TaxTMI 
TaxTMI 
2024 (5) TMI 1085
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....7. This was so urged since the TPO had earlier framed an order dated 17 October 2017 to give effect to the aforenoted order of the ITAT. 2. Although the TPO had framed an order on 17 October 2017, the record would reflect that no corresponding order as envisaged under Section 92CA (4) of the Income Tax Act, 1961 [Act] was framed. The petitioner had urged for the consideration of the DRP that the reference made on 27 December 2018 and the consequential order dated 29 October 2019 framed by the TPO seeking to give effect to the original order of the ITAT dated 14 July 2017 were clearly barred by the prescription of limitation as embodied in Section 153 (3) of the Act. 3. The petitioners had argued that the period of nine months when computed from the passing of the order of the ITAT would have come to an end on 31 December 2018. It was in the aforesaid light that it was urged that there was no authority which inhered in the Assessing Officer [AO] to pass further orders referable to Section 92CA (4) of the Act. 4. The DRP, however, refused to entertain the objection of limitation noting that Section 144C (8) restricts its jurisdiction to confirming, reducing or enhancing the ....
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....00 Total income Rs. 838,33,37,197 Total Income rounded off Rs. 838,33,37,197' 9. Both the respondents as well as the petitioner herein aggrieved by the final assessment order proceeded to institute appeals before the ITAT. The ITAT upon consideration of the challenges so made, by a final order dated 14 July 2017 confirmed the additions made by the AO under Section 69A of the Act. The additions on account of disallowance under Section 14A of the Act as well as those made with the reference to Section 68 of the Act on account of unexplained secured loans were set aside and the matter remitted to the AO for fresh adjudication. Insofar as the transfer pricing adjustments were concerned, those were set aside and the matter remitted to the TPO. It becomes pertinent to note that the ITAT while dealing with the adjustment with respect to business support services observed as follows:- "132. Ground No. 12, 13 of the appeal are with respect to computation of arm's length price with respect to the business support services where the ALP was determined an adjustment of Rs. 7463229/- was made. The contention of the assessee is that price received was Rs. 74687177/- is ta....
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.... ground of appeal to file of TPO with a direction to decide after the order of the Special Bench. 137. We have carefully considered the request of both the parties, which is fair and proper. As the matter is pending before the special bench it would also not be proper for us to decide the issue now. in view of this we set aside this ground of cross objection of the assessee to the file of the ld TPO with a direction to decide the issue after the decision of the Special Bench of tribunal. In the result ground No. 14 of the CO is allowed with above direction.' 11. Pursuant to the aforesaid order, the AO on 26 July 2017 proceeded to draw an appeal effect order dealing with the subjects and heads which were remitted for its consideration. In terms of this order, the tax demand of the writ petitioner was revised to INR 428,93,32,536/-. The said order of the AO came to be challenged by the writ petitioner by way of W.P.(C) 6483 of 2017 and on which the Court by an order of 01 August 2017, upon finding that the petitioners had been able to establish a prima facie case directed that no coercive steps would be taken pursuant to the demands which had been raised. The said writ pe....
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.... at INR 509.50 crores, the TPO observed that insofar as the issue of corporate guarantee is concerned, the same would have to await final orders being passed by the ITAT. That reservation appears to have been necessitated by the fact that although the Special Bench had rendered its opinion on 23 August 2017, the appeal of the petitioner had till then not been formally disposed of by the Bench of the ITAT. 17. Subsequently, and on 02 January 2018, the respondents too proceeded to mount a challenge to the original order of the ITAT dated 14 July 2017 by preferring appeals before this Court which stand numbered as ITA Nos. 136/2018 and 137/2018. Both the appeals of the petitioners as well as the Revenue have since then been admitted and presently remain pending in the list of Regulars. 18. Although and as noticed hereinabove, the TPO had proceeded to draw an order dated 17 October 2017 to give effect to the order of the ITAT dated 14 July 2017, the AO on 27 December 2018 drew up a fresh reference for the consideration of the TPO. Since the terms of that reference would have some material bearing on the challenge which stands raised, we deem it apposite to extract the same herein....
