TaxTMI 
TaxTMI 
2025 (9) TMI 1632
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....1961, Rules 10-M, 10-O, 10-P and 10-R of the Income Tax Rules, 1962 and the Advance Pricing Agreement dated 15.02.2023; (b) Declaring the impugned reassessment order as illegal, void ab initio and violative of Article 265 of the Constitution of India; (c) Directing the 1st Respondent to accept the modified return of income filed on 28.03.2023 under section 92CD of the Act; (d) Directing the 1st Respondent to recompute the total income in accordance with law and issue appropriate refund if any; (e) and pass such other order or orders as this Hon'ble Court deems fit and proper in the extraordinary circumstances of the case in the interest of justice." Facts: 3. The petitioner is a Private Limited Company incorporated under the Companies Act, 1956 in India and during the year of assessment, it was engaged in the business of providing Information Technology Consulting Services to Deloitte Consulting LLP and Deloitte Consulting India Projects LLC. 4. The case of the petitioner is that the petitioner filed its return of income electronically on 30.11.2018 for the Assessment Year 2018-19 declaring a total income of Rs. 720,43,70,980/-. It was p....
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....total income of Rs. 720,43,70,980/- as declared in the Original Return of Income. Subsequently, the petitioner received Intimation dated 30.01.2023 (Ex.8) from the Assessment Unit, Income- tax Department/respondent No.1 stating that the reassessment proceedings are transferred to the Assessment Unit under the National Faceless Assessment Centre. 6. The petitioner and the Central Board of Direct Taxes (for short, 'CBDT'), on specific terms and conditions and critical assumptions, entered into a unilateral Advance Pricing Agreement dated 15.02.2023 (Ex.9) (hereinafter referred to as 'APA') at various positions which, among other terms and conditions, inter alia included the Operating Expenses, Operating Revenue and Arm's Length Price (for short, 'ALP'). It covered the subject Assessment Year 2018-19. As per the said APA, the net margin of the petitioner was agreed to be at 17% based on explicitly defined terms, namely 'operating expense' and 'operating revenue'. Further, as per para 8 of the APA, the petitioner is mandated to maintain documents including the final computation showing operating expenses, operating revenues and operating profit margin in relation to covered transact....
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....ering the submissions and the documents already on record, the Assessment Unit/respondent No.1 passed the impugned reassessment order by making the following additions/deletions dated 16.01.2024 (Ex.20): a. Accepted that no disallowance of deduction under Section 80G pertaining to CSR donation could be made; b. Disallowed employees contribution to PF (which was already disallowed in Intimation order under Section 143(1) and the appeal against such order was already dismissed and accepted by the petitioner by remittance of corresponding taxes); c. Adjustment relying on the APA of Rs. 106,47,00,730/-. Challenging the above reassessment order dated 16.01.2024, the instant writ petition is filed. 9. The list of chronological dates and events, as born from the record, are furnished in the following tabular chart submitted by the petitioner: Date Event 30.11.2018 Original Return of Income (RoI) for the Assessment Year 2018-19 24.02.2020 Original RoI processed vide Intimation u/s 143(1) of the Income-tax Act, 1961 in terms of which a disallowance was made u/s 36(1)(va) of the Act on account of delay in employee contribution to provident f....
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....validity of the impugned reassessment order. I. In view of the fact that there was no adverse report of non-compliance with the terms of the APA issued by the TPO/CBDT, the Respondent No.1 was bound to accept the modified return filed under Section 92CD and he had no jurisdiction to make any adjustment/ addition to the income disclosed in such modified return; II. Sanction/approval obtained for reopening of the assessment was not in accordance with Section 151 of the Act and as a result the Assessment Order dated 16 January 2024 was void, bad in law and of no legal effect; III. Lack of jurisdiction for issue of Notice under Section 148A(b) of the Act and Notice under Section 148 of the Act by the Jurisdictional Assessing Officer when the law required that the said proceedings be undertaken by the Faceless Assessing Officer ['FAO'] in terms of the Notification No.18 of 2022 i.e. e-Assessment of Income Escaping Assessment Scheme, 2022 issued by the CBDT as per section 151A of the Act; IV. Reopening is not justified in respect of a further issue, when the issues set out in the reasons recorded for reopening are dropped/have not resulted in a....
