2017 (2) TMI 585 - AT - Income Tax

Procedural defect curable: DRP's directions to TPO, not AO. Order set aside, case remitted. Assessee's appeal allowed.

The Tribunal found that the procedural defect in the case, where the Dispute Resolution Panel (DRP) issued directions to the Transfer Pricing Officer ... Applicability of section 144C(13) - Directions of Dispute Resolution Panel to Transfer Pricing Officer - Distinction between Transfer Pricing Officer and Assessing Officer - Interaction of section 144C(13) with section 153 - Curable procedural defect versus jurisdictional infirmityApplicability of section 144C(13) - Interaction of section 144C(13) with section 153 - Whether the assessment order dated 26.02.2015 was time barred under section 144C(13) of the Income Tax Act - HELD THAT: - The Tribunal found that subsection (13) of section 144C applies only after the Assessing Officer receives directions issued under subsection (5) of section 144C. In the present case the DRP's second order dated 12.03.2014 contained directions addressed to the Transfer Pricing Officer (TPO) and not to the Assessing Officer. Since no direction under subsection (5) was issued to the Assessing Officer, the proceedings had not reached the stage at which the one month limitation in section 144C(13) would be triggered. The Tribunal relied on precedent holding that where proceedings fall within the ambit of section 144C, section 153 cannot be invoked to circumvent the time limits prescribed by section 144C(13). Consequently the AO's reliance on section 153 to justify the delay was not accepted in this factual matrix. [Paras 6, 7, 9]Section 144C(13) did not apply because the DRP had not issued directions to the Assessing Officer; therefore the AO's order could not be sustained on the ground that section 144C(13) time limits had been triggered.Directions of Dispute Resolution Panel to Transfer Pricing Officer - Distinction between Transfer Pricing Officer and Assessing Officer - Whether directions addressed by the DRP to the TPO must be treated as directions to the Assessing Officer for purposes of section 144C(13) - HELD THAT: - The Tribunal examined the Explanation to section 92CA and concluded that the TPO is authorised to perform specified functions relating to determination of arm's length price, but is not equated to the Assessing Officer for the purpose of making assessment. No Board authorisation equating TPO's powers to those of the Assessing Officer was placed on record. The DRP's directions in the impugned order were specifically to the TPO (as reflected in the TPO's own notings) and therefore could not be construed as directions to the Assessing Officer that would activate section 144C(13). [Paras 6, 8]Directions to the TPO cannot be treated as directions to the Assessing Officer; the TPO is not the Assessing Officer for the purpose of invoking section 144C(13).Curable procedural defect versus jurisdictional infirmity - Whether the defect of DRP addressing directions to the TPO instead of the Assessing Officer renders the proceedings void or is a curable procedural error - HELD THAT: - Having found that the DRP's second order related to the TPO and that section 144C(13) had not been engaged, the Tribunal held that the misdirection amounted to a procedural defect and not a jurisdictional error that would invalidate the proceedings. The appropriate relief was to set aside the DRP order and remit the matter to the DRP to issue proper directions in accordance with law, leaving all other merit issues open for adjudication thereafter. [Paras 10]The misdirection was a curable procedural defect; the DRP order is set aside and the matter is remitted to the DRP for fresh directions to the Assessing Officer in accordance with law.Final Conclusion: The Tribunal held that section 144C(13) was not attracted because the DRP's directions were issued to the TPO and not to the Assessing Officer; the defect was procedural and curable, the DRP's order dated 12.03.2014 is set aside and remitted to the DRP for proper directions, and the appeal is treated as allowed for statistical purposes. Issues:1. Time limitation under Sec.144C(13) of the Income Tax Act, 1961 for passing assessment order.2. Applicability of Sec.153(2A) in passing order pursuant to Tribunal directions.3. Authority of the Dispute Resolution Panel (DRP) to issue directions to Assessing Officer.4. Interpretation of the powers of Transfer Pricing Officer (TPO) compared to Assessing Officer.Analysis:1. The appeal concerned the time limitation under Sec.144C(13) of the Income Tax Act, 1961 for passing the assessment order. The Assessing Officer was required to complete the assessment within one month from the end of the month in which directions from the DRP were received. The contention was raised that the order passed by the Assessing Officer on 26.02.2015 was time-barred as it exceeded the limitation period mentioned in the Act.2. The issue of the applicability of Sec.153(2A) in passing orders pursuant to Tribunal directions was raised. The Departmental Representative argued that there was no time limit for passing an order following the Tribunal's direction, citing Sec.153(2A) of the Act. However, the Appellate Tribunal noted that Sec.153(2A) did not override the specific time limits set out in Sec.144C(13) of the Act.3. The authority of the Dispute Resolution Panel (DRP) to issue directions to the Assessing Officer was a crucial point of contention. The Tribunal clarified that the DRP had the power to give directions only to the Assessing Officer, as per the provisions of Sub-section (5) of Sec.144C. It was highlighted that the directions issued by the DRP were to guide the Assessing Officer in completing the assessment.4. The interpretation of the powers of the Transfer Pricing Officer (TPO) compared to the Assessing Officer was also discussed. The Tribunal emphasized that the TPO did not possess the same powers as the Assessing Officer, as clarified by the Explanation to Sec.92CA. While the TPO had specific functions related to determining Arms Length Price, the authority to make the final assessment remained with the Assessing Officer.In conclusion, the Tribunal found that the procedural defect in the case, where the DRP had issued directions to the TPO instead of the Assessing Officer, was curable. The order of the DRP was set aside, and the case was remitted back for proper directions in accordance with the law. The appeal of the assessee was treated as allowed for statistical purposes.