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.... reference, the TPO proceeded to draw proceedings afresh and in purported compliance of the order of the ITAT dated 14 July 2017. The TPO in terms of that order proceeded to frame the following directions:- "In view of the order of the Hon'ble ITAT, the revised transfer pricing adjustment is as below- Segments Adjustment(Rs.) Adjustment on A/c of Business Support Segment 74,76,325 Adjustment on A/c of Corporate Guarantee (No change, effect will be given on receipt of ITAT's final order on this issue) 4, 35,02,400 TOTAL 5,09,78,725 20. Acting in terms of the aforesaid, the AO proceeded to draw a draft order on 27 December 2019. It was in respect of this order that the petitioner preferred objections before the DRP on 24 January 2020. One of the principal grounds which was taken in these objections was with respect to the legality of the subsequent reference made by the AO, the adjudication undertaken by the TPO and the framing of the consequential draft assessment order being barred by limitation by virtue of the provisions contained in Section 153 of the Act. 21. In the meanwhile and during the pendency of those objections as made to the DRP, ....
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....t petition, at the outset, submitted that as would be evident from a reading of the order of the ITAT dated 14 July 2017, the reference to the TPO was with the consent of parties. Mr. Jolly also underlined the undisputed fact that the respondents had not challenged the order dated 14 July 2017 insofar as it pertained to the reference made to the TPO and thus consequently being disentitled to assail or question the correctness of the procedure as adopted by the ITAT in making that reference. 25. It was further highlighted by Mr. Jolly that although the respondents on 02 January 2018 preferred appeals against the order dated 14 July 2017 of the ITAT, those appeals stand confined to the merits of the various issues which came to be decided. Even in those appeals Mr. Jolly submitted, the respondents do not assail or question the correctness of the action of the ITAT in remitting the matter to the TPO. 26. Mr. Jolly submitted that as is well settled in law, neither the AO nor the TPO can possibly be recognized to have the authority to act contrary to the terms of the remand as the ITAT may choose to frame. It was his submission that once the ITAT had itself remanded the matter to ....
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.... the Act and which prescribes the limitation to be nine months from the date of the order of the ITAT made under Section 254 of the Act. 31. Notwithstanding the above, it was Mr. Jolly's submission that sub-section (4) of Section 153 of the Act clearly has no application since the TPO was to undertake a transfer pricing study based on the directions made by the ITAT as per its order of 14 July 2017. There was, according to learned counsel, thus no occasion or justification for an independent reference being made by the AO. In view of the aforesaid, it was the submission of Mr. Jolly that the extended period of twelve months as prescribed in sub-section (4) of Section 153 of the Act did not stand attracted. 32. Mr. Jolly also assailed the validity of the second order passed by the TPO contending that the same is rendered wholly arbitrary since, and as is is ex facie apparent, it is a mere replication of the order originally made on 17 October 2017. The reference of 27 December 2018 was additionally assailed by Mr. Jolly in light of the conclusions rendered by the Special Bench of the ITAT and which had categorically held that the petitioner had only incurred an obligation ....
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....ial mechanism to deal with cases where variations may arise as a result of transfer pricing adjustments. Mr. Hossain submitted that in all such cases, eligible assessees are furnished a draft assessment order against which the statute entitles them to prefer objections before the DRP. It was pointed out that once the DRP disposes of those objections, the matter stands placed before the AO who would then proceed to pass an assessment order. 37. According to learned counsel, it is only when a final assessment order in accordance with the direction of the DRP comes to be framed that an assessee could be recognised to have a right to assail the action of the respondents or take recourse to a legal remedy. Mr. Hossain submitted that the adjudication of objections by the DRP is only a step in aid of assessment in the case of an eligible assessee and does not result in a creation of a liability. A tax liability, according to learned counsel would arise only once a final assessment order is passed and which is appealable before the ITAT. 38. Mr. Hossain also alluded to courts having noticed the aforesaid distinctive features underlying assessments undertaken in terms of Section 144C ....
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....a of consistency. Besides, detailed submissions on merit, along with the relevant materials have also been filed in support thereof. Thus, we cannot attribute any violation of breach of natural justice to the DRP on the ground of not affording an opportunity of hearing. xxxx xxxx xxxx 17. We hasten to add that we have not examined the merits of the grounds urged by the Petitioner and the views expressed hereinabove are only for the purpose of deciding the present petition. It shall be open to the Petitioner to raise all pleas relating to the merits of the case, including those raised herein, while exercising its statutory remedy, as and when the directions under Section 144C (5) of the Act ripen into an order or are given effect to, by the AO. 18. In view of the above, we find no merit in the present petition and accordingly the same is dismissed. No costs." 39. Reliance was further placed on the judgment of the High Court of Madras in Hyundai Motor India Lt. vs. Secretary, Income Tax Department & Ors. (2017) SCC OnLine Mad 32229 wherein the following was observed: "12. The direction issued by the DRP, (impugned direction) binds the Assessing ....
