2012 (4) TMI 148 - AT - Income Tax

Order of Dispute Resolution Panel (DRP) u/s 144C - distinction between a null and void order and an illegal or irregular order - the order was christened as final order though the assessing authority was supposed to issue a draft order first inviting objections of the assessee against the adjustments proposed by the TPO - The assessee treated the said order as the final and filed appeal before the CIT(A) - on the mistake becoming apparent the AO issued a corrigendum stating that the first order to be treated as draft order - the corrigendum issued no legal force - Held that - The argument that there is no provision in the Act to issue a corrigendum is not proper, as that power is always inherent with any statutory authority. In fact, a corrigendum is even appealable if it is prejudicial to an assessee. In the present case, the corrigendum issued by the assessing authority is not prejudicial. The Assessing Officer was only clarifying the situation. - Decided in favor of revenue. Higher Depreciation - Comparable companies - In Schedule 16 to its final accounts, which provides notes on accounts, the assessee has clarified the significant accounting policies followed by it in the matter of fixed assets and depreciation. It is stated therein that the assessee has provided depreciation on straight-line method. The rates have been adopted on the basis of technical estimates made of useful life of the assets. Accordingly, the assessee has provided depreciation at 33.33% in the case of plant and machinery including computer hardware and software. Furniture and fixtures were depreciated at the rate of 14.29% and motor vehicles at the rate of 20%. Depreciation was provided on office equipment at 20% and air-conditioners at 12.5%. Held that - The assessee is in fact not providing technical depreciation influenced by Income-tax Rules No force in the arguments advanced by the assessee company on the question of adjustment of the depreciation factor. - Decided in favor of revenue.

Summary

Issues Involved:
1. Legality of issuing a corrigendum to the original assessment order.
2. Validity of the final assessment order passed after issuing the corrigendum.
3. Adjustment of depreciation in the transfer pricing assessment.

Analysis of Judgment:

1. Legality of issuing a corrigendum to the original assessment order:
The first ground raised by the assessee is that the lower authorities erred in holding that the orders passed were in accordance with law. The assessing authority initially passed an order on 27-12-2010, which was communicated as a final order. Subsequently, a corrigendum was issued on 21-2-2011, stating that the first order was a draft order under section 144C(1) of the Act. The assessee contended that there is no provision under the income-tax law to issue a corrigendum and rectify errors in an order passed by the Assessing Officer. However, the Tribunal held that the power to issue a corrigendum is inherent with any statutory authority and is even appealable if prejudicial to an assessee. The corrigendum issued was not prejudicial and merely clarified the situation. The Tribunal referenced the Supreme Court judgment in Deepak Agro Foods v. State of Rajasthan, which distinguished between null and void orders and orders that are irregular, wrong, or illegal. The Tribunal concluded that the corrigendum was a curable defect and did not render the assessment proceedings null and void.

2. Validity of the final assessment order passed after issuing the corrigendum:
The final assessment order dated 28-2-2011 was contested by the assessee on the grounds of being barred by limitation if the initial order dated 27-12-2010 was treated as valid. The Tribunal observed that the procedures for transfer pricing assessment were strictly followed, except for the initial mistake of labeling the draft order as final. The corrigendum corrected this mistake, and the first communication assumed the character of a draft order. The Tribunal rejected the assessee's contention, stating that the corrigendum had legal force and the assessment proceedings were valid.

3. Adjustment of depreciation in the transfer pricing assessment:
The assessee challenged the Dispute Resolution Panel's (DRP) decision on the merits, particularly regarding the adjustment of higher depreciation charged by the assessee compared to comparable companies. The Transfer Pricing Officer (TPO) proposed adjustments for excess depreciation, exchange fluctuation loss, and bank charges. The DRP confirmed the TPO's proposal on depreciation but disapproved the proposal on foreign exchange loss. The assessee argued that if depreciation was equalized, its operating profit would be comparable to other companies. The Tribunal noted that the assessee provided depreciation based on technical estimates and followed a scientific system, reflecting actual depreciation. The Tribunal found no need for adjustment in the depreciation quantum for determining the Arm's Length Price (ALP). The Tribunal also observed that over time, differences in depreciation methods offset each other, leading to almost the same quantum of depreciation. The Tribunal concluded that the assessee's arguments on depreciation adjustment lacked merit.

Conclusion:
The Tribunal dismissed the appeal, upholding the validity of the corrigendum and the final assessment order. The Tribunal also rejected the assessee's contentions regarding the adjustment of depreciation in the transfer pricing assessment.