9911796707
TMI Blog2014 (1) TMI 1130X X X X Extracts X X X X X X X X Extracts X X X X ..... e relief to Rs.2,77,19,115/- and confirming the balance transfer pricing adjustment of Rs.2,10,05,539/- under section 92CA(3) of the Act as proposed by the Transfer Pricing Officer/Assessing Officer, in respect of the international transactions entered into by the Appellant during the year ended 31st March 2004. 2. i) The learned CIT-A erred in rejecting the contention of the Appellant that "Anusha Air Travel Limited" and "Trent Brands Limited" are valid comparable companies to benchmark the international transactions of entered into by the Appellant during the ended 31st March 2004. ii) The learned CIT-A further erred in rejecting "Trent Brands Limited" as a valid comparable company even when it was accepted as a valid comparable by the Transfer Pricing Officer in the earlier (i.e. AY 2003-04) and the subsequent (i.e. AY 2006-07) assessment years. iii) The learned CIT-A erred in rejecting "Anusha Air Travel Limited" as a valid comparable company even when it was accepted as a valid comparable by the Transfer Pricing Officer in the earlier assessment year i.e. AY 2003-04. 3. The learned CIT-A erred in rejecting the contention of the Appellant in respect of the use of contempora ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the issue decided in the case of Woodward Governor India Pvt. Ltd. was relating to the taxability of foreign exchange receipts and it has got no bearing on whether receipts from part of the operating income of the assessee". 2. "The appellant prays that the order of the CIT(A) on the above ground be set aside and that of the Assessing Officer be restored. 5. At the time of hearing, the ld. Counsel Shree Girish Dave submitted that the additional ground raised by the assessee goes to the very root of the issues involved, in as much as the assessment order which has been passed by the AO, is in violation of sub-section-4 of section 92CA as it stood at the relevant point of time. Failure to adhere the provisions of section 92CA(4), has rendered the entire assessment order as irregular and is in violation of principles of natural justice. The Ld. Assessing Officer has not given any opportunity of hearing on the transfer pricing adjustment and arm's length price as determined by the TPO, which he was required to do so as per the law u/s 92CA(4) prevailing prior to 01.06.2007. The was required to give an opportunity to the assessee to give explanation with regard to the adjustment made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l placed on record on the preliminary issue as raised in the additional ground of appeal. In this case, the issue of transfer pricing was referred to the Transfer Pricing Officer u/s 92CA(1) for the computation of arm's length price in relation to the international transaction reported in audit report in Form number 3CEB, on 21.09.2005. In pursuance thereof, the TPO has passed the order u/s 92CA(3) vide order dated 8th December 2006 suggesting the Assessing Officer to make an addition of Rs.5,55,98,494/-on account of upward adjustment in the arm's length price on the international transaction with the AE. The moot question before us is, whether after the receipt of the order passed by the TPO, the AO is required to give further opportunity to the assessee on the ALP determined by the TPO and then compute the total income of the assessee. Sub-section-4 to section 92CA as it stood at the relevant time i.e. prior to 01.06.2007 read as under:- "(4) On receipt of the order under sub-section (3), the Assessing Officer shall proceed to compute the total income of the assessee under sub-section (4) of section 92C having regard to the arm's length Price determined under sub- section(3) by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the international transaction in accordance with Sub-section (3) of the Section 92C." It will be pointless to have a duplication of this exercise at two stages one after the other. On the other hand, the scheme is that after the TPO determines the ALP the matter revives before the ALP at the Section 92C(4) stage where, in terms of Section 92CA(4) the AO will compute the total income "having regard to" the ALP determined by the TPO. 20. Two aspects require to be taken note of in this context. The AO will necessarily have to give an opportunity to the assessee after receiving the report of the TPO and before he finalises the assessment computing the total income. Secondly, the provisions do not mandate that the AO is bound to accept the ALP as determined by the TPO. And for good reason because the AO has himself not made up his mind at the stage about the ALP. He has, in a sense, only 'outsourced' this exercise to the TPO. He can always be persuaded by the assessee at that stage to reject the TPO's Report and proceed to still determine the ALP himself. It must be recalled that it is the AO who is the authority to finalise the assessment and that power cannot be usurped, as it were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng in both Sections 92C(4) and 92CA(4) can be given full effect. (f)This interpretation does not prejudice the assessee because in effect the assessee gets two opportunities to demonstrate that the ALP declared by it requires acceptance. The first is before the TPO in terms of Section 92CA(3) and the second before the AO under Section 92C(4). 