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Facts
An initial assessment order for AY 2007-08 resulted in a transfer pricing adjustment of Rs. 3,54,99,029/-. The ITAT had previously remanded the case to the DRP for re-computation of Arm's Length Price by applying a 'turnover filter', but the DRP rejected this filter. Consequently, the AO passed a final assessment order on 26/05/2014, upholding the adjustment, which the assessee challenged, primarily on grounds of being time-barred.
Held
The Tribunal observed that the ITAT's remand order was dated 31/08/2012. As per Section 153(2A) of the Income Tax Act, a fresh assessment order should have been passed by 31/03/2014 (within one year from the end of the financial year of the ITAT order). Since the final assessment order was passed on 26/05/2014, it was beyond the statutory time limit and was therefore quashed.
Key Issues
Whether the final assessment order passed by the Assessing Officer on 26/05/2014 was barred by limitation under Section 153(2A) of the Income Tax Act, given the previous ITAT remand order dated 31/08/2012.
Sections Cited
143(3), 144C, 144C(5), 254, 153(2A), 250, 263, 264
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Income Tax Appellate Tribunal, DELHI
ORDER
PER YOGESH KUMAR, U.S. JM:
The captioned appeal is filed by the assessee pertaining to Assessment Year 2007-08 challenging the Final Assessment Order passed by Deputy Commissioner of Income Tax, Circle -12(1)-New Delhi dated 26/05/2014 Order u/s 143(3) r.w. Section 144C(5)/254 of the Income Tax Act, 1961 ('Act' for short).
The Ground of appeal of the Assessee are as under:-
“1. That on the facts and in the circumstances of the case and in law, the order passed by the Ld. Assessing Officer ("AO") is bad in law and void ab-initio.
Wipro Ge Healthcare Pvt. Ltd. Vs. DCIT 2. The Ld. AO/Ld. Transfer Pricing Officer ("TPO")/ Ld. Dispute Resolution Panel ("DRP") erred on facts and circumstances of the case in determining the arm's length adjustment to the Appellant's international transaction from Associated Enterprises ("AES"), thereby resulting in the enhancement of returned income of the Appellant by Rs. 35,499,029
3. That the order passed by the Ld. AO is infructuous as it is in violation of Section 144C(13) of the Income Tax Act, 1961 and hence not tenable in law.
4. That the order passed by the Ld. AO is in violation of Section 153(2A) of the Income Tax Act, 1961 and hence not tenable in law.
5. The Ld DRP/Ld AO erred on facts and in law by not following the instructions provided by the Hon'ble ITAT in their order dated August 31, 2012 in the case of the Appellant, in the following manner.
5.1 The Ld DRP/Ld AO erred in re-examining the validity of the "turnover" filter even when the Hon'ble ITAT had clearly held that "turnover" filter is to be applied to arrive at the arm's length margin for the distribution segment of the Appellant
5.2 The Ld DRP/Ld AO erred, even after re-examining, in not applying the "turnover" filter to determine the arm's length margin for the distribution segment of the Appellant
5.3 The Ld DRP erred by issuing directions on points/arguments beyond what had been instructed for re-application by the Hon'ble ITAT
6. The Ld. DRP/Ld.AO/Ld TPO erred on facts and in law in the assessment of the arm's length price/margin of the Appellant's international transactions with the associated enterprises in the distribution segment in the following manner:
6.1 by not appreciating that if the turnover filter were to be applied, as directed by the Hon'ble ITAT, then Novartis Wipro Ge Healthcare Pvt. Ltd. Vs. DCIT India Ltd and Mankind Pharma Ltd should be rejected, thereby leading to the Appellant's margin to be in line with the arm's length standard.
7. Without prejudice to the above grounds, The Ld. DRP/AO/ TPO further erred on facts and in law in the assessment of the arm's length margin for the distribution segment of the Appellant in the following manner:
7.1 By selecting companies that do not meet the functions, assets and risks criteria as laid down under the Indian Regulations for a comparability analysis.
7.2 By rejecting the comparable companies adopted by the Appellant in the TP documentation for FY 2006-07 based on arbitrary and inconsistent reasons even though they are functionally comparable to the Appellant.
7.3 By not considering B A & Brothers (Eastern) Ltd. as a comparable for the arm's length analysis.
7.4 By not following a detailed search methodology for the arm's length analysis and by cherry picking companies for determination of the arm's length margin.
