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2012 (12) TMI 2 - AT - Income TaxReassessment proceedings - case was reopened involving the issue foreign exchange fluctuations and data usage charges - no addition was made on account of foreign exchange fluctuation loss. - Addition made on account of data usage charges deleted by DRP - held that - no addition having been made on the basis of the reasons recorded by the AO for reopening the completed assessment and the remaining additions being not part of the said reasons to believe recorded by the AO, in keeping in Ranbaxy Laboratories Ltd. v. CIT (2011 (6) TMI 4 - DELHI HIGH COURT) and ADHUNIK NIRYAT ISPAT LTD. 2012 (11) TMI 895 - DELHI HIGH COURT , reopening of the completed assessment in the present case is bad in law. - Decided in favor of assessee. Addition by DRP without affording any opportunity to the assessee to rebut such evidence - held that - the assessee has produced confirmations from 45 vendors before the DRP, and the DRP had forwarded the same to the AO for verification. The AO had requested for more time to make the verification. The DRP, however, directed the AO to verify the evidence and if the AO were satisfied, he was to restrict the disallowance, if any, which, in any case, as per the DRP, could not exceed Rs. 89,39,92,188/-, the payments made to third parties not verifiable. Since the matter is now being remitted to the file of the AO, as above, the assessee would get ample opportunity to prove its case.
Issues Involved:
1. Validity of reassessment proceedings under Section 147/148. 2. Legality and jurisdiction of notice issued under Section 148 and reassessment order. 3. Addition of alleged escaped income. 4. Difference between receipts in Profit and Loss account and income shown in TDS certificate. 5. Use of material collected without the appellant's knowledge. 6. Adjustment under Section 92CA by the Transfer Pricing Officer (TPO). 7. Rejection of combined transaction approach by TPO/AO. 8. Determination of Comparable Uncontrolled Price (CUP) method. 9. Assumption of 'no benefit' from intra-group services. 10. Adjustment to the Arm's Length Price (ALP) within the 5% range. 11. Initiation of penalty proceedings under Section 271(1)(c). 12. Charging of interest under Section 234B. 13. Confirmation of additions by the Dispute Resolution Panel (DRP). 14. Adequate opportunity of being heard by the DRP. 15. Consideration of evidence and material on record. Detailed Analysis: 1. Validity of Reassessment Proceedings under Section 147/148: The appellant contended that the reassessment proceedings initiated under Section 147 were invalid as no addition was made based on the alleged escaped income. The Tribunal referred to the reasons recorded by the AO for reopening the completed assessment, which included foreign exchange fluctuations and data usage charges. It was observed that no addition was made on foreign exchange fluctuations, and the DRP directed the deletion of the addition of data usage charges. Consequently, no addition on the basis of the reasons recorded for reopening the completed assessment survived. The Tribunal relied on the Delhi High Court's decision in "Ranbaxy Laboratories Ltd. v. CIT," which held that if the reasons for reopening do not exist any longer, the reassessment is invalid. Thus, the reassessment proceedings and the reassessment order were cancelled. 2. Legality and Jurisdiction of Notice Issued under Section 148 and Reassessment Order: The appellant argued that the notice issued under Section 148 and the reassessment order were illegal and without jurisdiction. The Tribunal, agreeing with the appellant, held that since no addition was made based on the reasons recorded for reopening the assessment, the notice under Section 148 and the reassessment order were invalid. 3. Addition of Alleged Escaped Income: The Tribunal noted that the AO had reason to believe that income of Rs. 1,33,09,489 had escaped assessment. However, no addition was made on account of foreign exchange fluctuation loss, and the DRP deleted the addition of data usage charges. Thus, the Tribunal concluded that no addition on the basis of the reasons recorded for reopening the completed assessment survived. 4. Difference Between Receipts in Profit and Loss Account and Income Shown in TDS Certificate: The appellant contended that the AO erred in holding the difference between the receipts in the Profit and Loss account and the amount of income shown in the TDS certificate as deemed income. The Tribunal noted that the AO collected evidence at the back of the assessee and made the addition without affording any opportunity to the assessee to rebut such evidence. The Tribunal remitted the matter to the AO to be decided afresh in accordance with law, providing an opportunity to the assessee to rebut the evidence. 