 143(3) read with section 144C(13) of the IT Act, 1961 (hereinafter referred to as ‘the Act’) for the assessment year 2010-11 on the following grounds :
1. On facts, circumstances of the case and in law, the final order issued by the Learned Deputy Commissioner of Income Tax, Circle-2 (“Ld. AO ) under section 143(3) read with section 144C(13) of the Income-tax Act, 1961 (‘the Act”) is invalid and bad in law.
2. . On facts, circumstances of the case and in law,, the Ld. AO and Learned Dispute Resolution Panel-1, New Delhi (“Ld. Penal”) erred in confirming the action of Additional Commissioner of Income Tax, Transfer Pricing Officer-1 (2) (“Ld. TPO”) of enhancing the income of the Assessee by INR 14,155,941 holding that the international related party transactions pertaining to provision of IT enabled Services (“ITeS”) do not satisfy the arm’s length principle envisaged under the Income-tax Act, 1961 (“the Act”).
3. . On facts, circumstances of the case and in law,, the Ld. Panel and Ld. AO/Ld. TPOI erred in not demonstrating that the motive of the assessee ws to shift profits outside India by manipulating the prices charged in its international transactions, which is a pre-requisite condition to make any adjustment under the provision of Chapter X of the Act.
4. On facts and in law, the Ld. Panel and Ld. AO/Ld. TPO erred in disregarding the Assessee’s use of multiple year/prior years’ data in contravention of the provision of section 92C of the Act read with Rule 10B and Rule 10D of the Income Tax Rules, 1962 (“the Rules”).
5. On facts and in law, the Ld. Panel and Ld. AO/Ld. TPO erred in disregarding the doctrine of impossibility of performance in contravening section 92D of the Act read with Rule 10D(4) of the Rules, which mandate the use of contemporaneous data for the determination of arm’s length price (“ALP”) of international transaction.
6. On facts and in law, the Ld. Panel and Ld. AO/Ld. TPO erred in modifying/adding certain selection filters and arbitrarily rejecting the comparable companies selected in the TP documentation maintained by the assessee.
7. On facts and in law, the Ld. Panel and Ld. AO/Ld. TPO erred in modifying/adding certain selection filters and in contravention of the section 92C(3) of the Act read with Rule 10B(2) of the Rules, erred in including/selecting companies that are not comparable to the assessee in terms of functions performed, assets employed and risks assumed. In doing so, the Ld. Panel and Ld. AO erred in selecting the following as functionally comparable companies: a. Accentia Technologies Limited; b. Cosmic Global Limited; c. Fortune Infotech Limited; d. iGate Global Solutions Limited; e. Infosys BPO Limited; f. TCS E-serve international Limited; and g. TCS E-serve Limited.
8. On facts and in law, the Ld. Panel and Ld. AO/Ld. TPO erred in not allowing a risk adjustment under Rule 10B(1)(e) for determination of the ALP to account for the difference in the risk profile of the appellant and of comparable companies.
9. On facts and in law, the Ld. Panel and Ld. AO/Ld. TPO erred by incorrectly computing the operating profit margins of the finally selected companies in the order passed, thereby ignoring the correct computation provided by the assessee during the course of proceedings.
10. On facts and in law, the Ld. Panel and Ld. AO/Ld. TPO erred in computing the operating margins of the assessee by taking “Excess provision written back” of INR 40,03,709 as non-operating and not considering it as operational item.
11. On facts and in law, the Ld. AO/Ld. TPO erred in proposing to initiate penalty proceedings under section 271(1)(c) of the Act when the facts of the case and provision of the law do not warrant such initiation of penalty proceedings.”
