2023 (9) TMI 1024 - AT - Income Tax

Validity assessment order - DRP issued directions (order) without quoting DIN - Scope of circular 19/2019 issued - whether defect be corrected by taking recourse to Section 292B? - HELD THAT - DRP s order was manually passed on 29.6.2022 and at that time, no DIN was generated, which was subsequently generated on 30.6.2022. As per circular no.19/2019 dated 14.8.2019 issued by the Central Board of Direct Taxes (CBDT) it has been strictly mentioned that any communication issued by any Income Tax Authority (ITA) without DIN shall be treated as invalid and shall be deemed to never have been issued. Further, in the circular 19/2019 the CBDT has also prescribed some exceptional circumstances wherein the AO can issue any manual communication without DIN but there will be proper recording of reasons in the specified format and prior approval of designated authorities has to be taken before issuance of such communication. Thereafter, such manual communication has to be regularized within 15 days of its issuance. the argument advanced on behalf the revenue, that recourse can be taken to Section 292B of the Act, is untenable, having regard to the phraseology used in paragraph 4 of the circular 19/2019. The object and purpose of the issuance of the 2019 Circular was to create an audit trail. Therefore, the communication relating to assessments, appeals, orders, etc. which find mention in paragraph 2 of the 2019 Circular, without DIN, can have no standing in law, having regard to the provisions of paragraph 4 of the 2019 Circular.

Summary

Issues involved:
The judgment involves various issues including passing of DRP directions without Document Identification Number (DIN), Transfer Pricing Adjustments, Corporate tax adjustments, Disallowance of legal and professional charges paid to non-residents, Disallowance of legal & professional charges paid to residents, Deduction under section 10AA of the Act, Computation under section 115JB of the Act, and other related matters.

DRP Directions without DIN:
The appeal challenged the final assessment order based on the grounds that DRP directions were passed without a DIN, rendering the subsequent assessment order invalid. The argument was that the absence of a DIN at the time of passing the DRP order was a violation of Circular No.19/2019 issued by the CBDT, which deems any communication without DIN as invalid. The High Court's decision in a similar case emphasized the binding nature of circulars issued by the CBDT and upheld the invalidity of an assessment order lacking a DIN. The court dismissed the revenue's appeal, affirming the Tribunal's application of Circular 19/2019 and the consequent quashing of the final assessment order due to the DIN issue.

Transfer Pricing Adjustments:
The case involved transfer pricing adjustments made by the Transfer Pricing Officer (TPO) under section 92CA of the Act. The TPO's order resulted in a significant adjustment of Rs. 59,54,35,766, leading to penalty proceedings under section 270(A) for underreporting income. Subsequent directions from the DRP led to adjustments in the total transfer pricing issues to Rs. 51,02,83,239. The appeal raised objections against these adjustments, including specific adjustments related to SWD and ITeS segments.

Corporate Tax Adjustments:
Apart from transfer pricing adjustments, the case also dealt with corporate tax adjustments, including disallowance of CST expenditure, legal & professional fees paid to non-residents, and fees paid to residents. The total disallowances amounted to Rs. 1,50,56,157, Rs. 2,61,44,548, and Rs. 10,74,049, respectively. These adjustments were contested by the assessee in the appeal.

Compliance with Circular No.19/2019:
The judgment highlighted the importance of complying with Circular No.19/2019 issued by the CBDT regarding the use of Document Identification Numbers (DIN) in official communications. The case emphasized that any communication lacking a DIN shall be treated as invalid, as per the circular's guidelines. The High Court's decision in a similar matter reinforced the binding nature of CBDT circulars on revenue authorities and the necessity of DIN for maintaining the validity of assessments and orders.

Conclusion:
The Tribunal partially allowed the appeal by quashing the final assessment order due to the invalidity arising from the absence of a DIN in the DRP directions. The decision was based on the precedents set by the High Court and other coordinate benches regarding the mandatory nature of DIN in official communications. The judgment underscored the significance of adhering to CBDT circulars for ensuring the legality and validity of assessment procedures.