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TMI Blog2022 (7) TMI 1532X X X X Extracts X X X X X X X X Extracts X X X X ..... adesh High Court in the case of Zuari Cement Ltd. wherein it is held that procedure of issuing draft assessment order laid down in the section 144C is to be followed with effect from 01/10/2009. In the instant case, though the assessment year involve is 2009-10, the draft assessment order has been issued on 28/03/2013, much after the specified date of 01/10/2009 and therefore we do not find any violation of the law by the Assessing Officer in issuing the draft assessment order on 28/03/2013 and passing of the final assessment order dated 26/02/2014 by the AO. Therefore, the final assessment order passed by the Assessing Officer is well within the limitation provided in law. Thus, the additional grounds raised by the assessee are accordingly dismissed. TP adjustment on the total manufacturing turnover of the assessee - whether the transfer pricing adjustment should be made on the entire manufacturing turnover of the assessee or in respect of international transactions carried out by the assessee with the Associated Enterprises? - HELD THAT:- In our opinion, the entire exercise of determination of arm s-length price is in respect of the international transactions carried out by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment year 2009-10, in pursuant to the direction dated 20/12/2013 of the Ld. Dispute Resolution Panel (DRP). 2. The grounds raised by the assessee in its appeal in ITA No. 2628/Mum/2014 are reproduced as under: 1. On the facts and circumstances of the case and in law, the learned Asstt. Commissioner of Income Tax, Circle-1, Thane ( the AO'Y/Addl. Commissioner of Income Tax, transfer pricing officer-I(5) (the TPO ) erred in making an adjustment of Rs. 5,96,53,388/- in relation to the international transaction in respect of export of finished goods (Manufacturing segment). The Appellant prays that the aforesaid adjustment be deleted. 2. Without prejudice to Ground no. 1, on the facts and in the circumstances of the case and in law, the AO/PO erred in making an adjustment on the total turnover (i.e. controlled as well as uncontrolled) instead of applying only to the controlled transactions of the Appellant. The Appellant prays that the AO be directed to restrict the adjustment to the controlled transactions of the Appellant. 3. Without prejudice to Ground no. 1 2, on the facts and in the circumstances of the case and in law, the AO/TO erred in applying two methods (Transaction Ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Revenue in its appeal in ITA No. 2788/Mum/2014 are reproduced as under: 1. The Ld. DRP-III, Mumbai has allowed relief to the assessee without appreciating the fact that the AO has rightly made the disallowance, since the assessee failed to prove the genuineness of the transactions in respect of negative difference of Rs. 66,90,600/- and parties who confirm with positive difference of Rs. 4,18,31,261/- 2. The Ld. DRP-Ill, Mumbai erred in allowing relief to the assessee without any supporting evidence to prove the genuineness of the transaction disallowed by the AO. 3. Before us the assessee also preferred an additional ground vide letter dated 01/09/2021, which was filed on 11/11/2021 before the Registry of the Tribunal. The said additional ground is reproduced as under: 11. On the facts, in law and in circumstances of the present case, the draft assessment order dated 28 March 2013 passed for AY 2009-10 under section 143(3) read with 144C(1) of the Income-tax Act, 1961 (Act') and all proceedings consequent to such draft assessment order including final assessment order passed u/s 143(3) read with 144C(13) of the Act dated 26 February 2014 are void-ab-initio, illegal and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sactions was referred to the Ld. Transfer Pricing Officer (TPO). The Ld. TPO in his order dated 28/01/2013 proposed a transfer pricing adjustment of ₹5,96,53,388/-. After receipt of the order of the Ld. TPO, the Assessing Officer issued a draft assessment order on 28/03/2013, wherein in addition to the transfer pricing adjustment, the Assessing Officer also proposed addition in respect of un-verified purchases amounting to ₹5,62,65,098/-. The assessee filed objection against the draft assessment order before the Ld. DRP. The Ld. DRP, after taking into consideration remand report from the AO/TPO on the additional evidences submitted by the assessee, issued direction to the Assessing Officer vide order dated 20/12/2013. Pursuant to the direction of the Ld. DRP, the Assessing Officer has passed the impugned assessment order after making transfer pricing adjustment of ₹5,96,53,388/-and disallowance of unexplained expenditure of ₹55,44,990/-. Aggrieved both the assessee and the Revenue are before the Tribunal by way of raising the grounds as reproduced above. 5. The assessee has filed a paperbook in two volumes containing pages 1 to 677. 6. In respect of the addi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent decision in Vedanta Ltd. (supra), cited by assessee, the Hon ble High Court of Madras has not taken into consideration the decision in the case of Vijay Television Pvt. Ltd. (supra), therefore, finding in the case of Vedanta Ltd. might be ignored. 