7.5 In making general statements and specious reasoning, without providing any supporting evidence, regarding inapplicability of Resale Price Method ("RPM") for the distribution segment and not appreciating that these stated observations do not impair the applicability of RPM in light of the facts and methodology in case of the Appellant
8 The Ld. AO/TPO/DRP erred on facts and in law in disregarding multiple year/ prior years' data as used by the Appellant in the TP documentation and holding that current year (i.e. FY 2006-07) data for the comparable companies should have been used despite the fact that the same was not available to the Appellant at the time of preparation of its TP documentation.
Wipro Ge Healthcare Pvt. Ltd. Vs. DCIT 9 That the Ld. AO/TPO/DRP was prejudiced in rejecting the methodology in the distribution segment for this financial year when the same was accepted in the prior years and there was no change in facts and circumstances over the two years (i.e. financial year 2004-05 and 2005-06).
10. That the Ld. AO/TPO/DRP erred on facts and in law in applying the amended provision as per the Finance Act 2009 instead of the provision regarding the arm's length range applicable to the financial year 2006-07. The Ld. AO/TPO/DRP erred in failing to appreciate that even a price which varies 5% in either direction of the arithmetic mean margins of the comparables may be considered as an arm's length price as per the proviso 2 section 92 C (2) of the Act.
11. That on the facts and circumstances of the case and in law, the Ld. AO has erred in initiating penalty proceedings u/s 271(1)(c) of the Act mechanically for furnishing inaccurate particulars without recording any adequate satisfaction for such initiation
12. That the Ld. AO erred in facts and in law in charging and computing interest under section 234B and 234D of the Act
The above grounds of appeal are mutually exclusive and without prejudice to each other.
The Appellant craves leave to add, alter, amend or vary any of the above grounds either before or at the time of hearing as we may be advised. The arguments taken hereinabove are without prejudice to each other.”
Brief facts of the case are that, initially an assessment order came to be passed u/s 143(3) r.w. Section 144C of the Income Tax Act, 1961 ('Act' for short) on 25/10/2011, wherein the Ld. A.O. made addition of Rs. 3,54,99,029/- on account of transfer pricing adjustment in the segment of distribution. Assessee herein preferred an Appeal before the Tribunal vide order dated 31/08/2012, observed that the Ld. DRP and TPO had not examined the application of (turnover filter) and remanded the issue of Transfer Pricing Adjustment to the file of DRP to re-compute Arm’s Length Price of International transaction afresh, after application of ‘turnover filter’. Pursuant to the order of the Tribunal dated the Ld. DRP passed an order on 24/03/2014 u/s 144C(5) of the Act by rejecting the application of turnover filter and held that turnover filter is not a criteria for determinationof profit margin of the comparables. Consequent to the order of the DRP dated 24/03/2014, the Ld. A.O. passed the assessment order on 26/05/2014 u/s 143(3) read with Section 144C(5) read with Section 254 of the Act, wherein the TP Adjustment of Rs. 3,54,99,029/- in the distribution segment has been added in the income of the Assessee. Aggrieved by the said order dated 26/05/2014, the Assessee preferred the present Appeal on the Grounds mentioned above.
The ld. Senior Counsel Sh. Sachit Jolly canvassing on the Ground No. 4 submitted that the impugned Final Assessment Order dated 26/05/2014 passed u/s 143(3) read with Section 144(5)/254 of the Act is barred by limitation as the final assessment order has been passed beyond the time limit prescribed u/s 153(2A) of the Act as stood in the liable to be quashed on both the counts. The ld. Senior Counsel has also taken us through the various judicial precedents in support of his contentions.
Per contra, the Ld. Departmental Representative submitted that even the Final Assessment Order has been passed in accordance with law and the limitation prescribed u/s 153(2A) of the Act as stood in the relevant time is not applicable to the case in hand as the present case being a second round of litigation remanded from the Tribunal. Thus sought for dismissal of the Ground No. 4 of the Assessee.
We have heard both the parties and perused the material available on record. During the first round before the Tribunal, the Co-ordinate Bench of the Tribunal while passing the order in 31/08/2012, remanded the matter to the file of the DRP with certain directions. Consequent to the order of the Tribunal, DRP passed order on 24/03/2014 u/s 144C(5) of the Act and pursuant to the order of the DRP, the A.O. passed final assessment order on 26/05/2014.
