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TMI Blog2015 (9) TMI 846X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the assessee, Honda Trading Corporation, Japan, was established in Japan on 21.3.1972 to act as Trading Corporation for developing import/export of overseas/domestic products through international distribution networks of Honda Motor Co. Ltd. Subsequently, it changed its name to Honda Trading Corporation. Now, it has 50 bases worldwide in 20 countries. The assessee is basically engaged in supplying parts for motorcycle, automobile, power equipments, automotive equipments and machinery, non-ferrous metals, steel, plastic and warehouse operations. The assessee filed its return of income on 13.10.2010. Five international transactions were reported, being payment of Technical supervision fees, Sale of raw material and Sale of fixed assets to Honda Siel Cars India Ltd.; payment of Technical supervision fees to Rajasthan Prime Steel Processing Centre Pvt. Ltd.; and payment of Technical supervision fees to Honda Motorcycle & Scooter India Pvt. Ltd. All these five international transactions are with three Indian group companies. The AO made reference dated 22.3.2013 to the Transfer Pricing Officer (TPO) for determining the arm's length price (ALP) of the above referred internationa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iry of- (a) two years from the end of the assessment year in which the income was first assessable or (b) one year from the end of the financial year in which a return or a revised return relating to the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year, is filed under sub-section (4) or sub-section (5) of section 139, whichever is later : ......" 5.3 It is nobody's case that clause (b) of the above provision is applicable. Going by clause (a) of section 153(1), it is clear that no order of assessment can be made after the expiry of two years from the end of the assessment year. Accordingly, an order of assessment for the A.Y. 2010-11, as is the year under consideration, can be made up to 31.3.2013. 5.4 Then 3rd proviso to section 153(1) is relevant for our purpose, which at the material time, stood as under:- 'Provided also that in case the assessment year in which the income was first assessable is the assessment year commencing on the 1st day of April, 2009 or any subsequent assessment year and during the course of the proceeding for the assessment of total income, a reference under sub-section (1) of section 92CA (i) is mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cluded. In the instant case, the information was received by the DIT on 2.4.2014. 5.8 The ld. DR made two contentions on this aspect of the matter. It was firstly contended that the time limit is to be reckoned from the date on which the information is received by the Principal Commissioner or Commissioner and not the Director of Income-tax, as has been the case under consideration. 5.9 We do not find any substance in this argument. Income-tax authorities have been defined under section 116 of the Act. This section provides that there shall be certain classes of income-tax authorities for the purposes of this Act. Description of the class of income-tax authority given in clause (c) of this section is 'Directors of Income-tax or Commissioners of Income-tax or Commissioners of Income-tax (Appeals)'. This indicates that Commissioner of Income-tax and Director of Income-tax are authorities of the same class. It is not the case of the ld. DR that the desired information was at all received by the Principal Commissioner or Commissioner. As Commissioner is equal in rank with the Director of Income-tax and the information has been received by the DIT only, we hold that such recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spects is last received. Where the TPO gets satisfied with the information supplied by the Competent authority of the other country or if he is unsatisfied with the information but chooses not to further persue the matter with such Competent authority, then the period liable to be excluded ends with the receipt of last information by the Commissioner. The crucial words used in the provision are 'the date on which the information requested is last received'. It means that once information is sought and the process of receiving such information has finally concluded, irrespective of the ultimate satisfaction of the TPO, the date on which the last information was received becomes the terminating point, if it is not beyond a period of one year. It is only where the process of receiving of last information is not over within a period of one year, that the period of exclusion gets restricted to one year. If the information is received within one year, then it is the actual time consumed in the process which is sought to be considered for the purpose. The argument of the ld. DR for considering a period of one year would have carried weight, if the TPO, not satisfied with the infor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we recapitulate the relevant dates in connection with the extant assessment, as under - Date of filing return 13.10.2010 Date on which reference was made by the AO to the TPO 22.3.2013 Date of TPO seeking information under the Exchange of Information 8.1.2014 Date of Indian competent authority, in turn, seeking information 24.1.2014 Date of receipt of information by the DIT 2.4.2014 Date of passing of the order by the TPO 31.5.2014 Date of passing the draft order 11.7.2014 Date of the direction issued by the DRP 24.12.2014 Date of passing the final assessment order 29.1.2015 5.15 The ld. AR argued that since the draft order in this case was passed by the AO on 11.7.2014, the same is barred by the time limit provided u/s 153, which expired on 7.6.2014. This was forcefully opposed by the ld. DR, who contended that the date of draft order is irrelevant for the purposes of section 153 and the limitation contained in this provision should be seen qua the date of passing of the final assessment order. 