TMI Blog2020 (6) TMI 53X X X X Extracts X X X X X X X X Extracts X X X X ..... ontrary to these decisions. In fact, the statute itself gives a mandatory direction to the Assessing Officer under Section 144C that in the first instance the Assessing Officer should forward the draft of the proposed order of assessment. When the Tribunal remanded back the matter for fresh determination, it has set aside the earlier Assessment and hence the Assessing Officer has to conduct a fresh Assessment as per the mandate of Section 144C. Thus, the Assessment order itself is bad in law and void ab initio, hence quashed. Appeals of the assessee are allowed. - ITA No. 8752/DEL/2019, ITA No. 8753/DEL/2019 - - - Dated:- 27-5-2020 - Ms Suchitra Kamble, Judicial Member, And Shri Prashant Maharishi, Accountant Member For the Appellant : Sh. Vishal Kalra Sh. Ankit Sahni, Advs For the Respondent : Sh. G. K. Dhall, CIT DR ORDER PER SUCHITRA KAMBLE, JM These two appeals are filed by the assessee against the Assessment Orders dated 18/10/2019 and 10.10.2019 passed by the Assessing Officer u/s 143 (3) read with Section 144C of the Income Tax Act, 1961, for Assessment Year 2012-13 and 2015-16 respectively. 2. The grounds of appeal are as under:- ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the unilateral AMP expenditure being payments made by Appellant to independent third parties as an international transaction under chapter X of the Act, particularly when section 92CA of the Act, enables the TPO only to compute the arm s length price ( ALP ) of the international transaction . 4. That on the facts and circumstances of the case and in law, the TPO erred in suo-moto benchmarking the alleged international transaction related to AMP expenditure without their being any order or reference from the AO in relation thereto. Notwithstanding and without prejudice to the above grounds that the AMP expenditure incurred by the Appellant does not constitute an international transaction under Chapter X of the Act, the Appellant craves to raise following grounds on merits: Re: Additions on substantive basis : 5. That on facts and circumstances of the case and in law, the AO / TPO have erred in making an adjustment of INR 1,59,39,195 in an arbitrary and ad-hoc manner, without sharing the reasons for deviation from the remand proceedings, as the TPO vide remand report dated 26.07.2019, admitted that under intensity method there is NIL adjustment. 5. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itrary AMP/Sales ratio of 0.46%, which was devoid cogent and basis. 12. That on the facts and circumstances of the case and in law, AO / DRP / TPO have erred in not appreciating that the Appellant had not provided any value added / brand building services to its AE by incurring AMP expenditure, and therefore, no mark-up could have been charged / levied on such expenditure, even if the same was to be characterized as an international transaction . 12.1. Notwithstanding and without prejudice that no mark-up could have been levied, on the facts and circumstances of the case and in law, AO / DRP / TPO have erred in law and facts, in selecting improper companies as comparable companies for purpose of computing markup for the alleged international transaction without appreciating that the same are functionally different. 13. That on the facts and circumstances of the case and in law, the AO / DRP / TPO have erred in not granting set-off of excess profit from distribution of products while benchmarking the alleged international transaction of incurring excessive AMP expenditure as has been held by the Hon ble Delhi High Court in the case of Sony Ericson Mobile Communicatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant and the AE for incurrence of such expenditure by the Appellant and the Dispute Resolution Panel ( DRP ) erred in upholding the same. 3.1 That on the facts and circumstances of the case and in law, the orders passed by the AO / DRP/ TPO are bad in law as the unilateral AMP expenditure incurred has been categorized as international transaction without passing a speaking / reasoned order recording satisfaction in relation to characterisation / categorization of the AMP expenditure as an international transaction . 3.2 That on the facts and circumstances of the case and in law, the TPO erred in re-characterizing the unilateral AMP expenditure being payments made by Appellant to independent third parties as an international transaction under chapter X of the Act, particularly when section 92CA of the Act, enables the TPO only to compute the arm s length price ( ALP ) of the international transaction . 4. That on the facts and circumstances of the case and in law, the TPO erred in suo-moto benchmarking the alleged international transaction related to AMP expenditure without their being any order or reference from the AO in relation thereto. Notwithstandi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice that no mark-up could have been levied, on the facts 'and circumstances of the case and in law, the AO / TPO have erred in selecting improper comparable companies for application of mark-up, being entities providing market support functions. Further, the DRP erred in upholding the erroneous approach of AO / TPO. 8.2. Notwithstanding and without prejudice that no mark-up could have been levied, on the facts and circumstances of the case and in law, AO / DRP / TPO have erred in selecting / functionally incomparable companies or had insufficient data, namely, (i) Majestic Research Services Solutions Limited, (ii) Killick Agencies Marketing Limited and (iii) Fcbulka Advertising Private Limited, as comparables for purpose of computing mark-up for the alleged international transaction. 