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....cited by Mr. N. Venkatraman, cannot be applied, at this juncture, as the factual position requires to be considered, which obviously cannot be done in a Writ Petition and therefore, the impugned direction issued by the DRP has to be given effect to and the third respondent has to pass an order of assessment, which can be questioned by the petitioner by filing an appeal before the Tribunal. 19. For all the above reasons, the Writ Petition is dismissed with direction to the third respondent to give effect to the directions issued by the DRP, dated 13.12.2016, by passing an assessment order, after which, it is open to the petitioner to challenge the same before the Tribunal. All contentions are left open. No costs. Consequently, connected Miscellaneous Petition is closed." 40. It was then submitted that the challenge as laid to the directions of DRP is misconceived since the said authority clearly stands denuded of the jurisdiction to examine objections of limitation or other jurisdictional challenges that may be raised. It was submitted that as would be evident from Section 144C (8) of the Act, the power of the DRP stands restricted to "confirming, reducing or enhancing t....
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....uld have to be examined on the anvil of Section 153 (4) of the Act alone. Viewed in that light, Mr. Hossain submitted that it would be manifest that the draft assessment order was made within a period of twelve months which would have come to an end on 31 December 2019. 44. The respondents also questioned the legality of the original order passed by the TPO dated 17 October 2017 contending that since the same had come to be passed without a reference having been made by the AO, it is liable to be viewed as non est. Mr. Hossain, in this respect, drew our attention to the following provisions as contained in the Central Board of Direct Taxes [CBDT] Instruction No. 3/2016 dated 10 March 2016:- "3.1 The power to determine the Arm's Length Price (ALP) in an international transaction or specified domestic transaction is contained in sub-section (3) of Section 92C. However, Section 92CA provides that where the Assessing Officer (AO) considers it necessary or expedient so to do, he may refer the computation of ALP in relation to an international transaction or specified domestic transaction to the TPO. For proper administration of the Income-tax Act, the Board has decided t....
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....the Commissioner concerned to consider the matter in terms of sub section (1) of Section 92-CA of the Act. 9. We, therefore, allow this appeal to the aforesaid extent and direct that it would now be up to the assessing officer to take appropriate steps in terms of Instruction No. 3/2003. The appeal is allowed to the aforesaid extent. No costs." 46. In view of the aforesaid, it was Mr. Hossain's submission that the role of the TPO begins only once a reference is made by the AO. According to learned counsel, the TPO could not have undertaken a transfer pricing study in the absence of a reference having been made by the AO. According to Mr. Hossain, bearing in mind the admitted position that the said reference by the AO came to be made only on 27 December 2018, it becomes apparent that the first order as made by the TPO on 17 October 2017 was wholly illegal and cannot possibly be countenanced in law. 47. It was further contended that as per the respondents the extended period of limitation of twelve months as enshrined in Section 153 (4) of the Act comes to be attracted the moment a reference is made to the TPO. It was Mr. Hossain's submission that without prejudice to ....
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....of section 92CA (3A) and the Transfer Pricing Officer would then be required to pass an order as on October 31, 2018." 49. It was lastly submitted that once the ITAT chose to frame an order of remit to the TPO and as a consequence the said authority being assumed to having been empowered to proceed directly in exercise of the statutory powers conferred by Section 92CA of the Act, then notwithstanding the absence of a reference having been made as per the procedure prescribed, all legal consequences would follow. Such legal consequences, according to learned counsel, would include the extended period of limitation for completion of assessment under Section 153 (4) of the Act becoming applicable. 50. It is the aforesaid rival submissions which fall for our consideration. We deem it apposite and before proceeding further, to note that learned counsels appearing for respective parties had proceeded to address submissions on the basis of Section 153 of the Act as it stands in the statute book post the amendments introduced in it by Finance Act, 2022. The respondents did not dispute the applicability of Section 153 of the Act as it exists in its present avatar. 51. However, and ....
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....or] Commissioner or, as the case may be, the order under section 263 or section 264 is passed by the [Principal Commissioner or] Commissioner on or after the 1st day of April, 2006 [but before the 1st day of April, 2010], and during the course of the proceedings for the fresh assessment of total income, a reference under sub-section (1) of section 92CA- (i) was made before the 1st day of June, 2007 but an order under sub-section (3) of section 92CA has not been made before such date; or (ii) is made on or after the 1st day of June, 2007, the provisions of this sub-section shall, notwithstanding anything contained in the second proviso, have effect as if for the words "one year", the words "twenty-one months" had been substituted:]' 54. Section 153 was again amended by Finance Act, 2016 and the subject of fresh assessment pursuant to an order of the ITAT came to be included in sub-section (3). The said amending Act also introduced specific provisions with respect to limitation in cases where a reference under Section 92CA may be made in the course of assessment or reassessment. Sections 153 (3) and 153 (4) as amended in terms of Finance Act, 2016 are ex....
