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TMI Blog2024 (5) TMI 1085X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the principal order of the ITAT dated 14 July 2017 had come to be duly implemented by the TPO on 17 October 2017 itself. Once the TPO had proceeded to pass the order of 17 October 2017, all that the AO was obliged to do was pass an assessment order in accordance with the procedure prescribed in Section 92CA (4) of the Act. The original order of assessment dated 21 February 2014 ceased to exist in light of the directions as framed by the ITAT on 14 July 2017. Consequently and in terms of the aforesaid order of the ITAT, a fresh order of assessment was liable to be drawn before the expiry of nine months from the end of the relevant financial year. It is conceded on behalf of the respondents that the aforesaid period undoubtedly came to an end on 31 December 2018. We, additionally, find that the prescription of nine months would also be applicable to a fresh order which is liable to be made in accordance with Section 92CA of the Act. This since Section 153 of the Act speaks not merely of assessments but also orders that are liable to be framed u/s 92CA. The order which is spoken of in Section 92CA of the Act, as explained above, is the one which the TPO may come to make in accorda ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r u/s 92CA (4) being liable to be made pursuant to an order of the ITAT u/s 254 of the Act. Since the aforesaid contingency is already provisioned for in sub-section (3), there would exist no justification for such an order of the ITAT being placed or viewed as traceable to sub-section (4) of Section 153 of the Act. Tested on the undisputed facts, we find that the period of nine months when reckoned from 14 July 2017 undoubtedly came to an end on 31 December 2018. Once that terminal point was reached, the respondent clearly stood deprived of jurisdiction or authority to pass an order of assessment pursuant to the directions of the ITAT. We have already found that the TPO had acting in terms of the directions as framed by the ITAT already passed a consequential order on 17 October 2017. All that was required of the respondents thereafter was for the AO to frame an order of assessment in accordance therewith. This, for reasons unfathomable, was something which the AO failed to do. The second reference which was thereafter framed by the AO and was dated 27 December 2018 for reasons aforenoted was clearly unwarranted and in any case cannot be viewed as conferring a fresh lease of life ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sdiction to confirming, reducing or enhancing the variations proposed in the draft order. It essentially appears to have taken the position that a jurisdictional challenge when raised by way of an objection under Section 144C(2) of the Act could not be entertained by it. It is aggrieved by the aforesaid action that the instant writ petition has come to be instituted. 5. Before proceeding to notice the submissions which were addressed by Mr. Jolly, learned counsel appearing for the petitioner and Mr. Hossain, learned counsel who represented the respondents, we deem it apposite to take note of the following essential and undisputed facts. 6. The petitioner filed its Return of Income for Assessment Year [AY] 2009-10 on 30 September 2009 declaring a loss of INR 64 crores. Taking note of certain international transactions, the AO after obtaining requisite approvals is stated to have made a reference to the TPO. The TPO proceeded to determine the transfer pricing adjustments liable to be made in terms of an order dated 30 January 2013. 7. As would be evident from Para 22 of that order, it called upon the AO to make the following adjustments:- 22. Summary: Following adjustments are requir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been denied the benefit of working capital benefit considering the adjustment. He further submitted that the objection were raised before the ld Dispute Resolution Panel, however, same were not considered by the ld DRP. 133. The ld DR fairly agreed that if the assessee is entitled for working capital adjustment then the Id Transfer Pricing Officer may be given an opportunity to examine the claim of the assessee and if same is found in accordance with the law then it may be granted. 134. We have carefully considered the rival contentions. The only claim of the assessee is to grant assessee the adjustment on account of working capital. The d DR has also fairly agreed to that. Therefore, we set aside ground Nos. 12 and 13 of the appeal of the assessee back to the file of the ld TPO with a direction to the assessee to submit the details of working capital adjustment to the ld Transfer Pricing Officer and if the ld TPO find it after examination in accordance with the law then same may be granted to the assessee. In the result ground Ns. 12 and 13 of the cross objection are allowed with above direction. 