TMI Blog2020 (6) TMI 153X X X X Extracts X X X X X X X X Extracts X X X X ..... such a notice is illegal and bad in law. This notice is also non-est in law. AO has not even mentioned whether he proposed to levy penalty for non-filing of a return of income u/s 139(1) of the Act by the assessee, or for failing to comply with the notice issued u/s 142(1)/143(2) of the Act etc. Thus, such non-est notice cannot be a basis for coming to a conclusion that the assessment order is a final assessment order and not a draft assessment order. Grant of relief u/s 199 - HELD THAT:- In respect of credit of tax withheld in foreign countries, we agree with the submissions of the ld. D/R that the matter cannot be remanded to the file of the AO. The assessee has not furnished any details in support of his claim either before the AO or the DRP or before us. When no details are furnished till date, we are not in a position to accept the request of the assessee. Thus, this ground of the assessee is dismissed. Short credit of TDS - HELD THAT:- No reconciliation statement has been filed by the assessee before us nor has it demonstrated as to how the AO has erred in granting the tax deducted at source. If there is a mistake in granting of tax, the AO may be approached wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said UK company/ association. It is independently involved in the business of management consultancy services and business advisory services. The company has been rendering services to both overseas and domestic clients since April 2000. PwC India owns only routine intangibles as it acts as a management consultant in exchange for a service fee. 1.2.2. PricewaterhouseCoopers Lanka (P) Ltd. PricewaterhouseCoopers Lanka (Pvt) Limited (PWC Lanka) is the Technology Advisory arm of PwC in Sri Lanka and employs over 30 professionals. PwC Lanka provides services to government, large multinational organisations, as well as to small private sector companies. PricewaterhouseCoopers Sri Lanka is an ISO 27001 certified company. PricewaterhouseCoopers employs more than 140,000 people in 149 countries across the globe and share their thinking, experience and solutions to develop fresh perspectives and practical advice. 1.2.3. PricewaterhouseCoopers Development Associates Ltd. PricewaterhouseCoopers Development Associates Ltd., UK (,PwC DA') is an associated enterprise of PwC India and is incorporated under the Companies Act, 1985 in the United ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inancial results and any changes in the functions performed, risks assumed and the level of tangible and intangible assets owned and employed by PwC India and its associated enterprise. Also, we recommend that PwC India reviews and updates its transfer pricing arrangements to reflect changes in the market or changes in the nature of its intra-group transaction. 2.1. The issue of determination of Arm s Length Price (ALP) was referred by the Assessing Officer to the Transfer Pricing Officer (TPO). The TPO passed an order u/s 92CA(3) of the Act on 27/01/2015. At para 6 of this order, the ALP of the international transaction has been determined as follows:- 5.3. Final List of Comparable : Sl. No. Name of comparable company Operating Revenue Total Cost Operating Profit PLI OP/TC 1. 8K Miles software services limited 1.12 0.79 0.33 41.77% 2. Aurum Soft systems limited 1.48 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Arm's Length Price (ALP) @129.46% of operating cost ₹ 1364,12,18,354 A Arm's Length Price @ 129.46 % on operating cost ₹ 1364,12,18,354 B Operating revenue ₹ 1013,17,31,000 C Value of international transaction (service charges received) ₹ 16,66,84,102/- D Percentage of international transaction to operating revenue 1.64% E Arm's length Price of international transactions at ratio of 1.64% of ₹ 1364,12,18,324 ₹ 22,37,15,980/- F Shortfall being adjusted u/s 92CA (E-C) ₹ 570,31,878/- The above shortfall of ₹ 570,31,878/- is treated as transfer pricing adjustment u/s 92CA(3). 7.0. Since the adjustment is more than +/-5% limit, in view of the facts of the case, an adjustment of ₹ 570,31,878/- -i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee at ₹ 235,07,36,930/-. Before the DRP, the assessee contended that the order is barred by limitation. Objections were raised on the proposed additions made in draft assessment order. The DRP called for a remand report from the ACIT and thereafter issued directions on 11/08/2016. Before the DRP, the following additional submissions were made:- The Ld. AR raised the issue of the order being void ab initio due to alleged violation of limitation per section 153. The Ld. AR did not make any detailed submissions as the scope of section 144C does not empower the DRP to go at the very root of such issues nor is it empowered to hold an assessment as nullity. The section is enabling section and DRP is cannot issue directions of such objections. The panel, hence, declines to interfere on the count of limitation issue in this case. 3. Aggrieved the assessee has filed this appeal before the Tribunal on the following grounds:- 1. On the facts and in law and in the circumstances of the case, the Ld. AO erred in passing an impugned draft assessment order dated 27 November 2015 under section 143(3) r.w.s 144C of the Income Tax Act, 1961 ('the Act') ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... On the facts and in law and in the circumstances of the case, the learned Assessing Officer ('the Ld. AO') erred in law in issuing demand notice under section 156 of the Act and penalty notice under section 274 read with