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....s (1), (2) and (3), where a reference under sub-section (1) of section 92CA is made during the course of the proceeding for the assessment or reassessment, the period available for completion of assessment or reassessment, as the case may be, under the said sub-sections (1), (2) and (3) shall be extended by twelve months." 56. Although we had in the introductory parts of this decision noted that both Mr. Jolly as well as Mr. Hossain had addressed submissions on the basis of Section 153 as it appears on the statute book presently and post the amendments introduced by Finance Act, 2022, we had chosen to briefly digress and examine the various amendments introduced in that provision commencing from Finance Act, 2014 principally to underline the following two fundamental aspects. 57. Firstly, the 'nine' and the 'twelve' months window governing assessments to be made post remit by the ITAT and in cases where a reference under Section 92CA (1) of the Act may be made during the course of an ongoing assessment came to be introduced and structured for the first time in terms of the provisions forming part of Finance Act, 2016. The second aspect of some significance is that Section 153....
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....in their favour on this score, it would be apparent that the power to assess would itself stand eclipsed. We note that if we were to ultimately come to the conclusion that the respondents no longer have the authority to frame a consequential order of assessment pursuant to the order of the ITAT or if we were to eventually find that the second reference under Section 92CA (1) of the Act is itself misconceived and untenable, the petitioner would be entitled to succeed. The challenge which stands raised here thus is clearly distinct from the position which obtained in Sabic India and Hyundai Motor. 61. Consequently and bearing in mind the challenge on the ground of limitation which stands raised and which undoubtedly would strike at the very foundation of the right of the respondents to assess, we negate the preliminary objection as canvassed by Mr. Hossain. 62. In order to appreciate the rival submissions which were addressed, we firstly deem it expedient to preface our decision with a brief evaluation of the statutory scheme underlying Section 92CA. Section 92CA reads thus:- "92CA. (1) Where any person, being the assessee, has entered into an international transaction....
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....materials which he has gathered, the Transfer Pricing Officer shall, by order in writing, determine the arm's length price in relation to the international transaction [or specified domestic transaction] in accordance with sub-section (3) of section 92C and send a copy of his order to the Assessing Officer and to the assessee. [(3A) Where a reference was made under sub-section (1) before the 1st day of June, 2007 but the order under sub-section (3) has not been made by the Transfer Pricing Officer before the said date, or a reference under sub-section (1) is made on or after the 1st day of June, 2007, an order under sub-section (3) may be made at any time before sixty days prior to the date on which the period of limitation referred to in section 153, or as the case may be, in section 153B for making the order of assessment or reassessment or recomputation or fresh assessment, as the case may be, expires:] [Provided that in the circumstances referred to in clause (ii) or clause (x) of Explanation 1 to section 153, if the period of limitation available to the Transfer Pricing Officer for making an order is less than sixty days, such remaining period shall be ex....
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....rliament.] Explanation.-For the purposes of this section, "Transfer Pricing Officer" means a Joint Commissioner or Deputy Commissioner or Assistant Commissioner authorised by the Board to perform all or any of the functions of an Assessing Officer specified in sections 92C and 92D in respect of any person or class of persons.]" 63. As is manifest from a reading of Section 92CA (1) of the Act, upon the AO noticing an international transaction or a specified domestic transaction having been undertaken by an assessee, the said authority is statutorily obliged to make a reference to the TPO for the purposes of computation of Arm's Length Price [ALP]. On receipt of that reference, the TPO is obliged to place the assessee on notice and proceed to determine the ALP in respect of the international transactions in question. The TPO while undertaking that evaluation also stands enabled by virtue of Section 92CA (2B) to take into consideration any international transaction which though not disclosed in the report under Section 92E by the assessee may come to its notice. 64. Ultimately, and on conclusion of the adjudicatory process, the TPO in terms of sub-section (3) would proc....
