TMI Blog2024 (2) TMI 861X X X X Extracts X X X X X X X X Extracts X X X X ..... Resolution Panel-1 ('Hon'ble DRP') erred in directing the Deputy Commissioner of Income Tax, Circle - 14(1)(1), Mumbai ('Ld. AO')/ Joint Commissioner of Income Tax, Transfer Pricing - 1(1), Mumbai ('Ld. TPO') to make an adjustment of INR 270,93,00,701 in relation to the international transaction of provision of software development services and that: the Hon'ble DRP erred in upholding the decision of the Ld. AO/TPO in rejecting the TP documentation maintained by the Appellant; the Hon'ble DRP erred in upholding the decision of the Ld. AO/ TPO in concluding that the Appellant is a full- fledged risk bearing service provider instead of a limited risk service provider; the Ld. AO/TPO erred in including companies in the comparability analysis which are different from the Appellant in functions, assets and risks; and the Ld. AO/ TPO erred in excluding companies similar to the Appellant in functions, assets and risks while performing comparability analysis. the Hon'ble DRP erred in upholding the Ld.AO/TPO's approach of treating the foreign exchange gain as non- operating in case of the Appellant as well as in ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (supported by TP benchmarking analysis) as under: o front-ending the contract in the capacity of a limited risk software distributor: 3% of annual revenue from the contract; o bearing the credit risk associated with receipt of service fees from SCB India: 0.18% annual revenue from the contract; and o Performance of post-implementation IT support and maintenance function in the capacity of a limited risk service provider: operating costs plus 13.6% mark-up; confirming the observation of the Ld. AO/TPO in relation to the Appellant's characterisation and upholding that all the significant business risks associated with the service contract with SCB India (including market risk and service liability risk) are borne by the Appellant instead of the Appellant's aforementioned AE; erroneously applying the set of uncontrolled comparables engaged in provision of IT services and using Operating Profit/ Operating Revenue as the profit level indicator to determine the revised ALP Without prejudice to the above, we also place reliance in the contentions mentioned in Ground No. 1. The Appellant prays that the aforesaid adjustment be de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess expenditure while calculating the total taxable income under the head 'Profits and gains of business and profession as no relief was available with respect to the said taxes under section 90 of the Act. The Appellant humbly prays that the Ld. AO be directed to allow the additional claim of deduction of balance foreign taxes paid while computing the total taxable income. 9. On the facts and in the circumstances of the case and in law, the Ld. AO erred in not granting credit of taxes deducted at source amounting to INR 74,539. The Appellant prays that Ld. AO be directed to grant credit of foreign taxes amounting to INR 74,539. 10. On the facts and in the circumstances of the case and in law, the Ld. AO has erred in proposing to initiate penalty proceedings under section 271(1)(c) of the Act without appreciating that none of the provisions of section 271(1)(c) of the Act gets attracted in the facts of the Appellant's case. 3. Further, assessee has raised following additional grounds: - Ground No. 11: On the facts and in the circumstances of the case and in law, the order dated on November 2019 passed by the Transfer Pricing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ull and void ab initio and liable to be quashed. 4. At the time of hearing, Ld. AR submitted that assessee presses the Ground Nos. 11, 12 and 13 and the other grounds are not pressed at this stage. In this regard, he brought to our notice that similar grounds which assessee has raised before the Coordinate Bench in ITA.No.1795/Mum/2017 for the A.Y. 2012-13 and the Coordinate Bench has considered and adjudicated the issue in favour of the assessee. Copy of the order is placed on record. 5. On the other hand, Ld. DR relied on the orders of the lower authorities. 6. Considered the rival submissions and material placed on record, we observe that similar issues were considered and adjudicated by the Coordinate Bench in assessee s own case for the A.Y. 2012-13 and decided the issues in favour of the assessee. While holding so the Coordinate Bench held as under: - 22. We have heard the rival submissions on the aforesaid legal issue as raised in additional grounds and we have also perused the judgment of Hon'ble Madras High Court in the case of M/s. Pfizer Healthcare India Private Limited (supra). Here in this case, the reference was made by the AO to the TPO u/s 92CA(1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessment of total income, a reference under sub-section (1) of section 92CA is made, the provisions of clause (a) shall, notwithstanding anything contained in the first proviso, have effect as if for the words two years , the words three years had been substituted. 