TaxTMI 
TaxTMI 
2025 (8) TMI 1429
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....mstances of the case and in law, the impugned order is barred by limitation as prescribed under section 144C of the Act and therefore, is illegal and liable to be quashed. 3. That the AO/ TPO/ DRP erred on facts and in law in making an adjustment of Rs. 105,07,00,000 to the arm's length price of 'international transactions' of sale of APIs and formulations, undertaken by the Appellant with the Associated Enterprises ("AEs"), on the basis of the order passed under section 92CA(3) of the Act by the Transfer Pricing Officer ("TPO") and Dispute Resolution Panel ("DRP"). 3.1 That the AO/TPO/DRP erred on facts and in law in considering the Appellant as the tested party for benchmarking international transaction of provision of sale of APIs and formulations, applying TNMM, not appreciating that the Appellant being the manufacturer of such formulations, undertaking complex operations and owning intangibles, is more complex entity than the AEs. 3.2 That the AO/TPO/ DRP erred on facts and in law in rejecting benchmarking analysis undertaken by the assessee taking the AEs as the tested party, allegedly on the basis that the AEs are the creator of the ass....
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....inary expenditure/ costs incurred during the year under consideration is required to be excluded to establish comparability of the Appellant with the independent comparable companies in terms of Rule 10B(2) and Rule 10B(3) of the Income-tax Rules, 1962. 3.10 Without prejudice, that the TPO/ DRP erred on facts and in law in rejecting the contention of the Appellant that since the AEs have incurred a loss in relation to goods sold by the Appellant to the AEs, which in turn were sold by the AEs to ultimate third party customer(s), no Transfer Pricing adjustment was even otherwise warranted. 3.11 Without prejudice, that the TPO/DRP erred on facts and in law in not appreciating that the adjustment made in relation to an international transaction cannot exceed the profits retained and the amount of margin retained by the AEs. 3.12 Without prejudice, that the TPO/ DRP erred on facts and in law in considering incorrect margin of the companies considered by him as comparable to the Appellant for benchmarking the international transactions of sale of APIs and formulations. 4. That the DRP erred on facts and in law in enhancing the income of the Appellant b....
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....ssment years. 7. That the AO erred on facts and in law in initiating penalty proceedings under section 271(1)(c) of the Act." 3. Since in grounds of appeal Nos. 1.1 and 2, assessee has raised legal issues of jurisdiction and limitation thus the same are taken up first for consideration. 4. Brief facts of the case are that the draft Assessment Order was passed on 24/12/2018 by Assistant Commissioner of Income Tax, Circle -9(2), New Delhi. The assessee filed objections before ld. DRP on 22.01.2019 i.e. within the permissible time limit allowed for filing the objections before the ld. DRP. The ld. DRP has given directions in terms of its order passed u/s 144C(5) of the Act dt. 26.09.2019. In compliance to the directions given by the ld. DRP, the TPO has passed the effect order on 26.11.2019 with a copy to the Jurisdictional assessing officer. The due date for passing of the final Assessment Order was 31.10.2019. Even if it is presumed that the order of ld. DRP was received by the AO in the month of October, 2019, the limitation for completion of final assessment order u/s 144C(13) expired on 20.11.2019. However, the final Assessment Order was passed on 20.12.2019 which ....
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....bjections under sub-section (2) expires. (5) The Dispute Resolution Panel shall, in a case where any objection is received under sub-section (2), issue such directions, as it thinks fit, for the guidance of the Assessing Officer to enable him to complete the assessment. (6) The Dispute Resolution Panel shall issue the directions referred to in sub- section (5), after considering the following, namely:- (a) draft order; (b) objections filed by the assessee; (c) evidence furnished by the assessee; (d) report, if any, of the Assessing Officer, Valuation Officer of Transfer Pricing Officer or any other authority; (e) records relating to the draft order; (f) evidence collected by, or caused to be collected by, it; and (g) result of any enquiry made by, or caused to be made by, it. (7) The Dispute Resolution Panel may, before issuing any directions referred to in sub-section (5),- (a) make such further enquiry, as it thinks fit; or (b) cause any further enquiry to be made by any income-tax authority and report the result of the same to it. (8) The Dispute Resolution Panel ....
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....of this Act, the assessment, reassessment or recomputation under sub-section (3) of section 143 or under section 144 or under section 147, as the case may be, with respect to the cases referred to in sub-section (2), shall be made in a faceless manner as per the following procedure, namely:- (i) the National Faceless Assessment Centre shall assign the case selected for the purposes of faceless assessment under this section to a specific assessment unit through an automated allocation system; (ii) the National Faceless Assessment Centre shall intimate the assessee that assessment in his case shall be completed in accordance with the procedure laid down under this section; (iii) a notice shall be served on the assessee, through the National Faceless Assessment Centre, under sub-section (2) of section 143 or under sub-section (1) of section 142 and the assessee may file his response to such notice within the date specified therein, to the National Faceless Assessment Centre which shall forward the same to the assessment unit; (iv) ....(xx) (xxi) in case of an eligible assessee, where there is a proposal to make any variation which is prejud....
