, `'
IN THE INCOME TAX APPELLATE TRIBUNAL
"L" BENCH, MUMBAI
. . , , ,
BEFORE SHRI B.R. BASKARAN, ACCOUNTANT MEMBER AND
SHRI AMIT SHUKLA, JUDICIAL MEMBER
. / ITA no. 7724/Mum./2012
( / Assessment Year : 200910)
Swiber Offshore Construction Pte. Ltd.
C/o Devesh K. Shah & Co.
....................... /
106, 1st Floor & 203 2nd Floor
Banaji House, 361 Dr. D.N. Road Appellant
Flora Fountain, Mumbai 400 001
v/s
Addl. Director of Income Tax
................... /
(International Taxation)
Range2, Mumbai Respondent
./ Permanent Account Number AALCS6312H
/ Assessee by : Shri Girish Dave a/w
Shri Madhav Khandelwal
/ Revenue by : Dr. Narendra Kumar
/ /
Date of Hearing 23.06.2014 Date of Order 06.08.2014
/ ORDER
, /
PER AMIT SHUKLA, J.M.
The present appeal has been preferred by the assessee
challenging the impugned final assessment order dated 30 th November
2012, passed in pursuance of the directions given by the Dispute
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Construction Pte. Ltd.
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Resolution PanelI (DRP), Mumbai, under section 144C(5) of the
Income Tax Act, 1961 (for short "the Act"), on the following grounds:
GOUND NO.1: Wrongly summoning the Project Manager
(appointed as Consultant) of the Appellant under section 131.
1.1 The learned ADIT erred in law in completing the assessment
contrary to the provisions of sub-section (13) of section 144C of
the Act.
GROUND NO.2: Erroneously held that the Appellant has a Fixed
Place PE Service PE and Supervisory PE in India.
2.1 The learned Dispute Resolution Panel ("DRP") and ADIT
erred in law and on facts in concluding that the Appellant had a
fixed placed PE in India as per the India-Singapore DTAA.
2.2 The learned ADIT erred in treating the Project Manager as
the employee of the Appellant and providing services as its key
personnel in India and thereby concluding that the Appellant also
had a service PE in India.
2.3 The learned DRP and ADIT erred in holding that the
provisions of Article 5(4) of the India Singapore DT AA will also
apply which deals with the constitution of a PE in case the
supervisory activities in India exceed 183 days in a fiscal year in
relation to a construction, installation or assembly project.
GROUND NO.3: Specific provisions dealing with Construction PE
of the India-Singapore DTAA ought to be considered over the
general provisions.
3.1 In determining existence of a PE, the learned ADIT erred in
applying provisions of Fixed Place PE under Article 5(1),
Supervisory PE under Article 5(4) and Service PE under
Article 5(6) instead of applying only the more specific provisions
of Construction PE under Article 5(3) of the India-Singapore
DTAA as applicable in the case of the Appellant.
GROUND NO.4: Erroneously held that the Appellant has a
Construction PE in India.
4.1 The learned DRP and ADIT has erred in concluding that the
Appellant had a construction PE in India as prescribed under
Article 5(3) of the India-Singapore DTAA.
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GROUND NO.5: Erroneous taxation of the income related to
activities carried out outside India.
5.1 Without prejudice to the claim of no PE, the learned ADIT
erred in concluding that the income related to activities carried
out both inside and outside India is taxable under
section 44BB of the Act. Consequently, the ADIT has erred in
applying the provisions of section 44BB of the Act to the revenue
earned from activities carried out outside India.
5.2 Without prejudice to the claim of no PE, the learned ADIT
has erred in not appreciating the fact that as per the provisions
of Article 7(1) of the India-Singapore DTAA, only so much of the
portion of income should be taxable as is reasonably attributable
to the operations carried out by such PE in India. Consequently,
the ADIT has erred in considering the revenue earned from
activities carried out outside India for the purpose of
taxation.
