2023 (10) TMI 1507 - AT - Income Tax

Validity of assessment u/s 143(3) r.w.s. 144C(13) - final assessment order complied with the DRP s directions or not? - determination of the ALP for the international transactions of providing supporting services was referred to the learned TPO for determination of ALP - DRP directed AO/TPO to include Sundaram Business Services in the list of comparables and also to take into consideration the correct margins of certain companies by computing from the annual reports available in the public domain HELD THAT - We find from the order passed by TPO purporting to be giving effect to the directions of the DRP that as a matter of fact the DRP gave such a direction and the TPO properly understood the same. But strangely AO missed that aspect and observed that learned DRP confirmed the action of the TPO and rejected the objections filed by the AO It is a factual mistake committed by AO The result is that the upward adjustment proposed by TPO so mentioned in the draft assessment order is carried forward as it is to the final assessment order. The factual position is therefore clear that the final assessment order remained non-compliant with the directions of the DRP. As in the case of M/s. ESPN Star Sports Mauritus S.N.C ET Compagnie 2016 (4) TMI 45 - DELHI HIGH COURT and Flextronics Technologies (India) Private Limited 2018 (12) TMI 1741 - ITAT BANGALORE held that u/s 144C(10) AO had no option but to comply with the directions of the DRP and any order passed in disregard to such directions vitiates the entire exercise. Since such an order is without jurisdiction and null and void the same is liable to be quashed. We hold the issue in favour of the assessee and quash the impugned order. Appeal of the assessee is allowed.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal issue considered in this judgment is the legality and validity of the final assessment order dated 14/02/2022, which was passed by the Assessing Officer subsequent to the directions provided by the Dispute Resolution Panel (DRP) on 28/01/2022. The primary question is whether the final assessment order complied with the DRP's directions and if not, whether such non-compliance renders the order null and void.

ISSUE-WISE DETAILED ANALYSIS

Legal Framework and Precedents

The legal framework revolves around Section 144C of the Income Tax Act, 1961, which mandates that the Assessing Officer must comply with the directions issued by the DRP. The precedents cited include decisions from the Hon'ble Delhi High Court and the Karnataka High Court, which emphasize that any assessment order passed in disregard of DRP directions is without jurisdiction and void.

Court's Interpretation and Reasoning

The Tribunal noted that the DRP had directed the inclusion of Sundaram Business Services Ltd. as a comparable company and required the correct margins of certain companies to be computed from their annual reports. However, the Assessing Officer's final assessment order erroneously stated that the DRP had confirmed the Transfer Pricing Officer's (TPO) actions and rejected the assessee's objections, which was factually incorrect.

Key Evidence and Findings

The Tribunal found that the TPO, in an order dated 23/02/2022, correctly understood and intended to implement the DRP's directions. However, the Assessing Officer failed to incorporate these directions into the final assessment order, leading to the continuation of the proposed upward adjustment of Rs. 18,49,57,981/- without the necessary adjustments as directed by the DRP.

Application of Law to Facts

The Tribunal applied the principles established by the High Courts, which require strict adherence to DRP directions under Section 144C(10). The Tribunal concluded that the Assessing Officer's failure to comply with the DRP's directions rendered the final assessment order non-compliant and thus invalid.

Treatment of Competing Arguments

The Revenue argued that the non-compliance was due to procedural issues during the COVID-19 pandemic and the initial phase of faceless assessment proceedings. However, the Tribunal found these arguments insufficient to justify the non-compliance with statutory requirements. The Tribunal also noted that prior Tribunal decisions, which suggested remanding the matter for fresh consideration, were based on different factual circumstances and did not address the fundamental issue of legality.

Conclusions

The Tribunal concluded that the final assessment order was invalid due to non-compliance with the DRP's directions. The Tribunal quashed the order and allowed the assessee's appeal.

SIGNIFICANT HOLDINGS

The Tribunal held that the Assessing Officer must comply with DRP directions under Section 144C(10) of the Income Tax Act, and any order passed in disregard of such directions is without jurisdiction and void. The Tribunal stated: "Under section 144C(10) of the Act, the learned Assessing Officer had no option, but to comply with the directions of the learned DRP and any order passed in disregard to such directions vitiates the entire exercise."

Core Principles Established

The judgment reinforces the principle that adherence to DRP directions is mandatory and non-negotiable. Any deviation from these directions in the final assessment order renders the order null and void.

Final Determinations on Each Issue

The Tribunal determined that the final assessment order dated 14/02/2022 was invalid due to non-compliance with the DRP's directions. Consequently, the Tribunal quashed the order and allowed the appeal in favor of the assessee.