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....eturn in accordance with and limited to the agreement. Therefore, the respondent No.1 wrongly assumed jurisdiction by not accepting the modified return and making the impugned assessment based on his erroneous interpretation of the APA. The respondent No.1 failed to appreciate that the TPO is vested with the power to audit the ACR. The respondent No.1 is not vested with independent jurisdiction to interpret the APA and arrive at a conclusion as to whether the petitioner has satisfied the terms and conditions of the APA. It is further submitted that if the jurisdictional TPO upon audit of the compliance report submitted by the petitioner, submits audit report to the DGIT (IT), the DGIT (IT) shall forward the report to the CBDT where there is a finding of failure on the part of the assessee to comply with the terms of the agreement and cancellation of the agreement is required in terms of Rule 10P(3) of the Rules. The CBDT shall cancel the agreement for the reason that the compliance audit referred to in Rule 10P has resulted in the finding of failure on the part of the assessee to comply with the terms of the agreement in terms of Rule 10R(1)(i) of the Rules. 12. Learned Senior C....
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....thority for issuance of notice under Section 148 and the Order under Section 148A(d) of the Act, which are dated 07.04.2022, which is beyond a period of three years from the end of the assessment year 2018-19, is the Principal Chief Commissioner or Principal Director General or where there is no Principal Chief Commissioner or Principal Director General, the Chief Commissioner or the Director General. The prior approval has been obtained from PCIT, Hyderabad-2, who is the not the specified authority under Section 151 of the Act. In support of the aforesaid submission, reliance has been placed upon the case in Vodafone Idea Limited vs. Deputy Commissioner of Income Tax, rendered by the Bombay High Court in W.P.No.2768 of 2022, decided on 06.02.2024, which has relied upon the decision in the case of Siemens Financial Services (Private) Limited vs. DCIT [2023] 154 taxmann.com 159 (Bom). Learned Senior Counsel for the petitioner has submitted that, therefore, the reopening is invalid as the respondent No.1 has not obtained prior approval from the concerned specified authority. 14. In support of the third proposition, i.e., lack of jurisdiction of the Jurisdictional Assessing Officer....
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.... was upheld by the CIT vide order dated 31.07.2023 in view of the decision of the Hon'ble Supreme Court in the case of Checkmate Services Private Limited (supra). It is submitted that the petitioner has deposited the additional tax upon demand being raised by the Department pursuant to the said disallowance towards contribution made to the provident fund. Thus, the issue has reached finality and the same could not be added again. 17. On the issue of deduction under Section 80G of the Act pertaining to CSR donation, the petitioner had relied on various decisions on the subject, wherein various Benches of the Income Tax Appellate Tribunal (ITAT) had allowed the said deduction. It is submitted that no addition can be made in the reassessment dated 16.01.2024 vis-a-vis either of the two issues for which the assessment was reopened. The only addition made in the impugned order is pertaining to an arm's length adjustment on the international transaction entered into by the petitioner with its Associated Enterprises. Therefore, the main issue on which reopening was done ceases to exist/survive, reassessment proceedings could not be independently carried on for other issues. Hence, the ....
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....er under Section 250 of the Act, dated 31.07.2023 dismissed the appeal of the assessee. 21. The case of the assessee firm has been selected for Complete Scrutiny under Computer-Assisted Scrutiny Selection (CASS) for the following reasons: i. Large any other amount allowable as deduction claimed in Schedule BP of the return. ii. Non-compliance to income computation and disclosure standards. iii. Lower amount disallowed u/s 40(a)(ia) in ITR (Part AO-I) in comparison to audit report. iv. Deduction from Total Income (Chapter VI-A) Business ITR. 22. Accordingly, a Notice under Section 143(2) and Notice under Section 142(1) of the Act had been issued to the assessee and in response the relevant submissions were given by the assessee and the same were considered and the return of income was accepted. 23. Subsequently it is observed by audit party that employee contributions of provident fund amounting to Rs. 7,89,84,973/- was remitted beyond the due dates by the assessee company, however, the same was not added back to the returned income. Hence, the said amount needs to be disallowed under Section 36(1)(va) of the Act. Further, the audit party....
