M/S BUCYRUS INDIA PVT. LTD.,KOLKATA vs DCIT, CIR-2(1), KOLKATA, KOLKATA

Before: Shri M. Balaganesh

SHRI M.BALAGANESH, AM

This appeal of the assessee arises out of the order of the Dispute Resolution Panel (DRP) dated 25.3.2015 and final order passed by the Learned AO u/s 143(3) read with section 147 and 144C of the Act on 6.4.2015 making transfer pricing adjustment of Rs. 7,51,20,484/-.

The brief facts of this case are that the assessee is a company engaged in rendering maintenance services on heavy mining equipments and trading on spare parts. The sequence of events would explain the proceedings better:-

a) For the Asst Year 2010-11, the assessee filed its original return of income on 25.9.2010 declaring a loss of Rs. 4,36,97,339/-. Later the same was revised on 26.3.2012 declaring loss of Rs. 3,78,75,426/-. This revised return was filed within the due date prescribed u/s 139(5) of the Act.

b) The assessment was completed u/s 143(1) of the Act on 29.5.2012.

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c) Admittedly, no notice u/s 143(2) of the Act was issued selecting the case for scrutiny by the Learned AO. Hence the assessee was under the bonafide belief that the assessment for the Asst Year 2010-11 was completed u/s 143(1) itself on 29.5.2012.

d) When no proceedings were pending for the Asst Year 2010-11 before the Learned AO, the case was referred to the Transfer Pricing Officer (TPO) for determination of Arm’s Length Price (ALP) in respect of the International Transactions carried out by the assessee.

e) The assessee co-operated with the proceedings of the TPO and order u/s 92CA(3) of the Act was passed on 28.1.2014 making an adjustment of Rs. 7,51,20,484/- to the ALP.

f) The Learned AO realizing that he could not frame any assessment as no proceedings were pending for want of issuance of notice u/s 143(2) of the Act, treated the order of TPO suggesting an addition of Rs.7,51,20,484/- as information and sought to reopen the assessment by issuance of notice u/s 148 of the Act on 26.3.2014.

g) The assessee filed the return in response to notice issued u/s 148 of the Act by declaring loss of Rs. 3,78,75,426/- on 8.4.2014.

h) Notice u/s 143(2) of the Act was issued on the assessee on 5.5.2014.

i) A draft reassessment order was passed u/s 144C(1) of the Act on 16.6.2014 based on the earlier reference made to Learned TPO and earlier order passed by TPO on 28.1.2014 and made an addition of Rs. 7,51,20,484/- towards adjustment to ALP. Admittedly, no fresh reference was made by the Learned AO to Learned TPO for determination of ALP in the reassessment proceedings that got commenced on 26.3.2014. The Learned AO adopted the old TPO’s order u/s 92CA(3) of the Act passed on 28.1.2014 suggesting an adjustment of Rs. 7,51,20,484/- to ALP.

j) Against this draft assessment order, the assessee filed objections before the DRP and the same were disposed off by the DRP vide proceedings dated 25.3.2015.

k) Pursuant to the directions of the DRP, final order was passed by the Learned AO u/s 147 / 143(3) / 144C of the Act on 6.4.2015

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determining the total income at Rs. 3,72,45,060/- after making an addition of Rs. 7,51,20,484/- being the adjustment to ALP suggested in the original TPO order dated 28.1.2014.

l) Now the assessee has preferred an appeal before us on various grounds questioning the validity of reassessment based on illegal reference to Learned TPO and questioning the validity of addition made by the Learned TPO on merits of the case.

Shri.Manoneet Dalal, FCA, the Learned AR argued on behalf of the assessee and Shri.R.R.Das, the Learned CIT DR argued on behalf of the revenue.

