2021 (4) TMI 151 - AT - Income Tax

Validity of final assessment order passed u/s 143(3) r.w.s 144C - Not following direction of the DRP - as submitted that, the final assessment order should have been passed by Ld.AO following the due process of law, and therefore is bad in law and should be quashed - HELD THAT - Admittedly the impugned assessment order passed by the Ld.AO under section 143 (3) read with section 144C is in violation mandatory provisions under section 144C(10) and (13) of the Act by not passing the order in pursuance of and in conformity with the directions of DRP issued under section 144C(5) of the Act. We therefore respectfully following the case of XCHNGING SOLUTIONS LIMITED VERSUS DY. COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 7 (1) (2) 2021 (1) TMI 156 - ITAT BANGALORE we setaside the impugned final assessment order dated 28/01/2016 passed for assessment year 2011-12 and we remand the issues to the Ld.AO/TPO to pass appropriate order in accordance with law having regard to the directions of the DRP. Appeal filed by assessee for assessment year 2011-12 stands allowed for statistical purposes. Assessment not completed within the period of limitation - AY 2012-13 - HELD THAT - Admittedly the draft assessment order dated 10/3/2016 was received by assessee on 12/03/2016 as per the speed post tracking record of the postal department and the period of 30 days for filing Form 35 A in terms of section 144C (2) expired on 11/04/2016. Assessee in the present facts filed objections before DRP on 13/04/2016, thereby causing 2 days delay. The view taken by DRP that it has no power to condone the delay is inasmuch as such power is absent under section 144C of Income Tax (DRP) Rules 2009 cannot be found fault with. Hon ble Pune Tribunal in case of TDK Electronics AG vs ACIT 2020 (2) TMI 1277 - ITAT PUNE as dealt in detail with the various provisions, Act, wherein, the legislature has conferred the power of condoning delay to various authorities under the Act. Thus we hold that impugned order passed dated 31/08/2016 u/s 144C(13) is beyond the limitation period and is ultra virus. We hold the returned income as the assessee income.

Issues Involved:
1. Incorrect interpretation of law by the AO.
2. Error in assessing total income and computing tax payable.
3. Levy of interest under section 234B.
4. Errors related to Transfer Pricing adjustments.
5. Non-compliance with DRP directions.
6. Disallowance of expenses under section 37.
7. Partial foreign tax credit.
8. Levy of additional tax on dividend.
9. Initiation of penalty proceedings.

Detailed Analysis:

1. Incorrect Interpretation of Law by the AO:
The assessee argued that the AO's order was based on an incorrect interpretation of the law, rendering it invalid. The Tribunal found that the AO failed to comply with mandatory provisions under section 144C(10) and (13) by not passing the order in conformity with DRP directions.

2. Error in Assessing Total Income and Computing Tax Payable:
The AO assessed the total income at ?46,19,68,010 as against ?37,76,59,670 returned by the assessee, leading to an erroneous computation of tax payable. The Tribunal found that the AO did not follow the DRP's directions, which required reassessment.

3. Levy of Interest under Section 234B:
The AO levied interest under section 234B amounting to ?1,34,16,328. This was not specifically addressed in the Tribunal's detailed analysis but was part of the overall reassessment required due to the AO's non-compliance with DRP directions.

4. Errors Related to Transfer Pricing Adjustments:
Several grounds were raised regarding Transfer Pricing (TP) adjustments:
- The AO/TPO did not follow DRP directions and used inconsistent methods for determining Arm's Length Price (ALP).
- The Tribunal noted that the AO retained the original TP adjustment without incorporating DRP directions, rendering the assessment order invalid.
- The Tribunal quashed the assessment order for failing to comply with section 144C and remanded the issues for reassessment in accordance with DRP directions.

5. Non-Compliance with DRP Directions:
The Tribunal highlighted that the AO's final assessment order was not in conformity with DRP directions, violating mandatory provisions of section 144C. This non-compliance led to the quashing of the assessment order.

6. Disallowance of Expenses under Section 37:
The AO disallowed expenses of ?50,00,000 under section 37, which the DRP had directed to disallow under Rule 8D(2)(ii) instead. The Tribunal found that the AO did not follow DRP directions, necessitating reassessment.

7. Partial Foreign Tax Credit:
The AO granted partial foreign tax credit, which the assessee contested. The Tribunal did not specifically address this issue in detail but included it in the overall reassessment directive.

8. Levy of Additional Tax on Dividend:
The AO levied additional tax on dividends under section 115O at an incorrect surcharge rate. The Tribunal included this in the reassessment directive due to the overall non-compliance by the AO.

9. Initiation of Penalty Proceedings:
The AO initiated penalty proceedings under section 271(1)(c). The Tribunal's decision to quash the assessment order rendered these proceedings moot, pending reassessment.

Conclusion:
The Tribunal quashed the assessment orders for both assessment years 2011-12 and 2012-13 due to the AO's failure to comply with DRP directions and mandatory provisions under section 144C. The cases were remanded for reassessment in accordance with the law, following DRP directions. The Tribunal emphasized the importance of adhering to procedural requirements to ensure fair and lawful assessments.

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