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.... make any addition in the modified return filed on 28.03.2023 as the effect to be given in the modified return was only in respect of Transfer Pricing adjustments giving effect to Unilateral Advance Pricing Agreement. It is stated that it computed additional income tax with reference to the delay in employees' contribution to provident fund and stated that the same had been paid as self-assessment taxes and disclosed in modified return. The company had withdrawn its appeal before CIT(A) pursuant to Hon'ble Supreme Court ruling in the case of Checkmate Services Private Limited (supra). In view of the acceptance of the assessee Rs. 7,89,84,973/- was added to the total income of the assessee. 27. It is submitted, with reference to International Related Party Transactions in Services/modification of income as per the APA under Section 9CD of the Act, that on perusal of Appendix V of the APA between CBDT and the M/s Deloitte Consulting India Private Limited, it is seen that the amount of the notional cost to be considered as per Para 1(b)(i) of the Agreement for the APA Years is mentioned at Rs. 109,95,11,977/- for the Financial Year relevant to Assessment Year 2018-19. 28. As....
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....y the third or fourth or fifth provisos or extended by the sixth proviso to sub-section (1) of Section 149 of the Act has to be taken into account. The impugned order under Section 148A(d) of the Act and the Notice under Section 148 of the Act were issued on 07.04.2022 as the period of limitation was extended by seven days provided to the assessee to file its reply in response to the Notice under Section 148A(b) of the Act. Therefore, the initiation of the proceedings was well within three years period provided under Section 148 of the Act and the approval/sanction obtained from the PCIT, Hyderabad-2 was proper in the eye of the law. 33. In response to the third proposition regarding the jurisdiction of the JAO to reopen the proceedings in the wake of Faceless Assessment Scheme vide Notification No.18 of 2022, it is submitted that the issue decided by this Court has not reached finality as the Special Leave Petition filed by the Department is still pending before the Hon'ble Supreme Court. 34. Learned Senior Standing Counsel for the Revenue submits that the Assessing Officer has reopened the issue as the employee contributions of provident fund amounting to Rs. 7,89,84,973/- ....
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....tion of Rs. 7,89,84,031/- and remitted the corresponding additional taxes. Later, the petitioner's return was subjected to scrutiny assessment under Section 143(3) of the Act. However, vide order dated 25.02.2022, the return of income was accepted without making any addition/disallowance. Thereafter, the Jurisdictional Assessing Officer, respondent No.2 (ACIT) issued notice under Section 148A(b) of the Act dated 23.03.2022 stating that the income chargeable to tax has escaped assessment in respect of two issues, namely (a) belated remittance of employee contribution of provident fund amounting to Rs. 7,89,84,973/- and (b) disallowance of Corporate Social Responsibility (CSR) expenses amounting to Rs. 4,90,13,021/-. The petitioner filed its response on 30.03.2022. However, the JAO rejected the objections and passed an order under Section 148A(d) of the Act, on 07.04.2022 and also issued notice under Section 148 of the Act, on 07.04.2022, reopening the assessment. The petitioner filed its return on 04.05.2022 declaring the total income of Rs. 720,43,70,980/- as declared in the original return of income. Thereafter, the petitioner received Intimation dated 30.01.2023 from the Assessme....
