2019 (10) TMI 136 - AT - Income Tax

Tribunal rules assessment orders for AY 2008-10 time-barred; TNMM to be applied for AY 2010-11

The Tribunal quashed the assessment orders for A.Y. 2008-09 and 2009-10 as they were found to be barred by limitation under section 153(2A) of the ... Validity of the final assessment orders passed as barred by limitation - order passed under section 254 - reference was made to the Transfer Pricing Officer under section 92CA(1) - Applicability of the limitation prescribed under section 153(2A) - HELD THAT:- When the statute provides period of limitation for passing assessment, re–assessment, re– computation by enacting specific provisions, the Assessing Officer is certainly bound by the limitation prescribed therein. In the facts of the present case, undisputedly, the impugned assessment orders have been passed beyond the period of limitation prescribed under section 153(2A) of the Act. Even, the Revenue has not been able to overcome the aforesaid factual position. Further, no contrary decision has been brought to our notice by the learned Departmental Representative to indicate that the provisions of section 153(2A) of the Act is not applicable to the facts of the present case. In view of the aforesaid, since, the impugned assessment orders have been passed without following the mandate of section 153(2A) of the Act, which, in our view, could not have been bypassed, the assessment orders have to be declared as barred by limitation, hence, invalid. Accordingly, we have no hesitation in quashing the assessment orders passed for the assessment years 2008–09 and 2009–10. Grounds raised by the assessee on the issue are allowed. Addition made on account of transfer pricing adjustment made in respect of provision of business support service to AE - Selection of MAM - determination of arm's length price of Business Support Services provided to AE by applying internal CUP is correct or not ? - HELD THAT:- Admittedly, the assessee has benchmarked the provision of business support services applying TNMM. It is also observed, in subsequent assessment years i.e., A.Y. 2012–13 and 2014–15, the assessee had benchmarked the provision of business support service to the AE, applying TNMM and the Transfer Pricing Officer has accepted it. Thus, from the aforesaid facts, it can be concluded that when no external CUP is available, as submitted by the learned Counsel for the assessee and as has been admitted by the Transfer Pricing Officer, the transaction has to be benchmarked by applying TNMM, as, it is the most appropriate method under the given facts and circumstances of the case. The only issue which now requires deliberation is the acceptability or otherwise of the comparables selected by the assessee under TNMM. As could be seen from the facts placed before us, the comparables selected by the assessee were also selected in subsequent assessment years i.e., A.Y. 2011–12, 2012–13 and 2014–15 and the Transfer Pricing Officer accepted these comparables in the A.Y. 2012–13 and 2014–15. Keeping in perspective of the aforesaid factual position, we direct the Assessing Officer to verify the function, asset, risk (FAR) of the comparables selected by the assessee and thereafter determine the arm's length price by applying TNMM. For the aforesaid reasons, we set aside the assessment order on the issue with a direction to the Assessing Officer to determine the arm's length price of business support service provided to the AE by applying TNMM as the most appropriate method and following our observations hereinabove. If the comparables selected by the assessee are found to be good comparables, they should be accepted. Issues Involved:1. Validity of final assessment orders as barred by limitation.2. Transfer pricing adjustment in respect of provision of business support service to AE.Issue-wise Detailed Analysis:1. Validity of Final Assessment Orders as Barred by Limitation:The assessee challenged the final assessment orders for the assessment years 2008–09 and 2009–10, arguing they were barred by limitation under section 153(2A) of the Income-tax Act, 1961. The key dates and events were:- The Tribunal's order was received by the Principal Commissioner of Income Tax on 4th March 2015.- The final assessment orders were passed on 29th August 2018 for A.Y. 2008–09 and on 9th October 2018 for A.Y. 2009–10.The Tribunal noted that under section 153(2A) as it stood before its amendment by the Finance Act, 2016, the Assessing Officer had to pass the final assessment orders before the expiry of one year from the end of the financial year in which the Tribunal's order was received. Since a reference was made to the Transfer Pricing Officer under section 92CA(1), the limitation period was extended by one more year, making the deadline 31st March 2017. The final assessment orders were passed beyond this period, rendering them invalid. The Tribunal quashed the assessment orders for being barred by limitation.2. Transfer Pricing Adjustment for Provision of Business Support Service to AE:For A.Y. 2010-11, the issue revolved around the transfer pricing adjustment made in respect of business support services provided by the assessee to its AE. The assessee, a wholly-owned subsidiary of Hapag-Lloyd AG, provided business support services and benchmarked the transaction using the Transactional Net Margin Method (TNMM). The Transfer Pricing Officer (TPO) rejected TNMM and applied the Comparable Uncontrolled Price (CUP) method using the price charged by GESA under a sub-agency agreement as an internal CUP.The Tribunal had previously ruled that the sub-agency agreement between the assessee and GESA could not be treated as an internal CUP due to functional and risk differences. Despite this, the TPO again used the sub-agency agreement as an internal CUP, which the Tribunal found to be a violation of its earlier directions. The Tribunal noted that the TPO admitted the lack of an external CUP and accepted TNMM as the most appropriate method in subsequent years.The Tribunal directed the Assessing Officer to verify the Function, Asset, Risk (FAR) analysis of the comparables selected by the assessee under TNMM and determine the arm's length price accordingly. The Tribunal set aside the assessment order and instructed the Assessing Officer to apply TNMM as the most appropriate method, considering the comparables selected by the assessee if found appropriate.Conclusion:The Tribunal quashed the assessment orders for A.Y. 2008–09 and 2009–10 as barred by limitation and directed the Assessing Officer to apply TNMM for determining the arm's length price of business support services for A.Y. 2010–11, following the Tribunal's observations and verifying the comparables selected by the assessee.