TaxTMI 
TaxTMI 
2024 (9) TMI 641
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....d by the TPO vide order u/s 92CA(3) of the Act dated 27.07.2021. Accordingly, a show-cause notice along with draft assessment order was issued and served to the assessee on 25.08.2021 with a proposal to enhance the income by TP adjustments as proposed by the TPO and subsequently, assessee requested for an opportunity to explain the facts in the current case in personal hearing through video conferencing and the same was granted and conducted on 15.01.2021. After providing an opportunity, the draft assessment order was passed by NFAC, Delhi dated 15.09.2021 and the income was assessed with TP adjustments proposed by the TPO. 3. Aggrieved, assessee filed objections before the ld. Dispute Resolution Panel (DRP) and made detailed submissions before the ld. DRP. Ld. DRP passed the order dated 03.06.2022 with the directions to Assessing Officer/TPO. Subsequently, final assessment order was passed by the jurisdictional Assessing Officer, Circle 4 (2), Delhi on 28.07.2022 sustaining the adjustments as per draft assessment order after considering the directions of ld. DRP. 4. Aggrieved with the above order, assessee is in appeal before us raising concise grounds of appeal which read as un....
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....d. TPO exceeded its jurisdiction by applying the cost benefit analysis in determining the ALP of intra group charges and also erred in not following the binding precedent laid down by the jurisdictional High Court in the case of CIT v. EKL Appliances [2012] 345 ITR 241 (Delhi) B. Erroneous adjustment of INR 1,887,166 with respect to international transaction pertaining to Provision of back-office support services 7. On the facts and in law, the Revenue erred including selecting companies that are not comparable to the Appellant in terms of functions performed, assets employed, and risks assumed 8. On the facts and in law, the Revenue erred in rejecting/ excluding the comparable companies selected by the Appellant forming part of the economic analysis undertaken in the TP documentation. 9. On the facts and in law, the Revenue erred in defying the principles of natural justice by not granting any 5 opportunity of being heard to the Appellant while rejecting R Systems International Limited selected by the Appellant in its TP documentation. 10. On the facts and in law, the Revenue erred in incorrectly computing the profit level indicator ['PLI'-Net Cost Plus Margin (N....
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....O erred by not passing the final assessment order dated 28 July 2022 in conformity with the DRP directions dated 3 June 2022. Thus, the learned AO has violated the mandatory provisions of Section 144C(10) read with Section 144C(13) of the Act, thereby rendering the assessment proceedings bad in law. The Final assessment order thus deserves to be quashed... 17. On facts and circumstances of the case and in law, the Ld. AO erred by not passing the final assessment order dated 28 July 2022 in conformity with the order giving effect to DRP directions passed by the Transfer Pricing Officer (TPO') dated 22 July 2022, thereby violating the mandatory provisions of Sec 92CA(4) read with 144C(10) and 144C(13) of the Act. The Final assessment order thus deserves to be quashed. 18. On the facts and circumstances of the case and in law, the Assessing Officer (Technical Unit) has erred in referring the case to the TPO u/s 92CA(1) to determine the Arm's Length Price of the international transactions without having any statutory powers under the Act, to refer the case to TPO. Consequently the TP order is without any jurisdiction and deserves to be quashed." 6. At the time of hearing, ....
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....4C(13) of the Act. He submitted that it is a clear cut violation, therefore, the whole assessment order is bad in law and should be quashed. In this regard, he relied on the decision of Hon'ble Bombay High Court in the case of Hexaware Technologies Ltd. vs. ACIT in Writ Petition No.1778 of 2023 order dated 03.05.2024. 9. On the other hand, ld. DR for the Revenue brought to our notice page 909 of the paper book which is the original TPO proposed adjustment which consists of (a) intra group services for Rs. 1,85,52,925/-, (b) back office support services Rs. 18,87,166/-; and (c) payment of sourcing fee/purchase of sale of software Rs. 19,96,462/-. The total adjustment proposed by the TPO is for Rs. 2,24,36,553/-. He further brought to our notice OGE passed by the TPO and final assessment order passed by the Assessing Officer. He submitted that while passing the final assessment order, the Assessing Officer is of the view that ld. DRP has not proposed any adjustment relating to intra group services, therefore, with the mistaken belief, he has sustained the addition. He submitted that mere mistake of understanding, the assessment cannot be quashed. In this regard, he relied on the fol....
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....ing. Therefore, the above said decision cannot be relied and further he submitted that none of the decisions relied by the ld. DR are not related to sections 144B & 144C of the Act which is being raised in this appeal. 12. Considered the rival submissions and material placed on record.. We observed from the record that TPO passed order proposing TP adjustments in three segments of the international transactions and the same was incorporated in draft assessment order and after giving an opportunity to the assessee, draft assessment was finalized and sent to the assessee. Assessee raised objections before the ld. DRP and ld. DRP sustained the TP adjustments in one of the segments, namely, intra group services of Rs. 1,85,52,925/- and deleted the TP adjustments in back office support services and payment of sourcing fees etc. In fact, ld. DRP sustained the TP adjustments relating to intra group services and TPO in his order dated 27.07.2022 following the directions of ld. DRP and restricted the TP adjustment only to the extent of intra group services to the extent of Rs. 185,52,925/-. We observed that the final assessment order was passed by jurisdictional AO u/s 143(3) read with sec....