We have heard the rival submissions and perused the materials available on record. We find that the whole scheme of assessment proceedings have to be looked into for deciding the case before us. Normally when a return is filed by the assessee, it would either get completed u/s 143(1) of the Act by receiving intimation from the Assessing Officer. If the case is selected for scrutiny by issuance of notice u/s 143(2) of the Act within the prescribed time, then the assessment would get completed u/s 143(3) or 144 of the Act. Hence it is well settled that when no scrutiny notice u/s 143(2) is served on the assessee, the assessment would deemed to be completed based on intimation u/s 143(1) of the Act, if served on the assessee, or the acknowledgement of return itself would be deemed to be the assessment order. Hence practically the assessment gets completed at this stage itself in the belief of the assessee unless otherwise reopened by issuing separate notice u/s 148 of the Act. The reference to Learned TPO for determination of ALP of international transactions have been spelt out in the statute u/s 92CA of the Act. For the sake of convenience, the relevant provisions of section 92CA(1) is reproduced hereunder:- 92CA – Reference to Transfer Pricing Officer (1) Where any person, being the assessee, has entered into an international transaction or specified domestic transaction in any previous year, and the Assessing Officer considers it necessary or expedient so to do, he may, with the previous approval of the Principal Commissioner or Commissioner, refer the computation of the arm’s length price in relation to the said

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international transaction of specified domestic transaction under section 92C to the Transfer Pricing Officer.

4.1. In this regard, the relevant Instruction No. 3 of 2003 dated 20.5.2003 issued by the Central Board of Direct Taxes requires consideration. For the sake of convenience, the said Instruction No. 3 of 2003 dated 20.5.2003 para 2 is reproduced hereunder;- “ In order to make a reference to the TPO, the Assessing Officer has to satisfy himself that the taxpayer has entered into an international transaction with an associated enterprise. One of the sources from which the factual information regarding international transaction can be gathered in Form No. 3CEB filed with the return which is the nature of an accountant’s report containing basic details of an international transaction entered into by the taxpayer during the year and the associated enterprise with which such transaction is entered into, the nature of documents maintained and the method followed. Thus, the primary details regarding such international transactions would normally be available in the accountant’s report. The Assessing Officer can arrive at prima facie belief on the basis of these details whether a reference is considered necessary. No detailed enquiries are needed at this stage and the Assessing Officer should not embark upon scrutinizing the correctness or otherwise of the price of the international transaction at this stage. In the initial years of implementation of these provisions and pending development of adequate data base, it would be appropriate if a small number of cases are selected for scrutiny of transfer price and these are dealt with effectively. The Central Board of Direct Taxes, therefore, have decided that wherever the aggregate value of international transactions exceeds Rs 5 crores, the case should be picked up for scrutiny and reference under section 92CA be made to the TPO. If there are more than one international transaction with an associated enterprise or there are transactions with more than one associated enterprises the aggregate value of which exceeds Rs 5 crores, the transactions should be referred to the TPO. Before making reference to the TPO, the Assessing Officer has to seek approval of the Commissioner / Director as contemplated under the Act. Under the provisions of section 92CA reference is in relation to the international transaction. Hence all transactions have to be explicitly mentioned in the letter of reference. Since the case will be selected for scrutiny before making reference to the TPO, the Assessing Officer may proceed to examine other aspects of the case during pendency of assessment proceedings but await the report of the TPO on the value of international transaction before making final assessment.

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The threshold limit of Rs 5 crores will be reviewed depending upon the workload of the TPOs.

The work relating to selection of cases for scrutiny and reference to TPO on the above basis in respect of pending returns filed for the assessment year 2002-03 should be completed by June 30, 2003”.

From the aforesaid Instruction No. 3 of 2003 issued by CBDT which is binding on the officers of the income tax department, makes it crystal clear that a reference u/s 92CA of the Act could be made to the TPO only when the case is selected for scrutiny. In the instant case, the case is not selected for scrutiny which fact is also conceded by the Learned DR, and hence the scrutiny assessment proceedings per se had not commenced. Hence we hold that no case was pending before the Learned AO while making reference to Learned TPO and accordingly, the order passed by the Learned TPO on 28.1.2014 making an adjustment of Rs. 7,51,20,484/- to ALP is declared void ab initio and illegal and hence cannot be relied upon by the lower authorities.

