TMI Blog2023 (7) TMI 788X X X X Extracts X X X X X X X X Extracts X X X X ..... 61 [the Act] by the DCIT, Central Circle 3(1), Bangalore for the assessment year 2017-18. 2. The assessee is engaged in software development agencies, Information Technology enabled Services (ITES) and BPO service provider. It filed return of income on 30.11.2017 declaring total loss of Rs.81,97,22,588 after setting off of income and book profits admitted by the assessee was Rs.191.40 crores. Subsequently the case was selected for scrutiny and statutory notices were issued to the assessee. The case was referred to the TPO vide order dated 25.1.2021 proposed a transfer pricing (TP) adjustment of Rs.2,70,90,67,556 in respect of the international transactions, which was incorporated in the draft assessment order along with other corporate tax additions made by the AO. On objections filed by the assessee, the ld. DRP issued its directions on 30.12.2021. Consequently final assessment order was passed by the AO on 28.1.2022 against which the assessee is in appeal before the Tribunal on the following grounds:- General Grounds: 1. On the facts and in the circumstances of the case and in law, the assessment order framed under section 143(3) read with section 144C(13) of the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Appellant under Section 92D of the Act, in good faith and with due diligence; 6.2. Rejecting the filters selected by the Appellant as captured in the TP documentation and adopting certain addition filters which are not in accordance with the jurisprudence laid down by various appellate forums; 6.3. Application of related party transaction ( RPT ) filter by applying an inappropriate interpretation of computing the filter and thereby accepting Persistent Systems Ltd as comparable companies to the SWD services segment of the Appellant, though they fail the RPT filter. 6.4. Conducting a fresh comparability analysis by applying additional/modified filters and including additional comparables which are not functionally comparable to the Appellant; 6.5. Including the following companies even though such companies are not fulfilling the filters applied by Learned TPO: OFS Technologies Ltd. Aptus Software Labs Pvt Ltd 6.6. Including the following companies even though such companies are functionally different from the Appellant: Larsen and Toubro Infotech Ltd Nihilent Ltd OFS Technologies Ltd. Aptus Software Labs Pvt Ltd Infosys Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,914 be deleted in the interest of justice. ii. Adjustment on account of Advertisement, Marketing and Promotion ( AMP ) expense 11. On the facts and in the circumstances of the case and in law, the Learned AO erred in enhancing the assessment by Rs. 22,03,14,960 on the basis of directions of the Hon ble DRP, which was not a variation proposed in the draft order passed by the Learned AO under section 144C(1) of the Act. 12. On the facts and in the circumstances of the case and in law, the Hon ble DRP erred in setting aside the issue of AMP for further benchmarking and making an adjustment, which is in violation of the provisions of section 144C(8) of the Act. 13. Without Prejudice to Ground no. 11 12, on facts and in the circumstances of the case and in law, the Hon ble DRP failed to give any show cause notice to the Appellant before directing the Learned AO to benchmark the AMP expenses separately which is in violation of provisions of section 144C(11) of the Act. 14. Without Prejudice to Ground no. 11 12, on facts and in the circumstances of the case and in law, the Learned AO erred in benchmarking the AMP expenses on its own without referring it to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g that the determination of routine vs. non-routine AMP spend is a qualitative exercise and not a numerical one, and accordingly, the general rule of arithmetic mean / averaging should not apply to bright line test. 18. Without prejudice to the Ground No. 11 - 14, on the facts and in the circumstances of the case and in law, the Learned AO erred in: 18.1 erroneously holding that the Appellant should have earned a markup on the AMP expenses incurred by alleging that the Appellant has provided market support services to AEs; and 18.2 arbitrarily selecting comparable engaged in marketing support services without following a structured search process for computation of the aforementioned mark-up. The Appellant therefore prays that entire AMP adjustment of Rs. 22,03,14,960 be deleted in the interest of justice. b) Grounds relating to Direct Tax matters 19. On the facts and in the circumstances of the case and in law, the Hon ble DRP erred in upholding the addition made by Learned AO of INR 25,00,157/- on account of waiver of Royalty receivable on intellectual property licensed to Practo Pte Ltd (Singapore). 