2023 (7) TMI 788 - AT - Income Tax

Validity of order passed by DRP w/o mentioning DIN / Document Identification Number - HELD THAT - As relying on Intrado EC India Private Ltd. 2023 (1) TMI 18 - ITAT BANGALORE since the DIN was not mentioned in DRP order which was mandatory as per CBDT Circular No.19 in view of the facts noted above in regard to communications done with the assessee, we hold that the DRP directions is invalid in the eyes of law and shall be deemed to have never been issued. Appeal of assessee allowed.

Summary

Issues Involved:
1. Transfer Pricing Adjustment on Software Development and Support Services
2. Transfer Pricing Adjustment on Advertisement, Marketing, and Promotion (AMP) Expenses
3. Direct Tax Addition on Waiver of Royalty Income
4. Validity of DRP Directions due to Non-quoting of DIN

Summary:

1. Transfer Pricing Adjustment on Software Development and Support Services:
The assessee contested an upward adjustment of Rs. 267,20,51,914 made by the AO/DRP/TPO concerning the provision of software development and support services to its Associated Enterprises (AEs). The DRP/AO/TPO rejected the segmental financials provided by the assessee, did not adjudicate on the audited segmental financials submitted, and rejected the TP documentation under Section 92D of the Act. They also applied inappropriate filters and included non-comparable companies in the analysis. The assessee sought the deletion of the entire adjustment.

2. Transfer Pricing Adjustment on Advertisement, Marketing, and Promotion (AMP) Expenses:
The assessee challenged an enhancement of Rs. 22,03,14,960 on AMP expenses, arguing that the DRP's directions for further benchmarking violated Section 144C(8) and (11) of the Act. The AO benchmarked the AMP expenses without referring to the TPO, contrary to CBDT Instruction No. 3/2016. The assessee argued that the AMP expenses were incurred wholly for its business in India, with no benefit to the AE, and that the bright line method applied was inappropriate.

3. Direct Tax Addition on Waiver of Royalty Income:
The assessee disputed an addition of INR 25,00,157 on account of waiver of royalty receivable on intellectual property licensed to Practo Pte Ltd (Singapore). The assessee also raised issues regarding the non-granting of set-off for brought forward business losses and unabsorbed depreciation, incorrect credit of tax deducted at source, and levying of interest under Section 234B of the Act.

4. Validity of DRP Directions due to Non-quoting of DIN:
The assessee argued that the DRP directions dated 30.12.2021 were invalid as they did not bear a "Document Identification Number" (DIN), as mandated by CBDT Circular No. 19/2019. The Tribunal found substance in this argument, noting that the DRP order was issued without quoting a DIN and was thus invalid and deemed to have never been issued. This rendered the final assessment order dated 28.01.2022, passed under Section 143(3) read with Section 144C(13) of the Act, null and void ab initio.

Conclusion:
The Tribunal allowed the additional grounds raised by the assessee regarding the invalidity of the DRP directions due to the non-quoting of DIN, rendering the DRP order and the subsequent final assessment order null and void. Other grounds on merits were left open. The appeal by the assessee was allowed.