4.2. We place reliance on the CBDT Circular No. 549 dated 31.10.1989 which states that if an assessee, after furnishing the return of income does not receive a notice u/s 143(2) from the department within the prescribed time, he can take it that the return filed by him has become final and no scrutiny proceedings are to be started in respect of that return. In the instant case, at the time of issue of notice u/s 92CA of the Act (i.e reference to TPO), no return was pending on the basis of which notice u/s 92CA could have been issued. We place reliance on the decision of the coordinate bench decision of Pune Tribunal in the case of Maximize Learning Private Limited vs ACIT in ITA No. 2234/PN/2012 dated 2.2.2015 for Asst Year 2007-08, wherein it was held an assessing officer could make reference to the TPO u/s 92CA of the Act only after selecting the case for scrutiny assessment.

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4.3. We also place reliance on the decision of the Hon’ble Karnataka High Court in the case of CIT vs M/s Sap Labs pvt Ltd in ITA No. 842 of 2008 and ITA No. 339 of 2010 vide order dated 25.8.2014. “ In this case, the assessee filed its return of income for Asst Year 2002-03 on 31.10.2002. The same was processed u/s 143(1) of the Act. The assessee received notices daed 1.4.2004 u/s 148 of the Act and 12.4.2004 u/s 92CA of the Act from the TPO seeking details about the international transactions entered into by the assessee with the group companies on a reference made by the Assessing Authority. At the time of issue of notice u/s 92CA of the Act, no valid return was pending on the basis of which notice u/s 92CA of the Act could have been issued. Since no notice u/s 143(2) of the Act was issued pursuant to filing of the original return, the assessment is deemed to have become final. In reply to the notice issued u/s 148 of the Act, the assessee filed a letter dated 21.4.2004 requesting the Assessing Authority to treat the return filed on 31.10.2002 as return in compliance with the notice u/s 148 of the Act. Infact the TPO on 20.1.2005 passed an order u/s 92CA of the Act accepting the pricing of the Assessing Authority. However, the CIT invoking his power u/s 263 of the Act initiated proceedings and set aside the order of the Assessing Authority on the ground that it is erroneous and prejudicial to the interest of the revenue. It is against that order, the assessee preferred an appeal to the Tribunal.

The Tribunal has held that when two views are possible and when the TRP has accepted valuation by the Assessing Authority determining the arm’s length price, the commissioner had no jurisdiction to interfere with the said order u/s 263 of the Act and moreover on the day the reference was made by the Assessing Authority, there was no return pending for consideration and therefore, the Tribunal has set aside the order of the Commissioner. It is against the said order, the revenue is before this Court.

From the aforesaid facts, it is clear that on the day the reference was made by the Assessing Authority to the Transfer Pricing Authority, there was no return pending for consideration by him and therefore, the very reference was bad. Even otherwise, the said TPO did not find fault with the adjudication of determining arm’s length price by the Assessing Authority. In those circumstances, the Commissioner committed an error in exercising his power u/s 263 of the Act and the Tribunal was justified in interfering with the said order. Therefore, we do not see any merit in appeal no. 842 /2008. Accordingly, it is dismissed.

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Consequently, the impugned order which is the subject matter of ITA 339/2010 which is a consequential order is also dismissed.”

