TaxTMI 
TaxTMI 
2026 (7) TMI 272
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....of the directions dated 28.11.2022 of the Dispute Resolution Panel (hereinafter referred to as the 'DRP') and order under section 92CA (3) of the Act passed by the Transfer Pricing Authority dated 28.01.2021 for the aforesaid assessment year on the following, among other grounds: Ground No. 1: Transfer Pricing (TP) adjustment 1.1. The Ld. Assessing Officer has erred in law and on facts in making a TP adjustment of INR 11,55,70,934/- to the returned income of the Appellant and in holding that the international transactions between the Appellant and its AE of provisions of SWD services were not at arm's length. Ground No. 2: Rejection of the TP documentation of the Appellant 2. The Ld. Assessing Officer has erred in law and on facts by rejecting, without cogent reasons, the TP documentation maintained by the Appellant in the manner contemplated under the relevant provisions of Chapter X of the Act, and Rule 10 the Income-tax Rules, 1962 (hereinafter referred to as the 'the Rules') by stating that the documentation is "not reliable or correct" merely because the learned TPO did not agree with the positions and filters adopted by ....
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.... Ground No. 7: Application of filter for ten times of Appellants turnover 7. Without prejudice to Ground no. 5 and in the alternative, the Ld. Assessing Officer have erred in law and on facts by considering comparable companies having turnovers greater than ten times the turnover of the Appellant. Ground No. 8: Application of export earning filter of 75% 8. The Ld. Assessing Officer has erred in applying the export earning filter with a threshold limit of 75% of the total turnover in selecting certain comparable companies. Ground No. 9: Modification of persistent loss filter 9. The Ld. Assessing Officer has erred in law and facts in modifying persistent loss filter applied by the Appellant in its TP documentation and thereby rejecting comparable companies having losses in 2 out of 3 years. Ground No. 10: Methodology applied for the computation of RPT filter. 10. The Ld. Assessing Officer has erred in law and on facts in incorrectly applying the RPT filter by taking only RPT Income/Total Income or RPT Expenditure/Total Expenditure instead of taking the total value of RPT transactions (RPT Income + RPT Expenditure) i....
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....e operating profit of comparable companies. Ground No. 15: Not granting working capital adjustment. 15. The Ld. Assessing Officer has erred in law and on facts by disregarding the provisions of Section 92C of the Act read with Rule 10B(3) of the Rules, by not granting the working capital adjustment. Ground No. 16: Risk adjustment 16. The Ld. Assessing Officer has erred in not appreciating that the Appellant, being a captive service provider, operates as a lower risk service provider as compared to comparable companies, which carry higher risks and accordingly erred in not granting appropriate risk adjustments. Ground No. 17: Other TP related grounds 17. The Ld. Assessing Officer failed to appreciate the Appellant's commercial wisdom on the application of arm's length principle, being inextricably tied to the business realities. Ground No. 18: Disallowance made without being proposed in the draft assessment order is in violation of Section 144C of the Income-tax Act, 1971 18. On the facts and in the circumstances of the case and in law, the Ld. Assessing Officer erred in making a disallowance of Rs. 10,8....
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....evying interest of Rs. 3,37,10,530 under section 234B of the Act. Interest under section 234B of the Act is consequential in nature and needs to be recomputed based on the order of your honours on the above grounds. 22. On the facts and in the circumstances of the case, the Ld. Assessing Officer erred in initiating penalty proceedings under section 270A of the Act for under-reporting and misreporting of income. The Appellant craves leave to add to, amend, alter, modify, forego, or withdraw any the above Grounds of Appeal before the disposal of the Appeal. 3. Brief facts of the case are that M/S. Marvell India Private Limited (hereinafter referred to as 'Assessee') is a subsidiary of Marvell Technology Group Ltd. and is engaged in provision of software development services to its Associated Enterprise (hereinafter referred to as 'AE'). During the Assessment Year 2017- 18, the Assessee filed its return of income by declaring total income of Rs. 13,72,75,040/- and the same was taken up for scrutiny. During the assessment proceedings, the Ld. Assessing Officer (hereinafter referred to as 'AO') referred the international transactions entered ....
