9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2023 (11) TMI 1097 - AT - Income TaxValidity of assessment u/s 144C - issuing the demand notice and the penalty notice along with the draft assessment order - HELD THAT - As per the provisions of the Act, the draft assessment order in no way culminates to arriving at the demand and also the levy of penalty. It can be inferred from the act of the A.O. in issuing the demand notice along with the draft assessment order that the demand got crystalised on passing of the draft assessment order thereby converting the draft assessment order to be the final assessment order passed by the A.O. The intention of the legislature is clear where it has proposed a draft assessment order for the purpose to show cause the assessee whether he accepts or objects to the proposed addition. Assessee has placed reliance on the decision of the Tribunal in the case of Aker Powergas P. Ltd. 2022 (6) TMI 1118 - ITAT MUMBAI wherein the Tribunal by placing reliance on the decision of Atlas Copco India Ltd. 2019 (8) TMI 1415 - ITAT PUNE has held that on identical facts, the assessment order was held to be null and void. As decided in the case of Vijay Television (P.) Ltd. vs. DRP 2014 (6) TMI 540 - MADRAS HIGH COURT held that the omission on the part of the A.O. to follow the mandatory procedures is not a curable defect nor was it a procedural irregularity. We would also like to place reliance on the decision of Lion Bridge Technologies Private Limited 2018 (12) TMI 764 - BOMBAY HIGH COURT wherein it was held that failure to follow the mandatory procedures will render the assessment order null and void. We hereby hold the assessment order to be null and void. As the assessment order has been held to be invalid, we do not find it necessary to adjudicate the other grounds raised by the assessee and the Revenue. TP Adjustment - comparable selection - assessee has objected to the inclusion of the comparable namely Eclerx Services Ltd. selected by the TPO for the reason that the said comparable company was a KPO - HELD THAT - As decided B C Management Services P. Ltd. 2017 (5) TMI 1501 - ITAT DELHI wherein it was held that the comparables with different business model and no segmental business available, was to be rejected. Eclerx Services Ltd. is not held to be a comparable for the reason that it is functionally different from that of the assessee. Thus to exclude Eclerx Services Ltd. from the list of comparables while benchmarking the international transaction of the assessee for the year under consideration. Appeal filed by the assessee is allowed.
Issues Involved:
1. Comparison of low-end back-office support functions with entrepreneurial companies. 2. Understanding of low-end back-office support services. 3. Consideration of profit shifting outside India. 4. Rejection of contemporaneous search and benchmarking analysis. 5. Conducting fresh benchmarking analysis using non-contemporaneous data. 6. Comparison with high-end entrepreneurial companies. 7. Disregarding multiple year data. 8. Validity of the assessment order under section 144C of the Income Tax Act. Summary: Issue 1: Comparison with Entrepreneurial Companies The Tribunal noted that the learned TPO and AO erred in comparing the appellant's low-end back-office support functions with entrepreneurial companies. The CIT(A) also erred in confirming this comparison, leading to an adjustment of the appellant's total income based on Chapter X of the Income Tax Act, 1961. Issue 2: Understanding of Low-End Back-Office Support Services The Tribunal observed that both the AO/TPO and CIT(A) failed to understand the nature of the low-end back-office support services provided by the appellant to its associated enterprise, which are risk-free services. Issue 3: Consideration of Profit Shifting The Tribunal found that the AO/TPO ignored the fact that IMS US undertakes all entrepreneurial risks and incurred losses on a consolidated level. The appellant, being a risk-mitigated captive service provider, is always compensated on a cost-plus model, negating any profit shifting outside India. Issue 4: Rejection of Contemporaneous Search The Tribunal noted that the AO/TPO and CIT(A) erred in rejecting the benchmarking analysis and comparable companies selected by the appellant based on contemporaneous data in the transfer pricing study report. Issue 5: Fresh Benchmarking Analysis The Tribunal held that the AO/TPO and CIT(A) erred in conducting a fresh benchmarking analysis using non-contemporaneous data and substituting the appellant's analysis with their own. The Tribunal quashed this fresh benchmarking analysis. Issue 6: Comparison with High-End Entrepreneurial Companies The Tribunal highlighted that the AO/TPO and CIT(A) failed to appreciate the appellant's business model as a risk-free service provider and erroneously compared its margins with high-end entrepreneurial companies, which was inappropriate. Issue 7: Disregarding Multiple Year Data The Tribunal found that the AO/TPO and CIT(A) erred in rejecting the appellant's contention to compute the margin of comparable companies based on multiple year financial data. Issue 8: Validity of Assessment Order The Tribunal admitted the additional ground challenging the validity of the assessment order under section 144C of the Act. The Tribunal held that the AO's issuance of a demand notice and penalty notice along with the draft assessment order violated the mandatory provisions of section 144C, rendering the assessment order null and void. The Tribunal relied on various judicial decisions, including those from the Hon'ble Apex Court and High Courts, to support this conclusion. Conclusion: The Tribunal allowed the appeal filed by the assessee, holding the assessment order to be null and void, and dismissed the appeal filed by the Revenue. The Tribunal directed the TPO to exclude Eclerx Services Ltd. from the list of comparables while benchmarking the international transaction of the assessee. The other grounds raised by the assessee were dismissed as academic in nature.
|