GROUND NO.6: Dispute Resolution Panel (DRP) has erred in not
considering the loss claim made by the Appellant
6.1 Without prejudice to the claim of no PE, DRP erred in law
and on facts in not providing any direction to the ADIT in respect
of loss claimed by the Appellant based on the allocation and
bifurcation of income and expenses attributable to Indian
operations.
GROUND NO.7: Wrongly invoking Article 24 of India-Singapore
DTAA and denying the benefits of the tax treaty.
7.1 The DRP has erred in remanding the matter in respect of
the applicability of Article 24 in its directions in terms of the
provisions of sub-section (8) of section 144C of the Act which
is contrary to law and to that extent the decision of the learned
ADIT is without jurisdiction. Consequently, the decision of the
ADIT resulting into addition of income is vitiated under law.
7.2 The learned ADIT erred in law in invoking Article 24
'Limitation of Relief' in respect of one of the remittance
amounting to Rs.56,17,57,015/- relating to the project under
consideration and denying the benefit of India- Singapore DTAA.
7.3 Without prejudice to the above, the learned ADIT, while
denying the benefit of India-Singapore DT AA, erred in law in
taxing the aforesaid amount under the head 'Income from
Other Sources" instead of applying the provisions of section
44BB of the Act.
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GROUND NO.8: Erroneous initiation of penalty under section
271(1)(b) of the Act.
8.1 The learned ADIT erred in initiating penalty proceedings
under section 271(1)(b) without appreciating the fact that the
Appellant has complied with all the notices issued by the learned
ADIT and has submitted all the documents which were requested
for during the assessment proceedings.
GROUND NO.9: Erroneous levy of interest under section 234B of
the Act.
9.1 The learned ADIT erred in levying interest under section
234B of the Act.
GROUND NO.10: General
10.1 The learned AD IT erred in initiating penalty proceedings
under section 271(1)(c) of the Act.
10.2 The Appellant craves leave to add, alter, amend, substitute
and/or modify in any manner whatsoever all or any of the
foregoing grounds of appeal at or before the hearing of the
appeal.
2. The learned counsel, Shri Girish Dave, on behalf of the assessee,
by way of preliminary objection, submitted that the impugned final
assessment order passed by the Assessing Officer in pursuance of the
directions given by the DRP, is contrary to the provisions of section
144C, inasmuch as, firstly, the DRP had set aside certain matters to
the Assessing Officer which is not permissible in view of the provisions
of subsection (8) of section 144C, and secondly, the Assessing Officer
has even transgressed the directions of the DRP by carrying out further
enquiry and recording the statement under section 131, which again is
contrary to the provisions of subsection (13) of section 144C. Hence,
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the impugned final assessment order is legally not tenable, therefore,
the same should be quashed, as, such an illegality cannot be cured.
3. Explaining the brief facts of the case, the learned Counsel, Mr.
Girish Dave, submitted that the assessee is a company incorporated as
per the laws of Singapore and is tax resident of Singapore. It is
engaged in the activity of providing offshore engineering,
procurement, installation and construction services relating to the off
shore oil and gas exploration projects. The assessee had entered into a
contract with B.G., which is a nominee of coventures, Oil and Natural
Gas Commission Ltd., Reliance Industries Ltd. and British Gas. The
B.G. company is registered in Cayman Island, having its principal place
of business in India. The agreement was entered on 30 th September
2008, by which the assessee was required to perform the work like
engineering, procurement and construction of the platform which
involves detail design, fabrication, onshore commissioning and sea
fastening facilities. The project also involved transportation and
installation of constructions and pipelines. The assessee, in the return
of income for the assessee year 200910, claimed that its income from
contract with B.G. is not taxable in India as it does not have a
Permanent Establishment (P.E) in India in view of the Indo Singapore
treaty. During the course of the assessment proceedings, the assessee
made detailed submissions after referring to Article5 dealing with P.E.
