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2022 (12) TMI 241 - AT - Income TaxRectification of mistake u/s 154 - TP Adjustment - arm's length price adjustment - DRP directions no ALP adjustment was made by the Assessing Officer - DRP is of the considered view that, after examining the transaction in payment of hire/lease charges to the AE by the assessee on the parameters narrated the transaction is at arm‟s length and does not require any upward adjustment - whether the Dispute Resolution Panel was justified in passing the impugned order ? - whether the TPO was justified in given effect, vide his order to the directions contained in the said order? whether, based on this rectification order passed by the Dispute Resolution Panel and based on the TPO's resultant order giving effect thereto? and, whether the AO was justified in, based on these order, passing the impugned order making an addition as an arm‟s length price adjustmen? - HELD THAT - As a plain and careful reading of rule 13 makes it unambiguous, the rectification powers, under rule 13, by the Dispute Resolution Panel can be exercised only in one of the three circumstances namely, (a) suo motu, i.e. on its own by the DRP; (b) on an application made by the eligible assessee, or (c) on an application made by the Assessing Officer. The scheme of rule 13 does not visualize any rectification of mistake, by the Dispute Resolution Panel, on an application by the TPO. The application filed by the Transfer Pricing Officer before the Dispute Resolution Panel, irrespective of its nomenclature, was liable to be dismissed for this short reason itself. As for the observations of the Dispute Resolution Panel on the nomenclature of the application filed by the Transfer Pricing Officer, whatever be the nomenclature, it was unambiguously a petition seeking rectification of mistake as evident from his opening words in the first paragraph to the effect (t)his MA is being filed for rectifying various mistakes apparent on record in the order of the learned DRP which are being delineated in the following paragraphs . When the object and purpose of the application is unambiguous, nothing really turns on the terminology used to describe the said application. We have noted that the Dispute Resolution Panel, having rejected the rectification application filed by the Transfer Pricing Officer and having held that there is no mistake apparent in the direction dated 3rd November 2020, have proceeded to rectify these DRP directions nevertheless. Undoubtedly, if the DRP was of the opinion that there are mistakes apparent in the directions issued by the DRP, they could have taken a suo motu cognizance of the same and initiated the proceedings by the issuance of show-cause notice, setting out clearly the reasons as to why such proceedings not be initiated, but that exercise has not been carried out. Whatever rectification has been carried out is on the basis of an application made by the Transfer Pricing Officer- an application which was not maintainable at all, and even after holding that there was no apparent mistake in the DRP directions, whereas a finding of the mistake being a mistake apparent in the DRP directions was a sine qua non for invoking the jurisdiction under rule 13. We are of the considered view that the directions dated 22nd April 2021 passed by the Dispute Resolution Panel are unsustainable in law, and we must quash the same. Once the directions passed by the DRP stand quashed, the order passed by the Transfer Pricing Officer to give effect to these directions and the impugned rectification order passed by the Assessing Officer to give effect to the TPO's order, must also stand quashed. Ordered, accordingly. All other related grievances with respect to the ALP adjustment as raised in this appeal, in view of the above findings, are rendered infructuous and academic, and do not call for any specific adjudication. We may,however, add that this order is without prejudice to any such order as the DRP may, within the permissible framework of the law- including on the limitation aspect, pass under rule 13 on its own or on an application by such parties as are permitted to file such an application.
Issues Involved
1. Justification of the Dispute Resolution Panel (DRP) in passing the order dated 22nd April 2021. 2. Justification of the Transfer Pricing Officer (TPO) in giving effect to the DRP's directions. 3. Justification of the Assessing Officer in making an addition of Rs 6,68,10,000 as an arm's length price (ALP) adjustment based on the DRP and TPO orders. Issue-wise Detailed Analysis 1. Justification of the Dispute Resolution Panel (DRP) in Passing the Order Dated 22nd April 2021 The appellant challenged the legitimacy of the DRP's order dated 22nd April 2021. The DRP had initially concluded that the transaction between the assessee and its associated enterprise (AE) was at arm's length and did not require any upward adjustment. However, the TPO filed a miscellaneous application (MA) on 16th February 2021, seeking rectification of various mistakes in the DRP's order. The DRP, after considering the submissions from both parties, found that the MA was based on incorrect facts and circumstances and rejected it as not maintainable. The DRP noted that the TPO's application was ultra vires since there was no provision under the Act or DRP Rules, 2009, for filing such an application. Despite this, the DRP proceeded to rectify the directions on certain points. The Tribunal found that the scheme of rule 13 of the DRP Rules does not permit a rectification application from the TPO, and the rectification should only address "mistakes apparent on record," which were not established in this case. Thus, the Tribunal quashed the DRP's directions dated 22nd April 2021 as unsustainable in law. 2. Justification of the Transfer Pricing Officer (TPO) in Giving Effect to the DRP's Directions The TPO had recommended an ALP adjustment of Rs 131,40,70,214, which was initially proposed by the Assessing Officer in the draft assessment order. After the DRP's initial order, no ALP adjustment was made. However, following the TPO's MA and the subsequent directions by the DRP on 22nd April 2021, the TPO gave effect to these directions in his order dated 31st May 2021. The Tribunal found that the TPO's application for rectification was not maintainable under rule 13 of the DRP Rules, and the directions issued by the DRP were quashed. Consequently, the TPO's order based on these directions was also quashed. 3. Justification of the Assessing Officer in Making an Addition of Rs 6,68,10,000 as an Arm's Length Price Adjustment The Assessing Officer, based on the rectification order passed by the DRP and the resultant order by the TPO, made an addition of Rs 6,68,10,000 as an ALP adjustment in the impugned order dated 2nd June 2021. The Tribunal noted that since the DRP's directions dated 22nd April 2021 were quashed, the TPO's order giving effect to these directions and the Assessing Officer's impugned rectification order must also be quashed. The Tribunal held that all other related grievances with respect to the ALP adjustment were rendered infructuous and academic, and did not require specific adjudication. Additional Grievance The assessee also raised a grievance against the depreciation allowance on Gas Turbine Generators (GTGs) of Rs 25,29,89,877 at 15% instead of 80%. However, this addition was made in the original assessment order dated 30th March 2021, and the present appeal was against the rectification order dated 2nd June 2021. The Tribunal advised the assessee to pursue this grievance in appeals against the original assessment order. Conclusion The appeal was partly allowed, with the Tribunal quashing the DRP's directions dated 22nd April 2021, the TPO's order giving effect to these directions, and the Assessing Officer's rectification order based on the TPO's order. The Tribunal left open the possibility for the DRP to pass a new order within the permissible framework of the law.
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