9. Thus, from the above observations and the interpretation by the Hon'ble Delhi High Court, It is absolutely clear that the Assessing Officer is not bound to accept the ALP as determined by the TPO but has to determine the ALP, only after giving an opportunity of hearing to the assessee. In this case, admittedly no such opportunity has been given in terms of sub-section 4 of section 92C read with section 92CA. Accordingly, we are of the opinion that this matter needs to be restored back to the stage of the Assessing Officer, as the irregularity has crept in from this stage by denying the opportunity to the assessee to object to the ALP as determined by the TPO. Now the Assessing Officer will determine the computation of income having regard to the ALP after giving due and effective opportunity of hearing to the assessee. In the result the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to the assessee as per the proviso to Section 92C(2) of the Act, without appreciating the fact that the said proviso will apply only when more than one price is determined by the most appropriate method and where the transaction has takenplace within the 5% of the price so computed, whereas in the case of the assessee only one price has been determined by the assessee and the actual price at which the transaction was under taken is beyond 5% margin, as such, the said proviso will not apply in the case of the assessee". 2. "The appellant prays that the order of the CIT(A) on the above ground be set aside and that of the Assessing Officer be restored". 18. The ld. Counsel, Shri Girish Dave submitted that in the additional ground the assessee has raised a very important contention that the order passed by the Transfer Pricing Officer u/s 92CA(3) is without any application of mind because as the TPO has verbatim copied the order of the TPO for the assessment year 2004-05 passed u/s 92CA(3). To highlight this point, that the TPO has mechanically completed the proceedings in this year, he submitted a comparison chart of the order passed by the TPO for the assessment year 2004-05 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order shows an unprecedented bias and pre-determined mind without going into the merits of the case. We are of the opinion that such an order passed by the TPO and confirmed by the ld. CIT(A) cannot stand and the entire matter needs to be remanded back to the file of the TPO/AO for passing fresh order, in accordance with provisions of law and after giving due and effective opportunity of hearing to the assessee and also considering the entire material and evidence including explanation filed before him. Accordingly, the impugned order is set-aside and entire matter is restored back to the file of the AO for fresh adjudication. 21. In the result appeal filed by the assessee is treated is allowed for statistical purpose. 22. The only issue raised in the department's appeal is that the Ld. CIT(A) has erred in law in giving benefit of +/- 5% to the assessee as per the proviso to section 92C(2) on the ALP so determined, as a matter of standard deduction. Since, the entire matter of transfer pricing adjustment has been restored back to the file of the TPO, therefore, this issue is also remanded back to the file of the TPO/AO to follow the amended provisions of law as given in section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as only the second notice dated 11.12.2007 issued u/s 143(2) was received by the appellant which was sent on the new address. Thus the 2nd notice which was served upon the assessee was clearly barred by limitation as per the provisions of the law. He also brought on record before us that the assessee, as early as on 23.11.2006, has filed a letter dated 22.11.2006 before the AO, intimating the change of address. Despite the availability of correct address on record, the department has sent the notice to the old address from where the assessee has completely wound up its office a year ago. In support of this contention, he has filed a sequence of events alongwith the relevant documents and letters which are available on the record. He submitted that before the Assessing Officer, the assessee has raised a specific objection at the very first instance, wherein it was submitted that the notice u/s.143(2) has not been served upon the assessee within the statutory time and hence is barred by limitation. Thereafter, the AO has not rebutted the assessee's objection but has falsely stated that the notice u/s143(2) dated 28.11.2007 has been served upon the assessee. This objection was also ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o pass the assessment order as per the facts and material placed on record. There could not be any grievance to the assessee as all the opportunity of hearing has been provided to the assessee to submit the evidence in support of the claim made in the return of income and it was only after considering all the materials and evidences placed by the assessee, the assessment order has been passed. Even if the notice could not be served within the period of twelve months, despite all the possible efforts by the Assessing Officer, then also it is a procedural irregularity which can be cured either by setting-aside the assessment to the file of the AO or to decide the matter after hearing the assessee on merits. 