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TMI Blog2023 (2) TMI 1112X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 Ground No. 5- Disallowance under section 4o(a) of the Act 'on account of non-deduction of TDS on software purchase 16,65,932/- 4 Ground No. 6- Disallowance under section 40(3) of the Act on account of non-deduction of TDS on foreign parties: a) Communication Charges-24,28,156/- b) Subscription Fees-29,O3,666/- c) Training Fees-3,28,829/- d) Consultancy Fees- 7,85,256/- 64,45,907/- 5 Ground No. 7- Delay in payment of employee's ESIC and PF contribution 1,74,35,513/- 6 Ground. No. 8 - Non granting of credit of self assessment 9,11,44,000/- 7 Ground No. 8 - Short credit of tax deducted at source 5,61,53,656/- 3. The summary of additions challenged in this appeal are as under:- Sr. No. Particulars Amount in Rs. Transfer pricing adjustments 1. Rendering of software development services 68,37,05,578 2. Intra-group services 10,51,45,309 Sub- total (A) 78,88,50,887 Corporate tax additions 3. Grant of lesser deduction under section 10AA of the Act in respect of remaining units 48,53,467 4. Denial of claim of depreciation on goodwill 2,92,19,122 5. Disallowance for provision for project risk 17,16,22,6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as not pressed. 6. In sum and substance vide Additional Ground Nos. 1 to 3, assessee has challenged; i) The period of limitation for passing the transfer pricing order by the TPO. ii) In absence of the TPO order, the entire proceeding initiating by the AO u/s 144C is bad in law. iii) In absence of valid TPO order, the AO is required to complete the assessment within the due date as prescribed u/s 153 of the Act and since no final assessment has been passed within the time limit, the assessment order is barred by limitation. 7. Since the additional grounds goes to the very root of the issues involved challenging the limitation and jurisdiction of passing the order of TPO as well as assessment order and are borne out from the records, therefore the same are being admitted for adjudication. 8. The facts in brief qua the limited purpose of adjudication of legal issues raised in aforesaid additional grounds are that, assessee is a wholly owned subsidiary of Atos BV, Netherlands, which in turn is wholly owned by Atos S.A., France. The assessee is an Information Technology ('IT) service company engaged in the business of development and maintenance of computer software, devel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aft assessment order and the entire proceeding initiated u/s 144C is bad in law, because in absence of valid TPO order, the AO is required to complete the assessment within the due date as prescribed u/s 153 of the Act and since no final assessment has been passed within the time limit, therefore, the assessment order is barred by limitation. 12. Following chronology of events are relevant for the purpose of adjudication of the aforesaid additional grounds:- Sr. No. Particulars Relevant Dates A Assessment Year 2012-13 B Period of limitation for making an order of assessment as per Section 153 of the Act 24 months from the end of Assessment Year i.e. 31/03/2015 C Extension of period of limitation in case reference is made under section 92CA of the Act 12 months 31/03/2016 D Proceeding for assessment should be completed on / before this date 31.3.2016 E A date prior to the date on which period of limitation expires 30.3.2016 F Sixty day period expires on 31.1.2016 G Transfer Pricing Officer's order to be passed any time on / before this date 30.1.2016 H Date on which Transfer Pricing Officer's order is passed 31.01.2016 I Draft Assessment order p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 60 days would be computed including the 31st of December or excluding it. Section 153 states that no order of assessment shall be made at any time after the expiry of 21 months from the end of the assessment year in which the income was first assessable. The submission of the revenue is to the effect that limitation expires only on 12 am of 01.01.2020. However, this would mean that an order of assessment can be passed at 12 a m on 01.01.2020, whereas, in my view, such an order would be held to be barred by limitation as proceedings for assessment should be completed before 11.59.59 of 31.12.2019. The period of 21 months therefore, expires on 31.12.2019 that must stand excluded since Section 92CA(3A) states 'before 60 days prior to the date on which the period of limitation referred to Section 153 expires'. Excluding 31.12.2019, the period of 60 days would expire on 01.11.2019 and the transfer pricing orders thus ought to have been passed on 31.10.2019 or any date prior thereto. Incidentally, the Board, in the Central Action Plan also indicates the date by which the Transfer Pricing orders are to be passed as 31.10.2019. The impugned orders are thus, held to be barred by li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om