5.16 We have heard the marathon arguments advanced by both the sides on the point. The controversy which looms large before us is to decide the nature of order referred to in sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO, who passes a draft order in conformity with the ALP of the international transaction determined by the TPO. The term 'draft order' has been statutorily explained in section 144C(1), which provides that: 'The Assessing Officer shall, notwithstanding anything to the contrary contained in this Act, in the first instance, forward a draft of the proposed order of assessment (hereafter in this section referred to as the draft order) to the eligible assessee if he proposes to make, on or after the 1st day of October, 2009, any variation in the income or loss returned which is prejudicial to the interest of such assessee'. The above provision not only reveals that a 'draft order' is nothing but 'a draft of the proposed order of assessment', but also that it is forwarded 'in the first instance' if the AO 'proposes to make .... any variation in the income or loss returned which is prejudicial to the interest of such assessee' and further it does not finally determines the tax liability along with the amount of tax due or refundable. After the passing of the draft order, an assessee, inter alia, gets an opportunity to file before the DR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bilities, that is either, the assesseee may object to the same before the DRP or choose to follow the route of CIT(Appeals) for the redressal of his grievances. Non-conveying of acceptance to the draft order by the assessee within the stipulated period may be either due to accepting the draft order or not accepting the draft order but choosing the route of CIT(A), instead of filing objections before the DRP. In both such situations, that is, where either the assessee gives his consent to the AO to the draft order or no reply is given and the assessee does not choose to file objections before the DRP, the AO is required to pass the assessment order in terms of subsection (4) of section 144C, paving the way for the completion of assessment enabling the assessee to either accept the draft order or make pitch for filing appeal before the CIT(A). In a case, where the assessee does not accept the draft order and chooses to object to it before the DRP, then the AO is required to pass the final assessment order as per the time allowed under sub-section (13) of section 144C, which provides as under - '(13) Upon receipt of the directions issued under sub-section (5), the Assessing Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment and passing of the assessment order, the natural corollary which follows is that it has no relation whatsoever with the passing of draft order. 5.22 Now, we take up an important point raised by the ld. AR that if the time limit for the passing of the final assessment order is governed by section 144C, then, the time limit given in section 153 must be inferred for the passing of the draft order because there cannot be two simultaneous time limits for the completion of assessment. It was stated that the presence of time limit for completion of assessment u/s 144C would, in the absence of linking the limit given u/s 153 with the draft order, make the time limit u/s 153 as a redundant piece of legislation. We find that the poser of the ld. AR. is definitely important that no provision in the Act can be considered as irrelevant or unnecessary. Every provision carries some significance and has the underlying presumption of its applicability to one situation or the other. Though the question posed by the ld. AR that if the time limit for passing of the final assessment order is contained in section 144C then section 153 cannot cover the same thing once again, is noteworthy, but we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... means that up to the A.Y. 2008-09, when the mechanism of DRP and the passing of draft order was not in place, the final assessment order pursuant to the order of the TPO was required to be passed within the time limit given in section 153. However, when the institution of the DRP and the concept of passing a draft order came into being w.e.f. the A.Y. 2009-10, the time limit for the completion of assessment came to be governed by sub-sections (4) or (13) of section 144C. This shows that upon the introduction of section 144C, there emerged two simultaneous time limits for completion of assessments, viz., the one which was already existing as per section 153 and the latest one, which came to be introduced through section 144C. At this stage, it is significant to note one salient feature in the time limits enshrined under sub-sections (4) and (13) of section 144C. Such common thread is that the time limits given in both the subsections are 'notwithstanding anything to the contrary contained in section 153 or ...'. This transpires that the time limits for completion of assessment as prescribed in sub-sections (4) and (13) of section 144C have been superimposed on the time limi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... swer to the ld. AR's poser that when the time limit for completion of assessment is contained in section 144C, then the provisions of section 153 cannot be read as meaningless except for linking it with draft order. In our considered opinion, it is overt that the time limit u/s 153 is not meaningless as the same has been retained for keeping alive the time limit given to the TPO for passing his order. 