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2018 (6) TMI 1829 - AT - Income TaxTP Adjustment - legal and professional charges under intra-group services - TPO had passed a rectification orderwhich has resulted in reduction of total adjustment from Rs. 42,50,763/- to Rs. 9,91,844/- only which represents the disallowance of mark-up charged by the AE - HELD THAT:- As AR submitted that and if the assessee’s ground was accepted in principle, the adjustment with respect to the mark up will not be contested by the assessee, in such a situation, we direct the AO to pass the final assessment order incorporating the adjustment only to the extent of Rs. 9,91,844/- and also protect the assessee’s right to raise these grounds again in this assessment year in the event of the final assessment order not having been passed restricting the transfer pricing adjustment to Rs. 9,91,844/- only. Directions of the Ld. DRP in confirming the provision for loss on suspended contracts by treating the same as contingent liability - HELD THAT:- The amount represents bank guarantee furnished by the assessee to its customers which was given in the year under consideration but en-cashed by the customers in AY 2011-12. It is also undisputed that the assessee has already offered to tax the amount of advance which had been forfeited from the customers and to which the bank guarantee relates. The bank guarantee has been en-cashed in the subsequent assessment year, therefore, the liability has crystallized in the subsequent assessment year when it was en-cashed on 28/04/2010. The fact remains that at the time of furnishing the bank guarantee, it was not known as to when the liability will crystallize. Accordingly, we find no reason to interfere with the directions of the Ld. DRP. TP Adjustment - services offered by the AE were not stewardship services - HELD THAT:- DRP has taken note of the fact of the assessee providing substantial evidence in form of e-mails, correspondence with the AE etc. so as reach a conclusion that the AE was rendering services which were beneficial for the assessee in conducting its business and some benefits might have accrued to the overall group but the primary beneficiary was the assessee. DRP concluded that the services rendered by the AE were not in the nature of stewardship activity. Although the Department has assailed these directions of the Ld. DRP, in the proceedings before us, the Department could not point out any factual or legal error in the directions of the Ld. DRP by leading any evidence to the contrary. In such a situation, we are not in a position to differ from the findings of the Ld. DRP and we, accordingly, dismiss ground no. 4. Disallowance pertaining to advances and deposits written off - HELD THAT:- DRP directed deletion of disallowance by observing that from the material available on record, the same appeared to be revenue in nature. Thus, it is not the case of the department that the issue was not examined. The Ld. DRP has returned a categorical finding in this regard and, accordingly, we find no reason to interfere on this issue also. Ground No. 2 also stands dismissed. Allowance of provision for warranty - HELD THAT:- DRP has noted that the facts were identical in AY 2008-09 and the year under consideration and, therefore, the disallowance was to be deleted. We also find that the department’s challenge to the findings of the Ld. CIT (A) on this issue in AY 2008-09 was dismissed by the ITAT . The Department has not been able to bring out any distinguishing factor with respect to the facts in the proceedings before us. In the circumstances, we find no reason to interfere and dismiss ground no. 3. DRP directing that the TPO/AO to consider the margin realized by the assessee only from its international transactions with its AEs and there cannot be entity level margins - HELD THAT:- A perusal of the directions of the Ld. DRP shows that this aspect has not been considered in a proper perspective by the Ld. DRP and the directions in this regard have been given without recording a finding of fact in this regard and without giving any sound reason for such direction. In the circumstances, we have no option but to restore this ground to the file of the Ld. DRP with a direction to pass a speaking order on the issue after giving proper opportunity to the assessee. Accordingly, ground no. 2 stands allowed for statistical purposes. Loss on suspended contracts - HELD THAT:- Ld. DRP has discussed the issue at length on pages 11 and 12 of its directions and has held that the contention of the assessee is allowable in view of the facts. The AO is directed to give effect to the directions of the Ld. DRP in this regard. Accordingly, this ground is treated as allowed. Rectification of mistakes u/s 154 - failure to provide an opportunity to the assessee of being heard before enhancing the income and this violated the provisions of section 154(3) - HELD THAT:- The Hon’ble Apex Court in the case of Chockalingam & Meyyappan [1962 (10) TMI 48 - SUPREME COURT] is precisely holding that principle of natural justice has to be followed by the authorities. As per Section 154(3) of the Act amendment/rectification which has the effect of enhancement of an assessment or reducing a refund or otherwise increasing the liability of the assessee shall not be made unless the authority concerned gives notice to the assessee of its intention to do so. Therefore, it is obligatory under the statute to issue notice by the tax authority to give a reasonable opportunity of being heard to the Assessee. This is clearly set out u/s 154 of the Income Tax Act and it has to be followed by the tax authorities at the initial stages. If this procedure of issuing the notice and giving reasonable opportunity of being heard is not followed, any further exercise will be non est. Therefore, the order itself becomes void ab initio. In the circumstances, we have no other option to set aside the impugned rectification order as being void ab initio.
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