8. We have heard rival submissions of the parties on the issue in dispute and perused the relevant material on record. The only dispute raised in ground before us is whether procedure of assessment for certain category of assessees specified in section 144C would be applicable from 01/10/2009 or from assessment year 2010-11. By way of section 144C, alternative dispute resolution mechanism has been introduced for certain assessees, who satisfied specific conditions. Those assessees have been categorized as eligible assessees. Under this mechanism, in case of eligible assessees, if there is a variation in assessed income or loss as compared to the returned income or loss prejudicial to the interest of the assessee, then instead of passing final assessment order [as provided under section 143(3) of the Act], the Assessing Officer is required to pass a draft assessment order. Against said draft assessment order, the assessee has been give ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt years. The Dispute Resolution Panel Rules have been notified by S.O. No. 2958 (E) dated 20th November, 2009. In the above extracted Para 45.5 there has been an inadvertent error in stating the applicability of the provisions of section 144C inserted vide Finance (No.2) Act, 2009 that amendments will apply in relation to the assessment year 2010-11 and subsequent assessment years. Accordingly, para 45.5 is replaced with the following: 45.5. Applicability: Section 144C has been inserted with effect from 1st April, 2009. Accordingly, the Assessing Officer is required to forward a draft assessment order to the eligible assessee, if he proposes to make, on or after the Is day of October, 2009, any variation in the income or loss returned which is prejudicial to the interest of such assessee. In other words section 144C is applicable to any order which proposes to make variation in income or loss returned by an eligible assessee, on or after 1st October, 2009 irrespective of the assessment year to which it pertains. Amendments to other sections of the Income-tax Act referred to in para 45.3 of the circular 5/2010 dated 3rd June, 2010 shall also apply from 1st October, 2009 8.4 In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section (1) of S. 144C, the Assessing Officer is mandated to first pass a draft assessment order, communicate it to the assessee, hear his objections and then complete assessment. Admittedly, this has not been done and the respondent has passed a final assessment order dated 22.12.2011 straight away. Therefore, the impugned order of assessment is clearly contrary to S. 144C of the Act and is without jurisdiction, null and void. The contention of the Revenue that the circular No. 5/2010 of the CBDT has clarified that the provisions of S. 144C shall not apply for the assessment year 2008-09 and would apply only from the assessment year 2010-2011 and later years is not tenable in as much as the language of Sub-section (1) of Section 144C referring to the cut off date of 01.10.2009 indicates an intention of the legislature to make it applicable, if there is a proposal by the Assessing Officer to make a variation in the income or loss returned by the assessee which is prejudicial to the assessee, after 01.10.2009. Therefore, this particular provision introduced by Finance (No.2) Act, 2009, would apply if the above condition is satisfied and other provisions, in which similar contrary in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order passed by the second respondent on 26.03.2013, the petitioner filed objections before the DRP, the first respondent herein and the first respondent refused to entertain it by stating that the order passed by the second respondent is a final order and it had jurisdiction to entertain objections only if it is a draft assessment order. While so, the order dated 26.03.2013 of the second respondent can only be termed as a final order and in such event it is contrary to Section 144C of the Act. As mentioned supra, in and by the order dated 26.03.2013, the second respondent determined the taxable amount and also imposed penalty payable by the petitioner. According to the learned senior counsel for the petitioners, even as on this date, the website of the department indicate the amount determined by the second respondent payable by the company inspite of issuance of the corrigendum on 15.04.2013 as a tax due amount. Thus, while issuing the corrigendum, the second respondent did not even withdraw the taxable amount determined by him or updated the status in the website. In any event, such an order dated 26.03.2013 passed by the second respondent can only be construed as a final order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt to which it is relevant. 'Reference to dispute resolution panel. 144C (1) The Assessing Officer shall, notwithstanding anything to the contrary contained in this Act, in the first instance, forward a draft of the proposed order of assessment (hereafter in this section referred to as the draft order) to the eligible assessee if he proposes to make, on or after the 1st day of October, 2009, any variation in the income or loss returned which is prejudicial to the interest of such assessee.' 23. Sub-section (2) states that on receipt of the draft order, the assessee shall, within 30 days either file acceptance of the variations or objections to the same before DRP. Sub-section (3) states that the Assessing Officer shall complete the assessment on the basis of the draft order, if the assessee intimates acceptance of the variations to him or if no objections are received within 30 days. Sub-section (4) states that, in any event, the Assessing Officer shall complete the assessment by way of final order of assessment to be passed within one month from the end of the month in which either acceptance from the assessee is received, or the period of filing of objections expires. Sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act : Whether, on the facts and circumstances of the case and on a true interpretation of Section 274, as amended by the Taxation Laws (Amendment) Act, 1970 the Inspecting Assistant Commissioner to whom the case was referred prior to April 1, 1971, had jurisdiction to impose penalty. 