9911796707
TMI Blog2014 (1) TMI 1130X X X X Extracts X X X X X X X X Extracts X X X X ..... t all - This shows that the ld. TPO has passed the order without application of mind, which he is required to do so under the provisions of law and equity - Such an order shows an unprecedented bias and pre-determined mind without going into the merits of the case - The issue has been restored for fresh adjudication. Validity of the assessment order passed under section 143(3) r.w.s. 144C(13) – Held that:- Following Commissioner of Income-Tax Versus Bhan Textiles P. Limited. [2006 (9) TMI 129 - DELHI High Court] – As per The Central Board of Direct Taxes Circular No.549, dated October 31, 1989 - A proviso to sub-section (2) provides that a notice under the sub-section can be served on the assessee only during the financial year in which the return is furnished or within six months from the end of the month in which the return is furnished, whichever is later - The Department must serve the said notice on the assessee within this period, if a case is picked up for scrutiny - It follows that if an assessee, after furnishing the return of income does not receive a notice under section 143(2) from the Department within the aforesaid period, he can take it that the return filed by hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant : Shri Girish Dave Shri Ketan Ved For the Respondent : Shri Ajit Kumar Jain ORDER Per Amit Shukla, J. M. These are bunch of six appeals filed by the assessee as well by the department for various assessment years. Since, common issues are involved therefore, same were heard together and are being disposed of by this consolidated order for the sake of convenience. ITA No.2199/Mum/2012 and ITA No.2173/Mum/2012 2. We will first take up ITA No.2199/Mum/2012 and ITA No.2173/Mum/2012 for the assessment year 2004-05, which are cross appeals filed against order dated 19.01.2012 passed by CIT(A)15, Mumbai for the quantum of assessment passed in section 143(3). In the appeal filed by the assessee, following grounds have raised:- 1. The learned CIT-A erred in restricting the 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 " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of sub-section(4) of section 92CA of the Income-tax Act, 1961 as it stood at the relevant point of time. 2. The Appellant craves leave to add, alter amend, substitute and/or modify in any manner whatsoever modify all or any of the foregoing ground of appeal at or before the hearing of the appeal. 4. Whereas, in the department's appeal, following ground has been raised:- 1. "On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in holding that Foreign Exchange Gain of Rs.2,77,19,115/- be included in computing the operating income of the assessee following the Hon'ble Supreme Court's decision in the case of Woodward Governor India Pvt. Ltd. (312 ITR 251), without appreciating the fact that the decision relied upon is distinguishable from the facts in the assessee's case as 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 h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Director of Income-tax(International Taxation) Mumbai vs. Columbia Tristar films India Ltd. reported in the (2011) 10 Taxman.com 245(Mumbai). Accordingly, he submitted that the present order passed by the Assessing Officer is in violation of provisions of the law and the entire order has to be set-aside. 6. On this preliminary issue, ld. CIT DR submitted that already effective opportunity of hearing to the assessee has been given by the TPO and also at the level of the CIT(A) and, therefore, there cannot be any grievance to the assessee for not explaining its case. Alternatively, he submitted that the assessment order cannot be termed as illegal but procedural irregularity, which can be cured by setting aside to the file of the AO. 7. We have heard the rival submissions and also perused the relevant material 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 passe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... zed in the following manner. 19. "There is nothing in Section 92CA itself that requires the AO to first form a considered opinion in the manner indicated in Section 92C(3) before he can make a reference to the TPO. In our view, it is not possible to read such a requirement into Section 92CA(1). However, it will suffice if the AO forms a prima facie opinion that it is necessary and expedient to make such a reference. One possible reason for the absence of such a requirement of formation of a prior considered opinion by the AO is that the TPO is expected to perform the same exercise as envisaged under Section 92C(1) to (3) while determining the ALP under Section 92CA(3). The latter part of Section 92CA(3) unambiguously states that the AO shall "by an order in writing, determine the arm's length price in relation to 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judicial authority exercising the function of the TPO can only minimize the possibility of the AO acting arbitrarily. At the same time the TPO is not the final authority on the issue. 