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TMI Blog2024 (5) TMI 1085X X X X Extracts X X X X X X X X Extracts X X X X ..... lier framed an order dated 17 October 2017 to give effect to the aforenoted order of the ITAT. 2. Although the TPO had framed an order on 17 October 2017, the record would reflect that no corresponding order as envisaged under Section 92CA (4) of the Income Tax Act, 1961 [Act] was framed. The petitioner had urged for the consideration of the DRP that the reference made on 27 December 2018 and the consequential order dated 29 October 2019 framed by the TPO seeking to give effect to the original order of the ITAT dated 14 July 2017 were clearly barred by the prescription of limitation as embodied in Section 153 (3) of the Act. 3. The petitioners had argued that the period of nine months when computed from the passing of the order of the ITAT would have come to an end on 31 December 2018. It was in the aforesaid light that it was urged that there was no authority which inhered in the Assessing Officer [AO] to pass further orders referable to Section 92CA (4) of the Act. 4. The DRP, however, refused to entertain the objection of limitation noting that Section 144C (8) restricts its jurisdiction to confirming, reducing or enhancing the variations proposed in the draft order. It essen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the respondents as well as the petitioner herein aggrieved by the final assessment order proceeded to institute appeals before the ITAT. The ITAT upon consideration of the challenges so made, by a final order dated 14 July 2017 confirmed the additions made by the AO under Section 69A of the Act. The additions on account of disallowance under Section 14A of the Act as well as those made with the reference to Section 68 of the Act on account of unexplained secured loans were set aside and the matter remitted to the AO for fresh adjudication. Insofar as the transfer pricing adjustments were concerned, those were set aside and the matter remitted to the TPO. It becomes pertinent to note that the ITAT while dealing with the adjustment with respect to business support services observed as follows:- "132. Ground No. 12, 13 of the appeal are with respect to computation of arm's length price with respect to the business support services where the ALP was determined an adjustment of Rs. 7463229/- was made. The contention of the assessee is that price received was Rs. 74687177/- is taken instead of Rs. 75277881/-. The Id AR submitted that assessee has been denied the benefit of working ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e request of both the parties, which is fair and proper. As the matter is pending before the special bench it would also not be proper for us to decide the issue now. in view of this we set aside this ground of cross objection of the assessee to the file of the ld TPO with a direction to decide the issue after the decision of the Special Bench of tribunal. In the result ground No. 14 of the CO is allowed with above direction.' 11. Pursuant to the aforesaid order, the AO on 26 July 2017 proceeded to draw an appeal effect order dealing with the subjects and heads which were remitted for its consideration. In terms of this order, the tax demand of the writ petitioner was revised to INR 428,93,32,536/-. The said order of the AO came to be challenged by the writ petitioner by way of W.P.(C) 6483 of 2017 and on which the Court by an order of 01 August 2017, upon finding that the petitioners had been able to establish a prima facie case directed that no coercive steps would be taken pursuant to the demands which had been raised. The said writ petition continues to remain pending on the board of the Court. 12. In the meanwhile and more particularly on 23 August 2017, the Special Bench an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . That reservation appears to have been necessitated by the fact that although the Special Bench had rendered its opinion on 23 August 2017, the appeal of the petitioner had till then not been formally disposed of by the Bench of the ITAT. 17. Subsequently, and on 02 January 2018, the respondents too proceeded to mount a challenge to the original order of the ITAT dated 14 July 2017 by preferring appeals before this Court which stand numbered as ITA Nos. 136/2018 and 137/2018. Both the appeals of the petitioners as well as the Revenue have since then been admitted and presently remain pending in the list of Regulars. 18. Although and as noticed hereinabove, the TPO had proceeded to draw an order dated 17 October 2017 to give effect to the order of the ITAT dated 14 July 2017, the AO on 27 December 2018 drew up a fresh reference for the consideration of the TPO. Since the terms of that reference would have some material bearing on the challenge which stands raised, we deem it apposite to extract the same hereinbelow:- "2. Pursuant to the direction of Dispute Resolution Panel ('DRP') for AY 2009-10, final order was passed u/s 144C (13) read with Section 144 of the Act on 21.02.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed transfer pricing adjustment is as below- Segments Adjustment(Rs.) Adjustment on A/c of Business Support Segment 74,76,325 Adjustment on A/c of Corporate Guarantee (No change, effect will be given on receipt of ITAT's final order on this issue) 4, 35,02,400 TOTAL 5,09,78,725 20. Acting in terms of the aforesaid, the AO proceeded to draw a draft order on 27 December 2019. It was in respect of this order that the petitioner preferred objections before the DRP on 24 January 2020. One of the principal grounds which was taken in these objections was with respect to the legality of the subsequent reference made by the AO, the adjudication undertaken by the TPO and the framing of the consequential draft assessment order being barred by limitation by virtue of the provisions contained in Section 153 of the Act. 21. In the meanwhile and during the pendency of those objections as made to the DRP, the appeal of the petitioner with respect of corporate guarantee came to be disposed of by a Bench of the ITAT on 16 June 2020. That order of the ITAT presently forms subject matter of challenge in ITA No. 204/2020. 