Income Tax Appellate Tribunal - Chennai
Durr India Private Limited, Chennai vs Ito, Corporate Ward - 1 (4),, Chennai on 10 May, 2023
आयकर अपीलीय अिधकरण, 'डी' यायपीठ, चे ई।
IN THE INCOME TAX APPELLATE TRIBUNAL
'D' BENCH: CHENNAI
ी महावीर िसंह, माननीय उपा , एवं
ी मंजूनाथा.जी, माननीय लेखा सद के सम
BEFORE SHRI MAHAVIR SINGH, HON'BLE VICE PRESIDENT AND
SHRI MANJUNATHA.G, HON'BLE ACCOUNTANT MEMBER
IT (TP) A No.15/Chny/2020 & IT (TP) A No.38/Chny/2021
िनधा रण वष /Assessment Years: 2015-16 & 2016-17
M/s.Durr India Pvt. Ltd., v. The Income Tax Officer,
No.471, 2nd Floor, Prestige Polygon, Corporate Ward-1(4),
Anna Salai, Nandanam, Chennai.
Chennai-600 035. &
The Income Tax Officer.
Income Tax Department,
National e-Assessment
Centre, Delhi
[PAN: AAACD 3568 P]
(अपीलाथ /Appellant) ( यथ /Respondent)
अपीलाथ क ओर से/ Appellant by : Mr.Darpan Kirpalani, Adv.
यथ क ओर से /Respondent by : Mr.S.Maruthu Pandian, CIT
सुनवाई क तारीख/Date of Hearing : 01.05.2023
घोषणा क तारीख /Date of Pronouncement : 10.05.2023
आदेश / O R D E R
PER MANJUNATHA.G, ACCOUNTANT MEMBER:
These two appeals filed by the assessee are directed against separate, final Assessment Order passed by the AO u/s.143(3) r.w.s.144C(13) of the Income Tax Act, 1961 (in short "the Act") both dated 21.11.2019 & 30.04.2021, in pursuant to Dispute Resolution Panel directions, issued u/s.144C(5) of the Act, both dated 25.09.2019 & 22.03.2021 and pertains to AYs 2015-16 & 2016-17. Since, the facts are identical and issues are common, for the sake of convenience, these IT (TP) A No.15/Chny/2020 & IT (TP) A No.38/Chny/2021 :: 2 ::
appeals were heard together and are being disposed off, by this consolidated order.
IT (TP) A No.15/Chny/2020 for the AY 2015-16:
2. The assessee has raised the following grounds of appeal:
The grounds of appeal listed below are independent and without prejudice to each other.
1. GENERAL GROUND 1.1. The Learned AO and the Hon'ble DRP have erred, in law and in facts, by not accepting the economic analysis undertaken by the Assessee in accordance with the provisions of the Act read with the Rules, and conducting a fresh search for the determination of Arm's length price in connection with the impugned international transactions in the paint finishing segment ('PFS') and holding that the Assessee's international transactions are not at arm's length.
1.2. The Learned AO and the Hon'ble DRP have, in the facts and circumstances of the case, erred in passing orders with unwarranted adjustments to the reported income of the Appellant by misapplying the provisions of the Act.
2. TRANSFER PRICING ADJUSTMENT 2.1 The Learned TPO/AO and the Hon'ble DRP have erred in law and facts of the case by rejecting the detailed transfer pricing analysis carried out by the Appellant for impugned international transaction (in accordance with the provisions of Sec 92D of the Act read with Rule 10D of the Income Tax Rules 1962) following Transactional Net Margin Method (TNMM), without providing any cogent reasons.
2.2 On the facts and circumstances of the case, the international transactions of the Appellant being closely linked, use of TNMM as done by the Appellant is more appropriate under law and deserves to be retained as the most appropriate method to determine the Arm's Length Price.