one day prior to the date on which the period of limitation referred to section 153 expire, i.e., 60 days have to be calculated from 30th March and not from 31st March. However, overall provision of section 92CA (3A) r.w.s. 153 has to be given a harmonious construction and the word 'may be' has to be interpreted as 'so far as may be', because in terms of section 92CA (4), AO has no option but to adopt the adjustment made by the TPO and there is no application of mind by the AO once the TPO has given his order. The reference to the TPO and determination of arm's length price is part of the overall process of assessment and determination of income for which the time limit has been prescribed for 3 years in section 153. Assessment thus has to be completed in the time limit of 3 years. The purpose of legislature was to give time to the AO for completion of assessment which is 60 days and it would be too strict interpretation the way, the Hon'ble High Court has held that "may be" has to be read as 'shall". Thus, he submitted that AO clearly had 60 days for passing of the assessment order after the TPO had passed order on 31st January 2016. 20. In so far as the other contention of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... echanism for dispute resolution, powers of Dispute Resolution Panel, definition of Dispute Resolution Panel, eligible assessee, etc. In terms of the schematic arrangement prescribed in Sec. 144C of the Act, firstly a "draft proposed order of assessment" would be passed in the case of an "eligible assessee"; thereafter such "eligible assessee" is permitted within 30 days of receipt of the order, either to file objections before the DRP or accept such draft assessment order and communicate the same to the Assessing Officer. If the assessee opts for filing objections before the DRP, the DRP hears such assessee and gives directions to the Assessing Officer for completion of assessment. Thereafter, the Assessing Officer passes a "final assessment order" within the period prescribed. If the assessee chooses to accept such draft assessment order or fails to communicate the Assessing Officer within one month, the Assessing Officer shall pass the final assessment order within the period prescribed therein. As a perusal of Sec. 144C(1) of the Act shows, the Assessing Officer is required to forward the draft of the proposed order of assessment only to an "eligible assessee", and not to every ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... date of passing of order by the TPO on 30.01.2015, FEIPL did not exist as an Indian company under the Companies Act, 1956 as understood by Sec. 2(26) of the Act and consequently, there does not exist any "person" as contemplated under Section 2(31) of the Act. Thus, it is a case where the TPO proposed variation in the case of a non-existent entity, which is not even understood as a "person" under the Act. This also brings out that FEIPL could not be understood as an "eligible assessee" in the eyes of law under Section 144C(15)(b)(i) of the Act; and, in any case, on the date of passing of order by the TPO, the existing entity was FETSCS, but it is nobody"s case that the TPO has passed any order in the name of FETSCS proposing any variation in the returned income. Therefore, in this background, it has to be inferred that in the absence of an "eligible assessee" as understood for the purposes of Sec. 144C(15)(b)(i) of the Act, no draft of the proposed order of assessment could have been passed by the Assessing Officer under Section 144C(1) of the Act, much less in the name of FEIPL. Therefore, the draft assessment order passed in the present case in the name of erstwhile FEIPL is inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder sub-section (4) or sub-section (5) of section 139, whichever is later.. Provided also that in case the assessment year in which the income was first assessable is the assessment year commencing on the 1st day of April, 2009 or any subsequent assessment year and during the course of the proceeding for the assessment of total income, a reference under sub-section (1) of section 92CA is made, the provisions of clause (a) shall, notwithstanding anything contained in the first proviso, have effect as if for the words "two years", the words "three years" had been substituted." 