AI Drafter 
TaxTMI 
TaxTMI 
2022 (7) TMI 1532
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....ssioner of Income Tax, Circle-1, Thane ("the AO'Y/Addl. Commissioner of Income Tax, transfer pricing officer-I(5) (the TPO") erred in making an adjustment of Rs. 5,96,53,388/- in relation to the international transaction in respect of export of finished goods (Manufacturing segment). The Appellant prays that the aforesaid adjustment be deleted. 2. Without prejudice to Ground no. 1, on the facts and in the circumstances of the case and in law, the AO/PO erred in making an adjustment on the total turnover (i.e. controlled as well as uncontrolled) instead of applying only to the controlled transactions of the Appellant. The Appellant prays that the AO be directed to restrict the adjustment to the controlled transactions of the Appellant. 3. Without prejudice to Ground no. 1 & 2, on the facts and in the circumstances of the case and in law, the AO/TO erred in applying two methods (Transaction Net Margin Method (TNMM') in the first place and then Comparable Uncontrolled Price Method ('CUP') as an alternate) for calculating Arms' Length Price of international transactions and making adjustment based on the higher of two methods....
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....ai has allowed relief to the assessee without appreciating the fact that the AO has rightly made the disallowance, since the assessee failed to prove the genuineness of the transactions in respect of negative difference of Rs. 66,90,600/- and parties who confirm with positive difference of Rs. 4,18,31,261/- 2. The Ld. DRP-Ill, Mumbai erred in allowing relief to the assessee without any supporting evidence to prove the genuineness of the transaction disallowed by the AO. 3. Before us the assessee also preferred an additional ground vide letter dated 01/09/2021, which was filed on 11/11/2021 before the Registry of the Tribunal. The said additional ground is reproduced as under: "11. On the facts, in law and in circumstances of the present case, the draft assessment order dated 28 March 2013 passed for AY 2009-10 under section 143(3) read with 144C(1) of the Income-tax Act, 1961 (Act') and all proceedings consequent to such draft assessment order including final assessment order passed u/s 143(3) read with 144C(13) of the Act dated 26 February 2014 are void-ab-initio, illegal and bad in law since the provisions of section 144C were applicable only fr....
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....g Officer (TPO). The Ld. TPO in his order dated 28/01/2013 proposed a transfer pricing adjustment of Rs.5,96,53,388/-. After receipt of the order of the Ld. TPO, the Assessing Officer issued a draft assessment order on 28/03/2013, wherein in addition to the transfer pricing adjustment, the Assessing Officer also proposed addition in respect of un-verified purchases amounting to Rs.5,62,65,098/-. The assessee filed objection against the draft assessment order before the Ld. DRP. The Ld. DRP, after taking into consideration remand report from the AO/TPO on the additional evidences submitted by the assessee, issued direction to the Assessing Officer vide order dated 20/12/2013. Pursuant to the direction of the Ld. DRP, the Assessing Officer has passed the impugned assessment order after making transfer pricing adjustment of Rs.5,96,53,388/-and disallowance of unexplained expenditure of Rs.55,44,990/-. Aggrieved both the assessee and the Revenue are before the Tribunal by way of raising the grounds as reproduced above. 5. The assessee has filed a paperbook in two volumes containing pages 1 to 677. 6. In respect of the additional ground, the Ld. Counsel of the assessee submitted t....
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....ted by assessee, the Hon'ble High Court of Madras has not taken into consideration the decision in the case of Vijay Television Pvt. Ltd. (supra), therefore, finding in the case of Vedanta Ltd. might be ignored. 8. We have heard rival submissions of the parties on the issue in dispute and perused the relevant material on record. The only dispute raised in ground before us is whether procedure of assessment for certain category of assessees specified in section 144C would be applicable from 01/10/2009 or from assessment year 2010-11. By way of section 144C, alternative dispute resolution mechanism has been introduced for certain assessees, who satisfied specific conditions. Those assessees have been categorized as eligible assessees. Under this mechanism, in case of eligible assessees, if there is a variation in assessed income or loss as compared to the returned income or loss prejudicial to the interest of the assessee, then instead of passing final assessment order [as provided under section 143(3) of the Act], the Assessing Officer is required to pass a draft assessment order. Against said draft assessment order, the assessee has been given the option to file objections befor....