2.3 The Learned TPO/ AO and the Hon'ble DRP have grossly erred in not identifying any uncontrolled comparable transaction while considering Other Method under Rule 10AB as the most appropriate method to benchmark the impugned international transactions pertaining to payment of management fee and further erred in determining the arm's length price as NIL on an arbitrary basis.
2.4 The Learned TPO/ AO and the Hon'ble DRP have erred, in law and in facts, by rejecting the need-evidence-benefit documentation provided by Assessee citing unconventional reasons.
2.5 The Learned TPO/ AO and the Hon'ble DRP have erred, in law and in facts, by questioning the need for payment of management fees to AE, thereby stepping into shoes of the Assessee and questioning the commercial expediency.
2.6 The Learned TPO/ AO and the Hon'ble DRP have erred in law and in facts, by violating the principles of consistency and judicial discipline by not following the binding judicial precedents in Appellant's own case as well as other decisions of higher appellate forums, IT (TP) A No.15/Chny/2020 & IT (TP) A No.38/Chny/2021 :: 3 ::
thereby leading to undue harassment to the appellant and chaos in administration of tax laws.
3. ADDITIONS TO THE INCOME UNDER THE HEAD PROFITS AND GAINS FROM BUSINESS OR PROFESSION ON ACCOUNT OF BILLING IN EXCESS OF REVENUE.
3.1 The Learned AO and the Hon'ble DRP have grossly erred in making an addition of INR 52,31,62,000 on account of billing in excess of revenue by not accepting the revenue recognition principle adopted by the Assessee which is in line with the prescribed Accounting Standards (AS) and Income Computation and Disclosure Standards (ICDS).
3.2 The Learned AO and the Hon'ble DRP have grossly erred by not accepting the principles of Percentage Completion Method as prescribed under Accounting Standard 7 issued by the Institute of Chartered Accountants of India (ICAI), which states that the revenue should be recognized for a contract on the basis of the percentage/ stage of completion of the contract.
3.3 The Learned AO and the Hon'ble DRP have grossly erred by not following the principles of AS 7 and ICDS 3 gad-have held that revenue accrues basis invoices raised by the Company without considering the percentage/ stage of completion of the contract.
3.4 The Learned AO and the Hon'ble DRP have grossly erred in not considering the fact that the method of accounting is followed consistently by the Assessee over the years.
3.5 The Learned AO and the Hon'ble DRP have erred in not appreciating the fact that the amount is recognized as revenue in the subsequent years.
3.6 Further, the Learned AO and the Hon'ble DRP have failed to appreciate the principles upheld by various courts on the abovementioned aspects which are squarely applicable to the Appellant.
3.7 The learned AO has erred in initiating penalty proceedings under section 271(1)(c) of the Act.
3.8 The learned AO has erred in computing interest under section 234B and section 234C on the above adjustments and the appellant craves that such interest will not be leviable if the grounds mentioned supra are adjudicated in favor of the appellant.
The Appellant prays that directions be given to grant all such relief arising from the grounds of appeal mentioned supra and all consequential relief thereto. Further, the Appellant craves that the grounds raised above are without prejudice to each other. The Appellant craves leave to add to and/or to alter, amend, rescind, modify the grounds herein above or produce further documents before or at the time of hearing of this Appeal.