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and submitted that it has neither established any project office in India
during the year 200809, nor opened any bank account for this
project. The installation of the project also cannot be held to be P.E.,
because it requires more than 183 days in any fiscal year, whereas the
activities in India started only from November 2008 only. Thus, there
was no project site in existence and, therefore, no question of any
profit being chargeable to tax in India. Several decisions were also
referred and relied upon by the assessee before the Assessing Officer
during the course of draft assessment proceedings, which have been
incorporated by the Assessing Officer from Page5 to 7 of the order.
Thereafter, the Assessing Officer examined the agreement entered
between the assessee and B.G. and concluded that the assessee has
P.E. in India in the form of fixed place P.E., under Article 5(3).
Thereafter, he held that the activities of the assessee company are
squarely covered by the provisions of section 44BB and liability to tax
will arise under section 44BB and, accordingly, he assessed the income
under the deeming provisions of section 44BB and taxed 10% of gross
receipt of ` 435,24,25,151.
4. Against the said draft assessment order, the assessee raised
various objections before the DRP, rebutting each and every
observations made by the Assessing Officer that how a P.E. cannot be
said to have been established in India in this fiscal year under the
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various provisions of Article5. Its main plank of argument before the
DRP was that:
i) Between April 2008 and October 2008, there were
only intermittent visits of its employees;
ii) Preconstruction survey was done only in November
2008;
iii) As the assessee was engaged in construction activity,
P.E. will arise only if construction activity is done for
more than 183 days in a fiscal year. Fixed place P.E.
under para1 cannot be made out in a case otherwise
covered by Para3 of Article5 of India Singapore
DTAA.
5. The learned counsel further submitted that the DRP, without
considering the assessee's objection and various documents filed
before it, proceeded on certain wrong presumptions, firstly, that the
assessee has filed certain fresh documents which were not available
before the Assessing Officer. To demonstrate this contention, he
referred to Para7 of the DRP's order, wherein it has been observed
that certain exhibits like I, J and K, of the agreement were not
produced before the Assessing Officer, whereas the same were part of
the agreement itself which has been noted by the Assessing Officer in
the order. He also drew our attention to the letter filed before the
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Assessing Officer along with which the assessee has filed all the
Annexures to the agreement including the one, referred by the DRP
before the Assessing Officer. Secondly, the DRP, instead of giving any
specific findings on the objection raised before it, has simply remanded
the matter to the file of the Assessing Officer to take note of certain
facts, instead of deciding the same which it was required to do so
under the provisions of the Act. The learned counsel drew our attention
to Para7/Page4 and Para16 of the DRP's order, wherein the DRP
has simply remanded the matter to the file of the Assessing Officer to
consider the evidence filed by the assessee and to take into account in
the final order. Not only that the Assessing Officer, in the final
assessment order, went step further and beyond the directions of the
DRP, by carrying out further enquiry / investigation for confirming the
taxable income / additions. Such a direction given by the DRP is first of
all, completely against the mandate of the provisions of section
144C(8) and secondly, the final assessment order passed by the
Assessing Officer is in violation of section 144C(13). In support of his
first contention, he strongly relied upon the decision of the Hon'ble
Jurisdictional High Court in Vodafone India Services Pvt. Ltd. v/s Union
of India, [2013] 359 ITR 133 (Bom.), wherein the Hon'ble High Court
categorically held that provisions of section 144C, do not permit the
DRP to set aside any proposed verification in the draft assessment
order or issued any direction of further enquiry and passing of the
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assessment order. Thus, the learned Counsel contended that the
impugned final assessment order is in complete violation of provisions
of section 144C and, therefore, it has to be held as illegal, being in
violation of law.
6. The learned Departmental Representative, on the other hand,
submitted that the Assessing Officer has not violated any the directions
of the DRP, as he has carried out enquiry in pursuance of the
directions of the DRP only. Regarding DRP's order, he submitted that
the DRP has held that there was a P.E. of the assessee in India, which
is evident from the observation made in Para9, 10, 11 and 12.