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....ee had under reported its income, penalty proceedings under Section 274 read with Section 270A of the Act is initiated separately for such under reporting of income. The submission of the assessee in respect of disallowance of deduction under Section 80G pertaining to CSR donation was accepted, no adverse interference was drawn on this. The respondent No1, however, made addition pertaining to arm's length adjustment of international transaction entered into by the petitioner with its associated trading enterprises to the tune of Rs. 106,47,00,730/- by the impugned order dated 16.01.2024. 39. This Court now proceeds to deal each of the proposition advanced by the petitioner in respect of its challenge to the reassessment order dated 16.01.2024, in the light of the relevant provisions of the Income Tax Act, 1961 as well as the Income Tax Rules, 1962 applicable to the subject period and taking into account the stand of the respondent Department:- I. In view of the fact that there was no adverse report of non-compliance with the terms of the APA issued by the TPO/CBDT, the Respondent No.1 was bound to accept the modified return filed under Section 92CD and he had no jurisdi....
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....9, where any person has entered into an agreement and prior to the date of entering into the agreement, any return of income has been furnished under the provisions of Section 139 for any assessment year relevant to a previous year to which such agreement applies, such person shall furnish, within a period of three months from the end of the month in which the said agreement was entered into, a modified return in accordance with and limited to the agreement. Sub-section (2) provides that save as otherwise provided in this Section, all other provisions of the Act shall apply accordingly as if the modified return is a return furnished under Section 139. Sub-section (3) provides that if the assessment or reassessment proceedings for an assessment year relevant to a previous year to which the agreement applies have been completed before the expiry of period allowed for furnishing of modified return under sub-section (1), the Assessing Officer shall, in a case where modified return is filed in accordance with the provisions of sub-section (1), pass an order modifying the total income of the relevant assessment year determined in such assessment or reassessment, as the case may be, havin....
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....it report, for each year covered in the agreement, to the Director General of Income-tax (International Taxation) in case of unilateral agreement and to the competent authority in India, in case of bilateral or multilateral agreement, mentioning therein his findings as regards compliance by the assessee with the terms of the agreement. Sub-rule (4) provides that the DGIT shall forward the report to the Board in a case where there is finding of failure on part of assessee to comply with terms of agreement and cancellation of the agreement is required. Sub-rule (5) provides that the compliance audit report shall be furnished by the TPO within six months from the end of the month in which the Annual Compliance Report referred to in Rule 10-O of the Rules is received by the TPO. Sub-rule (6) provides that the regular audit of the covered transaction shall not be undertaken by the TPO if an agreement has been entered into under Rule 10L except where the agreement has been cancelled under Rule 10R of the Rules. 42. In the present case, the petitioner had filed the ACR within ninety days on entering into APA in terms of Rule 10- O of the Rules. The TPO has not submitted any finding of ....
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....ts modified return, is also incorrect since under Section 92CD(1), notwithstanding anything contained in Section 139, the person entering into APA is required to furnish a modified return in accordance with and limited to the agreement i.e., ALP covered under the international transaction within a period of three months from the end of the month in which the said agreement was entering into. Even in a case where the APA has not been entered into, the Assessing Officer if he considers it for determining the ALP in an international transaction or specified domestic transaction, as per Section 92CA(1), the Assessing Officer if he considers it necessary or expedient to do so, may, refer the computation of ALP in relation to such international transaction or specified domestic transaction to the TPO. The CBDT has issued instruction No.3 of 2016, dated 10.03.2016 to reconcile the provisions of Section 92C(3) and 92CA(1) for proper administration of the Act which inter alia contain detailed guidelines for implementation of the transfer pricing provisions. It requires the Assessing Officer to mandatorily refer to the TPO the issue of determination of ALP of an international transaction or ....
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....fer pricing adjustment in an earlier assessment year that has been fully or partially set aside by the ITAT, High Court or Supreme Court on the issue of the said adjustment shall invariably be referred to the TPO for determination of the ALP. 3.7. For administering the transfer pricing regime in an efficient manner, it is clarified that though AO has the power under Section 92C to determine the ALP of international transactions or specified domestic transactions, determination of ALP should not be carried out at all by the AO in a case where reference is not made to the TPO. However, in such cases, the AO must record in the body of the assessment order that due to the Board's Instruction on this matter, the transfer pricing issue has not been examined at all. 44. Therefore, the respondent No.1 committed jurisdictional error in not accepting the modified return under Section 92CD of the Act. The respondent No.1 could not have made any addition to the income of the petitioner based on the terms of the APA. In the absence of any adverse report from the TPO/CBDT, the respondent No.1 was obligated to accept that the petitioner had complied with the terms of the APA and no ad....