20. On the facts and in the circumstances of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TR 722 (SC) CIT v. Kanpur Coal Syndicate, 53 ITR 225 (SC) Jute Corporation of India Ltd., 187 ITR 688 (SC) Ahmedabad Electricity Co. Ltd. and Godavari Sugar Mills Ltd. v. CIT, 199 ITR 351 (Bom) New India Industries Ltd., 207 ITR 1010 (Guj) National Thermal Power Co. Ltd. v. CIT, 229 ITR 383 (SC) Ashok Vardhan Birla v. CWT, 208 ITR 958 (Bom) Controller of Estate Duty v. R. Brahadeeswaran, 163 ITR 680 (Mad) Inaroo Ltd. v. CIT, 204 ITR 312 (Bom) CIT v. Govindram Bros. P. Ltd., 141 ITR 622 (Bom) 5. We have heard both the parties on the admission of additional grounds. These additional grounds are already available on the record of lower authorities and do not require fresh investigation into facts. Therefore, following the Hon ble Supreme Court judgment in the case of M/s National Thermal Power Co. Ltd. Vs. CIT, 229 ITR 383 (SC), the additional grounds are admitted for adjudication. 6. At the outset, the ld. AR first contended the legal issue raised vide additional grounds No.24 25. He submitted that the Ld. DRP issued its directions under section 144C(5) of the Act on 30.12.2021. However, the said directions, when served upon the Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... munications issued by any income-tax authority to the assessee or any other person. b) Para-2 of the Circular states that no communication shall be issued by any income-tax authority relating to assessment, appeals, orders, statutory or otherwise, exemptions, enquiry, investigation, verification of information, penalty, prosecution, rectification, approval etc. to the assessee or any other person, on or after the 1st day of October, 2019 unless a computer-generated DIN has been allotted and is duly quoted in the body of such communication. c) Para-3 of the said Circular states that in five specific exceptional circumstances as mentioned therein, the communication may be issued manually but only after recording reasons in writing in the file and with prior written approval of the Chief Commissioner/Director General of income-tax ( CCIT / DGIT ). Further, whenever any such manual communication would be issued, it would be necessarily required to specify reason of issuing such a communication without DIN along with the date of obtaining written approval of the Chief Commissioner/Director General of Income Tax in a particular format, which shall be mentioned in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 91/2021-22/1038293464(1) handwritten is wrong, as the said handwritten DIN is the DIN of the intimation letter dated 31.12.2021 and not the DIN ITBA/DRP/M/144C(5)/2021-22/1038293314(1) which has been sought to be allotted to DRP directions. The said fact has been fairly accepted by the Ld. AO in para 1.3 of the remand report dated 01.03.2023 filed by the Ld. DR during the course of hearing on 16.05.2023. 11. He submitted that in any case, as stated above, once the manual communication is not in conformity with Para 3 and Para 4 of the Circular, the said communication shall be rendered invalid and deemed to have never been issued. Once the document is deemed to have never been issued, subsequently endorsing of a DIN, that too a wrong DIN by hand would not be relevant. 12. In this regard, attention is invited to the decision in the case of Dilip Kothari v. PCIT: ITA Nos.403 to 405/Bang/2022. In this case, an order under section 263 of the Act was passed without quoting DIN and on the same day, DIN was generated vide a separate intimation. The Tribunal held that the same was not in accordance with the Circular and therefore, the order under section 263 of the Act was quashed, ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t a valid DIN was generated at the time of issuing the directions, however, inadvertently DIN of the intimation letter i.e., ITBA/DRP/S/91/2021- 22/1038293464(1) was written on the order instead of DIN ITBA/DRP/144C(5)/2021-22/1038293314(1). He further submitted that the intention behind introducing DIN was to enable assessee to check the authenticity of the communications from the revenue. In this case, it is evident that the DIN of the directions pertains to an intimation which in turn contains the DIN relevant for the DRP directions, therefore it cannot be said that the entire is non-est in the eyes of law and section 292B will apply here. 16. After hearing both the sides, perusing the entire material on record and the orders of the lower authorities, we find substance in the submissions of the ld. AR. The DRP passed order dated 30.12.2021 without quoting DIN and sent it by email to the assessee, copy of which produced by the assessee is given below:- [THIS SPACE KEPT BLANK INTENTIONALLY ] 17. From the above, it is clear that there was no mention of DIN in the DRP order dated 30.12.2021. 