Though he admitted that the DRP, while considering the documents
filed before it took it as an additional evidence and has remanded the
matter to the Assessing Officer to take into account such evidences
and also carry out necessary proceedings and then pass the order
accordingly, which can be, in a way, said to be setting aside of the
assessment order; however, such a direction of the DRP can, at best,
be termed as procedural defect which can be cured by setting aside
the matter back to the file of the DRP for giving clear cut direction and
adjudication of the issue. To prove his point, he submitted that section
144C, is analogous to old section 144B, and in the context of section
144B, various High Courts have held that it is a procedural mechanism
and if there is any irregularity, then the matter can be set aside to the
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file of the Assessing Officer or the defect can be cured. In support of
his contention, he relied upon the following case laws, which are being
analysed in brief:
i) Gayatri Textiles v/s CIT, [2000] 243 ITR 674 (Kar.),
wherein, in the context of penalty proceedings under
section 271(1)(c), the prior approval of IAC was considered
to be procedural regularities and it was held not fatal to the
order of penalty;
ii) Sarabjit Singh v/s CIT, [1998] 234 ITR 641 (Del.),
wherein, the High Court has held that section 144B, merely
set out the procedure to be followed in certain situation and
any noncompliance of any procedural law is merely a
procedural irregularity which could be cured;
iii) Prabhudayal Amichand v/s CIT, [1956] 180 ITR 84
(M.P), wherein the High Court in the context of penalty
proceedings under section 271(1)(c), has held that if
approval of IAC has not been taken, the penalty order
cannot be quashed and the matter should be remanded to
the ITO for passing a fresh order as it was a procedural
irregularity; and
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iv) G.R. Steels and Alloys Ltd. v/s CIT, [1985] 152 ITR
220 (Kar.), this case was also in the context of section
144B, wherein the High Court held that the said provision
has not been complied with, then, it is merely a procedural
irregularity and do not have the effect of invalidating the
assessment.
7. Thus, he concluded that if there is any irregularity in giving
directions to the Assessing Officer, then the same is only procedural
irregularity which can be cured by setting it aside back to the stage of
DRP i.e., from the stage where the irregularity has crept in and it does
not lead to invalidating the assessment.
8. In the rejoinder, Shri Girish Dave, submitted that the provisions
of section 144B and 144C, are not pari materia, as subsection 13 of
section 144C, clearly provides that the Assessing Officer has to pass
the order in conformity with the direction of the DRP. Such a provision
was not there in section 144B. Otherwise also, the scope and power of
the DRP, as defined in section 144C, is on different footing as
compared to the scope of power of IAC or Dy. Commissioner given in
section 144B. Thus, the decision cited by the learned Departmental
Representative will not be applicable. Even the decisions relating to the
approval of IAC for levy of penalty under section 271(1)(c), will also
not apply here in this case in view of the categorical provisions of the
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Act provided in the section 144C. Further, the decision of the Hon'ble
Jurisdictional High Court in Vodafone India Services Pvt. Ltd. (supra),
is amply clear that the DRP cannot set aside the matter before it to the
Assessing Officer. It has to decide the objections after considering all
the material and then give clear cut directions to the Assessing Officer.
Thus, the illegality which has occurred in the directions of the DRP by
setting aside to the Assessing Officer for further enquiry and
considering the evidence cannot be cured and, therefore, the matter
should not be set aside back to DRP instead should be held as vitiated
in law.