9. That on the facts and circumstances of the case and in law, the AO / DRP / TPO have erred in not granting set-off of excess profit from distribution of products while benchmarking the alleged international transaction of incurrence of excessive AMP expenditure as has been held by the Hon ble Delhi High Court in the case of Sony Ericson Mobile Communications India Pvt. Ltd.: 374 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M) 5,306,499,488 2 Purchase of Fixed Assets Transactional Net Margin Method (TNMM) 5,664,445 3 Sales and Service Support Income Transactional Net Margin Method (TNMM) 18,684,779 4 Commission Income Transactional Net Margin Method (TNMM) 252,061,329 5 Purchase of Fixed Assets Comparable Uncontrolled Price Method (CUP) 8,527,876 6 Cost Reimbursements Received Comparable Uncontrolled Price Method (CUP) 2,151,406 7 Cost Reimbursements Paid Comparable Uncontrolled Price Method (CUP) 82,281,676 The TPO vide order dated 28,2016, held that the assessee was incurring excessive Advertisement, Marketing and Promotion Expenditure (AMP) for development of the brand owned by its foreign AE, therefore such excessive AMP expenditure would amount to international tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P regarding AMP intensity adjustment. Also, the Tribunal in para 20 of the order categorically directed the TPO to benchmark the excessive AMP expenditure on an aggregate basis. Pursuant to the directions of the Tribunal, the TPO vide order dated 31.10.2018, reiterated and held that the assessee was incurring excessive AMP expenditure for development of the brand owned by its foreign AE. Thus, such excessive AMP expenditure would amount to be an international transaction. The TPO again determined adjustment relating to excessive AMP expenditure on substantive as well as protective basis as was done in the first round as under: Basis Method for Benchmarking Adjustment u/s 92CA of the Act (in INR) Substantive Cost Plus Method 51,89,69,687 Protective BLT 1,21,37,90,558 The Assessing Officer in the second round without passing a draft assessment order, passed an assessment order dated 18.12.2018 thereby only titling the same as draft assessment order under Section 143(3) read with Section 144C of the Act, maki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the same is general in nature. As regards to Ground Nos. 2 and 2.1, the Ld. AR submitted that the assessment order passed by the Assessing Officer in remand proceedings is bad in law and liable to be quashed. The Ld. AR submitted that the assessment order dated 18.12.2018 was passed by the Assessing Officer along with notices under Section 156 and 274 read with Section 271(1)(c) of the Act. The assessment order, thus was passed in violation of Section 144C of the Act in as much as the AO has passed the final assessment order instead of a draft assessment order. This is against the scheme envisaged in the said Section 144C of the Act and is, therefore, bad in law and void-ab-initio. The Ld. AR relied upon the Hon ble Madras High Court decision in case of Vijay Television (2014) 369 ITR 113 (Madras) wherein it is held that non-passing of draft assessment order after adjustment made by the TPO renders proceedings null and void. This has been followed by various coordinate Benches of the Tribunal including the Delhi Bench in the case of ACIT vs. Oracle India Pvt. Ltd ITA No. 6288/ DEL / 2013, which has clearly held that passing of draft assessment order is compulsory and issuing of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessing Officer is just and valid as per Section 144C of the Income Tax Act, 1961. 9. We have heard both the parties and perused all the relevant material available on record. As regards to Ground No. 1, the same is general in nature hence does not require any adjudication. As regards to Ground Nos. 2 and 2.1, it is pertinent to note that the Tribunal vide order dated 31.03.2017 remanded the matter back to the TPO/AO for fresh determination. Thus, as per Section 144C of the Act, it is mandatory for the Assessing Officer to pass draft Assessment Order. But instead of that, the Assessing Officer vide order dated 18.10.2019 merely captioned the final Assessment Order as Draft Assessment Order along with issuance of notices under Section 156 and 274 read with Section 271(1)(c) of the Act which means a final Assessment order u/s 144C was passed without following the mandatory provisions of Section 144C of the Act. The Ld. AR has rightly relied upon the decisions of the Hon ble Delhi High Court in cases of Control Risks India (P) Ltd. (supra) and Nokia India Pvt. Ltd. (supra) wherein the SLP have been dismissed by the Hon ble Supreme Court and confirming the Hon ble High Court s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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