26. Thus, in case where a reference is made to the TPO u/s 92CA(1), the time limit for completion of assessment is 3 years. Here in this case, in terms of section 153, the time limit for completing the assessee for AY 2012-13 was 31 st March 2016. If the time limit provided in section 192CA(3A) r.w.s. 153(1) of the Act is juxtaposed, then here in this case, time limit for passing of the TPO order would be on or before 30th January 2016, because, if one day prior to the date of limitation u/s 153 is taken, then 60 days have to counted from 30th March 2016. The 60 days from 30 th March would be (30 days of March + 29 days of February being a leap year + 1 day of January). 27. Now whether in these circumstances, the TPO order gets time barred or not, has come up for consideration before Hon'ble Madras High Court in the case of M/s. Pfizer Healthcare India Private Limited (supra) by the division be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but also actual date from which the period of 60 days is to be calculated. It is settled law that while interpreting a statute, it is not for the courts to treat any word(s) as redundant or superfluous and ignore the same. In this connection, it is pertinent to note the judgment of the Apex Court in Grasim Industries Ltd. v. Collector of Customs, [(2002) 4 SCC 297 : 2002 SCC OnLine SC 413], wherein, it was held as follows: 10. No words or expressions used in any statute can be said to be redundant or superfluous. In matters of interpretation one should not concentrate too much on one word and pay too little attention to other words. No provision in the statute and no word in any section can be construed in isolation. Every provision and every word must be looked at generally and in the context in which it is used. It is said that every statute is an edict of the legislature. The elementary principle of interpreting any word while considering a statute is to gather the mens or sententia legis of the legislature. Where the words are clear and there is no obscurity, and there is no ambiguity and the intention of the legislature is clearly conveyed, there is no scope for the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ays from the last date . Even going by Section 9 of the General Clauses Act, when the word from is used, then, that date is to be excluded, implying here that 31.12.2019 must be excluded. After excluding 31.12.2019, if the period of 60 days is calculated, the 60th day would fall on 01.11.2019 and the TPO must have passed the order on or before 31.10.2019 as orders are to be passed before the 60th day. Therefore, either way the contention of the Revenue is a fallacy and has no legs to stand. 31. The next contention that has been raised by the learned senior standing counsel for the appellants is that the usage of the word may in Section 92CA (3A) indicates that the time fixed is only directory, a guideline, not mandatory and is for the sake of internal proceedings. 32. Let us now examine the relevant procedures relating to Transfer Pricing. After an international transaction is noticed subject to satisfaction of section 92B, a reference is made to the TPO under sub-Section (1) of Section 92CA of the Act. The TPO after considering the documents submitted by the assessee is to pass an order under Section 92CA (3) of the Act. As per Section 92CA (3A), the order has to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntion raised in this regard is rejected. 36. As rightly pointed out by Mr.Ajay Vohra, learned senior counsel for the respondents in WA.Nos.1148 and 1149/2021, the word may has to be sometimes read as shall and vice versa depending upon the context in which it is used, the consequences of the performance or failure on the overall scheme and object of the provisions would have to be considered while determining whether it is mandatory or directory. 37. At this juncture, it is noteworthy to mention the commentary of Justice G.P.Singh on the interpretation of statutes, Principles of Statutory Interpretation (1st Edn., Lexis Nexis 2015), which is quoted below for ready reference: The intention of the legislature thus assimilates two aspects: In one aspect it carries the concept of meaning i.e. what the words mean and in another aspect, it conveys the concept of purpose and object or the reason and spirit pervading through the statute. The process of construction, therefore, combines both literal and purposive approaches. In other words the legislative intention i.e. the true or legal meaning of an enactment is derived by considering the meaning of the words ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Particulars Relevant Dates Pfizer Healthcare India Pvt.. Ltd. (Madras High Court) Appellant A Assessment Year 2016-17 2012-13 B Period of limitation for making an order of assessment as per Section 153 of the Act 21 months from the end of Assessment Year 24 months from the end of Assessment Year C Extension of period of limitation in case