2022 (10) TMI 155 - AT - Income Tax

TP Adjustment - no conformity with the directions issued by the Hon ble DRP u/s 144C(5) - assessee pointed out that final order of assessment does not incorporate the directions of the DRP and was a verbatim repetition of the draft order of assessment HELD THAT - It is an admitted position that the directions of DRP would result in the changes to the TP adjustment originally proposed by the TPO. AO in the final assessment order has retained the TP adjustment at the same figure as in draft assessment merely for the reason that the TPO has not passed the order giving effect to the directions of the DRP and considering the time limit to passing the final assessment order. This in our considered view would mean that the final assessment order passed by the AO is not in accordance with the directions of the DRP. As following the decision of the coordinate bench of the Tribunal in the case of Flextronics Technologies (India) Pvt. Ltd 2018 (12) TMI 1741 - ITAT BANGALORE we hold that the assessment framed in this case is quashed. We make it clear that, this order would not, in any way, stop the revenue from taking such steps as are available to it in law and the assessee also from contesting the action of the revenue in accordance with the law, if it so desires. It is ordered accordingly.

Summary

Issues:
1. Final assessment order not in accordance with DRP directions.

Analysis:
The appeal was against the final assessment order passed under Section 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961, for AY 2017-18. The assessee, a subsidiary of a German company, offered consulting and software development services to its Associated Enterprise. The Transfer Pricing Officer (TPO) made an adjustment of Rs. 1,39,87,510/-, which was contested by the assessee before the Dispute Resolution Panel (DRP). The DRP upheld most objections but directed certain inclusions and exclusions, which the Assessing Officer (AO) did not implement in the final assessment order. The assessee's main contention was that the final assessment order was not in line with the DRP directions, making it liable to be quashed.

The Tribunal referred to a similar case where the final assessment order was quashed due to non-compliance with DRP directions. The Tribunal held that the AO's failure to pass the final order in accordance with DRP directions within the specified time was a violation of the law. The Tribunal emphasized the importance of adhering to DRP directions and quashed the impugned final order of assessment. The Tribunal clarified that the other issues raised by the assessee did not require consideration due to the nullity of the assessment order.

In the present case, the AO retained the same Transfer Pricing adjustment as in the draft assessment order, citing the TPO's failure to pass the order giving effect to DRP directions. The Tribunal held that this action rendered the final assessment order not in accordance with the DRP directions. Following the precedent, the Tribunal quashed the assessment order, allowing the appeal filed by the assessee. The Tribunal made it clear that its decision did not prevent the revenue or the assessee from taking further legal steps if desired.

Therefore, the Tribunal partly allowed the appeal, emphasizing the importance of complying with DRP directions and ensuring the final assessment order aligns with the directions provided. The decision serves as a reminder of the legal obligations under Section 144C of the Income Tax Act, 1961, regarding final assessment orders.