9. We have heard the rival submissions and also perused the
impugned orders qua the preliminary objection raised by the learned
Counsel before us. The issue before the Assessing Officer as well as
before the DRP was, whether the income from the contract business
was taxable in India during the relevant financial year or not. The
assessee, which is a nonresident, Singapore based company, had
entered into a contract with B.G. which is having its office in India, for
engineering, procurement, installation and construction and various
other support services for offshore oil and gas exploration carried out
by the B.G. in India. The assessee's claim had been that its income
from the contract is not taxable in India under the Indo Singapore
treaty as it does not have a P.E. in India. In support of its contention,
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detailed submissions along with the contract agreement and other
details were furnished before the Assessing Officer, during the course
of assessment proceedings. The Assessing Officer had rejected the
assessee's contention and held that the assessee had a P.E. on the
ground that the assessee had established the project office in March
2008, which continued till 31st March 2009 and, therefore, the
assessee had fixed place P.E. under Article5. Before the DRP, the
assessee had made elaborate objections, contending that there cannot
be a fixed place P.E. in the assessee's case, because the pre
construction survey itself was done in November 2008, after
agreement was entered in September 2008. The construction activity
of the assessee was not carried out for a period of more than 183 days
in relevant fiscal year and, therefore, there was no P.E. under Para3
of Article5 and if the assessee's case is otherwise covered by Para3
of Article5, then fixed place P.E. under Para1 cannot be made out.
On a perusal of the DRP's order, it is seen that first of all, they have
gone on the premise that certain documents furnished before them
which were part of the agreement, were not filed before the Assessing
Officer. Such an observation of the DRP appears to be contrary to the
record, as the assessee along with the letter filed before the Assessing
Officer had filed the contract agreement along with its the annexures.
Thereafter, the DRP has tried to highlight certain discrepancies in the
details furnished before the Assessing Officer and before the DRP,
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which has been briefly discussed in Para7 and on that premise,
direction was given to the Assessing Officer to take note of such facts,
while framing the assessment order and also to take necessary
proceedings as deem fit. The relevant observations of the DRP as given
in Para7 are as under:
7. Before the DRP the assessee submitted certain fresh
documents which were not produced before A.O. They included 3
Exhibits i.e., I, J, & K of the agreement, that were not
produced before the A.O. The fresh documents also included the
period of stay in India by various employees and personnel of
the assessee during the previous year. Regarding the period of
stay it is observed that in its submission dated 17th Sept 2012,
the assessee provided details of three of its employees who
visited India consistently right from January 2008. Their overall
stay was shown as 45 days in India. However, as per the details
of employees visit provided to the A.O. it was stated that a
period of 22 days were spent by the employees in India. It is
found the assessee is now furnishing details before the DRP
showing particulars of 45 days spent by the employees in India.
Thus, there are significant discrepancy between details given to
the A.O. and the DRP. The A.O. is directed to take note of these
facts while framing the assessment order and also take
necessary proceedings as deemed fit.
10. From the above, it is evident that such a direction to the
Assessing Officer tantamounts to setting aside of the matter to the
Assessing Officer instead of adjudicating the issue. On the issue of
P.E., the DRP though has upheld the findings of the Assessing Officer
that there is P.E. of the assessee in India, however, in the end, the
matter has been sent to the Assessing Officer to consider the
evidences filed by the assessee. There seems to be no clear cut
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direction to the Assessing Officer, which is evident from the following
observations, as appearing in Para16.
16. The assessee has filed a number of additional evidences
before the DRP. The assessee may file a copy of the same before
the A.O. who may take them into account in the final order. As
regards applicability of article 24 of IndiaSingapore DTAA it was
seen that one of the remittance was not in favour of the
assessee. The A.O. may take this into account while passing the
order and not allow the DTAA benefit if conditions of article 24
are not fulfilled.
11. Thus, the DRP has again left the issue open by setting aside the
matter to the file of the Assessing Officer to take into account the
number of additional evidence filed before it and pass final order
accordingly. The applicability of Article24 has also been set aside to
the file of the Assessing Officer. Now, in this background, we have to
examine the objection raised before us, as to whether the DRP has
delegated its statutory power to the Assessing Officer.