3. The brief facts of the case are that the assessee company is engaged in the business of providing paint finishing and environmental systems technical management services to automobile manufacturers and engineering services. The assessee company filed its return of income for the AY 2015-16 on 30.11.2015 admitting total income of Rs.18,64,50,300/-
IT (TP) A No.15/Chny/2020 & IT (TP) A No.38/Chny/2021 :: 4 ::
. The case was selected for scrutiny and during the course of assessment proceedings, a reference was made to the Transfer Pricing Officer (in short "TPO") to determine Arm's Length Price (in short "ALP") of international transactions of the assessee with its Associated Enterprises (in short "AE"). During the course of TP proceedings, the TPO noticed that the assessee has entered into various international transactions including payment of management fees to its AE, M/s.Durr Systems GmbH. The TPO has accepted all transactions of the assessee with its AE are at ALP, except payment of management fees to its AE amounting to Rs.3,78,78,968/-. In respect of payment of management fees, the TPO suggested downward adjustment of Rs.3,78,78,968/- on the ground that the assessee could not file any evidences to justify rendering of services by the AE and necessity of making payment of management fees to its AE. In pursuant to TP adjustment as suggested by the TPO in their order dated 31.10.2018, the AO has passed draft assessment order u/s.143(3) r.w.s.92CA of the Act, dated 28.12.2018 and proposed TP adjustment as suggested by the TPO in respect of management fees paid to the AE. The AO had also made additions towards reversal of billing in excess of Revenue amounting to Rs.52,31,62,000/-. The assessee filed an objection before the DRP against draft assessment order. The DRP-2, Bangalore, vide their directions dated 25.09.2019 issued u/s.144C(5) of the Act, upheld TP adjustment suggested by the TPO in respect of management fees paid to AE and also additions made by the AO towards reversal of billing in excess of Revenue.
IT (TP) A No.15/Chny/2020 & IT (TP) A No.38/Chny/2021 :: 5 ::
Thereafter, the AO passed final assessment order u/s.143(3) r.w.s.92CA r.w.s.144C of the Act, dated 21.11.2019 and determined total income of Rs.74,74,91,268/- by making addition towards downward adjustment on management fees paid to AE amounting to Rs.3,78,78,968/- and additions towards reversal of billing in excess of Revenue amounting to Rs.52,31,62,000/-. Aggrieved by the final assessment order, the assessee is in appeal before us.
4. The first issue that came up for our consideration from Ground Nos.2.1 to 2.6 of the assessee's appeal is downward adjustment towards management fees paid to AE amounting to Rs.3,78,78,968/-. The Ld.Counsel for the assessee submitted that this issue is covered in favour of the assessee by the decision of the ITAT, in the assessee's own case for earlier assessment years, where the issue has been set aside to the file of the AO/TPO to re-examine the issue of management fees paid to AE in light of various evidences filed by the assessee. Therefore, this year also, the issue may be set aside to the file of the AO/TPO.
4.1 The Ld.CIT-DR has filed detailed written submissions on this issue along with the decision of the ITAT Chennai Benches in the case of M/s.Lite- On Mobile India Pvt. Ltd., and also the decision of ITAT Bangalore Bench in the case of Volvo India (P) Ltd., reported in [2018] 89 Taxman.com 79 and argued that the assessee could not adduce any evidences to prove rendering of services by AE and also payment of management fees, is commensurate with rendering of services, except filing few e-mail IT (TP) A No.15/Chny/2020 & IT (TP) A No.38/Chny/2021 :: 6 ::
communications between two entities. The TPO as well as DRP after considering relevant facts has rightly made 'nil' adjustment towards management fees paid to AE and their orders should be upheld. The written submissions filed by the Ld.DR are re-produced as under:
1. A sum of Rs.3,78,78,968/- was proposed as adjustment by the TPO. On this aspect, the TPO examined each and every parameter by issuing a detailed show cause notice. This is discussed from page no. 17 to 32 of the T.P order.
2. It is observed that the voluminous document presented before TPO did not even have an index. Even 11 annexures to it were not flagged. Therefore, the index was prepared by TPO and analyzed each annexure, its content and the remarks of TPO was given on each annexure.
3. At page no.21, the TPO held that except one mail, seeking sourcing support, all other documents are either basic manuals which can be accessed from any search engine or routine mail communication between two entities.
4. From page no.22 onwards, the contention of appellant against the TPO observation was presented.
5. At page no.27, the TPO had discussed about a specific questionnaire issued to the appellant dated 14.08.2018. However, the appellant replied dated 06.09.2018 that they were not privy to such information called for.