2. The brief facts of the case are that the assessee company, a wholly owned subsidiary of Intercontinental Hotels Group (Asia Pacific) Pte Ltd, Singapore, is engaged, inter alia in the business of providing back office accounting support and registered as a STP unit for export of computer software/IT enabled services. He filed return electronically on 30.09.2010 declaring income of Rs.4,00,031/- under normal provisions of the Act and Rs.5,62,61,355/- as per provisions of section 115JB of the Act. The return was processed u/s. 143(1) of the Act and the case was selected for scrutiny. Notice u/s. 143(2) was issued and served upon the assessee. During the course of assessment proceedings, the AO found that the assessee is engaged in International transaction for Rs.49,05,94,612/-.Therefore, the case was referred to Transfer Pricing Officer (TPO) for computation of arm’s length price (ALP) for the said international transaction. Before the TPO, the assessee gave comparables of 8 companies. However, the TPO after considering the issue at length and modifying/adding certain selection filters, rejected 6 comparables from the assessee’s set and selected seven new comparables while determining the ALP vide order dated 03.01.2014 u/s. 92CA(3) of the Act in the following manner :
Sl. No. Company Name OP/OC 1 Accentia Tech. 42.52% 2 Cosmic Global 18.28% 3 e4e Healthcare 31.03% 4 Fortune Infotech Limited 22.80% 5 ICRA Techno Analystics Limited (Segment) 28.66% 6 igate Global Solutions Limited 24.54% 7 Infosys BPO Ltd. 31.44% 8 TCS E-Seve International 54.03% 9 TCS E-Serve Ltd. 63.42% AVERAGE 35.19% Accordingly, the ALP of the international transaction in the case of assessee was computed as under : Operational cost 432,539,798 Arm’s Length Price at a margin of 35.19% 584,750,553 Price Received 490,594,612 105% of the Price Received 515,124,343 Proposed Adjustment u/s 92CA 94,155,941 This order was received by the AO on 10.01.2014. On 14.02.2014, the assessee was confronted with the observations made in the order u/s. 92CA(3) of the Act and was required to furnish its explanation. On 20.02.2014, the assessee furnished its submissions. The Assessing Officer rejecting the submissions of the assessee made addition of Rs.9,41,55,941/- on account of difference between the value of transaction and ALP of the transaction computed by TPO, vide draft assessment order dated 25.02.2014. Aggrieved by this order, the assessee approached the Dispute Resolution Penal (DRP)-I, New Delhi, who gave directions u/s. 144C of the Act on 24.09.2014 as under :
In view of discussion on each of the grounds of objection, the Assessing Officer is directed to complete the assessment as per the directions of the Panel as above. The AO shall place a copy of the Panel’s order for Assessment Year 2010-11 at Annexure to the final order to be read as a part of the order. AO shall incorporate the reasons given by the Panel at appropriate places in respect of the various objections while passing the final order. The objections of the taxpayer are disposed off as above.
Meanwhile on 25.09.2014, an order u/s. 127 was passed by CIT, Delhi-IV and the jurisdiction over the case was transferred from ITO ward 11(3), New Delhi to DCIT Circle 2(1), Gurgaon. Subsequently, the Income-tax Officer Ward 11(3), New Delhi vide his letter No. 91 dated 28.10.2014 transferred the jurisdiction over this case to circle 2 Gurgaon. He mentioned in the said letter that for the assessment year 2010-11, the order of DRP has already been received and a final order has to be passed. However, as per records, no such order was enclosed with the said letter. Therefore, the said letter was returned by the then DCIT, Circle-2, Gurgaon to Income-tax Officer ward 11(3), New Delhi requesting him to forward the order of DRP for A.Y. 2010- 11. The Income-tax Officer thereafter provided the order of DRP to the office of DCIT Circle -2 Gurgaon on 30.01.2015 and the final order was passed by the then AO on 30.01.2015 whereby the AO confirmed the ALP determined by the TPO u/s. 92CA(3) of the Act and made addition of Rs.9,41,55,941/-, being the difference between the adjustment, as stated (supra).
The ld. AR of the assessee mainly rests his arguments on ground No. 1, stating that the final order passed by the AO u/s. 143(3) read with section 144C(13) of the Act is invalid because it has been passed beyond the due date as provided in the Act. In support of this contention, he submitted before us photocopy of a letter No. F.No. DCIT/C-2/GGN/15-16/7024 dt. 03.11.2015 written by DCIT, Circle-2, Gurgaon to the ld. Sr. DR, ITAT, ‘I’ Bench, wherein the directions given by DRP u/s. 144C are shown to have been received before 28.10.2014 to the then AO. The ld. AR further submitted that accordingly, the assessment order in compliance to the directions of DRP, ought to have been passed within one month, i.e., upto 30.11.2014. However, the same has been passed on 30.01.2015, which is not sustainable having been passed beyond the period of limitation.
