×Latest Case Laws on Income Tax by various Income Tax Appellate Tribunals in India
These are the latest case laws decided by various Income Tax Appellate Tribunals (ITAT) of India on Income Tax which have been published recently. The case laws are open for discussion and we invite expert comments from our members on its applicability and effect on relevant issues.
04-09-2019, Capstone Securities Analysis, Section 144C, 251, Tribunal Pune
This appeal by the assessee is directed against the final assessment order dated 28-11-2016 passed by the Assessing Officer (AO) u/s.143(3) r.w.s.144C(13) of the Income-tax Act, 1961 (hereinafter called ‘the Act’) in relation to the assessment year 2012-13.
2. The first legal issue raised in this appeal is against non-passing of separate draft order pursuant to restoration by the Dispute Resolution Panel (DRP).
3. Briefly stated, the factual panorama of the case is that the assessee filed its return declaring total income of Rs.1,68,43,110/-. Certain international transactions were reported by the assessee in Form No. 3CEB. The AO referred the matter of determination of the Arm’s Length Price (ALP) of such transactions to the Transfer Pricing Officer (TPO). Vide order dated 18-01-2016, the TPO recommended transfer pricing adjustment of Rs.5,35,19,469/-. The AO passed the draft order on 04-02-2016 proposing, inter alia, variation in the declared income to the extent recommended by the TPO. The assessee raised objections before the DRP, who vide its order dated 16-09-2016 directed the AO/TPO to carry out fresh search for comparable companies engaged in KPO services providers list as against the original benchmarking done by the authorities by considering the assessee as a BPO service provider. In addition, the DRP also gave certain specific directions qua few comparables as objected to before it. Pursuant to the direction givenby the DRP, the AO vide his reference dated 07-10-2016 required the TPO to do a fresh benchmarking. The TPO vide his order dated 21-11-2016 proposed a fresh transfer pricing adjustment of Rs.5,21,84,250/-. The AO in his final order dated 28-11-2016 has made transfer pricing addition of Rs.5.21 crore and odd, against which the assessee has come up in appeal before the Tribunal.
4. We have heard both the sides and gone through the relevant material on record. The legal argument put forth on behalf of the assessee is that the procedure adopted by the authorities below in not passing draft order pursuant to the direction given by the DRP has vitiated the assessment. This argument can be better appreciated by having an insight into the provisions of section 144C of the Act with the caption “Reference to Dispute Resolution Panel”. Subsection (1) of section 144C states that: “The Assessing Officer shall, notwithstanding anything to the contrary contained in this Act, in the first instance, forward a draft of the proposed order of assessment (hereafter in this section referred to as the draft order) to the eligible assessee if he proposes to make, on or after the 1st day of October, 2009, any variation in the income or loss returned which is prejudicial to the interest of such assessee.’ Sub-section (2) of section 144C states that the assessee shall either file his acceptance to the AO on the variations proposed in the draft order or file his objections, if any, with the DRP. In case, the assessee accepts the variation in the draft order or no objections are received within 30 days, then sub-section (3) states that: `The Assessing Officer shall complete the assessment on the basis of the draft order’. In case, the assessee does not agree with the draft order, it can, inter alia, raise objections before the DRP, which shall issue directions under subsection (5) of section 144C. Upon receipt of the directions from the DRP, the AO completes the assessment under sub-section (13) in conformity with the directions given by the DRP.
5. Scope of directions by the DRP has been set out in sub-section (8) which states that the DRP “may confirm, reduce or enhance the variations proposed in draft order so, however, that it shall not set aside any proposed variation or issue any direction under subsection (5) for further enquiry and passing of the assessment order.’ It is manifest from the prescription of sub-section (8) that the DRP has been empowered to confirm, reduce or enhance the variations proposed in draft order. There is specific prohibition contained in the provision to the effect that the DRP cannot set-aside any proposed variation or issue any direction for further enquiry and passing of the assessment order.
6. At this juncture, it would be relevant to note the language of section 251 of the Act, which deals with the powers of the CIT(A) in disposing appeals. Sub-section (1)(a) provides that in disposing of an appeal against an order of assessment, the Commissioner (Appeals) shall have the power to : `confirm, reduce, enhance or annul the assessment.’ Prior to an amendment to section 251(1) by the Finance Act, 2001 w.e.f. 01-06-2001, the CIT(A) was empowered to : `set-aside the assessment and refer the case back to the Assessing Officer for making a fresh assessment in accordance with the directions given by the Commissioner (Appeals) and after making such further inquiry as may be necessary, and the Assessing Officer shall thereupon proceed to make such fresh assessment and determine, where necessary, the amount of tax payable on the basis of such fresh assessment.’ The hitherto power given to the CIT(A) referring the case back to the AO for making fresh assessment has been taken away by the Finance Act, 2001. The effect of this amendment is that now the CIT(A) can only confirm, reduce, enhance or annul the assessment but cannot restore the matter to the AO for a fresh determination. In the pre-amendment era when the CIT(A) could restore the matter to the AO, the AO was obliged to pass a separate order which was further appealable to the first appellate authority before moving the Tribunal. In the postamendment period, the power of the CIT(A) to restore has been