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TMI Blog2020 (3) TMI 1420X X X X Extracts X X X X X X X X Extracts X X X X ..... . For that further and in any event and without prejudice to the aforesaid, the AO could not have made any transfer pricing adjustments in the absence of a reference under section 92CA after assumption of jurisdiction under section 147. 5. For that the Assessing Officer erred in assessing the total income of the Appellant at INR 9,40,36,160/- as against total income of INR 4,31,54,335/- computed as per the final assessment order passed on August 31, 2016 under section 143(3) of the Act." 3. Facts in brief. Nomura Research Institute Financial Technologies India Pvt. Ltd. is an Indian company incorporated in the year 2001 and is engaged in providing software services to its Associated Enterprises ('AEs'). For the subject AY, the company had filed its return of income ('RoI') on 28 November 2014 disclosing a total income of INR 4,31,43,710 under the normal provisions of Income Tax Act, 1961 ('the Act') and book profit of INR 4,22,29,700 under section 115JB of the Act. Since the tax liability under the normal provisions was higher, the company had paid taxes under the normal provisions of the Act. The ROI filed by the company was selected for scrutiny through CASS on the basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as considered the facts and circumstances of the cases. The sequence of events leading to objections raised before the Panel is as under: Date Particulars 28.11.2014 Return of Income filed for AY 2014-15 disclosing a total income of INR 4,31,43,710 under normal provisions and book profit of INR 4,22,29,700 under MAT. 28.08.2015 Notice u/s 143(2) of the Act issued for limited scrutiny through CASS on non-TP Risk parameters fixinq the date of hearinq as 14.09.2015. 8.09.2015 Reference made to the TPO after taking prior approval as per sec 92CA(1) 21.06.2016 Notice under section 142(1) of the Act issued. 31.08.2016 Final Assessment Order passed with an adjustment of INR 10,626 23.10.2017 Show-cause notice issued by the TPO proposing TP adjustments 24.10.2017, 26.10.2017 Response to show-cause notice filed by the Assessee without prejudice to the fact that TP proceeding was invalid 27.10.2017 TP order passed with an upward adjustment of INR 5,08,27,823 26.02.2018 Reassessment proceedings initiated by the AO by issuing notice u/s 148 2.08.2018 Draft assessment order passed by the AO against which objections raised ii. The above sequence of events has also been me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce the final assessment order passed on 31.08.2016. The TPO order dated 27.10.2017 passed in consequence to the reference on 08.09.2015 can obviously not be used for making reassessment u/s. 148 without making a fresh reference with approval of the PCIT, and without a fresh TPO order following such reference after notice u/s. 148 was issued. v. The panel therefore cannot give directions on the draft assessment order dated 2.08.2018 as the conditions u/s.144C(15) (b) of eligible assessee is not satisfied. The assessee is neither a foreign company nor is there a variation in income as a consequence of the order of the TPO passed under section 92CA(3), as the TPO order dated 27.10.2017 became invalid due to the final order already passed on 31.08.2016. Further, there is no valid TPO order under section 92CA(3), after initiation of proceeding u/s. 148. As the assessee is not an eligible assessee, the DRP does not have jurisdiction to issue Directions. vi. In view of the above discussion, the other objections of the assessee become infructuous. Direction u/s 144C of the Income Tax Act 1961 The objections of the Taxpayer are decided as above. The Assessing Officer is directed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the re-assessment proceedings based on an illegal T.P. Order. 10. Thus he argued that the final assessment order is bad in law has to be quashed. 11. The ld. DR, Sh. Vijay Shankar on the other hand submitted that the re-opening is valid as the AO had information, in the form of a report by the TPO, determining that the Arm's Length Price of the international transactions, of the assessee had with its associate enterprise calls for adjustment. He relied on the decision of the Hon'ble Supreme Court in the case of Pooran Mal Etc vs Director Of Inspection 1974 AIR 348, 1974 SCR (2) 704 dated 14 December, 1973 for the proposition that, material found during an illegal search can also be used for the purpose of adjudication of tax liability and submitted that similarly even if the reference to the TPO and consequent proceedings before the TPO are declared invalid, the material gathered, in the form of TPO report can be a basis for the re-opening of assessment. He submitted that the assessee is relying on the Board's circular wherein, whenever the scope of enquiry in cases selected for scrutiny is proposed to be enlarged by the AO and where the case is required to be taken for comprehe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 142(1) of the Act was issued by the AO. @ Pg 220 of PB 31 August 2016 Final Assessment Order passed u/s 143(3) of the Act with an addition of INR 10,626/@Pg 222 of PB 6 January 2017 Transfer Pricing notice issued by the TPO initiating proceedings 14 February 2017 Response filed by the Assessee stating that TP proceeding was invalid and should be dropped. @ Pg 229 of PB 18 October 2017 Notice from TPO under section 92CA(2) read with section 92D of the Act was received by the assessee @ Pg 230 of PB 23 October 2017 Show-cause notice issued by the TPO proposing TP adjustments. @ Pg 231 ofPB 26 October 2017 Response to show-cause notice filed by the Assessee without prejudice to the fact that TP proceeding was invalid. @ Pg 233 of PB 27 October 2017 TP order passed with an upward adjustment of INR 5,08,27,823/- @ Pg 297 of PB 26 February 2018 Reassessment proceedings initiated by the AO by issuing notice u/s 148 @ Pg 326 of PB 3 May 2018 Reasons for initiating reassessment proceedings provided by the AO @Pg 327 of PB 2 August 2018 Draft assessment order passed by the AO with an adjustment of INR 5,08,27,823/- @ Pg 346 of PB 30 August 2018 Objections ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct on 31.08.2016. A T.P. report is not a material found as in the case of Pooran Mal Etc (supra). It is a report which has no legal validity. An adjustment made based on this report is also bad in law. 18. The directions of the DRP are binding of the AO u/s 144(13) of the Act. The final assessment order dated 16.05.2019 should have incorporated the finding of the DRP as directed in the order of the DRP. When the DRP has held that the re-opening of the assessment is bad in law, the AO, in our view, has no other alternative but to drop the assessment proceedings on the ground that re-opening of assessment has been held as bad in law. As the AO has not followed the binding directions of the DRP, we have to quash the final assessment order dated 16.05.2019 as bad in law. 19. This Bench of the Tribunal in the case of M/s. Labvantage Solution Pvt. Ltd. Vs. DCIT (supra) under identical circumstances held as follows: "5. We find that the Learned AO having realized his mistake of not selecting the case for scrutiny sought to remain silent after receiving the Learned TPO's order dated 28.1.2014. We find that notice u/s 143(2) was also issued and served on the assessee in the reassessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder dated 29.1.2013 suggesting an adjustment of Rs. 2,43,53,752/- to ALP was based on illegal reference by the ld AO and is accordingly void ab initio and bad in law. Hence the entire reassessment proceedings initiated based on such illegal reference and illegal order of ld TPO cannot be construed as information which would have live link to the formation of belief to have reason to believe on the part of the ld AO that income had escaped assessment within the meaning of section 147 of the Act. Hence we hold that no addition in the sum of Rs. 2,43,53,752/- towards adjustment to ALP could be made in the reassessment. Once this addition goes, then the very root of the reassessment proceedings also vanishes and no other addition could be made thereon. Accordingly, the entire reassessment proceedings deserve to be quashed in the facts and circumstances of the case. 2.5. In view of our above conclusion, we allow the ground no. 1 raised by the assessee by declaring that the reassessment order of the ld AO is bad in law and void ab initio. In view of this decision, the adjudication of other grounds becomes infructuous and hence no decision is given on the merits of the additions and on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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