2022 (1) TMI 1033 - AT - Income Tax

Validity of proceedings u/s. 92CA(3) passed after expiry of limitation period - period of limitation - Time limit for completion of assessments - HELD THAT - As in case of Honda Trading Corporation 2015 (9) TMI 846 - ITAT DELHI wherein, it was held that the time limit specified u/s. 92CA(3A) is mandatory and not directory and therefore the Ld. TPO is bound by the time limit for passing of the order u/s. 92CA (3) of the Act. Accordingly, in that case time limit as per section 153(1) of the Act was up to 7.06.2014 and the Ld. TPO passed his order on 31.05.2014 instead of on or before 08.04.2014, hence order passed by the Ld. TPO therein was held to be time barred. Hon'ble Delhi Tribunal further held that in such circumstances the final assessment order would be same but the addition on account of transfer pricing adjustment arising from the determination of the ALP of the international transaction by the TPO emanating from his time barred order passed u/s. 92CA(3) is unsustainable In the present facts, the Ld. CIT.DR has in the written submission mentioned that the order of the Ld. TPO is passed on 29.01.2014 or 30.01.2014 but dated 31.01.2014. Then, the order of the Ld. TPO is not only irregular, wrong or illegal but is also null and void. Such action cannot be considered to be of any irregularity in the procedure, so as to get any kind of protection u/s. 292BB of the Act. In view of above and following judicial precedent cited before us by the ld. AR being decision of the coordinate bench we hold that the order of the ld. TPO passed on 31.01.2014 is barred by limitation and liable to be quashed. Therefore, consequently, the proposed addition on account of transfer pricing adjustment amounting to does not survive. - Decided in favour of assessee.

Issues Involved:
1. Assessment of total income.
2. Transfer pricing adjustments.
3. Rejection and acceptance of comparable companies.
4. Working capital adjustment.
5. Capacity and depreciation adjustments.
6. Marketing expenditure adjustments.
7. Risk profile adjustments.
8. Application of +/- 5% benefit under section 92C.
9. Levy of interest under sections 234B and 234C.
10. Initiation of penalty proceedings under section 271(1)(c).
11. Validity and timeliness of the order passed under section 92CA(3).

Detailed Analysis:

1. Assessment of Total Income:
The learned AO, based on directions from the Hon'ble DRP, assessed the total income at ?4,89,94,919/- against the returned income of ?70,62,944/- computed by the Appellant. This significant increase was primarily due to adjustments in the arm's length price (ALP) of international transactions.

2. Transfer Pricing Adjustments:
The AO/TPO made an addition of ?4,18,86,975 to the total income of the Appellant due to adjustments in the ALP of the Information Technology enabled Services (ITeS) transactions with its associated enterprise. The AO/TPO did not accept the economic analysis undertaken by the Appellant and conducted a fresh analysis, using only FY 2009-10 data, which was not available to the Appellant at the time of documentation.

3. Rejection and Acceptance of Comparable Companies:
The AO/TPO erred by rejecting certain comparable companies identified by the Appellant for having different accounting years and modifying the related party filter from 'less than 25 percent' to 'equal to 0 percent,' thus rejecting companies that otherwise passed the initial filter. The Tribunal also noted errors in including or excluding companies based on unreasonable comparability criteria.

4. Working Capital Adjustment:
The AO/TPO made a negative working capital adjustment, which was contested by the Appellant. The Tribunal found that the AO/TPO's approach was erroneous.

5. Capacity and Depreciation Adjustments:
The AO/TPO did not grant capacity adjustments to account for differences in capacity utilization and depreciation adjustments for differences in the rate of depreciation charged by the Appellant vis-à-vis the comparables. The Tribunal found this approach flawed.

6. Marketing Expenditure Adjustments:
The AO/TPO did not grant adjustments for differences in marketing expenditures incurred by the Appellant compared to the comparables, which was another point of contention.

7. Risk Profile Adjustments:
The AO/TPO failed to make suitable adjustments for differences in the risk profile of the Appellant compared to the comparables during the comparability analysis.

8. Application of +/- 5% Benefit:
The AO/TPO computed the ALP without giving the benefit of +/- 5% under the proviso to section 92C of the Act, which was contested by the Appellant.

9. Levy of Interest:
The AO levied interest of ?24,15,703 and ?52,160 under sections 234B and 234C of the Income Tax Act, 1961, respectively, which was challenged by the Appellant.

10. Initiation of Penalty Proceedings:
The AO initiated penalty proceedings under section 271(1)(c) of the Act, which was also contested by the Appellant.

11. Validity and Timeliness of the Order Passed under Section 92CA(3):
The Appellant raised additional grounds challenging the validity of the order passed by the TPO as being time-barred. The Tribunal found that the order passed by the TPO on 31.01.2014 was indeed beyond the permissible time limit under section 92CA(3A), rendering it null and void. Consequently, the transfer pricing adjustments based on this order were unsustainable.

Conclusion:
The Tribunal admitted the additional grounds raised by the Appellant regarding the time-barred order of the TPO and quashed the transfer pricing adjustments. As a result, the Tribunal did not find it necessary to address the merits of the transfer pricing adjustments, rendering the other grounds of appeal infructuous. The appeal filed by the Appellant was allowed on the legal issue, and the revenue's appeal was dismissed.

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