TaxTMI 
TaxTMI 
2022 (7) TMI 1367
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....ssioner of Income-tax, Circle 6(1)(1), Bangalore ("learned AO")/ learned Additional Commissioner of Income-tax (Transfer Pricing) - III, Bangalore ("learned TPO") in making an adjustment of INR 49,18,48,634 to the provision of contract software development and related services provided to its associated enterprises. (corresponding to revised ground no. 1 & original ground no. 1) 2. On the facts and in the circumstances of the case and in law, the learned DRP / AO / TPO erred in: 2.1 Rejecting the Transfer Pricing ("TP") documentation maintained by the Appellant under Section 92D of the Act in good faith and with due diligence; (corresponding to revised ground no. 2.1 & original ground no. 2.1) 2.2 Disregarding the application of multiple-year data while computing the profit level indicators ("PLI") of the comparable companies; (corresponding to revised ground no. 2.2 & original ground no. 2.2) 2.3 Using data, which was not contemporaneous and which was not available in the public domain at the time of preparing the TP documentation; (corresponding to revised ground no. 2.3 & original ground no. 2.3) 2.4 Rejecting the comparability analys....
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....ces of the case and in law, the learned DRP / AO / TPO erred in not considering the foreign exchange fluctuation incurred by the Appellant as part of operations for the purpose of computing the Appellant's operating mark-up on total cost as well as to arrive at the arm's length price. (corresponding to revised ground no. 3 & original ground no. 3) 4. On the facts and in the circumstances of the case and in law, the learned DRP / AO / TPO erred in including the reimbursement of expenses received, as a part of cost base in determining the arm's length price even though the same has been accepted to be at arm's length by the learned TPO in his transfer pricing order. (corresponding to revised ground no. 4 & original ground no. 4) 5. On the facts and in the circumstances of the case and in law, the learned DRP / AO / TPO erred in making an adjustment even to the value of domestic transaction instead to the value of international transaction as per section 92C of the Act. (corresponding to revised ground no. 5 & original ground no. 5) 6. On the facts and in the circumstances of the case and in law, the learned DRP /AO /TPO , erred in not provid....
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....onally dissimilar to the Appellant. (corresponding to additional ground no. 12) 13. On the facts and in the circumstances of the case and in law, the learned AO /TPO /DRP erred in invoking provisions of section 92C of the Act despite the fact that the income of the Appellant was eligible for tax holiday u/s. loA of the Act. (corresponding to additional ground no. 13) Additional grounds of appeal filed on 16.01.2018 14. On the facts and in the circumstances of the case and in law, the learned TPO erred in not excluding 'Larsen & Toubro Infotech Ltd.' in its comparability analysis even though it is functionally dissimilar to the Appellant. (corresponding to additional ground no. 14) 15. On the facts and in the circumstances of the case and in law, the learned TPO erred in not excluding 'Persistent Systems & Solutions Limited' in its comparability analysis which is functionally dissimilar to the Appellant. (corresponding to additional ground no. 15) Additional grounds of appeal filed on 06.09.2021 16.1 On the facts and in the circumstances of the case and in law, the order dated 3o January, 2014 passed by the Learne....
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....dd to and/or to alter, amend, rescind, modify the grounds herein below or produce further documents before or at the time of hearing of this Appeal." 2. The revenue has raised the following grounds of appeal: "1. The directions of the Dispute Resolution Panel are opposed to law and facts of the case. 2. On the facts and in the circumstances of the case the Dispute Resolution Panel erred in law in holding that the size, turnover and brand of the company are the deciding factors for treating a company as a comparable and accordingly erred in excluding M/s. Infosys Technologies Ltd. as comparable. 3. On the facts and in the circumstances of the case, the Disputes Resolution Panel erred in excluding uncontrolled comparables having turnover more than Rs. 200 crores in the absence of Turnover criterion prescribed in Rule 1013 of Income Tax Rules and also there being no correlation between turnover and profit margin. 4. On the facts and in the circumstances of the case, the Disputes Resolution Panel erred in fixing the RPT filter at 0% of total revenue by ignoring the TPO's observation that the basis for determining the threshold limit for elimin....