29. By way of rejoinder the ld. Counsel Shri Girish Dave, submitted that from the records it is clear that the notice u/s 143(2) has not been served upon the assessee at the correct address which was duly intimated to the department just after two days of the filing of return of income. Regarding the intimation to the AO, which is available in the records in the form of photo-copy, he submitted that there is clear-cut seal of the department acknowledging the said intimation lette ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nth in which the return of income is furnished. 6. 30th November 2007 The date mentioned as per the seal of post office for sending the notice through speed post at the address mentioned in the notice u/s 143(2). The said speed post returned unserved as the assessee was not found on the address and the said post came back on 1st December 2007. 7. 5th December 2007 As per the records submitted by the D.R., the notice was also served through affixture on the old address, however, there is no report how the procedure has been followed as per the requirements of the CPC Order-V. 8. 11th December 2007 Second notice was sent by the A.O. to the assessee on the new address i.e., "Ruby House, First Floor, J.K. Savant Marg, Dadar (W), Mumbai 400 028." 9. 12th December 2007 The aforesaid notice dated 11th December 2007, was served upon the assessee fixing the date of hearing for 17th December 2007. 10. 13th December 2007 The assessee wrote letter to the A.O. raising objection that notice u/s 143(2) has not been served within the statutory time limit of 12 months from the end of the month in which the return of income is furnished, which had expired on 30th November 2007 and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s return of income and initiating the assessment proceedings; and iv) The second notice dated 11th December 2007, which has been served upon the assessee in accordance with the law is clearly barred by the limitation in view of the proviso to section 143(2). The provisions of section 143(2) clearly envisages that - "Where a return has been furnished under section 139, or in response to a notice under sub-section (1) of section 142, the Assessing Officer shall:- (i) XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX (ii) Notwithstanding anything contained in clause (i), if he considers it necessary or expedient to ensoure that the assessee has not understated the income or has not computed excessive loss or has not under-paid the tax in any manner, serve on the assessee a notice requiring him, on a date to be specified therein, either to attend his office or to produce, or cause to be produce, any evidence on which the assessee may rely in support of the return: "Provided that no notice under clause (ii) shall be served on the assessee after the expiry of twelve months from the end of the month in which the return is furnished." 33. On a bare perusal of the aforesaid section, it can be seen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... October 31, 1989 [1990] 182 ITR(St.) 1, has explained the new procedure of assessment in paras 5.12 and 5.13 as under (page 24): "5.12 Since, under the provisions of sub-section (1) of the new section 143, an assessment is not to be made now, the provisions of sub-sections (2) and (3) have also been recast and are entirely different from the old provisions. A notice under sub-section (2) which will be issued only in cases picked up for scrutiny, is now issued only to ensure that the assessee has not understated his income or has not computed excessive loss or has not underpaid the tax in any manner while furnishing his return of income. This means that, under the new provisions, in an assessment order passed under section 143(3) in a scrutiny case, neither the income can be assessed at a figure lower than the returned income, nor loss can be assessed at a figure higher than the returned loss, nor a further refund can be given except what was due on the basis of the returned income, and which would have already been allowed under the provisions of section 143(1)(a)(ii). 5.13 A proviso to sub-section (2) provides that a notice under the sub-section can be served on the assessee onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on the assessee. In CIT v. Lunar Diamonds Ltd.[2006] 281 ITR 1(Delhi) the Division Bench had rejected the contention that the words "served" and "issued" are synonymous and are interchangeable. The Bench did not have the benefit of the decision of the hon'ble Supreme Court in R.K. Upadhyaya v. Shanabhai P. Patel [1987] 166 ITR 163, which in fact strengthens and fortifies the position that there is a clear distinction between "issuance of notice" and "service of notice". Ms. Bansal's reliance on Tea Consultancy and Plantation Services (India) P. Ltd. v. Union of India [2005] 278 ITR 356 (Delhi) is of no avail since the word that had to be construed by the Division Bench in that case was "made" and not "issued" or "served". We see no reason to adopt an approach different to the one adopted by us in CIT v. Vardhman Estate P. Ltd.