26. Thus, in case where a reference is made to the TPO u/s 92CA(1), the time limit for completion of assessment is 3 years. Here in this case, in terms of section 153, the time limit for completing the assessee for AY 2012-13 was 31st March 2016. If the time limit provided in section 192CA(3A) r.w.s. 153(1) of the Act is juxtaposed, then here in this case, time limit for passing of the TPO order would be on or before 30th January 2016, because, if one day prior to the date of limitation u/s 153 is taken, then 60 days have to counted from 30th March 2016. The 60 days from 30th March would be (30 days of Marc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting the 60 days, 31.12.2019 must be excluded. The usage of the word "prior" is not without significance. It is not open to this court to just consider the word "to" by ignoring "prior". The word "prior" in the present context, not only denotes the flow of direction, but also actual date from which the period of 60 days is to be calculated. It is settled law that while interpreting a statute, it is not for the courts to treat any word(s) as redundant or superfluous and ignore the same. In this connection, it is pertinent to note the judgment of the Apex Court in Grasim Industries Ltd. v. Collector of Customs, [(2002) 4 SCC 297 : 2002 SCC OnLine SC 413], wherein, it was held as follows: "10. No words or expressions used in any statute can be said to be redundant or superfluous. In matters of interpretation one should not concentrate too much on one word and pay too little attention to other words. No provision in the statute and no word in any section can be construed in isolation. Every provision and every word must be looked at generally and in the context in which it is used. It is said that every statute is an edict of the legislature. The elementary principle of interpreting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... If the last date is taken to be the first date from which the period of 60 days is to be calculated, reading down the provision with the use of the word "from", which denotes the starting point or period of direction in general parlance, would mean that 60 days "from the last date". Even going by Section 9 of the General Clauses Act, when the word "from" is used, then, that date is to be excluded, implying here that 31.12.2019 must be excluded. After excluding 31.12.2019, if the period of 60 days is calculated, the 60th day would fall on 01.11.2019 and the TPO must have passed the order on or before 31.10.2019 as orders are to be passed before the 60th day. Therefore, either way the contention of the Revenue is a fallacy and has no legs to stand. 31. The next contention that has been raised by the learned senior standing counsel for the appellants is that the usage of the word "may" in Section 92CA (3A) indicates that the time fixed is only directory, a guideline, not mandatory and is for the sake of internal proceedings. 32. Let us now examine the relevant procedures relating to Transfer Pricing. After an international transaction is noticed subject to satisfaction of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reference is pending, the department gets another 12 months. Once reference is made and after availing the benefit of the extended period to pass orders, the department cannot claim that the time limits are not mandatory. Hence, the contention raised in this regard is rejected. 36. As rightly pointed out by Mr.Ajay Vohra, learned senior counsel for the respondents in WA.Nos.1148 and 1149/2021, the word "may" has to be sometimes read as "shall" and vice versa depending upon the context in which it is used, the consequences of the performance or failure on the overall scheme and object of the provisions would have to be considered while determining whether it is mandatory or directory. 37. At this juncture, it is noteworthy to mention the commentary of Justice G.P.Singh on the interpretation of statutes, Principles of Statutory Interpretation (1st Edn., Lexis Nexis 2015), which is quoted below for ready reference: "The intention of the legislature thus assimilates two aspects: In one aspect it carries the concept of "meaning" i.e. what the words mean and in another aspect, it conveys the concept of "purpose and object" or the "reason and spirit" pervading through the statute. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erating the time limit to be mandatory. 28. Now if we compare the case of Pfizer Healthcare India Pvt. Ltd. and assessee on the relevant dates then following picture emerges:- Sr. No. Particulars Relevant Dates Pfizer Healthcare India Pvt. Ltd. (Madras High Court) Appellant A Assessment Year 2016-17 2012-13 B Period of limitation for making an order of assessment as per Section 153 of the Act 21 months from the end of Assessment Year 24 months from the end of Assessment Year C Extension of period of limitation in case reference is made under section 92CA of the Act 12 months 12 months D Proceeding for assessment should be completed on / before this date 31.12.2019 31.3.2016 E A date prior to the date on which period of limitation expires 30.12.2019 30.3.2016 F Sixty day period expires on 01.11.2019 31.1.2016 G Transfer Pricing Officer's order to be passed any time on / before this date 31.10.2019 30.1.2016 H Date on which Transfer Pricing Officer's order is passed 01.11.2019 31.01.2016 Note 1. Calculation of break-up of sixty days. December: 30 days (excluding 31.12.2019) November: 30 days March: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii) any non-resident not being a company, or any foreign company." 