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....11 and subsequent assessment years. The Dispute Resolution Panel Rules have been notified by S.O. No. 2958 (E) dated 20th November, 2009." In the above extracted Para 45.5 there has been an inadvertent error in stating the applicability of the provisions of section 144C inserted vide Finance (No.2) Act, 2009 that amendments will apply in relation to the assessment year 2010-11 and subsequent assessment years. Accordingly, para 45.5 is replaced with the following: "45.5. Applicability: Section 144C has been inserted with effect from 1st April, 2009. Accordingly, the Assessing Officer is required to forward a draft assessment order to the eligible assessee, if he proposes to make, on or after the Is day of October, 2009, any variation in the income or loss returned which is prejudicial to the interest of such assessee. In other words section 144C is applicable to any order which proposes to make variation in income or loss returned by an eligible assessee, on or after 1st October, 2009 irrespective of the assessment year to which it pertains. Amendments to other sections of the Income-tax Act referred to in para 45.3 of the circular 5/2010 dated 3rd June, 2010 ....
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....nt order. As this has occurred after 01.10.2009, the cut off date prescribed in sub-section (1) of S. 144C, the Assessing Officer is mandated to first pass a draft assessment order, communicate it to the assessee, hear his objections and then complete assessment. Admittedly, this has not been done and the respondent has passed a final assessment order dated 22.12.2011 straight away. Therefore, the impugned order of assessment is clearly contrary to S. 144C of the Act and is without jurisdiction, null and void. The contention of the Revenue that the circular No. 5/2010 of the CBDT has clarified that the provisions of S. 144C shall not apply for the assessment year 2008-09 and would apply only from the assessment year 2010-2011 and later years is not tenable in as much as the language of Sub-section (1) of Section 144C referring to the cut off date of 01.10.2009 indicates an intention of the legislature to make it applicable, if there is a proposal by the Assessing Officer to make a variation in the income or loss returned by the assessee which is prejudicial to the assessee, after 01.10.2009. Therefore, this particular provision introduced by Finance (No.2) Act, 2009, ....
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....ion of the Division Bench of the Andhra Pradesh High Court deals with an identical issue as that of the present case. In this case, against the order passed by the second respondent on 26.03.2013, the petitioner filed objections before the DRP, the first respondent herein and the first respondent refused to entertain it by stating that the order passed by the second respondent is a final order and it had jurisdiction to entertain objections only if it is a draft assessment order. While so, the order dated 26.03.2013 of the second respondent can only be termed as a final order and in such event it is contrary to Section 144C of the Act. As mentioned supra, in and by the order dated 26.03.2013, the second respondent determined the taxable amount and also imposed penalty payable by the petitioner. According to the learned senior counsel for the petitioners, even as on this date, the website of the department indicate the amount determined by the second respondent payable by the company inspite of issuance of the corrigendum on 15.04.2013 as a tax due amount. Thus, while issuing the corrigendum, the second respondent did not even withdraw the taxable amount determined by him or updated....
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.... were to be finalized subsequent to the coming into force of the amendment. (see paragraph 6 of Karimtharuvi (supra)). 22. Section 144 C is extracted below to the extent to which it is relevant. 'Reference to dispute resolution panel. 144C (1) The Assessing Officer shall, notwithstanding anything to the contrary contained in this Act, in the first instance, forward a draft of the proposed order of assessment (hereafter in this section referred to as the draft order) to the eligible assessee if he proposes to make, on or after the 1st day of October, 2009, any variation in the income or loss returned which is prejudicial to the interest of such assessee.' 23. Sub-section (2) states that on receipt of the draft order, the assessee shall, within 30 days either file acceptance of the variations or objections to the same before DRP. Sub-section (3) states that the Assessing Officer shall complete the assessment on the basis of the draft order, if the assessee intimates acceptance of the variations to him or if no objections are received within 30 days. Sub-section (4) states that, in any event, the Assessing Officer shall complete the assessme....