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....justification for the ITAT being compelled or required to first remit the matter to the AO and for a consequential reference being framed if issues pertaining to an international transaction itself constituted the subject matter of an appeal. 67. In any case, and as would be evident from the undisputed facts which obtain in the instant matter, the order of the ITAT dated 14 July 2017 and to the extent that certain aspects were remanded for the consideration of the TPO directly were neither questioned nor assailed at any time by the respondents. In fact, and as the writ petitioners have rightly pointed out, the aforesaid directions as framed were duly acknowledged and accepted and which fact becomes evident from not only the various notices which were issued by the jurisdictional AO and form part of our record such as Annexure P-12, P-14, P-15 and P-16 but also by the action of the TPO itself which had proceeded to pass an order on 17 October 2017. It thus becomes apparent that the principal order of the ITAT dated 14 July 2017 had come to be duly implemented by the TPO on 17 October 2017 itself. 68. It is pertinent to highlight at this juncture that although the respondents h....
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....014 ceased to exist in light of the directions as framed by the ITAT on 14 July 2017. Consequently and in terms of the aforesaid order of the ITAT, a fresh order of assessment was liable to be drawn before the expiry of nine months from the end of the relevant financial year. It is conceded on behalf of the respondents that the aforesaid period undoubtedly came to an end on 31 December 2018. 72. We, additionally, find that the prescription of nine months would also be applicable to a fresh order which is liable to be made in accordance with Section 92CA of the Act. This since Section 153 of the Act speaks not merely of assessments but also orders that are liable to be framed under Section 92CA. The order which is spoken of in Section 92CA of the Act, as explained above, is the one which the TPO may come to make in accordance with sub-section (3) thereof. It is thus manifest that the assessment exercise was liable to be concluded within a period of nine months when computed from 14 July 2017. 73. The only aspect which could not have been conclusively determined on or before 31 December 2018 was the issue pertaining to corporate guarantee and this since although the Special Ben....
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....eference directly to the TPO, had never been subjected to challenge or for that matter the correctness thereof ever doubted. 78. Reverting then to the facts of the present case, we find that although the TPO had acted in pursuance of the order of the ITAT and proceeded to pass an order on 17 October 2017, the jurisdictional AO for reasons unknown and undisclosed, chose not to pass a consequential assessment order as mandated by Section 92CA (4) of the Act. What the AO, however, chose to do was make a fresh reference on 27 December 2018 requiring the TPO to pass an order in accordance with the judgment of the ITAT dated 14 July 2017. That reference was clearly unmerited since the TPO was obliged to act in accordance with the directions of the ITAT. It had in any case already taken all consequential steps in terms thereof and passed an order on 17 October 2017. 79. We are therefore of the firm opinion that in light of the directions as were formulated by the ITAT and stood embodied in its order of 14 July 2017, no fresh reference as the AO chose to make was warranted. Once the ITAT had chosen to remit the matter directly to the TPO, the said authority was legally obliged to pro....
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....nd the indubitable position which emerges from a plain reading of Section 153 (3) of the Act and which encompasses and makes adequate provisions for a fresh order under Section 92CA (4) being liable to be made pursuant to an order of the ITAT under Section 254 of the Act. Since the aforesaid contingency is already provisioned for in sub-section (3), there would exist no justification for such an order of the ITAT being placed or viewed as traceable to sub-section (4) of Section 153 of the Act. 84. Mr. Hossain had additionally contended that there exists no justification to interfere with the order of the DRP and which had refused to examine the challenge of limitation bearing in mind the fact that in terms of Section 144C (8) of the Act, its power and jurisdiction stands confined to either confirming, reducing or enhancing variations that may be proposed in the draft order. The submission was that the DRP does not stand conferred with the authority to rule on jurisdictional challenges that may be raised by an assessee and the same being restricted by virtue of Section 144C (8) of the Act. 85. According to Mr. Hossain, the words "confirm, reduce and enhance' which define the e....
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....ansfer pricing adjustments itself and having failed to refer the matter for the consideration of the TPO. It was in that backdrop that the ITAT had held that the order of assessment so framed was rendered unsustainable being contrary to the mandatory CBDT Instructions. However, it had refused to accede to the request for the matter being remitted to the AO in order to enable that authority to frame a reference. 90. It was this refusal by the ITAT which came to be interfered with by the Supreme Court when it held that the aforenoted prayer ought to have been accepted and the matter remitted to the AO so that an appropriate reference could have been made. The appeal came to be allowed with liberty reserved to the appellant to proceed further in accordance with the CBDT Instructions. 91. In our considered opinion, S.G. Asia and the various observations appearing therein are firstly liable to be appreciated bearing in mind the facts of that case. It would be wholly incorrect to recognise that decision as holding that the ITAT cannot draw or make a reference to the TPO if circumstances so warrant. That issue, in fact, neither arose for the consideration of the Supreme Court nor wa....