25. The salient points emerging from the above discussion may be recapitulated thus: (a) xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx. (b) xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx. (c) xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx (d) xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx (e)The AO is not bound to accept the ALP as determined by 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. This is how the expression "having regard to" occurring 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th regard to the transfer pricing adjustment of Rs.12,08,15,268/-as done by the TPO in respect of international transactions entered by the assessee with its AE. Apart from that the assessee has also raised additional ground of appeal which reads as under:- 1. The Transfer Pricing Officer has erred in passing the Order dated 31 October 2008 passed u/s. 92CA(3) of the Income-tax Act, 1961 without any application of mind whatsoever. 2. The Appellant craves leave to add, alter, amend, substitute and/or modify in any manner whatsoever modify all or any of the foregoing grounds of appeal at or before the hearing of the appeal. 17. Whereas, in the department's appeal, following grounds have been raised:- 1. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that the benefit of +/- 5% be allowed 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 dete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perused the relevant order of the TPO as well as the CIT(A). From the perusal of the TPO's order dated 31.10.2008, it is observed that the TPO in fact has duplicated the same order as passed by the TPO vide order dated 8th December 2006 u/s. 92CA(3). Except for the variation in the figures of A.Y.2005-06, there is no difference at all as pointed out by the ld. Counsel. It is also noted that the TPO has even taken into consideration the figure of foreign exchange gain, which income was no there in the A.Y.2005-06. The assessee's explanations for the A.Y. 2005-06 and all its objections and documents have not been considered at all, which were specific to the issues involved in A.Y.2005-06. This shows that the ld. TPO has passed the order without application of mind, which he is required to do so under the provisions of law and equity. Such an 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... forward losses to the tune of Rs.2,28,40,520/-. Thereafter, the assessee's case was selected for scrutiny and statutory notice u/s 143(2) dated 28.11.2007 was issued. As per the 2nd proviso to section 143(2), the notice u/s 143(2) has to be served upon the assessee, before the expiry of the 12 months from the end of the month in which return is furnished, which here in this case was 30th November 2007. The ld. Counsel Shri Girish Dave appearing on behalf of the assessee submitted that the notice dated 28th November 2007, could not be served upon the assessee within the statutory period of 12 months from the end of the month in which the returned is furnished, which was 30th November 2007. He submitted that the said notice dated 28.11.2007 was sent on the old address of the assessee and admittedly the notice could not be served upon the assessee. It was 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 file ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s 143(2) could not be served. Thereafter, the Assessing Officer on 11.12.2007 issued a fresh notice u/s 143(2) on the changed address which was served upon the assessee on 12.12.2007. A photo-copy of the said notice has also been filed before us. He further submitted that in the record, there is a photo-copy of letter dated 22.11.2006 addressed to the Asst. Commissioner of Income-tax, range-3(1), intimating the change of postal address of the assessee - company. He also pointed out that the Assessing Officer has also tried to serve the notice through the affixture. Thus, the Assessing Officer has made all the possible efforts to serve the notice u/s 143(2) and in fact, notice was actually served upon the assessee on 11.12.2007. Once the notice has been served upon the assessee the Assessing Officer acquires the jurisdiction to scrutinize return and to 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 pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led on 23rd November 2006 as per the seal of the DCIT, Circle 3(1), Mumbai. 3. 28th November 2007 Notice u/s 143(2) was issued by the DCIT, Circle 3(1), Mumbai (A.O) address to the Principal Officer, Abacus Distribution Systems Co. Pvt. Ltd., 81 83 A, Mittal Court, 8th Floor, A Wing, Nariman Point, Mumbai 400 021 . 4. 29th November 2007 Report of Income Tax Inspector that he visited the office premises of the assessee at 81 83 A, Mittal Court, 8th Floor, A Wing, Nariman Point, Mumbai 400 021 to serve the notice under section 143(2), however, on enquiry, it was found that no such company is in existence there in the name of the assessee. 5. 