6. This fact is once again recorded by DRP at para 3.4.
7. In view of the above, the TPO called for the details of the employees who are heading the department's concerned and collected those details.
8. Upon thorough analysis, the TPO concluded that when the assessee themselves had such experienced persons in their pay roll, need for management services does not arise.
9. As per the appellant, the cost incurred by Durr Germany was allocated to Durr India for providing respective services with a markup of 7%. If so what was the evidence of cost incurred was not provided.
10.It is not a covered issue as TPO had dealt this elaborately at page-16.
11.It is humbly submitted that on the same issue in the case of M/s Lite-On Mobile India Pvt. Ltd. the Hon'ble ITAT D Bench has ruled in favour of the department. In page 14 of its order it is remarked as under:-
"In this case, the assessee, except furnishing agreement between parties, invoices raised by AE and few e-mail correspondence, no other documents have been filed to prove any services in fact, was rendered by its AE. Therefore, in our considered view, even if agreement is considered to be genuine, the assessee has never tried to verify correctness of cost allocation done by service provider. Further, the assessee has failed to substantiate payment of such huge managerial fees month on month without any supporting evidences like technical specification of services rendered by its AE, personnel deployed for said purposes and other evidences including correspondence between parties. Although, the assessee refers to number of e-mail correspondence between few employees of the assessee and its IT (TP) A No.15/Chny/2020 & IT (TP) A No.38/Chny/2021 :: 7 ::
AE, but on perusal of e-mail samples filed by the assessee, what we could notice is these e- mails are general in nature and further with reference to daily production of products manufactured by the assessee in respect of sales to different regions. Further, none of e- mail correspondence filed by the assessee depicts any evidence of rendering any kind of managerial or technical services to justify claim of the assessee that it has received managerial services from its AE. Therefore, we are of the considered view, that the assessee has made periodical payment to its AE in the guise of managerial fee without any justification for such payment and further without any evidence on record to suggest that services were actually rendered. "
12. The Hon'ble ITAT Chennai in the case of M/s.Infac India Pvt. Ltd. vs DCIT (2015) 64 Taxmann.com 437 has ruled in favour of the revenue. Also, ITAT Bangalore in the case of Volvo India P Ltd vs DCIT (2018) 89 Taxmann.com 79 and also in the case of Saffron Engineering Services P Ltd. vs. ACIT (2018) 89 Taxmann.com 77 has ruled in the favour of Revenue.
4.2 We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. The assessee has paid management fees to its AE, M/s.Durr Systems GmbH, Germany, amounting to Rs.3,78,78,968/-. The assessee has justified payment of management fees by filing certain e-mail communications between assessee and its AE. The TPO has made additions towards management fees on the ground that except e-mail communications, the assessee could not file any evidences to prove rendering of services by its AE and necessity of making huge fees. We find that similar issue came up for consideration before the Tribunal for the AY 2009-10 & 2012-13 also. ITAT Chennai Benches under identical set of facts and circumstances, has set aside the issue to the file of the AO/TPO with a direction to follow TNMM method adopted by the assessee to benchmark various international transactions including management fees paid to AE. The relevant findings of the Tribunal are as under:
7. We have heard the rival contentions. Similar issue came up in the assessee's case before this tribunal for the ays 2009-10, 2010-11 & 2011-12. This tribunal in ITA Nos.754/Mds/2014, No.972/Mds/2015 & No.455/Mds/2016 dated 21.12.2006 disposed the matter as under:
IT (TP) A No.15/Chny/2020 & IT (TP) A No.38/Chny/2021 :: 8 ::
"10. We have considered the rival contentions and perused the orders of the authorities below. Case of the assessee is that TNMM was rejected without proper reasoning and a method which was unknown to the law was used by the ld. TPO for the transfer pricing analysis. A look at the international transactions entered by the assessee during the previous years relevant to impugned assessment year which have been reproduced by us at para 2 above would clearly show that these were not pure independent transactions amenable to an independent analysis for pricing.