12. The provisions of sections 144C provides the entire mechanism
for making a reference to the DRP; powers of the DRP and also the
procedures which have to be followed to issue directions to the
Assessing Officer. The relevant provisions of section 144C, which are
relevant for our purpose, are reproduced herein below:
Reference to dispute resolution panel
144C. (1) xxxxx
(2) xxxxx
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(3) xxxxx
(4) xxxxx
(5) The Dispute Resolution Panel shall, in a case where any
objection is received under sub-section (2), issue such
directions, as it thinks fit, for the guidance of the Assessing
Officer to enable him to complete the assessment.
(6) The Dispute Resolution Panel shall issue the directions
referred to in sub-section (5), after considering the following,
namely:--
(a) draft order;
(b) objections filed by the assessee;
(c) evidence furnished by the assessee;
(d) report, if any, of the Assessing Officer, Valuation Officer or
Transfer Pricing Officer or any other authority;
(e) records relating to the draft order;
(f) evidence collected by, or caused to be collected by, it; and
(g) result of any enquiry made by, or caused to be made by, it.
(7) The Dispute Resolution Panel may, before issuing any
directions referred to in sub-section (5),--
(a) make such further enquiry, as it thinks fit; or
(b) cause any further enquiry to be made by any income-tax
authority and report the result of the same to it.
(8) The Dispute Resolution Panel may confirm, reduce or
enhance the variations proposed in the draft order so, however,
that it shall not set aside any proposed variation or issue any
direction under sub-section (5) for further enquiry and passing of
the assessment order.
[Explanation.--For the removal of doubts, it is hereby declared
that the power of the Dispute Resolution Panel to enhance the
variation shall include and shall be deemed always to have
included the power to consider any matter arising out of the
assessment proceedings relating to the draft order,
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notwithstanding that such matter was raised or not by the
eligible assessee.]
(9) xxxxx
(10) Every direction issued by the Dispute Resolution Panel
shall be binding on the Assessing Officer.
(11) xxxxx
(12) xxxxx
(13) Upon receipt of the directions issued under sub-section
(5), the Assessing Officer shall, in conformity with the directions,
complete, notwithstanding anything to the contrary contained in
section 153 [or section 153B], the assessment without providing
any further opportunity of being heard to the assessee, within
one month from the end of the month in which such direction is
received.
(14) xxxxx
(14A) xxxxx
(15) xxxxx
13. On a perusal of the above statutory provisions, it can be seen
that:
i) Where the objections have been filed by the assessee,
the DRP has to issue directions to the Assessing Officer for
his guidance so as to enable him to complete the
assessment;
ii) Such directions can be given after considering the
various factors which have been elaborated in subsection
(6);
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iii) Power to make enquiry, before issuing any directions,
has been provided to the DRP as per subsection (7);
iv) The DRP, while issuing the directions to the Assessing
Officer, may confirm, reduce or enhance the variation
proposed by the Assessing Officer in the draft assessment
order. However, the DRP does not have any power to set
aside any proposed variation or issue any direction for
further enquiry and passing of the assessment order i.e.,
the DRP has to give a clear cut direction to the Assessing
Officer; and
v) The direction issued by the DRP is binding on the
Assessing Officer and once the direction has been given to
the Assessing Officer, then, the Assessing Officer is obliged
to pass the order in conformity with such direction without
giving any further opportunities to the assessee.
Thus, the statute has provided sufficient power to DRP for
considering all the material placed before it and to conduct enquiry
before issuing any direction to the Assessing Officer. After empowering
the DRP in such a wide manner, the statute contemplates that the DRP
should give categorical direction to the Assessing Officer for passing
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the assessment order. It cannot delegate its authority back to the
Assessing Officer.
14. Here maxim of delegatus non potest delegare would be squarely
applicable, which envisages that when a power has been conferred
upon a person, then he must exercise that power alone, unless
expressly empowered to delegate it to another. In other words, when
the statute prescribes a particular body or authority to exercise power,
then it must be exercised by that body or authority alone. The
provisions of statute, as contained in subsection (8) of section 144C,
clearly prohibits the DRP to delegate its power to the Assessing Officer
i.e., to set aside the proposed variation or issue any direction to carry
out any further enquiry by the Assessing Officer and to take his own
decision or discretion before passing of the final assessment order.