30th November 2007 The last date for date for service of notice u/s 143(2) in case of the assessee as per the second proviso to section 143(2) which envisages that no notice shall be served on the assessee after the expiry of 12 months from the end of the month 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 notic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the A.O has issued the notice on proper address known to the A.O. at the time of issue of notice which was the same as mentioned in the return of income and it has been dispatched through speed post before the limitation period. The assessee s objection that the notice u/s 143(2) has not been issued within the limitation period cannot be accepted, and accordingly, objection raised by the assessee is rejected. 31. From the above sequence of events, the following inferences can be drawn. i) The assessee, as early as on 23rd November 2006, has intimated to the Assessing Officer about the change of official address and such an intimation has also been acknowledged by the office of the Assessing Officer; ii) Despite intimation of the change of address, the Assessing Officer had sent the notice dated 28th November 2007, on the old address from where the assessee had admittedly left a year ago; iii) The said notice dated 28th November 2007 could not be served upon the assessee within the statutory time limit as provided under section 143(2) for scrutinizing the assessee's return of income and initiating the assessment proceedings; and iv) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the issuance and service notice under section 143(2), within the time period prescribed in the second proviso to section 143(2) is mandatory and not merely procedural formality. If such requirement of service of notice under section 143(2) within the time limit has not been fulfilled then the consequent assessment order passed by the Assessing Officer is null and void and no addition can be sustained. Few of such decisions are mentioned below:- i) Vipan Khanna v/s CIT, [2002] 255 ITR 220 (P H), wherein Their Lordships, after taking note of the Circular No.549 dated 31st October 1989, observed and held as under:- "Therefore, in a case where a return is filed and is processed under section 143(1) (a) of the Act and no notice under sub- section(2) of section 143 of the Act thereafter served on the assessee within the stipulated period of 12 months the assessment proceedings under section 143 come to an end and the matter becomes final. Thus, although technically no assessment is framed in such a case, yet the proceedings for assessment stand terminated. The Central Board of Direct Taxes vide its Circular No.549, dated October 31, 1989 [1990] 182 ITR(St.) 1, has explained the new p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d down by the Punjab Haryana High Court in Vipan Khanna vs. CIT(supra), we are of the view that no substantial question of law arises for our consideration in these appeals." iii) CIT v/s C. Palaniappan, [2006] 284 ITR 257 (Mad.), wherein Their Lordships observed and held as under :- "In respect of question No.1, we find that on a similar issue which came up for consideration in CIT v. M. Chellappan [2006] 281 ITR 444, a Division Bench of this court, in which one of us was a party (P.D. Dinakaran J.) applying the ratio laid down by the Punjab and Haryana High Court in Vipan Khanna v. CIT[2002] 255 ITR 220 (P H), held as follows (page 445): '...admittedly, no notices under section 143(2) of the Act were served on the assessees within the stipulated period of twelve months and, therefore, the proceedings under section 143 of the Act come to an end and the matter becomes final.' In view of the above, the first question now raised, therefore, stands concluded in favour of the assessee." iv) CIT v/s Bhan Textiles Pvt. Ltd., [2006] 287 ITR 370 (Del.) "The said proviso leaves no room for debate that the notice must be served on the assessee. In CIT v. Lunar Diamonds Ltd.[200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 31st October, 1989, Chaturvedi and Pithisaria's Income-tax Law, Fifth edition, Vol.3, page 4737 at page 4742). xxx xxx xxx "It goes without saying that the departmental authorities are bound by the circulars issued by the Central Board of Direct Taxes. In the circumstances, it is not open to the Revenue to contend otherwise. These circulars are explanatory. They give contemporaneous exposition of the legal position. Even otherwise, on a plain reading of the section and the proviso it is more than abundantly clear that the proviso prescribes a mandatory period of limitation in the light of the scheme of assessment wherein the majority of returns are required to be accepted without scrutiny and only certain returns are taken up for scrutiny." vii) ACIT v/s Hotel Blue Moon, [2010] 321 ITR 362 (SC) "Sec. 158BC provides for enquiry and assessment. After the return is filed, clause (b) of section 158BC provides that the Assessing Officer shall proceed to determine the undisclosed income of the block period in the manner laid down in section 158BB and "the provisions of section 142, sub-sections (2) and (3) of section 143, section 144 and section 145 shall, so far as may be, ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er. Had the intention of the Legislature been to exclude the provisions of Chapter XIV of the Act, the Legislature would have or could have indicate that also. A reading of the provision would clearly indicate, in our opinion, if the Assessing Officer, if for any reason, repudiates the return filed by the assessee in response to notice under section 158BC(a), the Assessing Officer must necessarily issue notice under section 143(2) of the Act within the time prescribed in the proviso to section 143(2) of the Act. Where the Legislature intended to exclude certain provisions from the ambit of section 158BC(b) it has done so specifically. Thus, when section 158BC(b) specifically refers to applicability of the proviso thereto it cannot be exclude. We may also notice here itself that the clarification given by the Central Board of Direct Taxes in its Circular No.717 dated August 14, 1995, has a binding effect on the Department, but not on the Court. This circular clarifies the requirement of law in respect of service notice under sub-section (2) of section 143 of the Act. Accordingly, we conclude that even for the purpose of Chapter XIV-B of the Act, for the determination of undisclosed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... free ECB loan of INR Rs.113,629,880. 3 Reimbursement of Expenses: Line Charges Service Charges Deputation Cost Other Expenses 49,61,871 4,40,82,127 10,75,863 32,30,868 39. Before us, the learned Counsel for the assessee, at the out set, submitted that the TPO's order is very cryptic for the reason that the assessee's detail submission and material placed on record, which were made before him have not been considered and from the perusal of the entire order of the TPO, it is not clear as to why the assessee's contentions have been rejected and how the bench marking has been arrived at. The assessee, in its transfer pricing study report has submitted a detail analysis of comparables for bench marking the ALP of various transactions undertaking by the A.E. The assessee has initially included 18 comparables and thereafter shortlisted four comparables after filtration. The TPO, without giving any proper reason or explanation for rejecting the search criteria and the comparables, went on to make adjustment on the basis of margin of his own comparables. The details of these comparables have not been provided at all. It has not been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the margin. The case of the learned Counsel before us is that the TPO has not properly appreciated the entire marketing expenditure which has been reimbursed by the A.E. because the assessee had to incur huge expenditure on behalf of the A.E. towards marketing expenditure in this year, which has been compensated. He has heavily relied upon the addendum to sub-distribution agreement dated 31st December 2007. However, the principal agreement has not been filed before us. Even the manner in which the operating income has been shown has not been properly clarified as to whether it forms part of the income or it is a compensation received from the A.E. Looking to the entirety of the facts and circumstances of the case, we are of the opinion that the entire issue of transfer pricing needs to be restored back to the file of the Assessing Officer / TPO for denovo adjudication after taking into consideration the principal agreement and other relevant documents and the assessee's explanation regarding bench marking of the margin vis-a- vis the comparables. The TPO / Assessing Officer will provide due and effective opportunity of hearing to the assessee and thereafter will pass speaking orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submissions made by the parties, we restore this issue back to the file of the Assessing Officer to decide this issue afresh in line with the decision of Hon'ble Gujarat High Court in General Motors India Pvt. Ltd. (supra). We order accordingly. Thus, ground no.4, is treated as allowed for statistical purposes. 48. In ground no.5, the assessee has challenged the non granting of credit of TDS amounting to Rs.21,368. 49. As agreed by both the parties, this issue is restored back to the file of the Assessing Officer with a direction to give credit of the TDS as available in record. 50. In ground no.6, the assessee has challenged levy of interest under section 234D. 51. The learned Counsel for the assessee submitted that the assessee has not received any refund, therefore, there is no question of levy of interest under section 234D. 52. In view of the above contention of the assessee, we direct the Assessing Officer to verify the contention of the assessee and order accordingly. 53. Ground no.7 relates to levy of interest under section 234B. 54. Both the parties agreed before us that this ground is consequential in nature. Accordingly, we direct the Assessing Officer to ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