reference is made under section 92CA of the Act 12 months 12 months D Proceeding for assessment should be completed on / before this date 31.12.2019 31.3.2016 E A date prior to the date on which period of limitation expires 30.12.2019 30.3.2016 F Sixty day period expires on 01.11.2019 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 1 st day of October, 2009, any variation which is prejudicial to the interest of such assessee. (15) For the purposes of this section, (a) Dispute Resolution Panel means... (b) eligible assessee means, (i) any person in whose case the variation referred to in sub- section (1) arises as a consequence of the order of the Transfer Pricing Officer passed under sub-section (3) of section 92CA; and (ii) any non-resident not being a company, or any foreign company. 31. The aforesaid section envisages that, AO in the first instance has to forward a draft of the proposed order of assessment to the eligible assessee , if he proposes to make any variation which is prejudicial to the interest of such assessee. The draft assessment order is to be forwarded to an eligible assessee , which means that, for this section to apply a person has to be an eligible assessee Here, the draft assessment order is to be forwarded only to an eligible assessee and not to every ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has to be considered as non-est, meaning thereby, that it entails all the consequences of not having been passed at all and is ignored for all practical purposes. Thus, in absence of any transfer pricing order being passed at all and any variations arising there from, the entailing consequence in instant case is that the appellant cannot be said to be an 'eligible assessee' under section 144C(15)(b)(ii) of the Act. 35. Accordingly, once the assessee becomes an 'ineligible assessee', the very foundation for proceeding to pass the draft assessment order does not survive, meaning thereby, that the draft assessment order passed in the instant case becomes legally invalid and hence, all consequential proceedings on the basis of the said order fail. In the instant case, a reference was made by the Ld. AO to the Ld. TPO as per the provisions of section 92CA(1) of the Act and accordingly the timelines prescribed u/s 153 of the Act remain extended by a year in view of the 3 rd proviso of section 153 of the Act. Accordingly, the time limit to complete assessment proceedings u/s 143(3) of the Act in the instant case expired on 31 March 2016. As on the date of passing d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act are specific and provides for a special code which must be strictly followed since it impacts the rights of an assessee substantively, i.e., the ability to accept or object a draft order proposition, file objections before the Dispute Resolution Panel and ensure a speedy disposal thereof. Any lapse in treating an assessee as 'eligible assessee' where it is otherwise not one and vice- versa results in fatality, since it becomes a jurisdictional defect and goes on to the roots in deciding the validity of the entire assessment proceedings against the revenue. In this context, on the issue of passing a correct assessment order in first instance (either a draft or a final one), the findings of the Hon'ble Madras High Court in case of ACIT v. Vijay Television (P.) Ltd [2018] 95 taxmann.com 101 (Madras) are extremely critical which reads as follows: 47. The necessity for the Parliament to incorporate Section 144- C is not only to safeguard the Revenue, but also the assessee and any mistake committed by any one of them, the said party is supposed to face the consequences and cannot put the hands of the clock back and start afresh. 39. Further, in case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law as well. 42. Thus, despite the fact that the reference made to the Ld. TPO is valid, in absence of a legally valid transfer pricing order and a valid draft assessment order, the Ld. AO cannot assume jurisdiction to proceed with the assessment under Section 144C of the Act and pass the consequential final assessment order. The decisions of the Hon'ble jurisdictional High Court in case of International Air Transport Association (supra) and Dimension Data Asia Pacific PTE Ltd. (supra) forties appellant's contentions and the irresistible conclusion that the draft assessment order imbibes a jurisdictional power in terms of Sec. 144C(1) of the Act and creates/ envisages special rights upon the 'eligible assessee'. If such an order is passed on an assessee who is not an 'eligible assessee' as defined in section 144C(15)(b)(i) of the Act, then it would render the entire proceedings pursuant to such order null and void. 43. We find that section 153(1) of the Act, as it stood applicable for the AY 2012-13, provided a time limit of 3 years from the end of AY 2012-13 for completion of assessment under section 143(3) of the Act, i.e., on or before 31 Marc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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