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....-section (2) was not satisfied. The Tribunal accepted the said plea and allowed the appeal. At the instance of the Revenue, the Tribunal stated the following question for the opinion of the Orissa High Court under Section 256(1) of the Act : Whether, on the facts and circumstances of the case and on a true interpretation of Section 274, as amended by the Taxation Laws (Amendment) Act, 1970 the Inspecting Assistant Commissioner to whom the case was referred prior to April 1, 1971, had jurisdiction to impose penalty. 6. The High Court answered the question in favour of the assessee whereupon the matter was brought to this Court. This Court at the outset stated the general principle applicable in this behalf in the following words: It may be stated at the outset the general principle is that a law which brings about a change in the forum does not affect pending actions unless an intention to the contrary is clearly shown. One of the modes by which such an intention is shown is by making a provision for change over of proceedings from the court or the Tribunal where they are pending to the court or the Tribunal which, under the new law, gets jurisdiction to t....
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.... began to "manufacture or to produce articles" within the meaning of Section 80J of the Income tax Act, 1961. The communications sent by the Board and impugned in the Writ Petition are replies sent by the Board to the letters written by the appellant. They cannot bind the taxing authorities who have to decide the question in issue on its own merits, uninfluenced by extraneous considerations. The question in issue is a question of fact.' 28. In the case of Prasad Productions (P) Ltd. (supra), a Division Bench of this Court has also clarified the position that where a Circular has explained a provision to be applicable qua a particular assessment year, the benefit of such Circular cannot be withdrawn at a later date, so as to deny the assessee the benefit extended earlier. Though in the present case there is no benefit as such that is in question, there is a substantively procedural right that has enured to both parties as on 01.04.2009 that relates to assessments for A.Y. 2010-11 onwards. The relevant portion of the 2013 Circular reads thus: 'Para 45.5 of the Circular No. 5/2010 dated 03.06.2010 reads as under: "45.5 Applicability: These amend....
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....398 ITR 182) referred to by the learned Standing Counsel also does not support his case." 8.7 We find that both, the Division Bench of the Hon'ble Andhra Pradesh High Court and Single Bench of the Hon'ble Madras High Court in the case of Vedanta Limited, has given contrary finding and so the issue before us is which findings should be followed. We find that there is no decision on the issue of the jurisdictional High Court. The judicial discipline demand that decision of the higher forum should be followed. Since the decision of the Hon'ble Andhra Pradesh High Court is of the division bench whereas the decision of the Hon'ble Madras High Court in the case of Vedanta Ltd (supra) is of the single bench, and therefore we are inclined to follow the decision of the Hon'ble Andhra Pradesh High Court in the case of Zuari Cement Ltd (supra), wherein it is held that procedure of issuing draft assessment order laid down in the section 144C is to be followed with effect from 01/10/2009. In the instant case, though the assessment year involve is 2009-10, the draft assessment order has been issued on 28/03/2013, much after the specified date of 01/10/2009 and therefore we do not find any vio....
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....5.82% 5. Laffans Petrochemicals Ltd. 7.89% 8.56% 6. Nocil Ltd. 11.59% 13.11% 7. S I Group-India Ltd. -1.19% -1.18% 8. Sadhana Nitro Chem Ltd. 8.59% 9.40% 9. Amines & Plasticizers Ltd. Chemical 6.09% 6.49% 10. Indofil Organic Inds. Ltd. Spcd 11.00% 12.36% Mean 8.73% 9.78% 10.2 The Ld. TPO revised the margin of the manufacturing segment of the assessee on the sales and on the cost, as under: Particulars Amount (Rs.) Operating Income (A) 1,87,48,36,650/- Less : COGS (B) 1,519,452,806/- Operating Expenses (C) 242,698,805/- Total Operating Expenses (E=A-B-C) 1,762,151,611/- Operating Profit/(Loss)(F=A-E) 11,26,85,039/- OP/Net Sales (F/A) 6.39% OP/Total Cost (F/E) 6.01% 10.3 Thereafter the Ld. TPO, computed adjustment of Rs.5,96,53,388/- to the international transaction as under: Particulars Assessee's Margin Operating Income (A) 1,87,48,36,650/- Total Operating Expenses (B) 1,762,151,611/- Operating Profit/(Loss)(C=A-B) 11,26,....