22. The petitioner on 06 January 2021 moved the DRP requesting it t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sofar as it pertained to the reference made to the TPO and thus consequently being disentitled to assail or question the correctness of the procedure as adopted by the ITAT in making that reference. 25. It was further highlighted by Mr. Jolly that although the respondents on 02 January 2018 preferred appeals against the order dated 14 July 2017 of the ITAT, those appeals stand confined to the merits of the various issues which came to be decided. Even in those appeals Mr. Jolly submitted, the respondents do not assail or question the correctness of the action of the ITAT in remitting the matter to the TPO. 26. Mr. Jolly submitted that as is well settled in law, neither the AO nor the TPO can possibly be recognized to have the authority to act contrary to the terms of the remand as the ITAT may choose to frame. It was his submission that once the ITAT had itself remanded the matter to the TPO, there existed no justification or requirement in law for a reference being made by the AO on 27 December 2018. The fact that the respondents had never questioned the validity of the aforesaid order of the ITAT according to Mr. Jolly is evident from the various notices which were issued by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transfer pricing study based on the directions made by the ITAT as per its order of 14 July 2017. There was, according to learned counsel, thus no occasion or justification for an independent reference being made by the AO. In view of the aforesaid, it was the submission of Mr. Jolly that the extended period of twelve months as prescribed in sub-section (4) of Section 153 of the Act did not stand attracted. 32. Mr. Jolly also assailed the validity of the second order passed by the TPO contending that the same is rendered wholly arbitrary since, and as is is ex facie apparent, it is a mere replication of the order originally made on 17 October 2017. The reference of 27 December 2018 was additionally assailed by Mr. Jolly in light of the conclusions rendered by the Special Bench of the ITAT and which had categorically held that the petitioner had only incurred an obligation while furnishing an undertaking and which fell short of a guarantee. 33. It was lastly urged by Mr. Jolly that the order of the ITAT remanding the matter to the TPO cannot possibly be construed as falling within the ambit of Section 153 (4) of the Act. Mr. Jolly questioned the correctness of a contention which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P disposes of those objections, the matter stands placed before the AO who would then proceed to pass an assessment order. 37. According to learned counsel, it is only when a final assessment order in accordance with the direction of the DRP comes to be framed that an assessee could be recognised to have a right to assail the action of the respondents or take recourse to a legal remedy. Mr. Hossain submitted that the adjudication of objections by the DRP is only a step in aid of assessment in the case of an eligible assessee and does not result in a creation of a liability. A tax liability, according to learned counsel would arise only once a final assessment order is passed and which is appealable before the ITAT. 38. Mr. Hossain also alluded to courts having noticed the aforesaid distinctive features underlying assessments undertaken in terms of Section 144C of the Act and desisting from invoking their extraordinary jurisdiction, bearing in mind the remedy available to an assessee and which would be available to be pursued once a final assessment order is framed. Reliance in this respect was placed on the judgment of this Court in Sabic India Private Limited vs. Union of India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined the merits of the grounds urged by the Petitioner and the views expressed hereinabove are only for the purpose of deciding the present petition. It shall be open to the Petitioner to raise all pleas relating to the merits of the case, including those raised herein, while exercising its statutory remedy, as and when the directions under Section 144C (5) of the Act ripen into an order or are given effect to, by the AO. 18. In view of the above, we find no merit in the present petition and accordingly the same is dismissed. No costs." 39. Reliance was further placed on the judgment of the High Court of Madras in Hyundai Motor India Lt. vs. Secretary, Income Tax Department & Ors. (2017) SCC OnLine Mad 32229 wherein the following was observed: "12. The direction issued by the DRP, (impugned direction) binds the Assessing Officer and in essence, the assessment order would be an order giving effect to the direction issued by the DRP. Against such order of assessment, the petitioner has an effective alternate remedy of filing an appeal before the Income Tax Appellate Tribunal (ITAT). 13. Section 144C was inserted in the Income Tax Act by Finance Act, 2009, with a view to provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal. 19. For all the above reasons, the Writ Petition is dismissed with direction to the third respondent to give effect to the directions issued by the DRP, dated 13.12.2016, by passing an assessment order, after which, it is open to the petitioner to challenge the same before the Tribunal. All contentions are left open. No costs. Consequently, connected Miscellaneous Petition is closed." 