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....ramed by the CBDT, which covers both the aforesaid aspect of the provisions of Section 151A of the Act cannot be said to be applicable only for one aspect, i.e., proceedings post the issue of notice under Section 148 of the Act being assessment, reassessment or recomputation under Section 147 of the Act and inapplicable to the issuance of notice under Section 148 of the Act. The Scheme is clearly applicable for issuance of notice under Section 148 of the Act and accordingly, it is only the FAO which can issue the notice under Section 148 of the Act and not the JAO. The argument advanced by respondent would render clause 3(b) of the Scheme otiose and to be ignored or contravened, as according to respondent, even though the Scheme specifically provides for issuance of notice under Section 148 of the Act in a faceless manner, no notice is required to be issued under Section 148 of the Act in a faceless manner. In such a situation, not only clause 3(b) but also the first two lines below clause 3(b) would be otiose, as it deals with the aspect of issuance of notice under Section 148 of the Act. Respondents, being an authority subordinate to the CBDT, cannot argue that the Scheme framed ....
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....on seeking to quash such an action is not required to establish prejudice from the said Act. An act which is done by an authority contrary to the provisions of the statue, itself causes prejudice to assessee. All assessees are entitled to be assessed as per law and by following the procedure prescribed by law. Therefore, when the Income Tax Authority proposes to take action against an assessee without following the due process of law, the said action itself results in a prejudice to assessee. Therefore, there is no question of petitioner having to prove further prejudice before arguing the invalidity of the notice. 38 With respect to the Office Memorandum dated 20th February 2023, the said Office Memorandum merely contains the comments of the Revenue issued with the approval of Member (L&S) CBDT and the said Office Memorandum is not in the nature of a guideline or instruction issued under Section 119 of the Act so as to have any binding effect on the Revenue. Moreover, the arguments advanced by the Revenue on the said Office Memorandum dated 20th February 2023 is clearly contrary to the provisions of the Act as well as the Scheme dated 29th March 2022 and the same are dealt with as....
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....id Scheme in the definition of "automated allocation". "Automated allocation" is defined in the said clause to mean "an algorithm for randomised allocation of cases.....". The term 'random', in our view, has been used in the context of assigning the case to a random Assessing Officer, i.e., an Assessing Officer would be randomly chosen by the system to handle a particular case. The term 'random' is not used for selection of case for issuance of notice under Section 148 as has been alleged by the Revenue in the Office Memorandum. Further, in paragraph 3.2 of the Office Memorandum, with respect to the reassessment proceedings, the reference to 'random allocation' has correctly been made as random allocation of cases to the Assessment Units by the National Faceless Assessment Centre. When random allocation is with reference to officer for reassessment then the same would equally apply for issuance of notice under Section 148 of the Act. (iii) The conclusion at the bottom of page 2 in paragraph 3 of the Office Memorandum that "Therefore, as provided in the scheme the notice under section 148 of the Act is issued on automated allocation of cases to the Assessing Officer based on the r....
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....ocedure in a reasonable time." In our opinion, there is no such power given to the administration under either Section 151A of the Act or under the said Scheme. The Scheme is clear and categorical that notice under Section 148 of the Act shall be issued through automated allocation and in a faceless manner. Therefore, the argument of the Revenue is clearly contrary to the provisions of the Scheme. (vi) In paragraph 3.3 of the Office Memorandum, it is again erroneously stated that "Here it is pertinent to note that the said notification does not state whether the notices to be issued by the NFAC or the Jurisdictional Assessing Officer ("JAO")......It states that issuance of notice under section 148 of the Act shall be through automated allocation in accordance with the risk management strategy and that the assessment shall be in faceless manner to the extent provided in section 144B of the Act." The Scheme is categoric as stated aforesaid that the notice under Section 148 of the Act shall be issued through automated allocation and in a faceless manner. The Scheme clearly provides that the notice under Section 148 of the Act is required to be issued by NFAC and not the JAO. Further....
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....d as a precedent or relied upon to decide the jurisdiction of the Assessing Officer to issue notice under Section 148 of the Act. The Hon'ble Calcutta High Court has referred to an Office Memorandum dated 20th February 2023 being F No.370153/7/2023 TPL which has been dealt with above. Therefore, no reliance can be placed on the said Office Memorandum to justify that the JAO has jurisdiction to issue notice under Section 148 of the Act. Further the Hon'ble Telangana High Court in the case of Kankanala Ravindra Reddy vs. Income Tax Officer 14 has held that in view of the provisions of Section 151A of the Act read with the Scheme dated 29th March 2022 the notices issued by the JAOs are invalid and bad in law. We are also of the same view." 13. From the above decision, Hon'ble High Court insisted that when an authority acts contrary to law, the said act of the authority is required to be quashed and set aside as invalid and bad in law and they have also opined that an action is not required to establish prejudice to the assessee. Therefore, in the present case also, while passing the final assessment order, the Assessing Officer (jurisdictional Assessing Officer) has not followed the ....