6. The High Court answered the question in favour of the assessee whereupon the matter was brought to this Court. This Court at the outset stated the general principle applicable in this behalf in the following words: It may be stated at the outset the general principle is that a law which brings about a change in the forum does not affect pending actions unless an intention to the contrary is clearly shown. One of the modes by which such an intention is shown is by making a provision for change over of proceedings from the court or the Tribunal where they are pending to the court or the Tribunal which, under the new law, gets jurisdiction to try them. 7. The Court then observed that once a reference was validly made to the Inspecting Assistant Commissioner he did not lose the jurisdiction to deal with the matter on account of the aforesaid Amendment Act. It pointed out that the Amending Act does ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decide the question in issue on its own merits, uninfluenced by extraneous considerations. The question in issue is a question of fact.' 28. In the case of Prasad Productions (P) Ltd. (supra), a Division Bench of this Court has also clarified the position that where a Circular has explained a provision to be applicable qua a particular assessment year, the benefit of such Circular cannot be withdrawn at a later date, so as to deny the assessee the benefit extended earlier. Though in the present case there is no benefit as such that is in question, there is a substantively procedural right that has enured to both parties as on 01.04.2009 that relates to assessments for A.Y. 2010-11 onwards. The relevant portion of the 2013 Circular reads thus: 'Para 45.5 of the Circular No. 5/2010 dated 03.06.2010 reads as under: 45.5 Applicability: These amendments have been made applicable with effect from 1st October, 2009 and will accordingly apply in relation to assessment year 2010-11 and subsequent assessment years. The Dispute Resolution Panel Rules have been notified by S.O. No. 2958 (E) dated 20th November, 2009. In the above extracted Para 45.5 there has been an inadvertent error ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion on the issue of the jurisdictional High Court. The judicial discipline demand that decision of the higher forum should be followed. Since the decision of the Hon ble Andhra Pradesh High Court is of the division bench whereas the decision of the Hon ble Madras High Court in the case of Vedanta Ltd (supra) is of the single bench, and therefore we are inclined to follow the decision of the Hon ble Andhra Pradesh High Court in the case of Zuari Cement Ltd (supra), wherein it is held that procedure of issuing draft assessment order laid down in the section 144C is to be followed with effect from 01/10/2009. In the instant case, though the assessment year involve is 2009-10, the draft assessment order has been issued on 28/03/2013, much after the specified date of 01/10/2009 and therefore we do not find any violation of the law by the Assessing Officer in issuing the draft assessment order on 28/03/2013 and passing of the final assessment order dated 26/02/2014 by the Assessing Officer. Therefore, the final assessment order passed by the Assessing Officer is well within the limitation provided in law. Thus, the additional grounds raised by the assessee are accordingly dismissed. 8.8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (C) 242,698,805/- Total Operating Expenses (E=A-B-C) 1,762,151,611/- Operating Profit/(Loss)(F=A-E) 11,26,85,039/- OP/Net Sales (F/A) 6.39% OP/Total Cost (F/E) 6.01% 10.3 Thereafter the Ld. TPO, computed adjustment of ₹5,96,53,388/- to the international transaction as under: Particulars Assessee s Margin Operating Income (A) 1,87,48,36,650/- Total Operating Expenses (B) 1,762,151,611/- Operating Profit/(Loss)(C=A-B) 11,26,85,039/- OP/Total Cost (F/E) 6.39% Arm s Length Margin (G) 9.78% Arm s Length Price (H=G*B) 1,934,490,038/- Difference between the arm s length price and the transfer price (I) 5,96,53,388/- Transaction value of the Assessee (J) 416,006,359/- 5% of Transfer Price (K=J*5%) 20,800,318/- Adjustment Value 5,96,53,388/- 10.4 The Ld. TPO alternatively also computed adjustment of ₹3,98,23,060/- applying CUP method, however finally did not consider the same for making adjustment. 11. Before the Ld. DRP, the assessee submitted that manufacturing segment consist of local sales as well as export transactions to the AE, and therefore for the purpose of transfer pricing adjustment, only the international transactions with AE should be considered and not entire man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e third party transaction are at same levels and still the margins earned from the international transactions are required to be adjusted on proportionate basis. If the basic presumption of proportionate application or computation of the adjustment in proportion to the international transaction is that the assessee has earned margin from the international transaction and from the third party transaction at par, then in the first place there would be no requirement of any adjustment to be made. In the facts of the assessee's case it cannot be said that it has earned margin from the international transaction at the same level that