10. The petitioner also appears to have questioned the characterization of certai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 017, the Special Bench answered the Reference by observing as under:- The Ld. AR submitted at the outset that the question proposed for consideration and decision before this special bench does not arise in the present appeal. He submitted that the assessee only gave an undertaking and not a corporate guarantee for the Bonds issued by its Associated Enterprise. To fortify the point, he referred to certain clauses of the Agreement. This was Opposed by the Ld. DR. We have extensively heard both the sides. in our opinion, the assessee only incurred an obligation by giving an undertaking, which is short of guarantee. As such, the question before the special bench - as to whether the giving of corporate guarantee is an international transaction? - does not arise in the instant appeal. This reference is accordingly returned to be placed before the Hon'ble President for taking an appropriate decision in this regard. 13. Pursuant to the aforesaid opinion rendered by the Special Bench, the appeal itself appears to have been directed to be placed before the appropriate Bench of the ITAT for disposal in terms of the conclusions as rendered. It would be pertinent to recall that the ITAT on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 21.02.2014, wherein the following additions were made to the taxable income of the assesse. Total loss (as declared by the assesse) ( in INR ) (-) 64,83,91,422 Add :- (i) Disallowance u/s 14A 78,40,990 (ii) Transfer pricing adjustment u/s 92CA (3) 5,09,65,629 (iii) Unexplained Money u/s 69A 642,54,22,000 (iv) Unexplained unsecured loan u/s 68 254,75,00,000 Total Income 838,33,37,197 3. The assessee filed appeal against the assessment order dated 21.02.2014 before the Hon ble Income Tax Appellate Tribunal ( ITAT ) which vide order dated 14.07.2017 passed in ITAs No. 1212 2658/Del/2014 and CO No. 233/Del/2014 , decided as under: Additions made in Final Order Decision of ITAT Add :- (i) Disallowance u/s 14A Set aside to AO (ii) Transfer pricing adjustment u/s 92CA (3) Set aside to TPO (iii) Unexplained Money u/s 69A Confirmed (iv) Unexplained unsecured loan u/s 68 Set aside to AO 4. Therefore, in accordance with para 3.5 of Instruction No. 3 of 2016 dated 10.03.2016 issued by the CBDT, the case is necessarily to be referred to the TPO u/s 92CA (1) of the Act. The relevant para of the said Instruction is reproduced below:- 3.5 In addition to the cases to be referred as per paragraph ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was pending before this Court in the appeal aforenoted. It also appears to have addressed a request for being provided copies of the reference that may have been made by the AO under Section 92CA (1) of the Act along with any other supportive material. The aforesaid request appears to have been based on the petitioner taking the position that since the ITAT had directly made a reference to the TPO, the need for a separate and independent reference in terms of Section 92CA (1) of the Act being clearly obviated. 23. Thereafter, the impugned order came to be passed by the DRP on 29 May 2021. Insofar as the aspect of limitation and its jurisdiction to deal with the same is concerned, the DRP held as follows:- 2.3 The submissions have been perused along with the materials available on record. Though the TP issues were directly set aside by the Hon'ble ITAT to the TPO, in addition to corporate tax issues which were set aside to the AO, the draft assessment order will be passed by the Assessing Officer alone and not by the TPO. Upon reference to the TPO as recorded in Para 7 of the draft assessment order pursuant to approval by PCIT-6, Delhi, the limitation in this case therefore sto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2017 and 15 September 2017. 27. Mr. Jolly then argued that a bare reading of the first order of the TPO dated 17 October 2017 would itself establish that the said authority had proceeded to act in terms of the directions of the ITAT and in order to give effect to and implement the order of 14 July 2017. 28. It was then submitted by Mr. Jolly that once the TPO acting in compliance with the direction of the ITAT had proceeded to pass an order on 17 October 2017, it clearly stood divested of any authority or jurisdiction to undertake an identical exercise while purporting to act in terms of the reference which came to be subsequently made by the AO on 27 December 2018. It was pointed out by Mr. Jolly that the second reference which the AO chose to draw on 27 December 2018, was itself more than a year after the first order had been passed by the TPO. In any case, according to learned counsel, such a reference was wholly unnecessary bearing in mind the admitted position of the ITAT itself having remitted identified issues for the consideration of the TPO. 29. The reference and the assumption of