Referred Sections:
Section 143(3)
Section 144C of the Act
Section 41(1) of the Act
Section 80-IA(4) of the Act
Section 271(1)(c) of the Act.
Section 154 of the Income Tax Act
Section (2)
Sub-Section (10)
Referred Cases / Judgments:
CIT, Mysore vs. Mysore Sugar Co. Ltd. (1962) 46 ITR 649 (SC).
Flextronics Technologies (India) Pvt. Ltd. vs. ACIT Circle 3(1)(1), Banalore [IT(TP)A No.832/Bang/2017]
Software Paradigms Infotech (P.) Ltd. vs. ACIT [2018] 89 taxmann.com 339 (ITAT Bangalore)
July Systems & Technologies Pvt. Ltd. vs. DCIT [2018] IT(TP) A No.368/Bang/2016 (ITAT Bangalore)
ESPN Star Sports Mauritius S.N.C. ET Compagnie vs. Union of India [2016] 388 ITR 383
1 I.T.A No. 1980/Del/2014
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH: `C' NEW DELHI
BEFORE SH. N. K. BILLAIYA, ACCOUNTANT MEMBER
AND
MS SUCHITRA KAMBLE, JUDICIAL MEMBER
I.T.A NO. 1980/Del/2014
(Assessment Year : 2009-10)
M/s. Global One India Pvt. Ltd., Vs DCIT,
DSO 601-603, 607-608, Circle 12(1),
6th Floor, DLF South Court, New Delhi
Saket, New Delhi 110 017
(PAN : AABCG 2558 B)
(RESPONDENT)
(APPELLANT)
Appellant by Shri Kanchan Kaushal, C.A.
Respondent by Shri Bhuvnesh Kulshrestha, CIT - D.R.
Date of Hearing 03.12.2019
Date of Pronouncement 10.12.2019
ORDER
PER SUCHITRA KAMBLE, JM
This appeal is filed by the assessee against the order dated 30.01.2014
passed by the Assessing Officer u/s 143(3) r.w.s. 144C(5) of the Income Tax
Act, 1961 for A.Y. 2009-10.
2. The Grounds of appeal are as under:-
"That on the facts and circumstances of the case, and in law:
1. The assessment order passed by the Learned Assessing Officer (`Ld. AO')
under section 143(3) read with section 144C of the Act persuant to the
directions of Learned Dispute Resolution Panel (Ld. DRP') is bad in law and
void ab-initio.
2. The final assessment order passed by the Ld. AO is barred by limitation
as it has not been passed after taking into consideration the Learned
Transfer Pricing Officer's ("Ld. TPO") order which has been passed
2 I.T.A No. 1980/Del/2014
subsequent to the time limit prescribed for passing the final assessment
order.
3 The Ld. AO has erred in proceeding to compute the total income of the
assessee by making an addition of INR 80,746,954, without being in
conformity with the Arms Length price as determined by the Ld. TPO
pursuant to direction of Ld. DRP.
4. The Ld. AO (following the directions of the Ld. DRP) has grossly erred in
making a disallowance of INR256,014,415/- by treating liability towards
sundry creditorsas income chargeable to tax undersection 41(1) of the Act
onerroneous assumptions and wrong observations of facts. While doing
so, the Ld. AO had erred in:
4.1 not providing relief to the Appellant of account of creditors
worth INR 1,282,801 due to Power Grid Corporation India
Limited in spite of directions from the Ld. DRP.
4.2 re considering the amount of sundry creditors as INR
441,635,541 by including expenses payable of INR 21,536,283 as
against the amount of INR 420,099,258 appearing in the audited
financial statements as on March 31, 2009.
4.3 not providing any opportunity to the Appellant before
making disallowance in respect of expenses payable amounting to
INR 21,536,283.
4.4 not providing relief of INR 211,150,180 relating to imports
from entities other than group entities in spite of filing complete
party-wise details of sundry creditors along with confirmation from
Equant Network Systems Ltd., Ireland for taking over/owning up
liability amounting to INR 396,771,305.
4.5 invoking section 41(1) of the Act mechanically and without
appreciating the fact that liability towards sundry creditors
amounting to INR 211,150,180 pertains to purchase of capital
assets which cannot be considered as a trading liability.
4.6 not appreciating the fact that there is no cessation or
remission of liability as the amount is still appearing as payable in
the books of accounts of the appellant for the relevant previous
year i.e. FY 2008-09.
4.7 doubting the genuineness of creditors on the basis of
unfounded assumptions and without bringing any material on
record to doubt the genuineness.
4.8 not seeking the independent confirmations from the creditors
inspite of powers available to the Ld. AO under the provisions of
the Act.
3 I.T.A No. 1980/Del/2014
5. The Ld. AO (following the directions of the Ld. DRP) has erred in making
disallowance of INR 201,134,971 by treating advances received from
customers as income chargeable to tax under section 41(1) of the Act.
While doing so:
5.1 the Ld. AO has erred in invoking the provisions of section
41(1) of the Act, in complete disregard of the fact that the appellant
has not claimed any allowance or deduction in respect of Rs.