18. Later on, the assessee received Intimation letter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all communication, the Board in exercise of power under section 119 of the Income-tax Act, 1961 (hereinafter referred to as the Act ), has decided that no communication shall be issued by any income-tax authority relating to assessment, appeals, orders, statutory or otherwise, exemptions, enquiry, investigation, verification of information, penalty, prosecution, rectification, approval etc. to the assessee or any other person, on or after the 1st day of October, 2019 unless a computer-generated Document Identification Number (DIN) has been allotted and is duly quoted in the body of such communication. 3. In exceptional circumstances such as, (i) when there are technical difficulties in generating/allotting/quoting the DIN and issuance of communication electronically; or (ii) when communication regarding enquiry, verification etc. is required to be issued by an income-tax authority, who is outside the office, for discharging his official duties: or (iii) when due to delay in PAN migration. PAN is lying with non-jurisdictional Assessing Officer; or (iv) when PAN of assessee is not available and where a proceeding under the Act (other than verificatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear that the effective 1st October 2019, no communication shall be issued unless a DIN is allotted and is quoted in the body of the letter except under exceptional circumstances as mentioned in Para 3 which also lays down certain procedures to be followed for issue of manual order under certain circumstances. Accordingly the manual communication should mention the fact that the communication is issued manually without a DIN and the date of obtaining of the written approval of the Chief Commissioner/Director General of Income-tax for issue of manual communication in a specific format. Para 4 of the circular states that the communication issued manually not in conformity with Para-2 and Para-3 of the circular, shall be treated as invalid and shall be deemed to have never been issued. 9. We also notice that the Calcutta Bench of the ITAT in the case of Tata Medical Centre Trust (supra) has considered a similar issue and held that - '13. From the above submissions and arguments, we note that it is an undisputed fact that the impugned order u/s. 263 of the Act has been issued manually which does not bear the signature of the authority passing the order. Further, from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 603/270 ITR 572 (AP), the Hon'ble Andhra Pradesh High Court held that the guidelines issued by the Board in exercise of powers in terms of section 119 of the Act relaxing the rigours of law are binding on all the officers responsible for implementation of the Act and, therefore, bound to follow and observe any such orders, instructions and directions of the Board. 13.4 In the decision of Dy. CIT v. Sunita Finlease Ltd. [2011] 11 taxmann.com 241/330 ITR 491 (Chattisgarh) it was held by the Hon'ble High Court of Chhattisgarh in para 16 that the administrative Instruction No. 9/2004 issued by the Central Board of Direct Taxes is binding on administrative officer in view of the statutory provision contained in section 143(2), which provides for limitation of 12 months for issuance of notice under section 143(2). While giving its finding, the Hon'ble High Court of Chhattisgarh placed reliance on the decisions in the case of UCO Bank (supra) and Nayana P. Dedhia (supra). 13.5 Hon'ble jurisdictional High Court of Calcutta in the case of Amal Kumar Ghosh v. Asstt. CIT [2014] 45 taxmann.com 482/225 Taxman 229 (Mag.)/361 ITR 458 dealt with the issue relating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court of Calcutta, we are inclined to adjudicate on the additional ground in favour of the assessee by holding that the order passed by the Ld. CIT(E) is invalid and deemed to have never been issued as it fails to mention DIN in its body by adhering to the CBDT circular no. 19 of 2019. Accordingly, additional ground taken by the assessee is allowed. Having so held on the legal issue raised by the assessee in the additional ground, the grounds relating to the merits of the case requires no adjudication. Accordingly, the appeal of the assessee is allowed in terms of above observations and findings.' 10. We further notice that a similar view is being taken by the Delhi Bench of the ITAT in the case Brandix Mauritius Holdings Ltd., v. Dy. CIT [IT Appeal No. 1542/Delhi/2020, dated 19-9- 2022]. 11. In assessee's case there is no dispute about the fact that the order dated 31-10-2019 has been issued manually. The circular is very clear that generating the DIN by separate intimation is allowed to be done to regularise the manual order (Para 5 of the circular) provided the manual order is issued in accordance with the procedure as contained in Para 3. On perusal of the o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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