jurisdiction by the TPO was then assailed on the ground of limitation as constructed in terms ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a deemed reference referable to that provision. Contesting the correctness of that stand, Mr. Jolly submitted that no provision of the Act disables or restrains the ITAT from remitting matters for fresh adjudication to the TPO. That power of the ITAT, according to learned counsel, cannot be made dependent upon a reference being made by the AO in terms of Section 92CA (1) of the Act. 34. In any case, Mr. Jolly, submitted the argument of deemed reference is clearly fallacious when one bears in mind the significant amendments which came to be introduced in Section 153 of the Act with effect from 01 April 2022 and when the words or fresh order under Section 92CA (1) as the case may be came to be inserted. According to learned counsel, the aforesaid amendments as introduced by virtue of Finance Act, 2022 are clarificatory and thus bound the TPO to frame an order within a period of nine months from the end of the financial year in which the said order of the ITAT was received. 35. It was Mr. Jolly's submission that sub-section (4) of Section 153 of the Act would be applicable only where a reference under Section 92CA (1) of the Act were to be made during the course of proceedings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e are not to scrutinize the direction of the DRP as an Appellate Court. There are reasons given by the DRP for upholding the action of the TPO and we cannot analyse the same, while exercising writ jurisdiction. The aforesaid reasoning would have to be tested before the appropriate forum. The factual background would have to be necessarily evaluated by the AO while framing the assessment order. Therefore, in the instant case, we cannot say that directions are non-speaking and there is a breach of principles of natural justice. The objections and the material placed by the Petitioner have been examined, but for the reasons noted above, the DRP has taken a different view. Even if we were to assume for the sake arguments that this view is erroneous, we cannot hold it be an error of jurisdiction. Every error of an authority is not open to judicial review merely by terming it to be a jurisdictional error , although the same may, at a later stage, be set aside for being erroneous. Accepting the contention raised by Mr. Vohra would mean that we will have to venture into the factual matrix of the case and come to a conclusion on whether the findings of the DRP are proper, and comment on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clauses to Finance Bill, 2009). Prior to insertion of Section 144C, the assessee could file an appeal to the CIT (Appeals) challenging the assessment order. On creation of the DRP, one more option is given to the assessee to approach the DRP raising objections against the variations made by the Assessing Officer. On such objections being filed, the DRP is expected to consider the draft assessment order, objections of the assessee, evidence/records that may be furnished by the assessee, reports if any called for from the Assessing Officer/Valuation Officer/TPO and issue directions, as it thinks fit, to enable the assessing officer to complete the assessment. The directions so issued by the DRP is only after opportunity to the assessee. The directions given by the DRP are binding on the Assessing Officer. Thus, the proceedings before the DRP is not an appeal over the draft assessment order, but an alternate mechanism provided to the assessee, a corrective mechanism. With this view in mind the legislation has fixed a time frame of nine months. xxxx xxxx xxxx 18. Therefore, it would be too far fetched plea on the part of the petitioner to state that sans facts, the decision in Mobis, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asserted jurisdictional errors. Reliance in this respect was firstly laid upon the following observations as appearing in the decision in V.K. Ashokan vs. Assistant Excise Commissioner (2009) 14 SCC 85: 54. It is furthermore a well-settled principle of law that a statutory authority must exercise its jurisdiction within the four corners of the statute. Any action taken which is not within the domain of the said authority would be illegal and without jurisdiction. 41. Reliance was also placed on the judgment of Iqbal Singh Narang vs. Veeram Narang (2012) 2 SCC 60 where in the context of the authority of rent controllers it was held: 10 the consistent view which has been taken is that the Rent Controller, being a creature of statute, has to act within the four corners of the statute and could exercise only such powers as had been vested in him by the statute. 