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Swiber Offshore Construction Pte. Ltd. C/o Devesh K. Shah & Co.361 Dr. D.N. Road Flora Fountain, Mumbai 400 001 V/s Addl. Director of Income Tax (International Taxation) Range2, Mumbai
August, 08th 2014
                 ,   `' 

                  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
                                                                Swiber Offshore
                                                           Construction Pte. Ltd.


                                                                             2

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.
                                                           Swiber Offshore
                                                      Construction Pte. Ltd.


                                                                        3

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.
                                                               Swiber Offshore
                                                          Construction Pte. Ltd.


                                                                            4



     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,
                                                              Swiber Offshore
                                                         Construction Pte. Ltd.


                                                                           5

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.
                                                               Swiber Offshore
                                                          Construction Pte. Ltd.


                                                                            6

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
                                                              Swiber Offshore
                                                         Construction Pte. Ltd.


                                                                           7

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
                                                            Swiber Offshore
                                                       Construction Pte. Ltd.


                                                                         8

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
                                                             Swiber Offshore
                                                        Construction Pte. Ltd.


                                                                          9

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
                                                            Swiber Offshore
                                                       Construction Pte. Ltd.


                                                                         10

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
                                                             Swiber Offshore
                                                        Construction Pte. Ltd.


                                                                          11

     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
                                                             Swiber Offshore
                                                        Construction Pte. Ltd.


                                                                          12

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,
                                                              Swiber Offshore
                                                         Construction Pte. Ltd.


                                                                           13

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,
                                                                Swiber Offshore
                                                           Construction Pte. Ltd.


                                                                             14

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
                                                                Swiber Offshore
                                                           Construction Pte. Ltd.


                                                                             15

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
                                                           Swiber Offshore
                                                      Construction Pte. Ltd.


                                                                        16



(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,
                                                                  Swiber Offshore
                                                             Construction Pte. Ltd.


                                                                               17

      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);
                                                              Swiber Offshore
                                                         Construction Pte. Ltd.


                                                                           18

     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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                                                                          20

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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                                                                            21

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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                                                                       22


/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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                                                                           24

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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