40. It was then submitted that the challenge as laid to the directions of DRP is misconceived since the said authority clearly stands denuded of the jurisdiction to examine objections of limitation or other jurisdictional challenges that may be raised. It was submitted that as would be evident from Section 144C (8) of the Act, the power of the DRP stands restricted to "confirming, reducing or enhancing the variations proposed'. That power, according to Mr. Hossain, cannot possibly be recognized as being akin to or equated with a power to set aside. It was the submission of Mr. Hossain that a statutory authority, as is well settled, is bound to exercise its jurisdiction within the four corners of the statute. Mr. Hossain submitted that since the DRP derives its power from Section 144C (8) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome to be passed without a reference having been made by the AO, it is liable to be viewed as non est. Mr. Hossain, in this respect, drew our attention to the following provisions as contained in the Central Board of Direct Taxes [CBDT] Instruction No. 3/2016 dated 10 March 2016:- "3.1 The power to determine the Arm's Length Price (ALP) in an international transaction or specified domestic transaction is contained in sub-section (3) of Section 92C. However, Section 92CA provides that where the Assessing Officer (AO) considers it necessary or expedient so to do, he may refer the computation of ALP in relation to an international transaction or specified domestic transaction to the TPO. For proper administration of the Income-tax Act, the Board has decided that the AO shall henceforth make a reference to the TPO only under the circumstances laid out in this Instruction. xxxx xxxx xxxx 4.1 The role of the TPO begins after a reference is received from the AO. In terms of Section 92CA, this role is limited to the determination of the ALP in relation to international transactions or specified domestic transactions referred to him by the AO. However, if any other international t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ference is made by the AO. According to learned counsel, the TPO could not have undertaken a transfer pricing study in the absence of a reference having been made by the AO. According to Mr. Hossain, bearing in mind the admitted position that the said reference by the AO came to be made only on 27 December 2018, it becomes apparent that the first order as made by the TPO on 17 October 2017 was wholly illegal and cannot possibly be countenanced in law. 47. It was further contended that as per the respondents the extended period of limitation of twelve months as enshrined in Section 153 (4) of the Act comes to be attracted the moment a reference is made to the TPO. It was Mr. Hossain's submission that without prejudice to the contentions noticed hereinabove, a reference even if made by the ITAT and if assumed for the sake of argument to be valid, would also be liable to be construed as one falling within the ambit of Section 153 (4) of the Act. It was Mr. Hossain's contention that a reading of Section 153 (4) of the Act would establish that the provision is not restricted in its application only to cases where a reference to the TPO is made by the AO. In view of the above, it was co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consequences would follow. Such legal consequences, according to learned counsel, would include the extended period of limitation for completion of assessment under Section 153 (4) of the Act becoming applicable. 50. It is the aforesaid rival submissions which fall for our consideration. We deem it apposite and before proceeding further, to note that learned counsels appearing for respective parties had proceeded to address submissions on the basis of Section 153 of the Act as it stands in the statute book post the amendments introduced in it by Finance Act, 2022. The respondents did not dispute the applicability of Section 153 of the Act as it exists in its present avatar. 51. However, and for the sake of completeness, we deem it appropriate to take note of that provision as it existed pursuant to amendments made by virtue of Finance Acts, 2014, 2016 and 2022. We deem it expedient to extract the relevant clauses of Section 153 insofar as they pertain to the framing of assessments in accordance with directions issued by the ITAT or revisional authorities and insofar as the said Section made provisions referable to Section 92CA. 52. The prescription of limitation for framing an o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 1st day of June, 2007, the provisions of this sub-section shall, notwithstanding anything contained in the second proviso, have effect as if for the words "one year", the words "twenty-one months" had been substituted:]' 54. Section 153 was again amended by Finance Act, 2016 and the subject of fresh assessment pursuant to an order of the ITAT came to be included in sub-section (3). The said amending Act also introduced specific provisions with respect to limitation in cases where a reference under Section 92CA may be made in the course of assessment or reassessment. Sections 153 (3) and 153 (4) as amended in terms of Finance Act, 2016 are extracted hereinbelow:- "(3) Notwithstanding anything contained in sub-sections (1) and (2), an order of fresh assessment in pursuance of an order under section 254 or section 263 or section 264, setting aside or cancelling an assessment, may be made at any time before the expiry of nine months from the end of the financial year in which the order under section 254 is received by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner or, as the case may be, the order under section 263 or section 264 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 2022, we had chosen to briefly digress and examine the various amendments introduced in that provision commencing from Finance Act, 2014 principally to underline the following two fundamental aspects. 