42. The aforesaid aspect was further sought to be underlined with Mr. Hossain drawing our attention to the following observations as appearing in the decision of the Supreme Court in Transcore vs. Union of India (2008) 1 SCC 125:- 67 The DRT is a tribunal, it is the creature of the statute, it has no inherent power which exists ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l transactions also by virtue of Section 92CA (2A) and (28). The transfer price has to be determined by the TPO in terms of Section 92C. The price has to be determined by using any one of the methods stipulated in sub-section (1) of Section 92C and by applying the most appropriate method referred to in Sub-section (2) thereof. There may be occasions where application of the most appropriate method provides results which are different but equally reliable. In all such cases, further scrutiny may be necessary to evaluate the appropriateness of the method, the correctness of the data, weight given to various factors and so on. The selection of the most appropriate method will depend upon the facts of the case and the factors mentioned in Rule 10C. The TPO, after taking into account all relevant facts and data available to him, shall determine the ALP and pass a speaking order. 45. Learned counsel also relied upon the judgment of the Supreme Court in Principal Commissioner of Income Tax-4, Mumbai vs. S.G. Asia Holdings (India) Private Limited (2019) 13 SCC 353, where upon taking note of those instructions, the Supreme Court had held as follows:- 7. In view of the guidelines issued by C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the judgment of the Karnataka High Court in TE Connectivity India Pvt. Ltd. vs. Deputy Commissioner of Income 2022 SCC OnLine Kar 1762 with Mr. Hossain seeking to draw sustenance from the following observations as appearing therein:- 2. It is submitted that the Income-tax Appellate Tribunal has passed the order dated November 3, 2016 setting aside the impugned order and has remanded the proceedings to the Assessing Officer/Transfer Pricing Officer/Dispute Resolution Panel for a fresh decision. 3. The admitted facts as made out are that the Principal Commissioner of Income-tax has received the copy of the order on December 29, 2016. The time period for completion of assessment proceedings in terms of section 153 (3) would be nine months from the end of the financial year in which, the order under section 254 is received by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner or, as the case may be. If that were to be so, the order was required to be passed by December 31, 2017 as the financial year ending would have been March 31, 2017. 4. It is further to be noticed that in so far as the Transfer Pricing Officer is concerned, the order w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ereinbelow:- [(2A) Notwithstanding anything contained in sub-sections (1) [,(1A), (1B)] and (2), in relation to the assessment year commencing on the 1st day of April, 1971, and any subsequent assessment year, an order of fresh assessment in pursuance of an order under section 250 or section 254 or section 263 or section 264, setting aside or cancelling an assessment, may be made at any time before the expiry of one year from the end of the financial year in which the order under section 250 or section 254 is received by the [Principal Chief Commissioner or] Chief Commissioner or [Principal Commissioner or] Commissioner or, as the case may be, the order under section 263 or section 264 is passed by the [Principal Chief Commissioner or] Chief Commissioner or [Principal Commissioner or] Commissioner 53. The aspect of reference under Section 92CA of the Act interceding assessment or reassessment proceedings were provisioned for in the Second and Third Provisos to Section 153 (1) and are extracted hereunder:- [ Provided further that where the order under section 254 is received by the [Principal Chief Commissioner or] Chief Commissioner or [Principal Commissioner or] Commissioner or, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rse of the proceeding for the assessment or reassessment, the period available for completion of assessment or reassessment, as the case may be, under the said sub-sections (1), (2) and (3) shall be extended by twelve months. As would be evident from the aforesaid extract, it is by virtue of Finance Act, 2016 that the nine and twelve months period of limitation came to be prescribed. 55. Post the promulgation of Finance Act, 2022 sub-sections (3) and (4) of Section 153 came to read as follows:- (3) Notwithstanding anything contained in sub-sections (1) and (2), an order of fresh assessment in pursuance of an order under section 254 or section 263 or section 264, setting aside or cancelling an assessment, may be made at any time before the expiry of nine months from the end of the financial year in which the order under section 254 is received by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner or, as the case may be, the order under section 263 or section 264 is passed by the Principal Commissioner or Commissioner: [ Provided that where the order under section 254 is received by the Principal Chief Commissioner or Chief Commissioner o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 59. Having sketched out the broad contours of the issues that arise, we deem it appropriate to consider the preliminary objection which was addressed by Mr. Hossain. To recall, Mr. Hossain had submitted that the petitioner merely challenges an order passed by the DRP and which in any case creates no liability. The submission essentially was that in the absence of a consequential order of assessment having been framed, there would exist no justification for this Court to invoke its jurisdiction conferred by Article 226 of the Constitution. We find ourselves unable to sustain that objection for the following reasons. 