201,134,971 in any preceding assessment year.
5.2 the Ld. AO has further erred in making an unfounded
assumption that the liability towards advances received from
customers no longer exists, without bringing any cogent material
on record.
5.3 not seeking the independent confirmations from the creditors
inspite of powers available to the Ld. AO under the provisions of
the Act.
6. The Ld. AO (following the directions of the Ld. DRP) has erred in disallowing
an amount of INR 10,932,472 on account of advances written off. While
doing so, the Ld. AO and the Ld. DRP has failed to appreciate that this
amount represents trade advances written off during normal course of
business which is an allowable deduction in view of Supreme Court
decision in the case of CIT, Mysore vs. Mysore Sugar Co. Ltd. (1962) 46 ITR
649 (SC).
7. The Ld. AO has erred in not allowing deduction under section 80-IA(4) of the
Act from the Gross Total Income (as assessed). While doing so:
7.1 The Ld. AO has failed to appreciate the fact that the license
required for providing internet-related services was obtained by
the appellant from the Department of telecommunication("DOT")
during the month of November 2003 and accordingly the deduction
under section 80 IA (4) of the Act could be claimed by the appellant
from the Assessment Year 2004-05.
7.2 The Ld. AO has failed to appreciate the fact that since AY
2004-05, the appellant has been continuously incurring losses
and accordingly no deduction under section 80 IA(4) of the Act was
claimed.
4 I.T.A No. 1980/Del/2014
7.3 The Ld.AO has failed to appreciate the fact that appellant
reported losses in its current year's return of income and
accordingly no deduction u/s 80 IA (4) of the Act could have been
claimed.
7.4 The Ld. AO has erred in stating that the appellant has not
fulfilled the conditions required for claiming deduction u/s 80 IA (4)
of the Act.
7.5 The Ld. AO has further erred in stating that the appellant
was given full opportunity to furnish the relevant details/
explanations in this regard.
8. That the Ld. AO has erred in not granting credit of taxes deducted at source
to the extent of INR 449,488.
9. The Ld. AO has erred in calculating interest u/s 234 B of the Act.
10. The Ld. AO has erred in initiate penalty proceedings under section
271(1)(c) of the Act.
The above grounds are without prejudice to each other."
3. The assessee company filed a revised return of income on 13.10.2010
declaring a loss of Rs.37,45,15,433/-. The case was selected for scrutiny
proceedings. During the course of scrutiny proceedings, the matter 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 14.01.2013 thereby making addition
of Rs.8,07,46,954/- on account of adjustment to Arm's Length Price in respect
of provision of Telecom services on account of no case for a working capital
adjustment. Thereafter, the Assessing Officer passed the draft Assessment
Order on 14.03.2013 after making the above Transfer Pricing adjustment of Rs.
8,07,46,954/- and other corporate tax addition amounting to
Rs.70,80,40,200/-.
4. Aggrieved by the draft assessment the assessee filed objections before
5 I.T.A No. 1980/Del/2014
the Dispute Resolution Panel (DRP). The DRP vide directions dated 19.12.2013
granted relief in respect of addition u/s 92CA of the Act on account of Arm's
Length Price determination of Rs. 8,07,46,954/-. The Assessing Officer vide
order dated 30.01.2014 passed final assessment order in absence of revised
TPO Order in respect of DRP directions to the TPO and assessed the income
without following the directions given by the DRP on TP adjustment and
assessed the total income at Rs.17,43,13,380/-. Subsequently, the Transfer
Pricing Officer vide order dated 21.02.2014 passed an order giving effect to
DRP directions and deleted the Transfer Pricing adjustment to the extent of Rs.
8,07,46,954/- as well as corporate tax additions/disallowance was reduced to
Rs. 46,80,81,858/-.
5. The assessee filed an appeal before the Tribunal against the Assessment
Order for both Transfer Pricing issues as well as corporate tax issues on
04.04.2014 before us.
6. Subsequently, rectification order u/s 154/143(3)/144C was passed on
15.07.2014 thereby deleting the entire Transfer Pricing adjustment and
retaining the corporate tax addition to Rs.46,80,81,858/-.
7. The Ld. AR submitted that the assessment order dated 30.01.2014
passed pursuant to the DRP direction is bad in law and void ab initio. The Ld.
AR submitted that the DRP has granted relief u/s 92CA on account of Arms'
Length Price determination and working capital adjustment. Despite the
directions of the DRP which should have been first compiled by the Transfer
Pricing Officer, the Assessing Officer did not wait for the order of the TPO and
passed the final Assessment Order thereby adding the Transfer Pricing
adjustment which was recomputed and held Nil by the DRP. The Revenue
authorities cannot overlap the statutory provisions, which are mandatory and
6 I.T.A No. 1980/Del/2014
has to be followed by the Revenue under the Income Tax Act, 1961. Thus, the
Ld. AR submitted that the assessment order itself is bad in law and the same
should be quashed at the threshold.