57. Firstly, the 'nine' and the 'twelve' months window governing assessments to be made post remit by the ITAT and in cases where a reference under Section 92CA (1) of the Act may be made during the course of an ongoing assessment came to be introduced and structured for the first time in terms of the provisions forming part of Finance Act, 2016. The second aspect of some significance is that Section 153 post Finance Act, 2014 duly acknowledged and made provisions with respect to assessments that may have to be made in accordance with the procedure prescribed by Section 92CA of the Act. 58. Section 153 of the Act as it exists in its present form is thus a reiteration and at best a clearer exposition on the various steps that may be involved in assessment and be viewed as steps in aid thereof. The provision thus makes appropriate provision for all contingencies including those which would ensue when an assessment were to follow the Section 92CA route. This is clearly reflected in s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Motor. 61. Consequently and bearing in mind the challenge on the ground of limitation which stands raised and which undoubtedly would strike at the very foundation of the right of the respondents to assess, we negate the preliminary objection as canvassed by Mr. Hossain. 62. In order to appreciate the rival submissions which were addressed, we firstly deem it expedient to preface our decision with a brief evaluation of the statutory scheme underlying Section 92CA. Section 92CA reads thus:- "92CA. (1) Where any person, being the assessee, has entered into an international transaction [or specified domestic transaction] in any previous year, and the Assessing Officer considers it necessary or expedient so to do, he may, with the previous approval of the [Principal Commissioner or] Commissioner, refer the computation of the arm's length price in relation to the said international transaction [or specified domestic transaction] under section 92C to the Transfer Pricing Officer. (2) Where a reference is made under sub-section (1), the Transfer Pricing Officer shall serve a notice on the assessee requiring him to produce or cause to be produced on a date to be specified therei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (3) may be made at any time before sixty days prior to the date on which the period of limitation referred to in section 153, or as the case may be, in section 153B for making the order of assessment or reassessment or recomputation or fresh assessment, as the case may be, expires:] [Provided that in the circumstances referred to in clause (ii) or clause (x) of Explanation 1 to section 153, if the period of limitation available to the Transfer Pricing Officer for making an order is less than sixty days, such remaining period shall be extended to sixty days and the aforesaid period of limitation shall be deemed to have been extended accordingly.] [(4) On receipt of the order under sub-section (3), the Assessing Officer shall proceed to compute the total income of the assessee under sub-section (4) of section 92C in conformity with the arm's length price as so determined by the Transfer Pricing Officer.] (5) With a view to rectifying any mistake apparent from the record, the Transfer Pricing Officer may amend any order passed by him under sub-section (3), and the provisions of section 154 shall, so far as may be, apply accordingly. (6) Where any amendment is made by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notice and proceed to determine the ALP in respect of the international transactions in question. The TPO while undertaking that evaluation also stands enabled by virtue of Section 92CA (2B) to take into consideration any international transaction which though not disclosed in the report under Section 92E by the assessee may come to its notice. 64. Ultimately, and on conclusion of the adjudicatory process, the TPO in terms of sub-section (3) would proceed to pass an order determining the ALP in relation to the international transaction. The order under Section 92CA (3) which the TPO frames is undoubtedly binding on the AO and who in terms of sub-section (4) thereof is required to compute the total income of the assessee in conformity with the ALP as determined by the TPO. 65. Section 92CA (1) of the Act speaks of a reference being made to the TPO by the concerned AO alone. However, and by virtue of the status and position which stands conferred upon the ITAT, we find no justification to doubt its authority to make such a reference while considering an appeal that may come to be laid before it. This, since in terms of Section 253 of the Act, an assessee is entitled to question a d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces which were issued by the jurisdictional AO and form part of our record such as Annexure P-12, P-14, P-15 and P-16 but also by the action of the TPO itself which had proceeded to pass an order on 17 October 2017. It thus becomes apparent that the principal order of the ITAT dated 14 July 2017 had come to be duly implemented by the TPO on 17 October 2017 itself. 