60. While it is true that a direction framed by the DRP is in one sense inchoate and remains latent till it comes to be transformed into an actual order of assessment, we are in the present writ petition concerned with a challenge raised on the ground of limitation. The petitioner today questions the very jurisdiction of the AO to proceed to frame an order of assessment pursuant to any direction that the DRP may frame. This in light of their contention that an order of assessment could have been made only within the period of nine months computed from 14 July 2017 and si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere any other international transaction [other than an international transaction referred under sub-section (1)], comes to the notice of the Transfer Pricing Officer during the course of the proceedings before him, the provisions of this Chapter shall apply as if such other international transaction is an international transaction referred to him under sub-section (1).] [(2B) Where in respect of an international transaction, the assessee has not furnished the report under section 92E and such transaction comes to the notice of the Transfer Pricing Officer during the course of the proceeding before him, the provisions of this Chapter shall apply as if such transaction is an international transaction referred to him under sub-section (1).] [(2C) Nothing contained in sub-section (2B) shall empower the Assessing Officer either to assess or reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154, for any assessment year, proceedings for which have been completed before the 1st day of July, 2012.] (3) On the date specified in the notice under sub-section (2), or as soon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer may, for the purposes of determining the arm's length price under this section, exercise all or any of the powers specified in clauses (a) to (d) of sub-section (1) of section 131 or sub-section (6) of section 133 [or section 133A]. [(8) The Central Government may make a scheme, by notification in the Official Gazette, for the purposes of determination of the arm's length price under sub-section (3), so as to impart greater efficiency, transparency and accountability by (a) eliminating the interface between the Transfer Pricing Officer and the assessee or any other person to the extent technologically feasible; (b) optimising utilisation of the resources through economies of scale and functional specialisation; (c) introducing a team-based determination of arm's length price with dynamic jurisdiction. (9) The Central Government may, for the purpose of giving effect to the scheme made under sub-section (8), by notification in the Official Gazette, direct that any of the provisions of this Act shall not apply or shall apply with such exceptions, modifications and adaptations as may be specified in the notification: Provided that no direction shall be issued after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to international transactions but also to such other and additional aspects and which may not necessarily be confined to only international transactions as decided by the AO. We thus find ourselves unconvinced to hold that the ITAT under the statutory scheme of the Act should not be recognised to have the power to remit the matter directly to the desk of the TPO. 66. Our conclusion in this respect stands fortified from a reading of Section 153 (3) which speaks of an order of the ITAT requiring a fresh assessment or a fresh order under Section 92CA . It is pertinent to note that the word order in the context of Section 92CA is undoubtedly a reference to the adjudication undertaken by the TPO. This in light of Section 92CA (3) using the phrase .the Transfer Pricing Officer, shall, by order in writing, determine . . Similarly, Section 92CA (4) uses the expression On receipt of the order under sub-section (3) . The extent of the authority of the AO is thereafter explained by that provision to be to compute the total income of the assessee . . It is thus manifest that the order which is envisaged under Section 92CA is the one made by the TPO. We thus find on a conjoint reading of Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nion that once the TPO had proceeded to pass the order of 17 