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....ase of the petitioner is quoted hereunder: 151. Sanction for issue of notice:- Specified authority for the purposes of Section 148 and Section 148A shall be,- (i) Principal Commissioner or Principal Director or Commissioner or Director, if three years or less than three years have elapsed from the end of the relevant assessment year; (ii) Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General, if more than three years have elapsed from the end of the relevant assessment year: Provided that the period of three years for the purposes of clause (i) shall be computed after taking into account the period of limitation as excluded by the third or fourth or fifth provisos or extended by the sixth proviso to sub-section (1) of Section 149. 49. In the present case, the order under Section 148A(d) and notice under Section 148 have been issued on 07.04.2022 relatable to the relevant Assessment Year 2018-19 i.e., after more than three years from the end of the relevant assessment year. The approval before passing the order under Section 148A(d) of the Act and before issuing of notice under Section 148 of the A....
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....r. In fact, perusal of the judgment shows that the order passed under Section 148A(d) of the Act and the notice under Section 148 of the Act both were dated 07.04.2022 relating to the assessment year 2018-19. The date of order under Section 148A(d) and the notice under Section 148 of the Act i.e., 07.04.2022 are exactly similar to the case of the petitioner and the Assessment Year 2018-19. The relevant paragraph of the said decision is profitably quoted hereunder: 3. The impugned order and the impugned notice both dated 7th April 2022 state that the Authority that has accorded the sanction is the PCIT, Mumbai-5. The matter pertains to Assessment Year (AY) 2018-19 and since the impugned order as well as the notice are issued on 7th April 2022, both have been issued beyond a period of three years. Therefore, the sanctioning authority has to be the PCCIT as provided under Section 151(ii) of the Act. The proviso to Section 151 has been inserted only with effect from 1st April 2023 and, therefore, shall not be applicable to the matter at hand. 4. In this circumstances, as held by this Court in Siemens Financial Services Private Limited vs. Deputy Commissioner Income Ta....
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....out jurisdiction. IV. Reopening is not justified in respect of a further issue, when the issues set out in the reasons recorded for reopening are dropped/have not resulted in an assessment of alleged escaped income. 53. On this proposition, the learned Senior Counsel for the petitioner has assailed the reopening of the assessment of an independent issue, which was not set out in the reasons recorded for reopening. The reason for reassessment for reopening as per the notice dated 23.03.2022 under Section 148A(b) of the Act were as under: (a) Employee contributions of Provident Fund amounting to Rs. 7,89,84,973/- was remitted beyond the due dates by the assessee company, however, the same was not added back to the returned income. Hence, the said amount needs to be disallowed under Section 36(i)(va) of the Income Tax Act, 1961. (b) Assessee company debited an amount of Rs. 9,80,26,042/- towards Corporate Social Responsibility (CSR) expenditure (which was incurred by way of donations given to various organizations) and an amount of Rs. 57,79,894/- towards Donations. However, the assessee claimed the entire CSR expenditure of Rs. 9,80,26,042/- as Donations and c....
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....nitiated penalty proceedings under Section 274 read with Section 270A of the Act. It could amount to addition of the same income under the same head twice when the petitioner had accepted it after dismissal of the Appeal by the CIT (Appeals). Apart from above, the Assessing Officer proceeded to determine the Arm's Length Price under the Advance Pricing Agreement by not accepting the modified return of income under Section 92CD of the Act. As held in answer to the proposition No.1 herein above, it is the jurisdictional TPO alone who is vested with the power to carry out the compliance audit of the agreement for each of the year covered under the agreement. The learned Senior Counsel for the petitioner has, in this regard, referred to the decision of the Bombay High Court in CIT vs. Jet Airways (I) Limited (supra) and PCIT vs. Sunlight Tour and Travels (P) Limited (supra) rendered by the Delhi High Court. He has referred to the un-amended Section 147^10, which was the subject matter of interpretation in the case of CIT vs. Jet Airways (I) Limited (supra). The Division Bench of the Bombay High Court in CIT vs. Jet Airways (I) Limited (supra) examined the expression "and also" containe....