Parts and accessories imported from Associated Enterprise would have been used by the assessee for installation and other services in India as well as engineering services. Reimbursement of expenditure could also have been only in connection with these activities. Ld. TPO had singled out management fees and R & D fees and subjected it to a separate analysis disregarding the TNMM adopted by the assessee. Ld. TPO did not discuss anything regarding the comparables considered by the assessee for the TNMM study. Ld. TPO had summarily rejected the TNMM study citing a reason that intra-group services had to be benchmarked separately by analyzing the actual services received. No doubt there can be no quarrel on the view taken by the ld. TPO that Arm's Length Price should be determined on a transaction by transaction basis. However, where the international transactions are closely linked this approach may not be feasible and a method of aggregation which is more amenable to a TNMM methodology could be better. Ld. TPO ought not have considered the rule regarding transaction to transaction comparison as so rigid that it could not give way to an aggregate method, where the transactions were so interconnected and intertwined, when an independent analysis would not give reasonably fair results. In the case before us, ld. TPO based on ld. DRP direction elected to bench mark the fees paid by the assessee for management services and R & D on the basis of the ratio of the turnover of the whole of the M/s. Durr Systems Gmbh, Germany to the turnover of the assessee in India. Ld. DRP was of the opinion that this method was nothing but CUP. The method by which Arms Length Price has to be determined are set out in Rule 10B and Rule 10AB of the Income Tax Rules. Clause (a) to Rule 10B(1) describes the CUP method, and this is reproduced hereunder:-
''(1) For the purposes of sub-section (2) of section 92C, the arm's length price in relation to an international transaction or a specified domestic transaction shall be determined by any of the following methods, being the most appropriate method, in the following manner, namely :- (a) comparable uncontrolled price method, by which,- (i) the price charged or paid for property transferred or services provided in a comparable uncontrolled transaction, or a number of such transactions, is identified ; (ii) such price is adjusted to account for differences, if any, between the international transaction or the specified domestic transaction and the comparable uncontrolled transactions or between the enterprises entering into such transactions, which could materially affect the price in the open market ; (iii) the adjusted price arrived at under sub-clause (ii) is taken to be an arm's length price in respect of the property transferred or services provided in international transactions or specified domestic transactions'' ;
Other methods mentioned in the said Rule are resale price method, cost plus method, profit split method and transactional net margin method. There is residual clause (f) which gives freedom to the ld. TPO to follow a method which takes into account the price which was charged or paid or would have been charged or paid and rule 10AB defines it so. Mumbai Bench in the case of DET Norske Veritas As (supra) has clearly held that once method of ascertaining Arms Length Price followed by the assessee was rejected by the ld. TPO, for good and sufficient reason, he had to select most appropriate method out of these which were set out in Rule 10B or Rule 10AB. Co-ordinate Bench in the case of M/s. Flakt (India) Ltd (supra) had held as under at para 9 of its order:-
''The Transfer Pricing Officer has not taken any pain to identify uncontrolled transaction between two independent entities. In the absence of any comparison of the transaction with transaction carried out in a uncontrolled market, this Tribunal IT (TP) A No.15/Chny/2020 & IT (TP) A No.38/Chny/2021 :: 9 ::
is of the considered opinion that the Transfer Pricing Officer cannot independently come to a conclusion that volume and quality of services was disproportionate to the payment made by the assessee. The matter may be totally different if the Transfer Pricing Officer was able to Identify the uncontrolled transaction between the enterprises entering into such transaction which would materially affect the price in the open market. In this case, such an exercise was not made by the Transfer Pricing Officer. The Dispute Resolution Panel has, therefore, rightly found that the method adopted by the TPO for disallowing the claim of the assessee was not justified. As rightly observed by the Dispute Resolution Panel, the TPO has not brought on record the base on which he estimated the ALP at 25% when