We find that the Learned AO having realized his mistake of not selecting the case for scrutiny sought to remain silent after receiving the Learned TPO’s order dated 28.1.2014. We find that notice u/s 143(2) was also issued and served on the assessee in the reassessment proceedings. We find that in the reassessment proceedings, no fresh reference was made to the Learned TPO u/s 92CA(1) of the Act by the Learned AO. We hold that the action of using the old TPO order passed u/s 92CA(3) as an information for forming his opinion of reason to believe that income has escaped assessment within the meaning of section 147 of the Act also cannot be appreciated for reopening the assessment. In this regard, we find that the case law relied on by the Learned AR in the case of CWT vs Sona Properties reported in 327 ITR 592 (Bom) rendered by Bombay High Court is well placed. In the said case, the Assessing Officer had made a reference to the Departmental Valuation officer after the end of the assessment proceedings. Their Lordships held that such a reference could not have been made under the scheme of the Act because the assessment proceedings had come to an end before the point of time when such a reference was made, and as such the reference itself was legally invalid. The stand of the revenue was that even if reference to the DVO is to be held to be invalid, the DVO’s report constituted information and as such it could be a good basis for coming to the conclusion that wealth has escaped assessment. Rejecting this plea, their Lordships observed that . “ a report called by an authority having no jurisdiction would be a nullity at law and consequently proceedings based solely on such report considering the requirement of section 17 would be illegal and will have to be quashed.” In effect thus, it is held that when reference itself is invalid, the report received as a result of the said reference cannot constitute material for forming the belief that an income or wealth tax has escaped assessment.

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The order passed by the Learned TPO passed pursuant to an illegal reference cannot be used in the reassessment proceedings by the Learned AO as both the proceedings are separate and independent of one another.

In view of the above, we hold that the reassessment proceedings initiated based on the TPO’s order dated 28.1.2014 suggesting an adjustment of Rs. 7,51,20,484/- to ALP (which was based on an illegal reference ) by the Learned AO is void ab initio and bad in law.

Maintainability of appeal u/s 253(1)(d) of the Act before Tribunal

It is observed that the assessee had admitted before the DRP that it is not an eligible assessee. Accordingly DRP dismissed the objections of the assessee as not maintainable for want of jurisdiction. The findings of the DRP in this regard are reproduced herein below:-

DRP has duly considered submissions of the assessee and relevant legal provisions. Section 144C(2) of the Act is reproduced as under:

(2) On receipt of 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 (ii) the assessing officer

It is clear from sub section 2 of section 144C that it is the eligible assessee only who can file objections to draft assessment order before DRP. The jurisdiction of DRP is triggered only when an eligible assessee files objections before it. In present case, the assessee has landed itself in a piquant situation by approaching the DRP to contest the draft assessment order but, at the same time, claiming that it is not an eligible assessee. As per the written and oral submissions made before this DRP, the assessee does not categorise itself as “the Eligible Assessee”. In view of the same, the jurisdiction of this DRP cannot be invoked and the merits of variations

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proposed in the draft assessment order served on the assessee cannot be decided by the panel. Hence, other objections taken by the assessee are not being taken up for adjudication by this panel.

In view of above discussion, the application of the assessee in respect of the assessment for AY 2010-11 is rejected ab initio as void and sans jurisdiction. The AO is directed to proceed accordingly as per law.

We find that in the instant case, the assessee did not accept the variations proposed by the Learned AO to the ALP in the sum of Rs. 7,51,20,484/- and therefore it filed its objections before the DRP and Learned AO. We find that the draft order passed by the Learned AO can be challenged only before DRP by the assessee. Even though the assessee has intimated the DRP that it is not an eligible assessee, we hold that the DRP should not have simply brushed aside the entire gamut of facts that had happened in this case. We find that absolutely no finding is given by DRP with regard to the facts and sequence of events in this case, more particularly , on the validity of the Learned AO to adopt the order passed by the Learned TPO on 28.1.2014 based on an illegal reference. We find that the CBDT Instruction No. 3 of 2003 is very clear on this subject. It will be relevant to look into Section 144C(15) of the Act:-

(15) For the purposes of this section ,-

(a) ‘Dispute Resolution Panel’ means a collegiums comprising of three Principal Commissioners or Commissioners of Income Tax constituted by the Board for this purpose ; (b) ‘eligible assessee’ means , -

(i) any person in whose csae the variation referred to in sub-section(1) arises as a consequence of the order of the Transfer Pricing Officer passed under sub-section (3) of section 92CA; and

(ii) any foreign company.