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....rnover for the purpose of computation of deduction u/s 10A of the Income tax Act without appreciating the fact that the statute allows exclusion of such expenditure only from the Export turnover by way of specific definition of export turnover defined in the Act and there is no specific provision in section 10A warranting exclusion of above expenses from the total turnover also. 10. On the facts and in the circumstances of the case the Dispute Resolution Panel erred in placing reliance on the decision of the Hon'ble High Court of Karnataka in the case of M/s. Tata Elxsi Ltd. which has not become final since the same has been not accepted by the Department and SLPs are pending before the Hon'ble Supreme Court. 11. For these and other grounds that may be urged at the time of hearing, it is prayed that the directions of the Dispute Resolution Panel in so far as it relates to the above grounds may be reversed. 12. The appellant craves leave to add, alter, amend and / or delete any of the grounds mentioned above." 3. The assessee has raised the following additional grounds vide application dated 06.09.2021 wherein the legal issue has been raised. ....
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....ain issue of disallowance and no new facts needs to be investigated for adjudicating the same. Another issues alleged by the assessee is a legal issue that does not require investigation of any facts. 8. Considering the submissions and respectfully following the decisions of Hon'ble Supreme Court in case of National Thermal Power Co. Ltd. Vs. CIT reported in (1998) 229 ITR 383 and Jute Corporation of India Ltd. Vs. CIT reported in 187 ITR 688, we are admitting the additional ground raised by the assessee. Accordingly, the application dated 06/06/2021 raising additional grounds 16.1 to 16.3 stands allowed. As the above additional grounds raised by assessee goes to the root cause, it is necessary to adjudicate this issue first. 9. Before us the Ld.AR contended that the order passed by the Ld.TPO is time barred under the provisions of section 153 rws 92CA(3) of the Act and hence it is liable to be quashed. He referred to the provisions of section 153(1) and submitted that reference u/s 92CA (3) of the Act was received by the Ld.TPO on 23/07/2012 and therefore date of limitation for passing of the order by ld. TPO expired on 30/01/2014. Whereas the Ld.TPO passed order u/s 9....
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.... section 153 (1) of the act the time limit for passing an order u/s 143 (3) was as under :- Time limit for completion of assessments and reassessments. 153. 39[(1) No order of assessment shall be made under section 143 or section 144 at any time after the expiry of-- (a) two years from the end of the assessment year in which the income was first assessable ; or (b) one year from the end of the financial year in which a return or a revised return relating to the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year, is filed under sub-section (4) or subsection (5) of section 139, whichever is later :] Provided that in case the assessment year in which the income was first assessable is the assessment year commencing [on or after the 1st day of April, 2004 but before the 1st day of April, 2010], the provisions of clause (a) shall have effect as if for the words "two years", the words "twenty-one months" had been substituted :] [Provided further that in case the assessment year in which the income was first assessable is the assessment year commencing [on or after the 1st day of April, 2005 but be....
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.... held that the time limit specified u/s 92CA(3A) is mandatory and not directory and therefore the Ld.TPO is bound by the time limit for passing of the order u/s 92CA (3) of the Act. Accordingly, in that case time limit as per section 153(1) of the Act was up to 7.06.2014 and the Ld.TPO passed his order on 31.05.2014 instead of on or before 08.04.2014, hence order passed by the Ld.TPO therein was held to be time barred. Hon'ble Delhi Tribunal further held that in such circumstances the final assessment order would be same but the addition on account of transfer pricing adjustment arising from the determination of the ALP of the international transaction by the TPO emanating from his time barred order passed u/s. 92CA(3) is unsustainable. Hon'ble Delhi Bench thus directed for deletion of addition of on account of transfer pricing adjustment made in the final assessment order. Hon'ble Delhi Tribunal held as under:- "B. Time limit for passing of order by the TPO 6.1. The ld. AR also challenged the passing of the order by the TPO. It was submitted that the TPO passed order on 31.5.2014, which was time barred and, hence, the same should be annulled leading to the quashi....