As per Section 153(2A) of the Act which was in operation during the year under consideration i.e. Financial Year 2014-15, the A.O. can pass fresh assessment order pursuant to the order u/s 254 of the Act order u/s 254 of the Act was made. For the sake of ready reference the provision of Section 253(2A) of the Act which was in operation during Financial Year 2014-15 are reproduced as under:-
“"153(2A) Notwithstanding anything contained in sub- sections (1), (14), (1B) and (2), in relation to the assessment year commencing on the 1st day of April, 1971, and any subsequent assessment year, an order of fresh assessment in pursuance of an order under section 250 of section 254 or section 263 or section 264, setting aside or cancelling an assessment, may be made at any time before the expiry of one year from the end of the financial year in which the order under section 250 or section 254 is received by the Principal Chief Commissioner of Chief Commissioner or Principal Commissioner or Commissioner or, as the case may be, the order under section 263 or section 264 is passed by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner:
Provided that where the order under section 250 or section 254 is received by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner or, as the case may be, the order under section 263 or section 264 is passed by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, on or after the 1st day of April, 1999 but before the Ist day of April, 2000, such an order of fresh assessment may be made at any time up to the 31st day of March, 2002."
In the present case, as the Tribunal passed the order u/s 254 of the Act on 31/08/2012, the final assessment order should have been passed on or before 31/03/2014 i.e. from the end of the Financial Year in which the order u/s 254 of the Act was passed by the Tribunal.
Private Limited vs. Deputy Commissioner of Income-tax.: W.P.(C) No. 1773/2016, under similar factual background, held that provisions of section 153(2A) of the Act would be attracted, when the assessment on an issue is set aside, with a direction to determined afresh. The relevant portion of the Judgment are reproduced as under:-
23. The Court is also unable to agree with the contention that unless the entire assessment order is wholly set aside, the time limit for passing the fresh order under Section 153 (2A) would not be attracted There is no warrant for such an interpretation. The object behind introduction of sub-section (24) was to prescribe a time limit for completing the assessment proceedings upon the original assessment being set aside or being cancelled in appeal. Clearly, the intention was not to restrict the applicability of sub-section (24) only to such cases where the 'entire' original assessment order is set aside. It was noted that, Under the existing provisions of section 153 (3), such fresh assessments are not subject to any time limit." Indeed, Section 153, as it stood at that time, did not prescribe any time limits. Section 153 (3) (ii), in particular, did not require the order passed thereunder to be issued within any particular time limit. Further there is a distinction between an 'assessment' that is set aside and an assessment order' being set aside. When the assessment on an issue is set aside and the matter remanded, with a direction that the issue has to be determined afresh, Section 153 (24) of the Act would get attracted."
Further, the Co-ordinate Bench of this Hon'ble Tribunal in the case of Qualcom Incorporated USA vs. DCIT Circle 3(1)(1): having similar facts, held that 'received' as mentioned in section 153(2A) of the Act, would have to be construed as 'having knowledge'. Relevant extracts of the case as provided as under:
Wipro Ge Healthcare Pvt. Ltd. Vs. DCIT "39. When the Assessing Officer framed order dated 12.03.2015 giving appeal effect to the order of the Tribunal, he was in full knowledge of the decision of the Tribunal. In our considered opinion, the word "received" mentioned in section 153(2A) of the Act [supra] has to be construed as "having knowledge". Since the Assessing Officer had full knowledge of the order of the Tribunal and pursuant to such knowledge, he framed the appeal effect order dated 12.03.2015, therefore, the remaining effect should also have been given on or before 31.03.2016."
In view of the fact that the Final Assessment Order has been passed beyond time limit provided under the provision of Section 253(2A) of the Act which was in operation during Financial Year 2014-15, we are of the opinion that the impugned Assessment Order will not sustain in the eyes of law, accordingly, the Impugned Assessment Order dated 26/05/2014 is hereby quashed.
Since, we have quashed the assessment order as barred by limitation, other grounds of Appeal of the Assessee requires no adjudication.
In the result, the Appeal o f the Assessee is partly allowed.
Order pronounced in the open court on 12th September, 2025