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Admittedly, the assessee company is not a foreign company. Hence the only point to be seen is whether at all any order has been passed u/s 92CA(3) of the Act by the TPO in the hands of the assessee which has been complied with in the instant case. Hence the assessee being an eligible assessee is accepted by the Learned AO itself by referring the case to TPO (though illegal) and accepted the order passed u/s 92CA(3) of the Act and made an adjustment of Rs. 7,51,20,484/- as per the said order. Just because the assessee had stated before the DRP that it is not an eligible assessee for whatever reasons best known to it, the DRP cannot brush aside these facts and sweep it under the carpet on the roots addressed by the revenue itself.

We also find that the case law relied upon by the Learned DR on the coordinate bench decision of Chennai Tribunal in the case of Intimate Fashions (India) P Ltd vs ACIT reported in (2013) 31 taxmann.com 306 (Chennai – Trib.) is distinguishable. In the facts before the Chennai Tribunal, the assessee preferred objections before DRP beyond the statutory time limit prescribed under the Act. Hence the DRP dismissed the objections of the assessee on the ground of limitation as condonation power is not available to them in the statute. The fact of non-availability of condonation powers with the DRP was upheld by the Chennai Tribunal. Hence the case law relied would not advance the case of the revenue.

In view of the aforesaid facts and circumstances, we hold that the appeal is maintainable before this tribunal against the order passed by the Learned AO u/s 143(3) read with section 147 read with section 144C pursuant to the directions of the DRP.

Reassessment barred by limitation

The Learned AO argued that the reassessment is barred by limitation. He argued that the notice u/s 148 was issued on the assessee on 26.3.2014. The time limit for

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completion of this reassessment is within one year from the end of the financial year in which the notice u/s 148 was issued. The Learned AO did not seek to refer the case to Learned TPO u/s 92CA(1) of the Act in the reassessment proceedings. Hence he is not entitled for extended one year time limit for completion of reassessment. Hence the reassessment ought to have been completed by 31.3.2015. In the instant case, the Learned AO had completed the reassessment proceedings on 6.4.2015 which is beyond the time limit for completion of assessment prescribed in section 153 of the Act and accordingly the same is barred by limitation by 6 days.

We find that the assessee had not raised any specific ground on the limitation aspect and also did not chose to file any additional ground of appeal before us and hence we are not inclined to address this issue raised by the assessee during the course of hearing.

Final Conclusion

In view of the aforesaid facts and circumstances and findings given hereinabove, we allow the ground no.1 raised by the assessee in full by declaring that the reassessment order of the Learned AO is bad in law and void abinitio. In view of this decision, the adjudication of other grounds becomes infructuous and hence no decision is given on the merits of the case.

In the result, the appeal of the assessee is allowed.

THIS ORDER IS PRONOUNCED IN OPEN COURT ON 15 / 10/2015

Sd/- Sd/- ( Mahavir Singh, Judicial Member ) (M. Balaganesh, Accountant Member) Date 15 /10/2015

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Copy of the order forwarded to: 1.. The Appellant/Assessee: M/s. Bucyrus India Pvt. Ltd (merged with M/s. Caterpillar (I) Pvt. Ltd Mira towers, 4th Fl., Block DN-27, Sector V, Salt City, Kol-91. 2 The Respondent-Deputy Commissioner of Income-tax, Cir-2(1), Aaykar Bhawan, P-7 Chowringhee Sq, Kol-69.

3 /The CIT, / 4.. The CIT(A)

DR, Kolkata Bench 6. Guard file. True Copy, By order, Asstt Registrar

** PRADIP SPS

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M/S BUCYRUS INDIA PVT. LTD.,KOLKATA vs. DCIT, CIR-2(1), KOLKATA, KOLKATA