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....n the draft assessment Order dated 16.02.2021. It is important to note that no direction was given on corporate tax additions by the ld. DRP as the same was not proposed in the Draft Assessment Order dated 16.02.2021. However, upon issuance of the DRP direction dated 28.11.2022, the Final Assessment Order dated 29.12.2022 was passed by the AO which again included corporate tax additions along with transfer-pricing adjustment. 3.2 Again aggrieved, the assessee preferred an appeal before this Tribunal by challenging the Final Assessment Order dated 29.12.2022 which includes Transfer Pricing adjustment along with Corporate Tax issues. This Tribunal vide Order in IT(TP)A No. 115/Bang/2023 dated 04.09.2024 granted relief on the Transfer Pricing adjustment relying on the assessee's own case, however mistakenly did not adjudicate the ground no. 18 & ground no. 19 which relates to the Corporate Tax issues. The assessee thereafter filed a miscellaneous application registered as MA No. 61/Bang/2024, seeking rectification of mistake in the Order dated 04.09.2024 to the extent it failed to adjudicate the Corporate Tax issues. Finally, this Tribunal passed the Order in MA No. 61/Bang/202....
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.... only Rs. 64,90,685; and d) Addition of Rs. 3,03,86,087 on account of difference in closing WDV of fixed assets for AY 2016-17 and opening WDV of fixed assets for AY 2017-18. The Appellant prays that the impugned additions of Rs. 10,89,81,456 made by the Ld. Assessing Officer in the final assessment order should be deleted. 5. Before us, the ld. AR of the assessee vehemently contended as detailed below- (1) The Ld. AO acted in excess of its jurisdiction by assessing corporate tax additions which never formed part of the Draft Assessment Order dated 16.02.2021. (2) Once the draft assessment order dated 16/02/2021 was issued, neither any further SCN could be issued nor any further adjustment to the income could be proposed. (3) Since, there was no direction by the DRP on the corporate tax issues, no addition could be made by the AO in final assessment Order dated 29.12.2022. (4) While passing the final assessment order, the AO cannot go beyond what is proposed in the draft assessment order. 6. Per contra, the ld. DR heavily relied on the order of the AO & vehemently submitted that it is not true that the AO had not issued th....
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....ssessment order dated 16/02/2021 as rightly contended by the AR of the assessee but we do not agree with the contention of the AR of the assessee that while passing the final assessment order, the AO had gone beyond what is proposed in the draft assessment order as in the present case after filling of objection to the DRP, the AO on 15.04.2021 passed another draft assessment order proposing therein the various corporate tax additions amounting to Rs. 10,89,81,456/- and show cause to the assessee as to why assessment should not be completed as per draft assessment order. Thus, we observed that the AO had passed two different draft assessment order one dated 16.02.2021 incorporating the TP adjustment proposed by the TPO and another draft assessment order dated 15.04.2021 proposing the various corporate tax issues. Now the mute question arises for the consideration here is that whether the AO in respect of one assessment proceedings of the same assessee for the same assessment year can pass two different draft assessment orders ? 7.1 According to section 144C(1) of the Act, the AO shall, notwithstanding anything to the contrary contained in this Act, in the first instance, forward ....
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....ural flow and the limited powers of the DRP, clearly indicates a singular, initial formal communication that triggers the DRP mechanism. The DRP's mandate is to review and modify the variations proposed in that specific draft order and therefore in our view, the Hon'ble Karnataka High Court vide order dated 15/12/2021 had rightly directed the ld. DRP to proceed further in accordance with law as contemplated u/s. 144C(5) to 144C(13) of the Act by considering the objections dated 16/03/2021. 7.2 Further, we are also of the considered opinion that the entire procedural framework of Section 144C of the Act is built around this singular 'draft order': (i) Assessee's Response (Section 144C(2)): Upon receipt of 'the draft order' (singular), the eligible assessee has a clear choice within thirty days: either accept the variations proposed by the AO or file objections with both the DRP and the AO. This choice is directly linked to 'the draft order' received. (ii) Completion of Assessment (Section 144C(3)): If the assessee accepts the variations or fails to file objections within the stipulated period, the AO 'shall complete the as....
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....own in Section 144C, emphasizing the procedural importance of the draft order and the consequences of procedural errors. In view of the above discussion, we held that subsequent draft assessment order dated 15/04/2021 is illegal, bad in law and accordingly quashed. 7.4 We also take note of the fact that the AO passed the final assessment order on 26/04/2021 neither considering the objections of the assessee nor awaiting directions from the ld. DRP and accordingly, the Hon'ble High Court of Karnataka vide order dated 15/12/2021 had already quashed the assessment order dated 26.04.2021 as well as ld. DRP order dated 24/11/2021 and directed the ld. DRP to proceed further in accordance with law as contemplated under section 144C(5) to 144C(13) of the Act by considering the objections dated 16/03/2021 filed by the assessee. On perusal of the directions of the ld. DRP dated 28/11/2022, the ld. DRP had directed for the transfer pricing adjustments only as proposed in the draft assessment order dated 16/02/2021. On going through the final assessment order dated 29/12/2022, we observed that the AO had not only made additions towards total adjustments u/s. 92CA of the Act as per the D....