31. The aforesaid section envisages that, AO in the first instance has to forward a draft of the proposed order of assessment to the "eligible assessee", if he proposes to make any variation which is prejudicial to the interest of such assessee. The draft assessment order is to be forwarded to an "eligible assessee", which means that, for this section to apply a person has to be an "eligible assessee" Here, the draft assessment order is to be forwarded only to an "eligible assessee" and not to every assessee under the Act. 32. Thus, under the aforesaid provision, the expression "eligible assessee" is followed by an expression "means" and there are two categories referred therein (i) any person in whose case the variation arises as a consequence of TPO's order and (ii) any NR or Foreign company. The use of the word "means" indicates that the definition "eligible assessee" for the purposes of Section 144C(15)(b) is a hard and fast definition and can only be applicable in the above two categories. Ostensibly, the expression 'eligible assessee' has a restrictive meaning as it covers only the two types of perso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, all consequential proceedings on the basis of the said order fail. In the instant case, a reference was made by the Ld. AO to the Ld. TPO as per the provisions of section 92CA(1) of the Act and accordingly the timelines prescribed u/s 153 of the Act remain extended by a year in view of the 3rd proviso of section 153 of the Act. Accordingly, the time limit to complete assessment proceedings u/s 143(3) of the Act in the instant case expired on 31 March 2016. As on the date of passing draft assessment order u/s 144C(1) of the Act i.e. on 29 March 2016, the Ld. AO had already received the order passed by the Ld. TPO dated 31 January 2016, which as discussed above, is time barred, illegal and void ab initio, thereby making the Appellant not an eligible assessee u/s 144C(15) of the Act. In view of the same, the Ld. AO was ostensibly required to pass the final assessment order u/s 143(3) of the Act on that day. Having said that, the draft assessment order passed by the Ld. AO under the provisions of law is also illegal and void ab initio which deserves to be quashed. 36. It is a well-settled proposition now that a draft order passed in case of an 'ineligible assessee' vitiates the ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vision (P.) Ltd [2018] 95 taxmann.com 101 (Madras) are extremely critical which reads as follows: "47. The necessity for the Parliament to incorporate Section 144-C is not only to safeguard the Revenue, but also the assessee and any mistake committed by any one of them, the said party is supposed to face the consequences and cannot put the hands of the clock back and start afresh." 39. Further, in case of Zuari Cements Ltd. v. ACIT [Writ Petition No. 5557 of 2012, dated 21-2-2013] (Andhra Pradesh), the Division Bench (DB) of the Andhra Pradesh High Court categorically held that the failure to pass a draft assessment order under Section 144C (1) of the Act would result in rendering the final assessment order "without jurisdiction, null and void and unenforceable." In that case, the consequent demand notice was also set aside. The decision of the Andhra Pradesh High Court was affirmed by the Supreme Court by the dismissal of the Revenue's SLP (C) [CC No. 16694/2013] on 27th September, 2013. 40. The various judgments which have been cited before us that 144C(1) will not apply and there is no variation in the return of income which cannot be disputed. Thus in our view, Ld. AO t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 144C(15)(b)(i) of the Act, then it would render the entire proceedings pursuant to such order null and void. 43. We find that section 153(1) of the Act, as it stood applicable for the AY 2012-13, provided a time limit of 3 years from the end of AY 2012-13 for completion of assessment under section 143(3) of the Act, i.e., on or before 31 March 2016. 44. In such a case if the Ld. AO invokes the provisions of section 144C of the Act and passes the final assessment order after 31 January 2016 i.e. beyond the period of limitation as stated above, such final assessment order u/s 143(3) r.w.s 144C of the Act is liable to be quashed as being barred by limitation. 45. In a recent decision of the Hon'ble Madras High Court in case of Virtusa Consulting Services Put. Ltd [TS-474-HC-2022(MAD)] dated 9 June 2022, it has been held in context of period of limitation under section 153 of the Act as under: "17. Further, it is to be noted that the different timelines to be adhered by the TPO, Assessing Officer to pass a draft order, assessee to file their objections, DRP to issue directions and the assessing officer to pass final order, would commence only on a reference to the TPO and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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