2021 (1) TMI 156 - AT - Income Tax

Final assessment ignoring DRP transfer pricing comparable changes held invalid for non-compliance with s.144C(13); assessment quashed.

The dominant issue was whether the final assessment order complied with s.144C(13) of the Income-tax Act after DRP directions altered the transfer pricing ... TP Adjustment - applicability of Section 144C(13) - DRP included Evoke Technologies Limited in the list of comparables and similarly the DRP excluded ICRA Techno Analytics Limited from the list of comparables - HELD THAT:- ALP adjustment made by the TPO has been changed on account of these two directions of DRP, however, the Assessing Officer retained the original Transfer Pricing Adjustment in the final assessment order as made in the draft assessment order. Being so, we are not in a position to uphold the order of the Assessing Officer on this count. As provided in the Section 144C(13) of the Act, the final order of the Assessing Officer should be in conformity with the directions given by the DRP. In the present case, while working out the ALP adjustment, he has not followed the direction of the DRP, consequently, the assessment order is bad in law as held by co-ordinate Bench in the case cited above. Accordingly, the assessment framed in this case is quashed and set aside. However we make it clear that, this order would not, in any way, stop the revenue from taking such steps as are available to it in law and the assessee also from contesting the action of the revenue in accordance with the law, if it so desires. Issues: Whether the final assessment order passed by the Assessing Officer for AY 2013-14, which did not give effect to the Dispute Resolution Panel's directions under section 144C(5), is void and liable to be quashed under sections 144C(10) and 144C(13) of the Income-tax Act, 1961.Analysis: The Tribunal examined whether the Assessing Officer's final order conformed to the DRP's directions and was passed within the time and manner mandated by sections 144C(10) and 144C(13). The DRP had directed inclusion of Evoke Technologies Limited and exclusion of ICRA Techno Analytics Limited from the comparables, which affected the ALP adjustment. The Assessing Officer, however, retained the Transfer Pricing adjustment at the draft order figure without giving effect to those DRP directions. The Tribunal relied on precedent where non-compliance with mandatory DRP directions rendered the final assessment order unsustainable. Because the final order did not reflect the binding directions of the DRP as required by the statutory scheme, the Tribunal held that the assessment was infirm. The Tribunal refrained from adjudicating other contested transfer pricing issues since the primary defect on conformity with DRP was determinative of the assessment's validity.Conclusion: The Assessing Officer's final assessment order is quashed and set aside for not conforming to the DRP's binding directions under sections 144C(10) and 144C(13); appeal of the assessee is partly allowed.Ratio Decidendi: A final assessment order under section 143(3) must be passed in conformity with the binding directions of the DRP under section 144C(5), and failure to do so within the statutory framework of sections 144C(10) and 144C(13) renders the assessment order unsustainable and liable to be quashed.