15. In the present case, there is a clear cut violation of section
144C(8) by the DRP. Not only this, there is a further violation by the
Assessing Officer in the final assessment order, as he went step further
in interpreting the direction of the DRP, by carrying out further enquiry
and recording the statement of project manager, Shri K.G. Ramesh.
Thus, right from the stage of issuance of the direction by the DRP to
the stage of passing of the final assessment order, there has been a
gross violation of statutory provisions and the powers given therein.
Otherwise also, the DRP is a quasijudicial authority and, therefore,
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while dealing with the lis it is obliged to ascribe cogent and germane
reasons as to why the assessee's objections are not maintainable and
there should be absolutely clarity on the directions to the Assessing
Officer, because the law does not envisage for providing further
opportunity to the assessee at the stage of passing of final assessment
order. Thus, we are of the opinion that the order / direction of the
DRP, as a whole, is not in consonance with subsec. (5) r/w subsec.
(8) of section 144C.
16. Now, in such situation, whether the entire direction of the DRP
should be held as illegal which cannot be cured or whether it is an
irregular exercise of power. In our opinion, if an authority has not
carried out the function or exercised power, as provided in the statute
or it has transgressed the statutory power, then it amounts to gross
irregularity of exercising of power and such an irregularity is not fatal,
so as to declare the entire proceedings as null and void resulting into
quashing of the entire order. A distinction has to be made between
illegal assumption of jurisdiction provided in the statute and irregular
exercise of statutory power. If a jurisdiction is to be assumed under a
statute by a particular authority to act or to initiate action or there is
an issue of limitation within which certain action is to be taken or an
order is to be passed, then any violation of such a statutory provisions
or assumption of jurisdiction or taking any action after the period of
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limitation, is an illegal exercise of statutory function or provision, which
cannot be obliterated or cured and such an action has to be quashed at
the threshold. Here, it is not a case of any illegal assumption of
jurisdiction or any issue of limitation, albiet there is a transgression of
scope and power prescribed under statute i.e., under section 144C.
Such a transgression is only an irregular exercise of power which is not
fatal but can be cured by setting aside such order or action, back to
the same stage and to the same authority from where the irregularity
has crept in. Such an order is always amenable to correction from the
stage from where it went wrong. Here, in the present case, on a
perusal of the order of the DRP, it is evident that insofar as the issue of
P.E. is concerned, they have expressed their opinion, however, they
have ultimately left to the Assessing Officer to decide the issue after
taking into consideration various evidences filed by the assessee.
Hence, instead of deciding or clearly adjudicating the issue, the matter
has been delegated to the A.O. which should not have been done.
17. The aforesaid view further gets fortified by the decision of the
Hon'ble Jurisdictional High Court in Vodafone India Service Pvt. Ltd.
(supra), as relied upon by the learned Counsel. In this decision, Their
Lordships were besieged with the jurisdiction of the Transfer Pricing
Officer (TPO) under section 92CA(2A) and (2B), in the Writ Petition
filed by the assessee petitioner and held as under:
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/104. Although the TPO has made his order without any
objection by the petitioner as to his jurisdiction, we would
have entertained this petition, had we come to the
conclusion that the TPO lacked inherent jurisdiction under
section 92CA(2A) and (2B) and that this inherent lack of
jurisdiction affected the further proceedings as well. We
have, however, held that even if the TPO lacked inherent
jurisdiction under section 92CA(2A) and (28) on the
grounds urged under the first submission, it would not
affect the further assessment proceedings. Thus, even if
we had come to the conclusion that the TPO lacked
inherent jurisdiction on this ground, we would not have
entertained this Writ Petition for the further proceedings
before the DRP or the CIT (Appeals), as the case may be,
and thereafter before the ITAT, would remain unaffected
by the same. These authorities would be entitled to set
right the defect and conclude the assessment proceedings
accordingly. The TPO's lack of jurisdiction would not ender
the further assessment proceedings void.