section 271(1)(C) of the Act along with the draft assessment order dated 27 November 2015, which renders the proceedings before the Ld. AO and subsequent final assessment order dated 29 September 2016 bad in law and non-est in view of the express provision of section 144C of the Act. Transfer pricing grounds 5. On the facts and in law and in the circumstances of the case, the Learned Transfer Pricing Officer ('Ld. TPO') and consequently, the Ld. AO/ Hon'ble DRP grossly erred in making a transfer pricing adjustment of ₹ 5,70,31,878 to the international transaction of the Appellant with its Associated Enterprise ( AE') without considering the facts of the present case and thereby making an arbitrary assessment. Specific Grounds in relation to international transaction with PricewaterhouseCoopers Development Associates Ltd., UK ( PwC DA ) 6. The Ld. TPO and the Ld. AO/ Hon'ble DRP erred in selec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;ITAT Rules') Dear Sir, By way of this application, the appellant seeks leave of the Hon'ble Tribunal to raise additional/modified grounds of appeal in addition to the grounds of appeal taken in appeal memo filed on 5 December 2016 in the captioned appeal. The Appellant wishes to submit additional grounds of appeal for kind consideration of the Hon'ble Bench and the same is attached as Annexure - 1 to this application. 1. Corporate tax The appellant in the present ease has raised the Ground No. 1 in connection with validity of assessment order in view of the provisions of section 153 of the Act. However, the appellant inadvertently and by omission not challenged the assessment proceedings on the ground that the same is also not in accordance with provisions of section 144C of the Act, though specific objection has been raised before the Hon'ble DRP. Therefore, by way of this application, the Appellant raises Ground No. 1.1 in the Annexure - 1 to this application which may kindly be adjudicated in the present appeal along with other grounds of appeal. 1.2 In the present case, an order dated 27 November 2015 was served on the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y be admitted, as material facts are already on record in respect of the above grounds as explained. 2. Transfer pricing 2.1 The appellant further submits that while finalizing the Grounds of appeal due to inadvertent mistake and omission, the issue related to adjustments made by the Learned Transfer Pricing Officer ('Ld. TPO')/Learned Assessing officer ( Ld. AO ) and subsequently, confirmed by the Hon He DRP was not considered. The Ld. TPO has made adjustments in relation to the international transactions of the Appellant with its Associated Enterprises ( AE ) amounting to ₹ 5,70,31,878. 2.2 Accordingly, the Appellant prays that Ground Nos. 5 to 12 related to Transfer Pricing Adjustment may kindly be considered for adjudication along with other grounds of appeal raised in the appeal memo. It is therefore prayed that since the facts in relation to the aforesaid Grounds of Appeal now being raised, are already on record in view of the settled principles of law on this point as enunciated by the Hon ble Apex Court in National Thermal Power Co. Ltd. v. CIT, 229 ITR 353(SC), the grounds raised by the Appellant be admitted and adjudicated by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;Ld. AO') passed an order dated 27 November 2015 determining assessed income of ₹ 235,07,36,930. Thereafter, pursuant to the Directions of the Hon ble Dispute Resolution Panel dated 11 August 2016, final assessment order under section 144C(13) r.w.s 143(3) of the Act dated 29 September 2016 was passed determining the total assessed income at ₹ 120,62,26,650: 1.3 The Appellant has been deriving income from rendering of services in USA. However, the Appellant was under a bona fide belief that it was not required to file a tax return or pay taxes in USA in respect of income earned from rendering the services in FY 2010-11 as it being a non-resident in USA. Accordingly, the Appellant had not filed any tax return in USA for FY 2010-11. For the AY 2011-12 pertaining to previous year 2010-11, the Appellant, being a resident company of India, filed its tax return in India inclusive of the incomes earned from the transactions carried out of USA. Accordingly, the assessee submits that the Company is entitled for taxes paid in USA in accordance with provisions of Article 25 of Agreement for avoidance of double taxation of income with USA ('Treaty'). 1.4 Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income is offered to tax or assessed to tax in India the assessee within six months from the end of the months in which the dispute is finally settled, furnishes evidence of settlement of dispute and an evidence to the effect that the liability for payment of such foreign tax has been discharged by him furnishes an undertaking that no refund in respect of such amount has directly or indirectly been claimed or shall be claimed. The claim of credit for taxes paid in USA with respect to tax liability finalized in June 2018 is in accordance with the law. In view of the above, it is submitted that the above ground of appeal may kindly be admitted and considered for adjudication along with other grounds of appeal raised in the appeal memo. Thanking You. Yours faithfully, For PricewaterhouseCoopers Private Limited (Satyavati Berera) (Director) Encl: Annexure - 1 3.2. Multiple applications have been filed on the very same matter for admission of additional grounds/additional evidence etc., which we would be dealing with in due course. 