68. It is pertinent to highlight at this juncture that although the respondents had thereafter instituted ITA Nos. 136/2018 and 137/2018 before this Court, those appeals were confined to the merits of the order passed by the ITAT. This becomes evident when one views our order of 21 May 2018 as passed in those appeals and to the questions of law on which they ultimately stood admitted. The substantial questions which were accepted for consideration in ITA Nos. 136/2018 and 137/2018 are reproduced hereinbelow:- "In ITA 136/2018, the following question of law arises: "Did the ITAT fall into error in holding that the disallowance under Section 40(A)(i) of the Income Tax Act, 1961 was not justified in the facts and circumstances of this case? In ITA 137/2018, the following question of law arises: "Whether the ITAT err ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the one which the TPO may come to make in accordance with sub-section (3) thereof. It is thus manifest that the assessment exercise was liable to be concluded within a period of nine months when computed from 14 July 2017. 73. The only aspect which could not have been conclusively determined on or before 31 December 2018 was the issue pertaining to corporate guarantee and this since although the Special Bench had answered the reference on 23 August 2017, the appeal of the assessee came to be disposed of by the Bench of the ITAT only on 16 June 2020. 74. As is evident from a reading of Para 63 of that order, the ITAT on that occasion chose to remit the matter to the desk of the jurisdictional AO with a direction to frame an appropriate reference for the consideration of the TPO. The aforesaid procedure appears to have been adopted by the ITAT based on its understanding of the decision of the Supreme Court in SG Asia Holdings. 75. In SG Asia Holdings, the Supreme Court was called upon to examine the correctness of the view taken by the ITAT and which was affirmed by the Bombay High Court which had negated a prayer made by the departmental representatives for the matter being remit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... teps in terms thereof and passed an order on 17 October 2017. 79. We are therefore of the firm opinion that in light of the directions as were formulated by the ITAT and stood embodied in its order of 14 July 2017, no fresh reference as the AO chose to make was warranted. Once the ITAT had chosen to remit the matter directly to the TPO, the said authority was legally obliged to proceed in accordance therewith and did not need to derive any authority from a reference being independently made by the AO. 80. It becomes pertinent to observe that the Section 92CA (1) reference rests solely upon the AO being of the opinion that a reference is required to be made to the TPO for computation of ALP. That power stands conferred upon the AO and is available to be exercised in the course of assessment. However, and as is plainly evident from Section 153 (3) of the Act, the statute does not deprive the ITAT of the authority and jurisdiction to require a fresh order under Section 92CA being made. As we had observed hereinabove, Section 153 (3) of the Act speaks of assessments as well as orders under Section 92CA that may be required to be made pursuant to an order passed by an ITAT in exercise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or enhancing variations that may be proposed in the draft order. The submission was that the DRP does not stand conferred with the authority to rule on jurisdictional challenges that may be raised by an assessee and the same being restricted by virtue of Section 144C (8) of the Act. 85. According to Mr. Hossain, the words "confirm, reduce and enhance' which define the extent of the power that may be exercised by the DRP cannot possibly be construed as empowering it to set aside a draft assessment order itself. While Mr. Hossain may be correct to the aforesaid extent, we find that the writ petitioner not only questions the order of the DRP dated 29 January 2021, it additionally seeks the framing of an appropriate order or direction restraining the AO from passing a final assessment order. That relief is founded on the challenge based on limitation. Thus, even though the DRP may not have erred in refusing to examine or render any definitive conclusion on the issue of limitation, the same would not detract from the right of the petitioner to seek an appropriate declaration from this Court in exercise of Article 226 of the Constitution. 86. Tested on the undisputed facts, we find tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the various observations appearing therein are firstly liable to be appreciated bearing in mind the facts of that case. It would be wholly incorrect to recognise that decision as holding that the ITAT cannot draw or make a reference to the TPO if circumstances so warrant. That issue, in fact, neither arose for the consideration of the Supreme Court nor was one which was raised. In any view of the matter, the plain language in which Section 153 (3) stands couched would warrant negation of this argument. This since that provision makes unambiguous provisions for such an eventuality when it uses the expression "...fresh assessment or fresh order under Section 92CA, as the case may be,.....". We consequently find ourselves unable to sustain the contention of Mr. Hossain. 92. We further find that the judgment rendered by a learned Single Judge of the Karnataka High Court in TE Connectivity was concerned with an order of the ITAT which had remitted the matter to the "Assessing Officer/Transfer Pricing Officer/Dispute Resolution Panel'. In any case the High Court in that case had ultimately held in favour of the assessee. We find ourselves unable to discern any observation or conclus ..... X X X X Extracts X X X X X X X X Extracts X X X X
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