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2024 (9) TMI 641 - AT - Income TaxValidity of final assessment order passed u/s 143(3) r.w.s. 144C (13) subsequent to the direction of the Ld. Dispute Resolution Panel (DRP)/TPO - effect of non-compliance with statutory provisions - as argued final assessment order did not conform to the DRP directions - HELD THAT - While passing the final assessment order, the Assessing Officer (jurisdictional Assessing Officer) has not followed the directions of ld. DRP as per section 144C (13) of the Act and further we observed that the relevant Assessing Officer has not taken any step to pass a rectification order till now. We further observed that the TPO has passed OGE order to give effect TP adjustments after DRP directions and this is consequently part of the assessment records and Assessing Officer no doubt made a mistake which has led to not following of statutory provisions and not followed it up for making it proper which is in line with the provisions of section 144C of the Act. This is gross violation on the part of the jurisdictional Assessing Officer and ld. DR for the Revenue vehemently argued that it is a mistake. If it is a mistake, the Department should have acted upon to rectify the mistake within reasonable time. In this case, no records were shown to make such efforts taken by the officer. It is clearly violation of law which deserves to be acted upon and the action of the Assessing Officer is contrary to the provisions of the Act and contrary to the law. For the purpose of any subsequent proceedings, what is relevant is the final assessment order for all purposes including the collection of tax. The assessment order so passed by the Assessing Officer deserves to be quashed. Decided in favour of assessee.
Issues Involved:
1. Adjustment to the total income on account of the difference in the arm's length price (ALP) of international related party transactions. 2. Jurisdictional issue regarding the final assessment order's conformity with the DRP directions. 3. Erroneous adjustments related to specific international transactions. 4. Corporate tax calculation errors. 5. Interest and penalty issues. Detailed Analysis: 1. Adjustment to the Total Income on Account of the Difference in ALP: The Revenue erred in making an adjustment of INR 2,24,36,553/- to the total income of the assessee due to the difference in the arm's length price (ALP) of its international related party transactions under Section 92CA(4) of the Income Tax Act. This adjustment included: - Payment of shared service charges, holding fees, and ERP fees (INR 18,552,925). - Provision of back-office support services (INR 1,887,166). - Payment of sourcing fee, purchase & sale of software (INR 1,996,462). 2. Jurisdictional Issue: The assessee contended that the final assessment order dated 28 July 2022 did not conform to the DRP directions dated 3 June 2022, violating Section 144C(10) read with Section 144C(13) of the Act. The Tribunal observed that the TPO had initially proposed adjustments totaling INR 2,24,36,553/-, which the DRP reduced to INR 1,85,52,925/- for intra-group services. However, the final assessment order sustained the original adjustments, indicating non-compliance with the DRP's directions. The Tribunal relied on the Bombay High Court's decision in Hexaware Technologies Ltd. vs. ACIT, emphasizing that non-compliance with statutory provisions renders the assessment order invalid and bad in law. Consequently, the Tribunal quashed the final assessment order. 3. Erroneous Adjustments Related to Specific International Transactions: - Payment of Shared Service Charges, Holding Fees, and ERP Fees: The Revenue rejected the economic analysis and arbitrarily selected the Comparable Uncontrolled Price (CUP) method without establishing comparable uncontrolled transactions, thus violating Section 92C of the Act read with Rule 10 of the Income Tax Rules. - Provision of Back-Office Support Services: The Revenue included companies not comparable to the assessee in terms of functions, assets, and risks, rejected comparable companies selected by the assessee, and incorrectly computed the profit level indicator (PLI). Additionally, the TPO did not allow risk adjustment under Rule 10B(1)(e). - Payment of Sourcing Fee, Purchase, and Sale of Software: Similar errors were noted as in the back-office support services, including the inclusion of non-comparable companies and incorrect computation of PLI. 4. Corporate Tax Calculation Errors: The AO erred in computing the tax liability by considering TDS credit of INR 1,66,68,496/- instead of INR 1,69,80,644/- and by not allowing a deduction of INR 15,14,475/- under Section 80G already claimed by the assessee. 5. Interest and Penalty Issues: The AO erred in levying interest under Sections 234B and 234C and in initiating penalty proceedings under Section 270A in the final assessment order. Conclusion: The Tribunal allowed the appeal partly, quashing the final assessment order on jurisdictional grounds due to non-compliance with the DRP's directions. Other grounds raised by the assessee were not adjudicated at this stage.
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