2022 (7) TMI 542 - AT - Income Tax

Tribunal Quashes TP Order and Assessment for Limitation; Directs TDS Credit, Interest Correction, and PF/ESIC Review.

The appeal was partly allowed by the Tribunal. The TP order and the consequential assessment order were quashed due to being barred by limitation. ... Validity of the orders passed by the first appellant u/s 92CA (3) on the ground of limitation as contemplated u/s 153 of the Act - Period of limitation applicable to TPO u/s 92CA(3A) and incidentally u/s 153 - how the period of 60 days prior to the date of transfer pricing order i.e. 01.11.2019 is to be computed? - HELD THAT:- Undisputedly, sub-section (3A) to section 92CA has been inserted w.e.f. 01.06.2007 providing time limit for the Transfer Pricing Officer to pass the order i.e. within a period of 60 days prior to the date of completion of assessment as per section 153 of the Act. So, under section 92CA (3A) read with section 153, Ld. TPO was required to pass the order within the period of 60 days prior to the date on which the period of limitation referred to in section 153 expires i.e. 21 months. Undisputedly, the TP order was passed by the Ld. TPO on 01.11.2018 whereas the Ld. TPO was required to pass the order within 60 days prior to the date on which the period of limitation referred to in section 153 of the Act expires i.e. 31.10.2018. Hon'ble Madras High Court in case of M/s. Pfizer Healthcare India Pvt. Ltd. [2022 (4) TMI 808 - MADRAS HIGH COURT] while dealing with the issue held that for computing the period of 60 days, the last date as per section 153 should be excluded. Identical issue has been decided by the co-ordinate Bench of the Tribunal in case of ECL Finance Ltd. [2021 (9) TMI 1399 - ITAT MUMBAI] in favour of the assessee by following M/s. Pfizer Healthcare India Pvt. Ltd. (supra) Thus we are of the considered view that as per limitation prescribed under section 153 of the Act that assessment order was required to be passed within a period of 21 months from the end of assessment year i.e. A.Y. 2015-16 i.e. 31.03.2016, meaning thereby the assessment order under section 153(1) was to be completed within 21 months from the end of assessment year i.e. on 31.12.2017 with further extension of 12 months in case of transfer pricing reference as per section 153(4) of the Act was made which expires on 31.12.2018. So the limitation for passing the order under section 92CA(3) is 60 days prior to the date prescribed under section 153 of the Act. In the instant case due date for passing the order under section 92CA(3) of the Act is 31.10.2018 whereas the TP order in this case is passed on 01.11.2018 which is beyond the period of limitation because the same was required to be passed 60 days before the date of which limitation expires under section 153 of the Act i.e. o. 31.10.2018, hence barred by limitation. Disallowance on account of late deposit of employees’ contribution on account of PF & ESIC on the ground that the same were not deposited within the due date prescribed under the Act - Scope of amendment - HELD THAT:- As we are of the considered view that since the amended provisions contained under section 43B read with section 36(1)(va) of the Act are not applicable for the year under consideration i.e. A.Y. 2015-16 as the amendment will be effective from A.Y. 2021-22 and the AO/ Ld. CIT(A) have erred in disallowing the same. Consequently, impugned order passed by the Ld. CIT(A) is set aside and as such ground determined in favour of the assessee. Issues Involved:1. Validity of the Transfer Pricing (TP) order passed beyond the statutory time limit.2. Adjustment on account of Arm's Length Price (ALP) for IT services, BPO services, and royalty payments.3. Application of filters and selection of comparable companies for benchmarking.4. Rejection of the economic analysis undertaken by the assessee.5. Non-granting of working capital and risk adjustments.6. Disallowance of employees' contribution to provident fund and employees' state insurance.7. Non-granting of credit for taxes deducted at source.8. Levying of interest under Sections 234A and 234B.9. Initiation of penalty proceedings under Section 271(1)(c).Detailed Analysis:1. Validity of the TP Order:The appellant contended that the TP order was passed beyond the statutory time limit prescribed under Section 92CA(3A) read with Section 153 of the Income Tax Act. The Tribunal examined the dates and found that the TP order dated 01.11.2018 was indeed beyond the deadline of 31.10.2018. The Tribunal relied on the judgment of the Hon'ble Madras High Court in the case of M/s. Pfizer Healthcare India Pvt. Ltd. and concluded that the TP order was barred by limitation. Consequently, the TP adjustment and the assessment order were deemed illegal, null, and void.2. Adjustment on Account of ALP:The Tribunal noted that the AO/TPO made adjustments to the ALP for IT services, BPO services, and royalty payments. These adjustments were challenged on various grounds, including the rejection of the economic analysis undertaken by the assessee and the application of arbitrary filters for selecting comparables.3. Application of Filters and Selection of Comparable Companies:The Tribunal found that the TPO applied several filters arbitrarily, such as rejecting companies with different financial years, turnover thresholds, and export earnings filters. Specific comparables like Infosys Limited, Larsen & Toubro Infotech Limited, and Mindtree Limited were accepted by the TPO despite functional differences with the assessee.4. Rejection of Economic Analysis:The Tribunal observed that the TPO did not accept the economic analysis undertaken by the assessee for determining the ALP for IT services under the DCA. The TPO made modifications to the analysis in a subjective and inconsistent manner.5. Non-Granting of Working Capital and Risk Adjustments:The Tribunal noted that the TPO did not allow the assessee the benefit of working capital and risk adjustments, which are necessary to account for differences between the comparable companies and the assessee.6. Disallowance of Employees' Contribution to PF and ESIC:The Tribunal referred to the judgment of the Hon'ble Bombay High Court in the case of Ghatge Patil Transporters Ltd. and concluded that the deduction for employees' contribution to PF and ESIC is allowable if paid before the due date of filing the return of income. The AO/CIT(A)'s disallowance was set aside.7. Non-Granting of Credit for Taxes Deducted at Source:The Tribunal directed the AO to dispose of the rectification application filed by the assessee regarding the non-granting of credit for TDS amounting to Rs. 39,43,015 within two months from the receipt of the order.8. Levying of Interest under Sections 234A and 234B:The Tribunal noted that the assessee had filed the return of income within the due date, and therefore, interest under Section 234A was not leviable. The Tribunal directed the AO to dispose of the rectification application regarding this issue. Interest under Section 234B was deemed consequential.9. Initiation of Penalty Proceedings:The Tribunal did not specifically address the initiation of penalty proceedings under Section 271(1)(c) in the detailed analysis.Conclusion:The appeal filed by the assessee was partly allowed. The TP order and consequential assessment order were quashed for being barred by limitation. Adjustments to the ALP and disallowances made by the AO/TPO were deleted. The Tribunal directed the AO to grant credit for TDS and rectify the issues related to interest under Sections 234A and 234B. The disallowance of employees' contributions to PF and ESIC was also set aside.