4. The ld. Counsel for the assessee, Shri Kanchan Kaushal, made detailed submissions bot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, as it then existed and argued that the order in question should have been passed on or before 9th October, 2015, after excluding the above period of 145 days i.e., from 18/03/2015 to 10/08/2015 and whereas the order was passed on 27/11/2015. Thus, he submits that both the orders passed on 27/11/2015 is barred by limitation and consequently the order passed on 29/09/2016 is null and void, and hence has to be quashed. 5. On merits, he submitted that Ground No. 2.1. to 2.4. is not pressed. 6. On Ground No. 3, foreign tax credited, the ld. Counsel for the assessee requested that the issue be set aside to the file of the Assessing Officer, to enable the assessee to produce evidence as called for and prove its claim. 7. On Ground No. 4, he submitted that the directions may be issued to the Assessing Officer to give an opportunity to the assessee to reconcile the tax deducted at source figures so that the correct credit may be given. 8. On additional ground no. 3.1., he submitted that income earned by the assessee from United States was included in income earned in India as no return of income was filed in U.S.A. at that point of time. He submitted that lat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usion that the order passed on 27/11/2015 is in fact a final assessment order, for the reason that the notice for levy of penalty u/s 271(1)(c) of the Act is non-est in law. c) That from the fact that the assessee has filed objections before the Hon ble DRP, leads to a conclusions that the assessee believed that the order dt. 27/11/2015 was a draft assessment order and not a final assessment order. When the assessee has understood that this is a draft assessment order and has instead of filing an appeal before the ld. CIT(A), chosen to challenge the same before the DRP, it cannot contend otherwise and it cannot approbate and repobrate. If the contentions of the ld. Counsel of the assessee that this order dt. 27/11/2015, is the final assessment order is to be upheld, then neither the DRP nor the ITAT have jurisdiction to entertain the appeal of the assessee as the assessee should have approached the ld. CIT(A) with an appeal. He distinguished the decisions relied upon by the ld. Counsel for the assessee that issuance of notice u/s 156 of the Act and initiation of penalty u/s 271(1)(c) of the Act along with the draft assessment leads to a conclusion that the draft assessment or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13. On the issue of short credit of TDS, he submitted that the matter may be restored to the file of the Assessing Officer to grant appropriate tax credit after due verification of the Form No. 26AS of the assessee. 14. In reply, the ld. Counsel for the assessee rebutted the contentions of the ld. D/R and made lengthy submissions both oral and written. For the sake of brevity, they are not extracted. We have carefully considered all these submissions as well as the case law cited by both the parties. These will be discussed if required. 15. We have heard rival contentions. On careful consideration of the facts and circumstances of the case, perusal of the papers on record, orders of the authorities below as well as case law cited, we hold as follows:- 16. The first issue that has to be adjudicated is whether the order passed on 27/11/2015 is a draft assessment order or a final assessment order. 17. Apparently, the order passed on 27/11/2015 is a Draft Assessment Order u/s 144C of the Act. It is said so on page 1 of the order. When the Assessing Officer specifically states that the Section and sub-Section under which the order is made is Section 144 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urther brought to our notice that as against the decision of the Hon'ble Karnataka High Court the revenue preferred an appeal in SLP in CC No.11485 of 2016 and the Hon'ble Supreme Court by its order dated 05.08.2016 dismissed the SLP preferred by the department. The ld. Counsel also brought to our notice the decision of the Hon'ble Bombay High Court in the case of CIT vs Shri Samson Perinchery in ITA No.1154 of 2014 dated 05.01.2017 wherein the Hon'ble Bombay High Court following the decision of the the Hon'ble Karnataka High Court in the case of of CIT vs Manjunatha Cotton and Ginning factory (supra) came to the conclusion that imposition of penalty on defective show cause notice without specifying the charge against the assessee cannot be sustained. Our attention was also drawn to the decision of ITAT in the case of Suvaprasanna Bhattacharya vs ACIT in ITA NO 1303/Kol/2010 dated 06.11.2015 wherein identical proposition has been followed by the Tribunal. The learned DR relied on the order of the CIT(A). 