2024 (2) TMI 861 - AT - Income Tax

TP Adjustment - Time limit for passing of the order by the TPO u/s 92CA (3) - HELD THAT - As final assessment order passed is beyond the prescribed period of limitation u/s 153 of the Act thus, barred by limitation and is hereby quashed. Decided in favour of assessee.

Issues Involved:
1. Transfer Pricing Adjustment for Software Development Services.
2. Upward Adjustment for Intra-Group Services.
3. Upward Adjustment for IT Services to Standard Chartered Bank - India.
4. Disallowance of Depreciation on Goodwill.
5. Taxation of Provisions for Doubtful Debts and Advances Written Back.
6. Non-Grant of Credit for Foreign Taxes Paid.
7. Denial of Deduction for Education Cess and Higher and Secondary Education Cess.
8. Denial of Deduction for Foreign Taxes Paid.
9. Non-Grant of Credit for Taxes Deducted at Source.
10. Initiation of Penalty Proceedings u/s 271(1)(c).
11. Validity of Transfer Pricing Order Beyond Prescribed Time Limit.
12. Jurisdiction of Draft Assessment Order.
13. Validity of Final Assessment Order Beyond Limitation Period.
14. Validity of Final Assessment Order Passed Beyond Limitation Period.
15. Validity of DRP Directions Not Signed by All Members.
16. Validity of Final Assessment Order Based on Invalid DRP Directions.

Summary:

1. Transfer Pricing Adjustment for Software Development Services:
The Hon'ble DRP directed an adjustment of INR 270,93,00,701 related to the international transaction of software development services. The DRP upheld the AO/TPO's rejection of the TP documentation and their conclusion that the appellant is a full-fledged risk-bearing service provider. The DRP also directed the TPO to re-compute margins, increasing the adjustment by INR 1,49,22,85,387.

2. Upward Adjustment for Intra-Group Services:
The Hon'ble DRP directed an upward adjustment of INR 12,69,78,147 for intra-group services. The AO/TPO erred in determining the ALP at INR 1,80,00,000 instead of INR 14,49,78,147, ignoring appropriate evidence and commercial rationale provided by the appellant.

3. Upward Adjustment for IT Services to Standard Chartered Bank - India:
The Hon'ble DRP directed an upward adjustment of INR 12,85,00,739 for IT services provided to SCB India. The DRP upheld the AO/TPO's characterization of the appellant bearing all significant business risks and erroneously applied a set of uncontrolled comparables.

4. Disallowance of Depreciation on Goodwill:
The Hon'ble DRP confirmed the disallowance of INR 2,55,15,475 on account of depreciation on goodwill, alleging that the goodwill recognized was merely an accounting entry and not an asset u/s 32 of the Act.

5. Taxation of Provisions for Doubtful Debts and Advances Written Back:
The Hon'ble DRP confirmed the AO's action of taxing provisions for doubtful debts and advances written back amounting to INR 5,36,79,888, despite agreeing that such provisions disallowed in the year of creation should not be taxed again when written back.

6. Non-Grant of Credit for Foreign Taxes Paid:
The AO erred in not granting credit for foreign taxes paid amounting to INR 21,04,480.

7. Denial of Deduction for Education Cess and Higher and Secondary Education Cess:
The Hon'ble DRP denied the additional claim for deduction of Education Cess and Higher and Secondary Education Cess of INR 1,20,79,601 as business expenditure while computing taxable income.

8. Denial of Deduction for Foreign Taxes Paid:
The Hon'ble DRP denied the additional claim of deduction for foreign taxes paid amounting to INR 53,11,932 as business expenditure.

9. Non-Grant of Credit for Taxes Deducted at Source:
The AO erred in not granting credit for taxes deducted at source amounting to INR 74,539.

10. Initiation of Penalty Proceedings u/s 271(1)(c):
The AO proposed to initiate penalty proceedings u/s 271(1)(c) without appreciating that none of the provisions of section 271(1)(c) are attracted in the appellant's case.

11. Validity of Transfer Pricing Order Beyond Prescribed Time Limit:
The Transfer Pricing Order dated November 2019 was passed beyond the time limit prescribed u/s 92CA(3A) r.w.s 153, making it illegal, bad in law, null, and void.

12. Jurisdiction of Draft Assessment Order:
The draft assessment order dated 27 December 2019, invoking section 144C, was without jurisdiction due to the invalid transfer pricing order, rendering all consequent proceedings illegal and bad in law.

13. Validity of Final Assessment Order Beyond Limitation Period:
The final assessment order dated 20 April 2021 was also barred by limitation as prescribed u/s 153, making it illegal, bad in law, null, and void.

14. Validity of Final Assessment Order Passed Beyond Limitation Period:
The final assessment order passed by NeAC under section 143(3) read with section 144C(13) was void-ab-initio, illegal, and bad in law due to being passed beyond the limitation period.

15. Validity of DRP Directions Not Signed by All Members:
The directions issued by the DRP dated 25 March 2021 were not signed by all members, making them invalid and liable to be quashed.

16. Validity of Final Assessment Order Based on Invalid DRP Directions:
The final assessment order dated 20 April 2021, passed pursuant to invalid DRP directions, was invalid, making it bad in law, null, and void ab initio.

Conclusion:
The appeal was partly allowed, with the additional grounds raised by the assessee being upheld, following the precedent set in the assessee's own case for A.Y. 2012-13. The other grounds were kept open at this stage.

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