2024 (12) TMI 487 - AT - Income Tax

Assessment order valid despite DRP directions visibility issues in ITBA system under section 144C

The ITAT Delhi upheld the validity of an assessment order despite the assessee's challenge regarding procedural violations under section 144B and time-bar ... Validity of assessment order - violation of statutory procedure under section 144B - as alleged assessment proceedings are time barred as the same have not been completed within prescribed timelines - DRP directions u/s 144C(5) in ITBA systems ignored. HELD THAT:- DRP has passed directions u/s 144C(5) in ITBA systems and find that as per the systems software operations used by the Revenue, the order doesn’t automatically become visible to the Assessing Officer who has to act upon it further. We have gone through the report of the Faceless AO (FAO)/Jurisdictional AO (JAO) and the report of the systems. We have also examined the report from National Faceless Assessment Centre (NaFAC). We have examined the order of the Co-ordinate Bench of Tribunal in assessee’s own case wherein the factoring of timing of upload has been examined. Revenue could prove that there was no visibility of ld. DRP order in the case history of the pending assessment proceedings. This was due to the fact that the ld. DRP created the pendency by manually entering the details of Section 144C order. Since, it was manually entered and by not creating linkage with the assessment proceedings, it was not reflected in the pending assessment proceedings for the AO to act upon. Hon’ble Supreme Court in the case of Automotive Manufactures Pvt. Ltd. [2023 (5) TMI 495 - SC ORDER], Abacus Real Estate Pvt. Ltd [2023 (5) TMI 496 - SC ORDER] and Multiplier Brand Solutions Pvt. Ltd [2023 (5) TMI 497 - SC ORDER] held that the revenue should be given time to take corrective measures for updation of the software. In this case, the Revenue could bring on record about the receipt of the ld. DRP order by the Assessing Officer who has to physically apply his mind and pass an order in accordance with the provisions of Section 144C(13) of the Act. Unless, the officer who has to act upon the order of the ld. DRP receives the order, he/ she would not be in a position to even know about the passing of the order by the ld. DRP. Hence, it cannot be expected by the AO to act upon an order which has not even been received by him. The order sheet notings of the case in the assessment history from 22. 09.2019, the date on which notice u/ s 143(2) has been issued to 30.05.2022, the date of passing of the Assessment Order containing 27 pages have also been examined with regard to receipt of the order of the ld. DRP by the Assessing Officer who has completed the assessment proceedings. In this case, the Revenue has proved that the ld. DRP order has been received by NAFC by 06.04.2022, the same was uploaded by ITBA on 18.04.2022. After uploading, the AO has received it on 18.04.2022 and the order has been passed on 30.05.2022 which is well within the time allowed u/s 144C(13) of the Income Tax Act, 1961. Refer Hon’ ble Supreme Court in the case of CIT Vs. Mohammed Meeran Shahul Hameed [2021 (10) TMI 363 - SUPREME COURT] wherein the Hon’ ble Apex Court explained as to what is “receipt” and what is “made” as per the provisions of the Income Tax Act. In this case, it is undisputed fact that the order of ld. DRP has been “received” National Faceless Assessment Centre (Na FAC) on 06.04.2022 and uploaded by the ITBA to DCIT(Ne AC)-2 (1)(1), Delhi using the functionality on 18.04.2022 and then it became available to the Assessing Officer as pending assessment on 18.04.2022 itself. Since, the Assessing Officer has received the order of ld. DRP latest by 06.04.2022, it has to be considered that the AO has received the order of the ld. DRP on 06 .04. 2022 as per the interpretation of the Hon’ble Apex Court. The provisions of the Act reads that upon “receipt” of the directions issued under sub- section (5), the assessment has to be completed within one month from the end of the month in which such direction is “received”. Since, the facts undisputedly proved that the order of ld. DRP has been received on 06.04.2022, the final Assessment Order passed on 30.05.2022 is held to be passed within the time limit and legally valid. Decided against assessee. Issues Involved:1. Validity of the assessment order due to non-compliance with DRP directions.2. Jurisdictional excess by AO/TPO beyond DRP directions.3. Violation of statutory procedure under Section 144B.4. Timeliness of assessment proceedings.5. Use of Brightline Test for adjustments.6. Classification of AMP expenses as international transactions.7. Benchmarking of AMP function.8. Protective adjustments.9. Selection of comparables for trading and manufacturing segments.10. Corporate tax addition and interest income capitalization.11. Initiation of penalty proceedings under Section 270A.Detailed Analysis:1. Validity of the Assessment Order:The assessee challenged the assessment order on the grounds that it was non-speaking and did not comply with the directions of the DRP. The Tribunal noted that the assessment order must adhere to the DRP's directions, and any deviation without proper justification renders the order invalid.2. Jurisdictional Excess:The assessee argued that the AO/TPO exceeded their jurisdiction by going beyond the DRP's directions. The Tribunal emphasized that the AO/TPO must operate within the confines of the DRP's instructions, and any action beyond this scope is unauthorized.3. Violation of Statutory Procedure:The assessee contended that the assessment order was invalid due to non-compliance with the statutory procedure under Section 144B. The Tribunal examined the procedural adherence and found that any deviation from the prescribed process could invalidate the assessment.4. Timeliness of Assessment Proceedings:The primary issue was whether the assessment order was time-barred. The Tribunal analyzed the sequence of events, noting that the DRP's directions were received by the AO on 18.04.2022, and the final assessment order was passed on 30.05.2022. The Tribunal concluded that the order was within the permissible time frame as per Section 144C(13), which mandates completion within one month from the end of the month in which the DRP's directions are received.5. Use of Brightline Test:The assessee challenged the adjustment made using the Brightline Test, arguing it was invalid as per the High Court's order. The Tribunal scrutinized the application of the Brightline Test and found that its use was not justified in the absence of a legal basis.6. Classification of AMP Expenses:The assessee disputed the classification of AMP expenses as international transactions. The Tribunal noted that for AMP expenses to qualify as international transactions, there must be a clear understanding or agreement with the associated enterprises, which was not demonstrated in this case.7. Benchmarking of AMP Function:The assessee argued against the methodology used for benchmarking AMP expenses. The Tribunal highlighted the necessity of using the 'Most Appropriate Method' and found that the AO/TPO's approach lacked consistency and adherence to established guidelines.8. Protective Adjustments:The assessee contended that protective adjustments have no legal existence. The Tribunal agreed, stating that protective adjustments must have a substantive basis to be valid under the Act.9. Selection of Comparables:The assessee challenged the selection of comparables for the trading and manufacturing segments. The Tribunal emphasized the importance of selecting appropriate comparables that accurately reflect the business realities of the assessee.10. Corporate Tax Addition:The assessee disputed the disallowance related to interest income capitalization. The Tribunal examined the link between the nature of funds and their utilization and found that the AO's approach led to double taxation, which was untenable.11. Penalty Proceedings:The initiation of penalty proceedings under Section 270A was contested by the assessee. The Tribunal noted that the basis for underreporting income must be clearly established before initiating penalty proceedings.Conclusion:The Tribunal dismissed the appeal, upholding the validity of the assessment order, and found that the order was passed within the stipulated time frame. The Tribunal also dismissed the stay application as infructuous. The Tribunal acknowledged the comprehensive arguments presented by both parties but ultimately ruled in favor of the Revenue on the key issues.