5.24 We have noticed above that the term 'draft order' has been statutorily coined u/s 144C(1). It means that the term 'draft order' has been recognized as and is actually different in ambit from the term 'assessment order'. With the insertion of section 144C, which led to the birth of the draft order, the legislature did not substitute the term 'order of assessment' with the term 'draft order' in section 153. If the intention of the legislature had been to substitute the hitherto time limit for passing of the assessment order as the time limit for the passing of draft order henceforth, on shifting the time limit for passing of the final assessment order to section 144C(4) or (13), then it would have made necessary changes in section 153 by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourable High Courts and the benches of the tribunal across the country have recognized the position that no time limit has been prescribed for passing an order treating a person responsible as assessee in default. Whereas the Hon'ble Calcutta High Court in British Airways v. CIT [1992] 193 ITR 439 (Cal) has held that since no period of limitation for liability has been statutorily given, even the order passed after 6 years is valid, the Hon'ble Delhi High Court in CIT v. NHK Japan Broadcasting Corporation [2008] 305 ITR 137 has held such order in the absence of the express time limit should be passed within a period of four years. Legislature stepped in by way of insertion of sub-section (3) to section 201 w.e.f. A.Y. 2010-11 providing the time limit for passing of the order deeming a person to be an assessee in default for failure to deduct the whole or any part of the tax from a person resident in India, at any time within (i) two years from the end of the financial year in which the statement is filed in a case where the statement referred to in section 200 has been filed; (ii) six years from the end of the financial year in which payment is made or credit is given, in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nue's stand. 6.2 We have heard the rival submissions and perused the relevant material on record. It has been noticed above that the provisions of section 92CA requiring the passing of the order by the TPO determining the ALP of the international transactions, came into being by the Finance Act, 2002. As per sub-section (3) of section 92C, the TPO is required to pass the order determining the ALP of the international transactions. No time limit was initially given for the passing of order by the TPO. It is only by the Finance Act, 2007, that sub-section (3A) was inserted providing time limit for the passing an order by the TPO. No amendment has been carried out in this provision thereafter. Sub-section (3A) of section 92CA containing the relevant time limit for the passing of the order by the TPO, reads as under - '(3A) Where a reference was made under sub-section (1) before the 1st day of June, 2007 but the order under sub-section (3) has not been made by the Transfer Pricing Officer before the said date, or a reference under sub-section (1) is made on or after the 1st day of June, 2007, an order under sub-section (3) may be made at any time before sixty days prior to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ard before the transfer of case by the Chief Commissioner, in the backdrop of the use of the word 'may' in the provision, be considered as mandatory. The Hon'ble Bombay High Court has held that the word 'may' in section 127 should be read as 'shall' and hence the granting opportunity to the assessee is mandatory. 6.7 Section 16 of the Wealth-tax Act, 1957 deals with the assessment of wealth. Section 16A having marginal note of 'Reference to Valuation Officer' provides through sub-section (1) that 'For the purpose of making an assessment (including an assessment in respect of any assessment year commencing before the date of coming into force of this section) under this Act, where under the provisions of section 7 read with the rules made under this Act or, as the case may be, the rules in Schedule III, the market value of any asset is to be taken into account in such assessment, the Assessing Officer may refer the valuation of any asset to a Valuation Officer- (a) in a case where the value of the asset as returned is in accordance with the estimate made by a registered valuer if the Assessing Officer is of opinion that the value so returned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne needs to go through the text of the provision and the context in which such a word has been used. 6.8 Reverting to section 92CA, we find that the Finance Act, 2007 inserted sub-section (3A) carrying the time limit of sixty days for passing of the order by the TPO before the expiry of time limit for completion of assessment by the AO u/s 153. Despite the use of the word 'may', the time limit for passing the order by the TPO is mandatory, as in the otherwise situation of the TPO having been allowed more time by implication, say of three months or more, could at that time have frustrated the provisions of section 153 for the passing of the assessment order by the AO. Thus we have no hesitation in holding that the use of the word 'may' in sub-section (3A) of section 92CA is to be construed as 'shall', thereby making this time limit as mandatory and not directory. As such, it is held that the TPO is bound by the given time limit for passing of his order. 6.9 Having held that the word 'may' in section 92CA(3A) should be read as 'shall', we once again note that prior to the insertion of section 144C by the Finance Act, 2009, the time limit for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed at all and is ignored for all practical purposes. The Hon'ble Madras High Court in Vijay Television (P.) Ltd. v. DRP [2014] 369 ITR 113 (Mad) considered a case in which the assessment order was directly passed without routing through draft order or DRP. The Hon'ble Court held it to be a non-curable defect and resultantly the assessment was quashed. It was held that when there is an omission on the part of the AO to follow the mandatory procedure prescribed under the Act, such an omission cannot be termed as a mere procedural irregularity and it cannot be cured. Extantly, we are confronted with a situation in which the draft order has been passed in time but the lapse has come in the passing of the order by the TPO. The consequence of the above scenario is that the passing of a valid and properly timed draft order cannot lead to the setting aside of the final assessment order. However the passing of the time barred order by the TPO, which is again a mandatory procedure prescribed under the Act, would be a non-curable defect, having the consequence as if it was not passed. In such circumstances, though the final assessment order would be saved but the addition on account ..... X X X X Extracts X X X X X X X X Extracts X X X X
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