Tribunal quashes assessment based on invalid report, deeming it bad in law. Reassessment proceedings void.

The Tribunal upheld the view that the reassessment based on the Transfer Pricing Officer's invalid report was deemed bad in law. Consequently, the final assessment order dated May 16, 2019, was quashed, and the reassessment proceedings were declared void ab initio.

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Issues Involved:
1. Validity of the Assessing Officer's (AO) final order dated May 16, 2019.
2. Competence of the Transfer Pricing Officer's (TPO) reference and order.
3. Jurisdiction of the AO in initiating proceedings under section 147.
4. Transfer Pricing adjustments without a valid reference under section 92CA.
5. Assessment of total income by the AO.

Detailed Analysis:

1. Validity of the AO's Final Order:
The assessee argued that the AO's final order dated May 16, 2019, is a nullity. The final assessment order passed on August 31, 2016, did not incorporate the TPO's report as the TPO issued the notice on January 6, 2017, after the final order. The reassessment proceedings initiated on February 26, 2018, were based on the TPO's report, which was not valid since it was issued after the final assessment order. The Dispute Resolution Panel (DRP) held that the final assessment order passed on August 31, 2016, was in compliance with CBDT's instruction No. 3/2016, making the reference to the TPO on September 8, 2015, null and void. Consequently, the TPO's order dated October 27, 2017, could not be used for reassessment without a fresh reference.

2. Competence of the TPO's Reference and Order:
The TPO's reference was made on September 8, 2015, but the final assessment order was passed on August 31, 2016, without waiting for the TPO's order. The TPO issued a notice on January 6, 2017, and passed the order on October 27, 2017, making an upward adjustment. The DRP concluded that the TPO could not initiate proceedings after the AO passed the final order, rendering the TPO's order non-est in law. Any adjustment based on this invalid TPO order is also invalid.

3. Jurisdiction of the AO in Initiating Proceedings Under Section 147:
The AO initiated reassessment proceedings on February 26, 2018, based on the TPO's report. The assessee argued that the TPO's report, being invalid, could not form the basis for reassessment. The DRP supported this view, stating that the TPO's order dated October 27, 2017, was invalid, and hence, the reassessment proceedings based on it were also invalid. The DRP emphasized that without a valid reference to the TPO for reassessment, the adjustment made was unsustainable.

4. Transfer Pricing Adjustments Without a Valid Reference Under Section 92CA:
The AO made transfer pricing adjustments based on the TPO's order, which was issued without a valid reference. The DRP held that the reference made on September 8, 2015, became infructuous after the final assessment order on August 31, 2016. Therefore, any adjustment based on the TPO's order dated October 27, 2017, was invalid. The Tribunal upheld this view, stating that the TPO acted without jurisdiction, and the adjustment made based on the TPO's invalid report was bad in law.

5. Assessment of Total Income by the AO:
The AO assessed the total income of the assessee at INR 9,40,36,160, incorporating the transfer pricing adjustment proposed by the TPO. The assessee argued that this assessment was invalid as it was based on an invalid TPO order. The Tribunal agreed, stating that the final assessment order should have incorporated the DRP's findings. As the AO did not follow the DRP's binding directions, the final assessment order dated May 16, 2019, was quashed as bad in law.

Conclusion:
The Tribunal upheld the DRP's view that the reassessment based on the TPO's invalid report was bad in law and quashed the final assessment order dated May 16, 2019. The appeal of the assessee was allowed, and the reassessment proceedings were declared void ab initio.

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