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....ubmit compliance audit report on the transactions covered under the APA lies with the Transfer Pricing Officer alone, we are not required to go into the question whether the respondent No.1 had erroneously computed the ALP based on the erroneous interpretation of the APA. 58. In view of the detailed reasons and findings referred to herein above, in answer to the proposition Nos.1, 2 and 3 by this Court, the impugned reassessment order dated 16.01.2024 passed by the respondent No.1/Assessing Unit suffers from jurisdictional error and therefore, cannot be sustained in the eye of law. It is accordingly quashed. 59. The writ petition is allowed. There shall be no order as to costs. Miscellaneous applications pending, if any, shall stand closed. FOOTNOTES ^592CC (1) The Board, with the approval of the Central Government, may enter into an advance pricing agreement with any person, determining the- (a) arm's length price or specifying the manner in which the arm's length price is to be determined, in relation to an international transaction to be entered into by that person; (b) income referred to in clause (i) of sub-section (1) of Section 9, or specifying t....
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.... any provision of this Act, is less than sixty days, such remaining period shall be extended to sixty days and the aforesaid period of limitation shall be deemed to be extended accordingly. (9) The Board may, for the purposes of this section, prescribe a scheme specifying therein the manner, form, procedure and any other matter generally in respect of the advance pricing agreement. (9-A) The agreement referred to in sub-section (1), may, subject to such conditions, procedure and manner as may be prescribed, provide for determining the- (a) arm's length price or specify the manner in which the arm's length price shall be determined in relation to the international transaction entered into by the person; (b) income referred to in clause (i) of sub-section (1) of Section 9, or specifying the manner in which the said income is to be determined, as is reasonably attributable to the operations carried out in India by or on behalf of that person, being a non- resident, during any period not exceeding four previous years preceding the first of the previous years referred to in sub-section (4), and the arm's length price of such international transaction or the incom....
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....days of the due date of filing the income-tax return for that year, or within ninety days of entering into an agreement, whichever is later. (4) The Director General of Income-tax (International Taxation) shall send one copy of annual compliance report to the competent authority in India, one copy to the Commissioner of Income-tax who has the jurisdiction over the income-tax assessment of the assessee and one copy to the Transfer Pricing Officer having the jurisdiction over the assessee. ^710P. Compliance Audit of the agreement: (1) the Transfer Pricing officer having the jurisdiction over the assessee shall carry out the compliance audit of the agreement for each of the year covered in the agreement. (2) For the purposes of sub-rule (1), the Transfer Pricing Officer may require- (i) the assessee to substantiate compliance with the terms of the agreement, including satisfaction of the critical assumptions, correctness of the supporting data or information and consistency of the application of the transfer pricing method; (ii) the assessee to submit any information, or document, to establish that the terms of the agreement has been complied with. (3) The Transfer P....
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....of specified authority, within one month from the end of the monthly in which the reply referred to in clause (c) is received by him, or where no such reply is furnished, within one month from the end of the month in which time or extended time allowed to furnish a reply as per clause (b) expires: Provided that the provisions of this section shall not apply in a case where,- (a) a search is initiated under Section 132 or books of accountant, other documents or any assets are requisitioned under Section 132A in the case of the assessee on or after the 1st day of April, 2021; or (b) the Assessing Officer is satisfied, with the prior approval of the Principal Commissioner or Commissioner that any money, bullion, jewellery or other valuable article or thing, seized in a search under Section 132 or requisitioned under Section 132A, in the case of any other person on or after the 1st day of April, 2021, belongs to the assessee; or (c) the Assessing Officer is satisfied, with the prior approval of the Principal Commissioner or Commissioner that any books of account or documents, seized in a search under Section 132 or requisitioned under Section 132A, in the case of any other ....