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....provides that the Faceless Assessment Centre after receiving the directions of the DRP, sent them to the Assessment unit who shall pass the final assessment order in accordance with section 144C(13). Thus, in any case whether the assessment is completed by Jurisdictional Assessing officer or by Faceless assessing officer, the final order should be passed within the time prescribed u/s 144C(13) of the Act. 9. It appears that no final order was passed by Jurisdictional assessing officer or by the Faceless Assessment Centre after the directions given by Ld. DRP on 26.09.2019, within a period of one month from the end of September, 2019 i.e. the month when such directions were received by the Assessing Office. As observed above, as per section 144C(13), the final assessment order should be passed by the Assessing Officer within a period of one month from the end of the month in which such direction is received. In the instant case the directions were given by Ld. DRP on 29/09/2019 thus for the AO for passing the final order, the limitation expired on 31.10.2019. It is also relevant to state here that when DRP issued directions, TPO has no power to resume jurisdiction and the TPO cou....
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.... be done by the DRP itself." 11. The Hon'ble jurisdictional High Court in the case of PCIT Vs. M/s Fibrehome India Pvt. Ltd. in ITA No. 91 of 2024 vide order dt. 05.02.2024 has held as under: "3. We note that an identical question has been answered by us in W.P.(C) 15381 of 2022 titled as "Louis Dreyfus Company India Private Limited vs. Deputy Commissioner of Income Tax Circle 13(1), Delhi & Ors." in favour of the assessee / petitioner. While dealing with this question, we had observed as follows:- "14. The determination which the AO makes in the first instance is recognized to be a draft of the proposed order of assessment by virtue of section 144C(1) of the Act. If the assessee be aggrieved by the proposed order of assessment, it is entitled to file objections before the DRP in accordance with Section 144C(2) of the Act. The power of the AO to complete the assessment on the basis of the draft order stands interdicted in case objections have come to be preferred within the 30 day period as contemplated in Section 144C(2) of the Act. It is the DRP which thereafter proceeds to decide the objections and frame directions to enable the AO to complete the assessment....
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....s, we accord our approval to the interpretation as set out in the aforenoted decisions of the Bombay High Court. 19. Further, the procedure of assessment as provided under Section 144C does not envisage or contemplate the interdiction or involvement of the TPO once a directive has been framed by the DRP. The role of the TPO comes to an end once an order as contemplated under Section 92 CA(4) of the Act has come to be framed and remitted to the AO. There was thus no occasion for the TPO having resumed proceedings post the passing of the direction by the DRP on 20 June 2022. 20. Undisputedly, the directive of the DRP came to be uploaded on the ITBA portal on 24 June 2022. It is additionally stated to have been dispatched through Speed Post to the third respondent (TPO) and the fourth respondent (Additional/Joint/Deputy/Assistant Commissioner of Income Tax, National Faceless Assessment Centre, New Delhi) on 27 June 2022. It is thereafter that the TPO appears to have passed the order dated 25 July 2022. XXX XXX XXX 22. It is thus manifest that as per the provisions of E-as, 2019, all orders, notices and decisions have to be necessarily uploaded on the ITBA....
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....on was introduced in the Act. Section 144C(10) of the Act provide that the directions of DRP are binding on the AO. By failing to pass any order in terms of the provision, the AO cannot be permitted to defeat the entire exercise and render the same futile. When a Statute prescribes the power to do a certain thing in a certain way, then the thing must be done in that way and other methods of performance are forbidden. Once the statute has prescribed a limitation period for passing the final order, it is expected that the internal procedure of the department should mould itself to give meaning to and act in aid of the provision. Any procedural defect (there is none in this case) in the internal mechanism of the working of E- assessment Scheme, cannot operate against the interest of assessee. Hence, the FAO cannot be believed that the DRP direction was received by him only on 23rd August 2023 despite being uploaded on the ITBA portal on 25th March 2021. The failure on the part of department to follow the procedure under Section 144C of the Act is not merely a procedural irregularity, but is an illegality and vitiates the entire proceeding. 22. In a decision in the matter of T....
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....17 which is in excess of legitimate tax due on the returned income of the Petitioner and directing Respondent Nos. 1 and 2 to forthwith grant the refund for the assessment year 2016-2017 along with the applicable rate of interest." 26. Before we part, we strongly recommend that a detailed enquiry be initiated on the failure on the part of the Faceless Assessing Officer concerned to act in accordance with the provisions of the Act and the lack of diligence on the part of officials concerned and the system itself insofar as it relates to the present assessment. Strict action should be taken against persons responsible for the laxity and lethargy displayed which has caused a huge loss to the exchequer and in turn to the citizens of this country. A copy of this order be circulated to the CBDT and the Principal Secretary, Ministry of Finance, GOI. 27. Mr. Singh seeks stay of the judgment. Stay refused." 13. Further the decision of Hon'ble Madras High Court in the case of M/s Taeyang Metal India Private Limited vs. DCIT in Writ Petition No.12159 of 2023 and W.M.P. No.11989 of 2023 vide order dated 23.02.2024 has held as under: "6. The interpretation of sub-s....
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....not material for this purpose. Indeed, as contended by learned counsel for the petitioner, the communication dated 12.04.2022 from the PCCIT of the National Faceless Assessment Centre seeking approval for transfer so as to complete assessment within the period of limitation underscores the fact that the income tax authorities were mindful of the fact that assessment would be barred by limitation unless such assessment is proceeded with and completed expeditiously. 8. All that remains is to examine whether the assessment proceedings would be barred by limitation if computed from the end of June 2022. If so computed, the period of one month expired on 31.07.2022, whereas the assessment order came to be issued on 25.03.2023. Hence, the assessment order was issued beyond the time limit specified in sub-section (13) of Section 144C. By taking into account not only statutory prescription but also the interpretation thereof by the Division Bench of this Court in Roca and that of the Division Bench of the Delhi High Court in Louis Dreyfus, 1 conclude that the assessment order cannot be sustained. 9. In view of the conclusion that the assessment proceedings are barred by l....