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.... 6.5. There is no doubt that the legislature has used the word `may in sub-section (3A) of section 92CA. There is further no doubt that the ambit of the word `may is different from the word `shall. Whereas, ordinarily the use of the word `shall signifies mandatory compliance, the word may signifies directory compliance. But at times, the word `may can also be read as `shall and vice versa. In fact, all depends upon the context and the background of the provision in which such a word is used. 6.6. Section 127 deals with the power to transfer cases. Sub-section (1) of this provision provides that : `The Director General or Chief Commissioner or Commissioner may, after giving the assessee a reasonable opportunity of being heard in the matter, wherever it is possible to do so, and after recording his reasons for doing so, transfer any case from one or more Assessing Officers subordinate to him (whether with or without concurrent jurisdiction) to any other Assessing Officer or Assessing Officers (whether with or without concurrent jurisdiction) also subordinate to him. Dispute arose in Sahara Hospitality Ltd. vs. CIT (2013) 352 ITR 38 (Bom) as to whether or not giving the ass....
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.... which, by implication, it would not be necessary to make a reference, also again by necessary implication be taken to have intended that the reference to Valuation Officer was must if the given contingencies did not exist. In this regard, the Honble High Court observed that : `There is no doubt about the fact that the use of expression "may" and "shall" to some extent serves an indicia to the intention of the legislature and helps in deciding as to whether the given requirement is directory or mandatory in character, but the use of expression "may" or "shall" is never considered decisive in that regard. It was thus held that the moment the estimated value exceeded the returned value of the asset by more than what is envisaged by r. 3B, then the WTO had no option, but to make a reference and he is not to wait for a request from the assessee to make a reference. Similar view has been expressed by the Honble Delhi High Court in Sharbati Devi Jhalani vs. CWT & Ors. (1986) 159 ITR 549 (Del). It is vivid from the above discussion that the use of word `may or `shall in a provision is not conclusive of its mandatory or directory nature. One needs to go through the text of the provision an....
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....ailable with the TPO for the passing of his order. It has been noticed above that the time limit as per section 153(1) read with the third proviso and clause (viii) of the Explanation to the section, comes at 7th June, 2014. Period of 60 days prior to such time limit coming as per section 153, available with the TPO for passing his order, comes to an end on 8th April, 2014. As against this, the order was actually passed by the TPO on 31st May, 2014. Thus, the order passed by the TPO is patently time barred. C. Consequences of valid draft order and TPO's time barred order 7. The ld. AR argued that since the draft order as well as the order of the TPO were time barred, the final assessment order passed by the AO was liable to be set aside. We have held above that the draft order was passed within time and only the order of the TPO is timebarred. When an order is passed without jurisdiction or beyond the permissible time, it is considered as null and void. The effect of passing a null and void order is that it is considered as non est, meaning thereby, that it entails all the consequences of not having been passed at all and is ignored for all practical purposes.....
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....o does not survive." 18. As the order passed by the Ld.TPO u/s. 92CA(3A) is beyond the period of limitation, the adjustment proposed by way of transfer pricing order u/s. 92CA(3), therefore needs to be quashed. Accordingly, the issues alleged by the assessee based on such transfer pricing adjustment in Ground nos. 1 to 6 in assessee's and revenue's appeal need not be adjudicated and becomes academic at this stage. Also the additional grounds raised by the assessee vide application dated 13.03.2017 and 16.01.2018 are also in respect of the adjustment proposed by the transfer pricing officer which also becomes academic at this juncture. Accordingly, the application raised by assessee on the legal issue on the additional grounds 16.1 to 16.3 stands allowed. 19. The Ld.AR argued that as the order passed u/s. 92CA(3) is passed beyond the period of limitation, all consequential orders are also passed beyond the period of limitation. Referring to the draft assessment order passed by the Ld.AO, the Ld.AR prayed that the addition made therein can't be considered for purpose of making addition in the hands of the assessee. 20. On the contrary, the Ld.CIT.DR referred to following ....
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....bove that the draft order was passed within time and only the order of the TPO is time-barred. When an order is passed without jurisdiction or beyond the permissible time, it is considered as null and void. The effect of passing a null and void order is that it is considered as non est, meaning thereby, that it entails all the consequences of not having been passed at all and is ignored for all practical purposes. The Hon'ble Madras High Court in Vijay Television (P.) Ltd. v. DRP [2014] 369 ITR 113/225 Taxman 35/46 taxmann.com 100 considered a case in which the assessment order was directly passed without routing through draft order or DRP. The Hon'ble Court held it to be a non-curable defect and resultantly the assessment was quashed. It was held that when there is an omission on the part of the AO to follow the mandatory procedure prescribed under the Act, such an omission cannot be termed as a mere procedural irregularity and it cannot be cured. Extantly, we are confronted with a situation in which the draft order has been passed in time but the lapse has come in the passing of the order by the TPO. The consequence of the above scenario is that the passing of a valid and....
