2017 (5) TMI 421 - AT - Income Tax

Validity of the assessment proceedings initiated under section 147/148 - reference to the TPO under section 92CA(1)- Held that - Aspects of the present case before us are identical to the facts before the Tribunal in Maximize Learning (P.) Ltd. vs. ACIT 2015 (2) TMI 662 - ITAT PUNE . In view thereof, we hold that when no assessment proceedings were pending in relation to the relevant assessment year, the Assessing Officer was precluded from making a reference to the TPO under section 92CA(1) of the Act for the purposes of computing the arm s length price in relation to the international transaction. Consequently, order passed by the TPO under section 92CA(3) proposing an adjustment of ₹ 12,17,43,370/- to the arm s length price of the international transaction was a nullity in law and void ab initio. In view of the above-said facts and circumstances, such an order passed by the TPO was not a valid material for the Assessing Officer to entertain a belief that certain income chargeable to tax had escaped assessment within the meaning of section 147 of the Act. Consequently, we hold that the reasons recorded for reopening the assessment under section 147 of the Act do not meet the requirements of the section and hence the Assessing Officer had no jurisdiction to issue notice under section 148 of the Act. Consequently, the subsequent order passed by the Assessing Officer under section 143(3) r.w.s. 147 and 144C of the Act is liable to be quashed. - Decided in favour of assessee.

Issues Involved:
1. Reopening of assessment under section 148 of the Act.
2. Reassessment invalid and bad in law.
3. Disallowance of Advertising and Marketing (A&M) expenses.
4. Disallowance of management cost.
5. Disallowance of selling discount.
6. Disallowance incorrectly made under section 40(a)(ia) of the Act.
7. Incorrect rejection of additional evidence.
8. Transfer Pricing adjustment.
9. Initiation of penalty proceedings under section 271(1)(c) of the Act.

Detailed Analysis:

1. Reopening of Assessment under Section 148 of the Act:
The Assessee contended that the reopening of the assessment by the Assistant Commissioner of Income Tax (ACIT) on the basis of the order under section 92CA(3) was invalid as no notice under section 143(2) was issued. The Tribunal noted that the reopening was based on an invalid Transfer Pricing Officer (TPO) order, making the reasons for reopening the assessment insufficient. The Tribunal emphasized that the Assessing Officer (AO) lacked independent application of mind, rendering the reassessment proceedings invalid.

2. Reassessment Invalid and Bad in Law:
The Tribunal observed that the reassessment was conducted without issuing a notice under section 143(2), which is mandatory for reassessment. The Tribunal reiterated that the reference to the TPO was invalid as it was made without pending assessment proceedings, making the subsequent TPO order null and void.

3. Disallowance of Advertising and Marketing (A&M) Expenses:
The ACIT disallowed A&M expenses reimbursed to Hindustan Unilever Limited (HUL), holding that HUL was rendering managerial services to the appellant. The Tribunal did not adjudicate this issue due to the quashing of the reassessment proceedings.

4. Disallowance of Management Cost:
The ACIT disallowed management costs reimbursed to HUL, considering it as payment for managerial services. The Tribunal did not address this issue due to the invalidity of the reassessment proceedings.

5. Disallowance of Selling Discount:
The ACIT disallowed selling discounts given to HUL, treating it as commission under section 194H. The Tribunal did not adjudicate this issue due to the quashing of the reassessment proceedings.

6. Disallowance Incorrectly Made under Section 40(a)(ia) of the Act:
The ACIT disallowed expenses under section 40(a)(ia) for non-deduction of tax at source. The Tribunal did not address this issue due to the invalidity of the reassessment proceedings.

7. Incorrect Rejection of Additional Evidence:
The Tribunal did not address the issue of the rejection of additional evidence due to the quashing of the reassessment proceedings.

8. Transfer Pricing Adjustment:
The Tribunal held that the reference to the TPO was invalid as it was made without pending assessment proceedings. Consequently, the TPO’s order was void ab initio, and the AO had no valid basis for reopening the assessment.

9. Initiation of Penalty Proceedings under Section 271(1)(c) of the Act:
The Tribunal did not address the initiation of penalty proceedings due to the quashing of the reassessment proceedings.

Conclusion:
The Tribunal quashed the reassessment proceedings initiated under section 147/148 of the Act, holding that the reference to the TPO was invalid as it was made without pending assessment proceedings. Consequently, the TPO’s order was void, and the AO had no valid basis for reopening the assessment. The remaining grounds of appeal were not adjudicated due to the quashing of the reassessment proceedings. The appeal of the assessee was allowed.

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