[2006] 287 ITR 368 (Delhi) (ITA No.1248 of 2006) decided by us on September 25, 2006." v) CIT Vs. Eqbal Singh Sindhana, [2007] 162 Taxman 107(Del.) "16. So, from the entire material available on record, we have no hesitation in holding that no notice under section 143(2) of the Act had been served upon the assessee within the prescribed period and, therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd section 145 shall, so far as may be, apply". This indicates that this clause enables the Assessing Officer, after the return is filed, to complete the assessment under section 143(2) by following the procedure like issue of notice under section 143(2)/142. This does not provide accepting the return as provided under section 143(1)(a) : the officer has to complete the assessment under section 143(3) only. If an assessment is to be completed under section 143(3) read with section 158BC, notice under section 143(2) should be issued within one year from the date of filing of the block return. Omission on the part of the assessing authority to issue notice under section 143(2) cannot be a procedural irregularity and is not curable. Therefore, the requirement of notice under section 143(2) cannot be dispensed with." xxxx xxxx xxxx "This section does not provide for accepting the return as provided under section 143(1)(a). The Assessing Officer has to complete the assessment under section 143(3) only. In case of default in not filing the return or not complying with the notice under section 143(2)/142, the Assessing Officer is authorised to complete the assessment ex-parte under sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, for the determination of undisclosed income for a block period under the provisions of section 158BC, the provisions of section 142 and sub-sections (2) and (3) of section 143 are applicable and no assessment could be made without issuing notice under section 143(2) of the Act." 34. In view of the material placed on record and various judicial precedence, we hold that the impugned assessment order passed by the Assessing Officer is void ab initio as the same has been passed without the mandatory requirement of serving the notice under section 143(2) upon the assessee within the time provided in the second proviso. Thus, the entire assessment and consequent additions made by the Assessing Officer is quashed and the ground raised by the assessee is treated as allowed. Since the entire assessment has been quashed, the other grounds of appeal dealing with the merits of the addition have become infructuous. 35. In the result, assessee's appeal is treated as allowed. 36. We now take up assessee's appeal in ITA no.7275/Mum./2012, for the assessment year 2008-09. 37. The main issue involved in ground no.1 and 2 is transfer pricing adjustment of Rs.5,81,72,495 on account of marketing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ara-5 of the TPO's order. On the other adjustment of Rs.4.40 crores, the TPO's finding and observation are without any proper reasoning and explanation as to why assessee's detail explanation or submissions were not proper or are liable to be rejected. He further submitted that the TPO has missed a very crucial point that in this year due to heavy inconvenience of marketing expenditure, the A.E. has reimbursed more than Rs.24 crores to the assessee. This is evident from addendum to sub-distribution system. This fact alone changes the colour of the transfer pricing issue. He submitted that in the interest of justice, the entire matter should be restored back to the file of the Assessing Officer / TPO so that there should be proper reasoning as to why the bench marking of the margin done and comparables short listed by the assessee cannot be taken as correct and how the margin has been arrived at by the TPO. 40. On the other hand, the learned Departmental Representative submitted that on a perusal of the assessee's record, it is not clear as to how the assessee itself has bench marked its margin vis-a-vis the comparables and how the operating income of the assessee has been arrived ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atistical purposes. 42. Ground no.3 relates to the disallowance of Rs.1,81,526 on account of AIR information. 43. It has been submitted by the learned Counsel that no such income were received by the assessee either in the year under consideration or any of the preceding or succeeding years. Moreover the details of information have not been provided to the assessee. Thus, this issue also needs to be restored back to the file of the Assessing Officer / TPO so that the assessee should get opportunity to examine this information and make proper submissions. Learned Departmental Representative concurred with the submissions made by the learned Counsel and agreed that the matter can be restored to the file of the Assessing Officer. 44. In view of the above, we hold that the issue of disallowance of Rs.1,81,526 which is based on AIR information is restored back to the file of the Assessing Officer for denovo adjudication after confronting all the material / information to the assessee. The assessee should be given due and effective opportunity to explain its case. 45. In ground no.4, the assessee has challenged the disallowance of set- off of brought forward unabsorbed business loss. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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