October 2017, all that the AO was obliged to do was pass an assessment order in accordance with the procedure prescribed in Section 92CA (4) of the Act. 70. Section 153 (3) of the Act in unambiguous terms sets out the time frame within which a fresh assessment is liable to be completed once a matter is remanded by the ITAT in terms of a judgment rendered and referable to Section 254 of the Act. The order of the ITAT contemplated under Section 153 (3) of the Act is one which may have set aside or cancelled an assessment. As is manifest from a reading of the operative directions that were framed by the ITAT, it had while remanding certain items for re-consideration to the AO, remitted the issues pertaining to ALP directly to the TPO. It becomes pertinent to note that the aforesaid reference to the TPO and for it undertaking a fresh adjudication was based on the consent of parties. Even the aspect of corporate guarantee and whether it would be an international transaction was an issue which was remanded directly to the TPO subject to the rider that the same would be taken up for consideration after the Special Bench had rend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O. 76. While dealing with the correctness of the aforesaid view as taken as also the judgment of affirmation rendered by the Bombay High Court, the Supreme Court ultimately held as follows:- 7. In view of the guidelines issued by CBDT in Instruction No. 3/2003 the Tribunal was right in observing that by not making reference to TPO, the assessing officer had breached the mandatory instructions issued by CBDT. We do not find the conclusion so arrived at by the Tribunal to be incorrect. 8. However, the Tribunal ought to have accepted the submission made by the departmental representative as quoted in para 16.2 of its order and the matter ought to have been restored to the file of the assessing officer so that appropriate reference could be made to TPO. It would therefore be up to the authorities and the Commissioner concerned to consider the matter in terms of sub-section (1) of Section 92-CA of the Act. 77. The aforesaid observations as appearing in SG Asia Holdings are liable to be appreciated bearing in mind the refusal of the ITAT to even accord liberty to the AO to frame a reference for the consideration of the TPO. We are, however, in the present case, concerned with a situation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 153 is concerned with a reference referable to Section 92CA (1). That provision, as noticed hereinabove, is confined to a reference to the TPO that may be made by the AO. The limited application of Section 153 (4) is also evidenced from that provision using the expression made during the course of the proceeding for the assessment or reassessment . Sub-section (4) is thus clearly confined to a reference that the AO may choose to make in the course of assessment. Sub-section (3) of Section 153 of the Act, on the other hand, deals specifically with assessments and orders under Section 92CA that the concerned authority may be liable to make in terms of directions issued by the ITAT. Consequently, it would be the principle of generalia specialibus non derogant which would stand attracted and be determinative of the question that stands posited. 82. That leaves us to examine the argument of a deemed reference which was advanced by Mr. Hossain. According to Mr. Hossain, the order of 14 July 2017 should be construed as being a reference governed by Section 153 (4) of the Act and consequently the expanded period of limitation of twelve months becoming applicable. 83. We find ourselves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rms of the directions as framed by the ITAT already passed a consequential order on 17 October 2017. All that was required of the respondents thereafter was for the AO to frame an order of assessment in accordance therewith. 87. This, for reasons unfathomable, was something which the AO failed to do. The second reference which was thereafter framed by the AO and was dated 27 December 2018 for reasons aforenoted was clearly unwarranted and in any case cannot be viewed as conferring a fresh lease of life to the power to assess. 88. That leaves us to lastly deal with the submission of Mr. Hossain and which principally rested on the decision of the Supreme Court in S.G. Asia . Although, the respondents do not appear to have questioned the validity of the order of the ITAT remitting the matter to the TPO itself at any stage of the proceedings and in fact and to the contrary acted in terms thereof, since that question was raised before us we deem it appropriate to deal with the same so as to render a quietus to the controversy. 89. As was observed in the preceding parts of this decision in S.G. Asia , the Supreme Court was essentially concerned with the validity of the action of the AO w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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