In this view of the matter, at least after the TPO has passed
his order and absent any exceptional circumstances, there is
no warrant for permitting an assessee to invoke the writ
jurisdiction on the basis that a TPO has wrongly assumed
jurisdiction under section 92CA(2A) or (2B) to compute the
arm's length price of an international transaction. The most
important factor is that even if the DRP comes to the
conclusion that the TPO had wrongly exercised jurisdiction
it would make no difference. The DRP would then have to
treat the transaction as a domestic transaction and issue
appropriate directions accordingly. In other words, the
proceedings do not come to an end. The DRP cannot
merely set aside the entire draft assessment order, close
the assessment proceedings and direct the AO to proceed
afresh. This would be so irrespective of whether the TPO
exercised jurisdiction on a reference under section 92CA(1)
or suo moto under sub-sections (2A) and (2B) of section
92CA. The DRP derives jurisdiction under section 144-C not
on account of whether there is an international transaction or
not, not merely on account of the TPO having correctly
considered a transaction to be an international transaction or
not, but on account of the intervention of the TPO either on a
reference under section 92CA(1) or suo moto under sub-
section (2A) and/or (2B) thereof.
105. If on the other hand a TPO wrongly assumes jurisdiction
although he lacks inherent jurisdiction, a Court may well
invoke its writ jurisdiction if the assessee approaches it at the
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earliest and in any event before the TPO makes the report.
This would only be to save the assessee and the Revenue
incurring unnecessary expenses and a waste of time on
account of the proceedings before the TPO which are
demonstrably without jurisdiction.
106. The position, however, would be entirely different once
the TPO passes the order. This is for the reason that the DRP,
in any event, would have the jurisdiction to rectify the error
and issue the necessary directions to the AO to complete the
assessment in accordance with law. The assessment
proceedings are not rendered futile or void on account of
the TPO lacking inherent jurisdiction. In such cases, where
the proceedings before the TPO have concluded, absent
anything else warranting the invocation of the writ
jurisdiction, a Writ Petition ought not to be entertained and
the parties must be relegated to their remedies under the
Act.
Thus, the Hon'ble Jurisdictional High Court held that the TPO's
lack of jurisdiction to proceed with the issue which were not in the
realm of international transaction as per objections of the assessee,
would not render the entire proceedings as void.
18. Thus, we set aside the final assessment order and restore the
entire matter back to the file of the DRP i.e., to the stage of filing of
objections by the assessee before the DRP. The DRP will consider the
entire objections as well as the evidences filed by the assessee in
support of its contention and then give clear direction to the Assessing
Officer in accordance with the provisions of law and after giving due
and effective opportunity of hearing to the assessee. Thus, we accept
the preliminary objection of the learned counsel partly and without
going into the merits of the other grounds raised before us, we remand
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the matter back to the file of the DRP. Accordingly, the appeal is
treated as allowed for statistical purposes.
19.
19. In the result, assessee's appeal is allowed for statistical purposes.
6th August 2014
Order pronounced in the open Court on 6th August 2014
Sd/- Sd/-
. .
B.R. BASKARAN AMIT SHUKLA
ACCOUNTANT MEMBER JUDICIAL MEMBER
MUMBAI, DATED: 6th August 2014
/ Copy of the order forwarded to:
(1) / The Assessee;
(2) / The Revenue;
(3) () / The CIT(A);
(4) / The CIT, Mumbai City concerned;
(5) , , / The DR, ITAT, Mumbai;
(6) / Guard file.
/ True Copy
/ By Order
. / Pradeep J. Chowdhury
/ Sr. Private Secretary
/ / (Dy./Asstt. Registrar)
, / ITAT, Mumbai
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