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....e/ tested party is computed either at segmental or entity level and the comparables are searched having regard to the FAR of the segment or the entity of the assessee, the consequent benchmarking done and adjustment arrived also is not open to be subjected to any alteration on any interpretation. The very concept of applying the aggregate quantum of adjustment arrived to the international transaction, connotes the fact that it is because of the international transaction of the assessee that either at the transaction level or at the entity level, the margin earned by the assessee is less compared to the margins of the comparables. 2.5.8 The argument regarding the proportionate adjustment would in any case pre-suppose the condition that the margin earned by the assessee from the international transaction and also from the third party transaction are at same levels and still the margins earned from the international transactions are required to be adjusted on proportionate basis. If the basic presumption of proportionate application or computation of the adjustment in proportion to the international transaction is that the assessee has earned margin from the international tra....
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....ar 2008-09, observing as under: "7.3 Before us, the learned AR for the assessee submitted that the assessee had no dispute either in relation to the selection of comparables or in relation to computation of mean margin of comparable or the margin computed by TPO/AO in case of the assessee. The assessee was disputing only the method of computation of TP adjustment. It was pointed out that the AO had made the adjustment to the entire revenue which was not correct as adjustment is required to be made only with respect to transactions with AE. The learned AR placed reliance on the decision of Tribunal in case of THYSSENKRUPP INDUSTRIES INDIA P. LTD Vs. ACIT in ITA No. 7032/Mum/2011 and the decision of Tribunal in case of TARA JEWELS EXPORTS P. LTD Vs. ACIT in ITA 6972/mum/2010 for the said proposition. The learned CIT(D)R on the other hand placed reliance on the order of AO/TPO. 7.4 We have perused the records and considered matter carefully. The dispute is regarding TP adjustment made by AO/TPO on account of transactions with associate enterprises (AEs) in relation to the manufacturing segment. The AO/TPO have applied TNMM for bench marking the transaction and s....
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....nce of Rs.5,62,65,098/- under four categories. Under first category disallowance of Rs.22,08,487/-was made where 'no reply' of notice issued under section 133(6) was received. According to the Assessing Officer, in those cases identity of the purchaser and genuineness of the transactions was not established. Under second category, disallowance of Rs.55,34,750/-was made where the notice issued under section 133(6) 'returned back'. In third category, disallowance of Rs.4,18,31,261/- has been made where assessee company has 'shown more amount of the purchases then the amount confirmed by the party' i.e. positive difference. In fourth category purchase expenses have been reported less by the assessee as compared to the concerned party, for which the Assessing Officer has made addition of Rs.66,90,600/- treating the same as undisclosed income. 18. Before the Ld. Dispute Resolution Panel, the assessee filed confirmation of the parties as additional evidence. The Ld. DRP obtained remand report from the Assessing Officer. In the remand report the Ld. Assessing Officer accepted the contention of the assessee except in respect of amount of Rs.10,240/- in the case of M/s Ashok chemical ind....
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....his party is found to be justifiable. 3.5.4 In the facts of the case and in view of the remand report of the AO except for the aforesaid 2 amounts, the AO is directed not to make the addition of the balance amount as proposed in the assessment order under the head disallowance of unexplained expenditure. We direct accordingly." 19. Before us the Ld. Counsel of the assessee submitted that identical issue in the assessment year 2008-09 has been set aside by the Tribunal to the file of the Assessing Officer for necessary examination in the light of the observation of the Tribunal. 20. The Ld. DR on the other hand relied on the draft assessment order and submitted that Ld. DRP has allowed relief to the assessee without proper verification. 21. We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. The issue in dispute is regarding purchase expenses debited in the profit and loss account. In the draft assessment order the Assessing Officer has made addition on the basis of the response of the notice under section 133(6) issued to those purchase parties. During proceeding before the Ld. DRP, the Assessing Offic....
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.... in respect of differences positive or negative pointed out by the parties in the cases in which reply had been received and these explanation had been duly noted by AO at pages 25 to 31 of the assessment order and again at pages 36 to 42 of assessment order. The explanation given had not been examined and the entire difference had not been added. In our view matter requires fresh examination at the level of AO by specifically considering each explanation by the assessee in respect of differences found and the assessee may also be given further opportunity to provide details and evidence in respect of cases in which no reply had been received or the notices had been returned back because disallowing the entire amount considering the voluminous nature of details is not justified. We, therefore, set aside the order of AO and restore the matter back to him for passing a fresh order after necessary examination in the light of observations made in this order and after allowing opportunity of hearing to the assessee." 21. Thus, we find that, in the case matter is of verification of the parties and the Ld. DRP has provided opportunity to assessee and after taking into consideration the....