2024 (6) TMI 977 - AT - Income Tax

Validity of final assessment order passed beyond limit prescribed u/s.144C(13) - HELD THAT - AO shall pass final assessment order within one month from the end of the month, in which, such directions issued by the DRP, is received by the AO. In the present case, the directions issued by the DRP for AY 2017- 18, was received by the AO on 03.06.2022 and consequently, the AO should have passed final assessment order on or before 31.07.2022. But, the AO has passed final assessment order for AY 2017-18 u/s.143(3) r.w.s.144C(13) on 02.01.2023 and thus, in our considered view, the final assessment order passed by the AO on 02.01.2023 is barred by limitation, since, the same is passed beyond the time limit prescribed u/s.144C(13) of the Act. Similarly, the directions issued by the DRP for AY 2018-19 dated 20.06.2022 was received by the AO on 30.06.2022 and consequently, the AO shall pass final assessment order u/s.143(3) r.w.s.144C(13) of the Act on or before 31.07.2022. Since, the AO has passed final assessment order for AY 2018-19 on 30.12.2022, in our considered view, the order passed by the AO is barred by limitation and is liable to be quashed and thus, we quashed final assessment orders passed by the AO for AY 2017-18 dated 02.01.2023 and for AY 2018-19 dated 30.12.2022 since both are barred by limitation in terms of sec.144C(13) of the Act. Appeal of assessee allowed.

Issues Involved:
1. General Ground
2. Jurisdictional Grounds
3. Grounds on Merits - Transfer Pricing
4. Grounds on Merits - Corporate Tax

Summary:

I. General Ground:
The lower authorities erred in passing orders which suffer from legal defects such as being passed in violation of principles of natural justice and the provisions of the Income Tax Act, 1961 ("the Act") and is devoid of merits and are contrary to facts on record and applicable law and has been completed without adequate inquiries and as such is liable to be quashed.

II. Jurisdictional Grounds:

2. Validity of Directions Issued by the DRP:
The directions issued by the Dispute Resolution Panel (DRP) u/s 144C(5) of the Act are invalid and void-ab-initio due to the absence of a mandatory system-generated Document Identification Number (DIN) on the body of the directions, contravening Circular No.19 of 2019 issued by the Central Board of Direct Taxes. Therefore, these directions are liable to be quashed and held as never to have been issued.

3. Validity of the Final Assessment Order:
The final assessment order dated 02.01.2023, passed pursuant to the invalid directions issued u/s 144C(5) of the Act, is illegal, bad in law, null and void, and liable to be quashed. Additionally, the order is barred by limitation as it was passed beyond the time limit prescribed u/s 144C(13) of the Act. Furthermore, the order is in violation of the mandatory provisions of section 1446 of the Act and is not authenticated in the prescribed manner, making it invalid, without jurisdiction, illegal, and contrary to the provisions of the Act.

III. Grounds on Merits - Transfer Pricing:

4. Upward Adjustment towards AMP Expenses for Brand-Building:
The lower authorities erred in not following the order of the Jurisdictional bench of the Tribunal in the Appellant's own case for AY 2012-13. They made an upward TP adjustment of INR 263.52 Crores towards alleged brand-building activities undertaken by the Appellant for its AEs, based on conjectures and surmises without tangible evidence. The authorities also erred in alleging that the Appellant rendered brand-building services to its AE without establishing that such services were actually rendered or that the Appellant incurred AMP expenditure for the benefit of its AEs pursuant to an underlying agreement/arrangement. Furthermore, the authorities adopted an arbitrary approach of treating an ad-hoc amount of INR 483.24 Crores towards the promotion of the AE's brand.

IV. Grounds on Merits - Corporate Tax:

5. Disallowance of Payments in Relation to Expatriates:
The lower authorities erred in disallowing payments made by the Appellant to Renault Nissan Global Management S.A. (RNGM) amounting to INR 7.50 Crores u/s 40(a)(i) of the Act. They failed to appreciate that disallowance under section 40(a)(i) is not sustainable for the portion of the payment pertaining to the management fee, on which taxes were duly withheld by the Appellant u/s 195 of the Act. Additionally, the authorities erred in concluding that the payment partakes the nature of fees for technical services (FTS) and in not appreciating that the portion of the payment pertaining to reimbursement of social security benefits (SSB) is outside the purview of FTS. They also erred in holding that there is no employer-employee relationship between the Appellant and expatriates and in recharacterizing the payment to RNGM.

Final Judgment:
The Tribunal found that the final assessment orders passed by the AO for AY 2017-18 and AY 2018-19 were barred by limitation as they were passed beyond the prescribed time limit u/s 144C(13) of the Act. Consequently, the final assessment orders for both assessment years were quashed. As a result, the various grounds challenging the additions made by the AO towards TP adjustment became academic in nature and were dismissed as infructuous. Appeals filed by the assessee for both assessment years were allowed.

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