On the other hand, the ld. DR relied upon the final assessment order passed by the AO (DCIT Circle-2, Gurgaon) in compliance to the directions given by ld. DRP.
Having considered the rival submissions and on perusal of entire records available before us, we find substance in the stand taken by the assessee. Before we address on the issue, it will be appropriate to refer the provisions of section 144C which reads as under :
Reference to dispute resolution panel. 144C. (1) The Assessing Officer shall, notwithstanding anything to the contrary contained in this Act, in the first instance, forward a draft of the proposed order of assessment (hereafter in this section referred to as the draft order) to the eligible assessee if he proposes to make, on or after the 1st day of October, 2009, any variation in the income or loss returned which is prejudicial to the interest of such assessee. (2) On receipt of the draft order, the eligible assessee shall, within thirty days of the receipt by him of the draft order,— (a) file his acceptance of the variations to the Assessing Officer; or (b) file his objections, if any, to such variation with,— (i) the Dispute Resolution Panel; and (ii) the Assessing Officer. (3) The Assessing Officer shall complete the assessment on the basis of the draft order, if— (a) the assessee intimates to the Assessing Officer the acceptance of the variation; or (b) no objections are received within the period specified in sub-section (2). (4) The Assessing Officer shall, notwithstanding anything contained in section 153 or section 153B, pass the assessment order under sub-section (3) within one month from the end of the month in which,— (a) the acceptance is received; or (b) the period of filing of objections under sub-section (2) expires. (5) 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. (6) The Dispute Resolution Panel shall issue the directions referred to in sub- section (5), after considering the following, namely:— (a) draft order; (b) objections filed by the assessee; (c) evidence furnished by the assessee; (d) report, if any, of the Assessing Officer, Valuation Officer or Transfer Pricing Officer or any other authority; (e) records relating to the draft order; (f) evidence collected by, or caused to be collected by, it; and (g) result of any enquiry made by, or caused to be made by, it. (7) The Dispute Resolution Panel may, before issuing any directions referred to in sub-section (5),— (a) make such further enquiry, as it thinks fit; or (b) cause any further enquiry to be made by any income-tax authority and report the result of the same to it. (8) The Dispute Resolution Panel may confirm, reduce or enhance the variations proposed in the draft order so, however, that it shall not set aside any proposed variation or issue any direction under sub-section (5) for further enquiry and passing of the assessment order. Explanation.—For the removal of doubts, it is hereby declared that the power of the Dispute Resolution Panel to enhance the variation shall include and shall be deemed always to have included the power to consider any matter arising out of the assessment proceedings relating to the draft order, notwithstanding that such matter was raised or not by the eligible assessee. (9) If the members of the Dispute Resolution Panel differ in opinion on any point, the point shall be decided according to the opinion of the majority of the members. (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 assessee and the Assessing Officer on such directions which are prejudicial 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 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. (14) The Board may make rules for the purposes of the efficient functioning of the Dispute Resolution Panel and expeditious disposal of the objections filed under sub-section (2) by the eligible assessee.
On careful reading of the above provisions, it is clear that section 144C(13) provides that the order should have been passed within one month from the end of the month in which such direction is received. In the instant case, the ld. DRP gave directions on 24.09.2014 and as per above referred letter dated 03.11.2015, such directions were received by concerned AO on or before 28.10.2014. Therefore, the final order should have been passed on or before 30.11.2014, but the same has been passed on 30.01.2015, which is clearly beyond the period of limitation as prescribed u/s. 144C of the Act. Therefore, in our considered opinion, the order passed u/s. 143(3) read with section 144C(13) is bad in law ab initio and not sustainable having been passed beyond the period of limitation. Accordingly, the order appealed against is liable to be quashed.
Once the final order passed by the AO has been held as invalid on the legal aspect of the case, we do not deem it appropriate to adjudicate upon the other grounds raised before us on merits of the addition. The appeal of the assessee, accordingly, deserves to be allowed.
In the result, the appeal of the assessee is allowed. Stay, if any, stands vacated.