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....ounds read thus: 6. While doing so, the learned DRP/ AO erred in: 6.1. Not appreciating the fact that deduction under section 8oJJAA of the Act is Assessee specific and not undertaking / unit specific. [corresponding to ground no. 6.1] 6.2. Invoking the provisions of section 8oA(4) in the context of deduction under section 8oJJAA for 10A units [corresponding to ground no. 6.2] 6.3. Not appreciating the fact that the amendment made in the Finance Act 2013, restricting the deduction to an Indian Company deriving profits from the manufacture of goods in a factory, is applicable with effect from April 1, 2014 and is prospective in nature. [corresponding to ground no. 6.3] 6.4. Considering the orders for earlier years while disallowing the deduction u/s 80JJAA of the Act without considering the fact that each year should be considered separately. [corresponding to ground no. 6.4] 14. As far as the aforesaid ground of appeal are concerned, the assessee claimed deduction under section 80JJAA of the Act a sum of Rs.4,26,67,792/-. The AO denied the claim of the assessee for deduction on 2 grounds namely: (1) that persons working in softw....
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....cific ground itself, I have no hesitation to deny the deduction u/s 80JJAA for the current year also." 15. The learned Counsel for the assessee has accepted the decision of the DRP in so far as ground No.6.1 is concerned and is willing to give the details as per each unit. The deduction can therefore be considered for each 10A unit separately. The assessee is directed to furnish the necessary details in this regard and the AO may examine the same in accordance with law. As far as ground 6.2 is concerned, it was agreed by the parties that in assessee's own case for Assessment Year 2007-08 in IT(TP)A No.1006/Bang/2011 by order dated 30.06.2016, this Tribunal rejected the claim of the assessee by observing as follows: "25. However coming to the second limb of the reasoning given by the lower authorities, which is section 80A(4), the said section is reproduced hereunder : "(4) Notwithstanding anything to the contrary contained in Section 10A of section 10AA or section 10B or section 10BA or in any provisions of this Chapter under the heading 'C.-Deductions in respect of certain incomes", where, in the case of an assessee, any amount of profits and gains of an....
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....ide the orders of authorities below for the limited purpose of quantifying the eligible deduction u/s.80JJA in respect of Unit-1. In the result, ground no.6 is treated as partly allowed for statistical purpose." 16. As far as ground No.6.3 is concerned, the issue has been decided in Assessment Year 2007-08 in the order referred to above and this Tribunal held that the employees engaged in software industry cannot be regarded as workmen for the purpose of section 80JJAA of the Act. The following were the relevant observations of the Tribunal: "24. We have perused the orders and considered the rival contentions. The claim of assessee with regard to additional wages paid to new workman was denied for a reason that engineers who were newly employed by the assessee were not considered as workers by the lower authorities. However, in a similar situation in the case of Texas Instruments India P. Ltd, (supra), it was held by the coordinate bench at para 6 and 7 of its order, as under : 6. We have heard the rival submissions and carefully perused the records. Considering the factual position after referring to the various documents filed by the assessee, the learn....
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....,406 (Rs. 15,93,50,588 Rs.4,38,68,182) in respect of the workmen employed in previous years 2000-01 and 2001-02. The learned Authorised Representatives of the appellant vide ordersheet noting dt. 24th Aug., 2004 agreed that the relief under s. 80JJAA in respect of the employees who joined in the previous year relevant to the asst. yr. 2001-02 onwards only may be considered and in respect of the employees who joined in earlier years the appellant is not pressing for relief under s. 80JJAA. In the circumstances, the AO is directed to allow the relief under s. 80JJAA of Rs. 1,09,52,012 and Rs. 3,46,44,722 for asst. yrs. 2001-02 and 2002-03 respectively." 7. As stated earlier the assessee had filed the details of the software engineers employed during the years under consideration containing the names of the employees, designation and date of joining. Further, in the same list the details of total number of employees joined during both the assessment years, number of employees without supervisory roles, workmen joined, number of supervisors joined and workmen joined and relieved during the years under consideration. A cursory perusal of this list shows that the assessee had cl....