8. The Ld. DR submitted that the Assessing Officer has passed the order as
the assessment was getting time barred and Transfer Pricing Officer has not
given the order giving effect well within the stipulated time for final
assessment. The Ld. DR further submitted that after passing assessment
order, the Transfer Pricing Officer has given final effect to the DRP direction
and thereafter the Assessing Officer u/s 154 has rectified the original
assessment order well within time thereby deleting the entire Transfer Pricing
adjustment. Thus, the Ld. DR submitted that the assessment order is just and
proper, therefore, it should not be quashed.
9. The Ld. AR relied upon the following decisions of the Tribunal:
i. Flextronics Technologies (India) Pvt. Ltd. vs. ACIT Circle 3(1)(1),
Banalore [IT(TP)A No.832/Bang/2017]
ii. Software Paradigms Infotech (P.) Ltd. vs. ACIT [2018] 89
taxmann.com 339 (ITAT Bangalore)
iii. July Systems & Technologies Pvt. Ltd. vs. DCIT [2018] IT(TP) A
No.368/Bang/2016 (ITAT Bangalore)
iv. ESPN Star Sports Mauritius S.N.C. ET Compagnie vs. Union of India
[2016] 388 ITR 383
10. The Ld. AR further submitted that the Assessing Officer is required to
pass the final assessment order in conformity with the DRP directions. In the
present case, DRP directed the Transfer Pricing Officer to give working capital
adjustment and recomputed ALP as per specified guidelines. However, instead
of incorporating the recomputed ALP, the Assessing Officer passed the final
assessment order identical to the draft Assessment Order on these count.
Therefore, the final assessment order passed by the Assessing Officer is not in
7 I.T.A No. 1980/Del/2014
conformity with the DRP direction. Thus, the Ld. AR prayed that the said order
is null and void, therefore, the assessment order be quashed.
11. We have heard both the parties and perused all the relevant materials
available on record. Section 154 of the Income Tax Act is regarding the
rectification of mistake and the Assessing Officer on 15.07.2014 has rectified
the order thereby giving the final effect of the DRP directions. At the same time,
the Assessing Officer was suppose to complete the assessment under Section
143(3) read with Section 144C of the Income Tax Act on the basis of the draft
assessment order if the assessee intimates to the Assessing Officer the
acceptance of the variation or no objection are received within the period
specified in sub section (2) of Section 144C of the Income Tax Act. In the
present case, the assessee filed objections before the DRP after passing the
draft assessment order. The DRP issued certain directions to the Transfer
Pricing Officer. The Assessing Officer was very well aware that the DRP has
given certain directions to the Transfer Pricing Officer and it is binding on the
Assessing Officer to follow every direction issued by the Dispute Resolution
Panel as per as per Section 144C(10) of the Act. Sub-Section (10) of Section
144C is not procedural but a mandatory requirement. If the Transfer Pricing
Officer has not passed any order, the Assessing Officer should have taken into
account the DRP's direction and would have taken cognizance in the final
assessment order, but the Assessing Officer choose not to follow the DRP's
direction. Subsequently, when the Transfer Pricing Officer passed the order
giving effect to DRP's directions vide order dated 21.02.2014, the Assessing
Officer on suo moto basis has rectified the assessment order u/s 154 thereby
giving effect to directions of the DRP. As per Section 143(3), the Assessing
Officer has to pass the assessment order within the prescribed period
otherwise the assessment becomes time barred. The Assessing Officer has
followed the statutory provisions of Section 143(3) thereby passing assessment
8 I.T.A No. 1980/Del/2014
order. But as per the binding section i.e. Section 144C(10) of the Act, the
mandatory provision was not followed by the Assessing Officer, thereby it is
binding on the Assessing Officer to follow the directions of the DRP. Therefore,
the assessment becomes null and void. As regards rectification, there is no
mistake committed on part of Assessing Officer, in fact Assessing Officer was
very well aware that the DRP has given certain directions so it could not be
termed that there is a mistake apparent on record. When the Assessing Officer
has deliberately chosen not to follow a binding provisions u/s 144C of the Act
while passing the final assessment order, the Assessment Order, itself becomes
null and void. The case laws referred by the Ld. AR are categorically
highlighting the same position of law. The submissions of the Ld. DR that after
passing assessment order, the Transfer Pricing Officer has given final effect to
the DRP direction and thereafter the Assessing Officer u/s 154 has rectified
the original assessment order well within time thereby deleting the entire
Transfer Pricing adjustment, does not hold the test of legal sanctity as per the
provisions of Section 144C(10) of the Act. Thus, assessment order itself is
quashed. Therefore, Ground Nos. 1 and 2 of the Assessee's appeal are allowed.
12. As regards to Ground Nos. 3 to 10, the same are on merits. Since the
Assessment Order itself becomes null and void, the other issues does not
survive.
13. In result, appeal of the assessee is allowed.
Order pronounced in the Open Court on the 10 th day of December, 2019.
Sd/- Sd/-
(N. K. BILLAIYA) (SUCHITRA KAMBLE)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 10/12/2019
Priti Yadav, Sr. PS *
9 I.T.A No. 1980/Del/2014
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR
ITAT NEW DELHI
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