it earned from third party transactions. Accordingly, contentions of the assessee regarding adjustment to be computed having regard to the proportion of volume of AE's transaction, to the total transaction is not found to be acceptable. In respect of the reliance on decisions of the Hon ble ITAT, it is stated that in such decisions, the primary concept acknowledged is that in the TNMM proportionate adjustment is warranted and that in application of such proportionate adjustment, the margins of the assessee from transactions with AE and with third pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reliance on the order of AO/TPO. 7.4 We have perused the records and considered matter carefully. The dispute is regarding TP adjustment made by AO/TPO on account of transactions with associate enterprises (AEs) in relation to the manufacturing segment. The AO/TPO have applied TNMM for bench marking the transaction and seven comparable have been selected which gave arithmetic mean margin of 5.42%. The margin of the assessee has been computed at 1.73%. The assessee had computed the margin at 9.04% after making adjustment for under-utilization of capacity which has not been accepted by the AO/TPO. The learned AR for the assessee has not disputed before us either the comparables or the arithmetic mean margin of the comparables or the margin of the assessee computed by AO/TPO at 1.73%. Only limited dispute raised is that AO had made the adjustment with respect to entire revenue of manufacturing segment whereas the adjustment is required only in relation to transaction with associated enterprises. The plea raised by the learned AR for the assessee is quite reasonable and is supported by the several decisions of the Tribunal as mentioned in para 7.3 of this order. We, therefore, direct t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led confirmation of the parties as additional evidence. The Ld. DRP obtained remand report from the Assessing Officer. In the remand report the Ld. Assessing Officer accepted the contention of the assessee except in respect of amount of ₹10,240/- in the case of M/s Ashok chemical industry and ₹55,34,750/-in the case of Arihant Industries (Madras) Private Limited. The relevant finding of the Ld. DRP reproduced as under: 3.5.1 It is seen from the assessment order that the AO has made addition u/s. 69C of Rs. 4,95,74,488/- and further addition of Rs. 66,99,600/- as income from undisclosed sources. It is seen that such addition made by the AO are in respect of the purchases made by the assessee from various parties to whom notice us. 133(6) were issued. In the remand proceedings, the AO has found all the other transactions to be in order except transaction with two parties viz. Arihant Industries (Madras) P. Ltd. and Ashok Chemicals Industry. 3.5.2 In the remand report the AO has reported that in the case of Ashok Chemicals Industry, an amount of Rs. 10,240/- reflected to have been paid on 31.03.2009 is not seen in the bank statement of the assessee and to that extent this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raft assessment order the Assessing Officer has made addition on the basis of the response of the notice under section 133(6) issued to those purchase parties. During proceeding before the Ld. DRP, the Assessing Officer again verified the evidence submitted by the assessee and concluded that except two parties, addition was not required. As far as the contention of the Ld. Counsel of the assessee is concerned, the Tribunal (supra) in assessment year 2008-09 has restored the issue to the file of the Assessing Officer observing as under: 8.4 We have perused the records and considered the rival contentions carefully. The dispute is regarding addition made by AO on account of creditors, purchases and other expenses u/s 69 C of the IT Act. The AO had issued notices u/s 133(6) to the parties with a view to ascertain the genuineness of the transactions which had been returned in many cases or no reply had been received. In cases where reply had been received, there were discrepancies and amounts confirmed was more in some cases while less in some other cases. The total addition made by AO is Rs. 53521277/- on account of these factors as per details given in para 8.2 of this order. The lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of hearing to the assessee. 21. Thus, we find that, in the case matter is of verification of the parties and the Ld. DRP has provided opportunity to assessee and after taking into consideration the additional evidence submitted by the assessee and calling for remand report from the assessee has sustained addition in respect of the two parties only, particularly where the assessee failed to substantiate purchase amount recorded in its books of accounts. In our opinion, the exercise of the verification has already been done during the proceeding before the DRP. The assessee has not provided any justified reasons for restoring the matter back to the file of the Assessing Officer. The Ld. DRP has duly considered the submission of the assessee and wherever the assessee has failed to substantiate with evidence in that case only additional is sustained. Therefore, the ground No. 6 and 7 of the appeal of assessee are dismissed. 22. As far as grounds of the Revenue are concerned, we find that during proceeding before the DRP, the matter of verification was remanded to the Ld. Assessing Officer and on the report of the Ld. Assessing Officer only, the Ld. DRP has directed to delete part of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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