2015 (9) TMI 960 - AT - Income Tax

Validity of Re-opening the assessment - income has escaped assessment is the adjustment worked out by the TPO under section 92CA of the Act, as per which adjustment was to be made to the total income and consequently income chargeable to tax had escaped assessment - Held that - As relying on Maximize Learning (P.) Ltd. vs. ACIT 2015 (2) TMI 662 - ITAT PUNE when no assessment proceedings were pending in relation to the relevant assessment year, the Assessing Officer was precluded from making a reference to the TPO under section 92CA(1) of the Act for the purposes of computing the arm s length price in relation to the international transaction. Consequently, order passed by the TPO under section 92CA(3) proposing an adjustment of ₹ 1,25,17,115/- to the arm s length price of the international transaction was a nullity in law and void ab initio. In view of the above-said facts and circumstances, such an order passed by the TPO was not a valid material for the Assessing Officer to entertain a belief that certain income chargeable to tax had escaped assessment within the meaning of section 147 of the Act. Consequently, we hold that the reasons recorded for reopening the assessment under section 147 of the Act do not meet the requirements of the section and hence the Assessing Officer had no jurisdiction to issue notice under section 148 of the Act. Consequently, the subsequent order passed by the Assessing Officer under section 143(3) r.w.s. 147 and 144C of the Act is liable to be quashed. Accordingly, we hold so. - Decided in favour of assessee.

Summary

Issues Involved:
1. Reopening of assessment under section 148 of the Act.
2. Adjustment to the value of international transactions.
3. Rejection of the Transactional Net Margin Method (TNMM) and adoption of the Resale Price Method (RPM).
4. Application of turnover filter for selection of comparable companies.
5. Selection of comparable companies.
6. Non-granting adjustment for functional and other differences.
7. Ignoring the fresh search process submitted by the appellant.
8. Non-granting of the benefit of +/- 5 percent as per proviso to section 92C(2).
9. Initiation of penalty proceedings under section 271(1)(c).
10. Levy of interest under section 234B due to transfer pricing adjustment.

Detailed Analysis:

1. Reopening of Assessment under Section 148:
The primary issue raised by the appellant was the reopening of the assessment under section 148 of the Act. The appellant argued that the notice under section 148 was issued to circumvent the non-issuance of the notice under section 143(2) within the stipulated time. The Tribunal noted that the reference to the Transfer Pricing Officer (TPO) was made when no assessment proceedings were pending, rendering the reference invalid. Consequently, the order passed by the TPO was void ab initio and could not form the basis for reopening the assessment. The Tribunal held that the reasons recorded for reopening the assessment did not meet the requirements of section 147, and thus, the Assessing Officer had no jurisdiction to issue the notice under section 148. The subsequent assessment order was quashed.

2. Adjustment to the Value of International Transactions:
The appellant contested the adjustment of Rs. 13,993,968 to the value of international transactions. The Tribunal's decision to quash the assessment order on jurisdictional grounds rendered this issue academic, and it was not adjudicated.

3. Rejection of TNMM and Adoption of RPM:
The appellant challenged the rejection of the TNMM and the adoption of the RPM for benchmarking the international transaction. As the assessment was quashed on jurisdictional grounds, this issue was not addressed.

4. Application of Turnover Filter:
The appellant argued against the application of the turnover filter of Rs. 1 crore to Rs. 50 crore for selecting comparable companies. This issue was not adjudicated due to the quashing of the assessment order.

5. Selection of Comparable Companies:
The appellant contested the selection of only three comparable companies and the rejection of two others. This issue was rendered academic and was not addressed.

6. Non-granting Adjustment for Functional and Other Differences:
The appellant argued that adjustments for functional and other differences were not granted. This issue was not adjudicated due to the quashing of the assessment order.

7. Ignoring Fresh Search Process:
The appellant contended that the fresh search process submitted during the proceedings was ignored. This issue was not addressed as the assessment order was quashed.

8. Non-granting of +/- 5 Percent Benefit:
The appellant argued that the benefit of +/- 5 percent as per proviso to section 92C(2) was not granted. This issue was not adjudicated due to the quashing of the assessment order.

9. Initiation of Penalty Proceedings:
The appellant contested the initiation of penalty proceedings under section 271(1)(c). This issue was not addressed as the assessment order was quashed.

10. Levy of Interest under Section 234B:
The appellant argued against the levy of interest under section 234B due to unanticipated adjustments. This issue was not adjudicated due to the quashing of the assessment order.

Conclusion:
The Tribunal quashed the assessment order on the grounds that the reopening of the assessment was invalid due to the improper reference to the TPO when no assessment proceedings were pending. Consequently, all other issues raised by the appellant were rendered academic and were not adjudicated. The appeal of the appellant was allowed.