5. Use of Material Collected Without the Appellant's Knowledge: The appellant argued that the material collected by the AO without their knowledge was used against them without giving any opportunity to rebut the same. The Tribunal found that the AO collected evidence at the back of the assessee and made the addition without confronting the same to the assessee. This was a violation of the principles of natural justice. The Tribunal remitted the matter to the AO for fresh consideration, providing an opportunity to the assessee to rebut the evidence. 6. Adjustment Under Section 92CA by the Transfer Pricing Officer (TPO): The appellant contended that the TPO/AO erred in making an adjustment under Section 92CA without returning a finding about the existence of the circumstances specified in clauses (a) to (d) of subsection (3) of Section 92C. The Tribunal did not specifically address this issue as the reassessment order was cancelled. 7. Rejection of Combined Transaction Approach by TPO/AO: The appellant argued that the TPO/AO erred in rejecting the combined transaction approach and segregating the international transaction pertaining to intra-group services from the provision of advertising services. The Tribunal did not specifically address this issue due to the cancellation of the reassessment order. 8. Determination of Comparable Uncontrolled Price (CUP) Method: The appellant contended that the TPO/AO erred in determining the CUP method as the most appropriate method to benchmark the international transaction. The Tribunal did not specifically address this issue as the reassessment order was cancelled. 9. Assumption of 'No Benefit' from Intra-Group Services: The appellant argued that the TPO/AO erred in assuming that no benefit was conferred from availing intra-group services and that these services were duplicative. The Tribunal did not specifically address this issue due to the cancellation of the reassessment order. 10. Adjustment to the Arm's Length Price (ALP) within the 5% Range: The appellant contended that the adjustment to the ALP, if any, should be limited to the lower end of the 5% range. The Tribunal did not specifically address this issue as the reassessment order was cancelled. 11. Initiation of Penalty Proceedings Under Section 271(1)(c): The appellant argued that the AO erred in initiating penalty proceedings under Section 271(1)(c). The Tribunal did not specifically address this issue due to the cancellation of the reassessment order. 12. Charging of Interest Under Section 234B: The appellant contended that the AO erred in charging interest under Section 234B. The Tribunal did not specifically address this issue as the reassessment order was cancelled. 13. Confirmation of Additions by the Dispute Resolution Panel (DRP): The appellant argued that the DRP erred in confirming the additions proposed by the AO. The Tribunal noted that the DRP directed the AO to verify the evidence and restrict the disallowance if satisfied. However, the matter was remitted to the AO for fresh consideration. 14. Adequate Opportunity of Being Heard by the DRP: The appellant contended that the DRP did not give adequate opportunity of being heard. The Tribunal noted that the DRP forwarded the confirmations from vendors to the AO for verification, but the AO requested more time. The Tribunal remitted the matter to the AO for fresh consideration, providing an opportunity to the assessee to rebut the evidence. 15. Consideration of Evidence and Material on Record: The appellant argued that the evidence and material on record were not properly considered. The Tribunal found that the AO collected evidence at the back of the assessee and made the addition without confronting the same to the assessee. The Tribunal remitted the matter to the AO for fresh consideration, providing an opportunity to the assessee to rebut the evidence. Conclusion: The Tribunal allowed the appeal for the assessment year 2006-07, cancelling the reassessment proceedings and the reassessment order. For the assessment year 2007-08, the Tribunal remitted the matter to the AO for fresh consideration, providing an opportunity to the assessee to rebut the evidence collected by the AO. The appeal for the assessment year 2007-08 was treated as allowed for statistical purposes.
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