11. We have already observed that the show cause notice issued in the present case u/s 274 of the Act does not specify the charge against the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on a number of decisions in support of his contentions. For the sake of brevity, we do not deal with all of them separately. In our view, these case-law are distinguishable on facts as in this case both the Notice of Demand u/s 156 of the Act and the notice for levy of penalty u/s 271(1)(c) of the Act are illegal notices and are void-ab-initio. In the case-law relied upon by the ld. Counsel, these notices u/s 156 and 274 of the Act, might have been held to be valid notices in law. The substantial nature and character of the main order does not change just because it was annexed with illegal, void and defective notices proposing certain action which were never taken or implemented. The pith and substance of the main order cannot be changed. The tail cannot wag the dog . The order passed u/s 144C of the Act, cannot be held as passed u/s 143(3) of the Act because some defective and illegal notices are issued along with its. 19.1. In some of the case-law relied upon by the ld. A/R, the Assessing Officer had stated that the order was passed u/s 143(3)/144C(1) of the Act, though he termed it as a draft assessment order. In this case, Section 143(3) of the Act, has not been me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should be passed within a reasonable time and the time limit given u/s 153 of the Act is relevant for the determination of time available with the TPO for passing order u/s 92CA(3). The facts before the coordinate bench was that the assessment order u/s 143(3) was passed on 29.01.2015 which is well within the period of one month in which the direction was received from the ld. DRP on 24.12.2014, thus, the final order passed by the ld. AO is within the time prescribed u/s 144C(13). As the draft order was also passed within a reasonable time same is also not barred by limitation. Against this decision no further appeal is filed by the Assessee. However, the ld. AR has given a detail rebuttal to the submission of the revenue. 11. The first argument of the ld. AR was that argument of the ld. CIT DR that DRP proceedings are substitution of the appellant proceedings, thus, direction of the ld. DRP like an appeal order therefore, provision of section 153 of the Act does not apply. The ld. Authorized Representative referred to the decision of the Hon ble Bombay High Court in 361 ITR 531 where it is held that DRP proceedings are not appellate proceedings. The Hon ble Bombay High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on expires. If the objections are filed by the assessee the dispute resolution panel issue directions as it thinks fit and enabling the assessing officer to complete and issue the order of final assessment. Provisions of subsection 6, 7, 8 and 9 of section 144C sets out the procedure to be followed by the dispute resolution panel in issue of the direction. The section further provides that every direction issued by the dispute resolution panel shall be binding on the assessing officer. Thus it seen that AO cannot tinker or apply anything further than what was mentioned in the draft assessment order except what is directed by the learned dispute resolution panel. The provisions of principles of natural justice are ingrained in the provisions of section 144C of the act. It further says a time limit of 9 months from the end of the month when the draft order is forwarded to the assessee for passing of issue of any directions. Upon receipt of the direction the AO shall pass an order of final assessment which is in conformity with the direction of the dispute resolution panel within one month from the end of the month in which the directions are received. There is no further provision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uthorized representative is that there is no time limit for passing of the draft assessment order under the scheme of section 144C and then same can be passed within a reasonable time is flawed. The argument advanced is that legislative intent is to progressively reduce the limitations for passing the assessment order to expedite the dispute resolution process and impart certainty finality to assessment proceedings. As we have already held that it is a complete code in itself therefore it in fact it supports the intention of the legislature in providing expeditious resolution of the dispute between the taxpayer and tax gatherer. Thus this argument deserves to be rejected. 15. No doubt, the final order of assessment is passed pursuant to the direction of the learned dispute resolution panel but it cannot be said that that limitations provided under section 153 applies to it. As we have already held that it is a complete code in itself as held by the honourable Madras High Court, which also provides for specific limitations, if a particular procedure adopted by the assessee, then timelines provided therein will only apply. 16. Further, over and above the above decis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ld. Counsel for the assessee after considerable arguments, has not pressed his claim that the foreign AE to be made the tested party. Hence, we dismiss this ground of the assessee. No arguments were made on the question of adjustment, Most Appropriate Method (MAM), Comparables etc. The Transfer Pricing adjustments made by the TPO on facts is not disputed by the assessee. As already stated, no arguments were advanced on the same. Hence, we uphold the same. 29. All the other grounds raised by the assessee are dismissed as not argued. 30. Before parting, it is noted that the order is being pronounced after ninety (90) days of hearing. However, taking note of the extraordinary situation in the light of the COVID-19 pandemic and lockdown, the period of lockdown days need to be excluded for the purpose of computation of the limitation. For coming to such a conclusion, we rely upon the decision of the Co-ordinate Bench of the Mumbai Tribunal in the case of DCIT vs. JSW Limited in ITA No. 6264/Mum/2018 6103/Mum/2018, Assessment Year 2013-14, order dt. 14th May, 2020. 31. In the result, appeal of the assessee is allowed in part. Kolkata, the 29th day of May, 202 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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