Rule 10B (c) provides for method of determining the ALP. This Tribunal is of the considered opinion that estimation of the services rendered and costs for such services may be outside the scope of transfer pricing adjustment. Without identifying the comparable cases, this Tribunal is of the considered opinion that estimation of the disallowance without any base is not called for. Therefore, the Dispute Resolution Panel has rightly upheld the transfer pricing study made by the assessee. This Tribunal do not find any reason to interfere with the order of the lower authorities and accordingly the same is confirmed''. In the case of Frigo glass India (P) Ltd (supra) Delhi Bench of the Tribunal had held CUP method could be adopted after discarding TNMM only when a comparable product or service is available. Ld. TPO and ld. DRP were not able to identify a single uncontrolled comparable for bench marking R & D fees and management fees paid by the assessee. This may be due to the difficulties in finding another entity that had rendered services which were identical to what were given to the assessee by M/s.Durr Systems Gmbh, Germany, that too in an uncontrolled set of circumstance. In such a situation in our opinion assessee could not be faulted in insisting that the TNMM method adopted by it for analyzing its international transactions with Associated Enterprises, for the impugned assessment years should be accepted. Nevertheless, we find that lower authorities having rejected the TNMM method did not verify the appropriateness of the comparables selected by the assessee in its TP study. Functional profile of the comparables and that of the assessee were never verified. Lower authorities did not verify whether the Arm's Length Price analysis done by the assessee based on TNMM was correctly done and whether any modification in the comparables selected or the PLI computed were necessary. Thus, while setting aside the orders of the lower authorities for all the impugned assessment years, we remit the issue of fixing the Arm's Length Price of the international transactions of the assessee under TNMM, back to the file of the ld. Assessing Officer /ld. TPO for consideration afresh in accordance with law."
8. In this case, neither the TPO nor the DRP could identify a single uncontrolled comparable for bench marking R&D fees and management fees paid by the assessee. Hence, Rule 10AB, extracted supra, and relied on by the Revenue cannot be applied in this case. Since, there is no change in the facts, by following this tribunal order extracted supra, on the same lines, we remit the issue, for fixing the ALP of the international transaction of the assessee under TNMM, to the file of the AO/TPO for a fresh consideration in accordance with law.
4.3 In this view of the matter and consistent with view taken by the coordinate Bench, we are of the considered view that this issue needs to go back to the file of the AO/TPO for the impugned assessment year also.
In so far as the arguments of the CIT-DR in light of decision of ITAT Chennai Benches, in the case of M/s.Lite-On Mobile India Pvt. Ltd., we find that IT (TP) A No.15/Chny/2020 & IT (TP) A No.38/Chny/2021 :: 10 ::
although co-ordinate Bench of the Tribunal has taken a different view, but in assessee's own case, this issue has been remitted back to the file of the lower authorities with specific directions, we prefer to follow the decision of the co-ordinate Bench in the assessee's own case for earlier assessment years and set aside the issue to the file of the AO/TPO for the impugned year also with similar directions to re-examine the issue of management fees paid to AE in light of various averments made by the assessee. Thus, we set aside the issue to the AO/TPO and direct the AO/TPO to re-examine the claim of the assessee in accordance with law.
5. The next issue that came up for our consideration from Ground Nos.3.1 to 3.8 of the assessee's appeal is addition towards billing in excess of Revenue amounting to Rs.52,31,62,000/-. The facts with regard to impugned dispute are that during the course of assessment proceedings, it was observed that under Note-8 current liabilities 'billing in excess of Revenue' for the AY 2015-16 was shown at Rs.52,31,62,000/-. The assessee was asked to show cause why this income should not be added back to the total income of the assessee as the assessee is following mercantile system of accounting and income accrues to the assessee in legal perspective. In response, the assessee stated that it has followed the method of recognition of Revenue and accounting for billing done in excess of Revenue, as per schedule-VI of the Companies Act and Accounting Standard-7. The assessee further claimed that it has followed ICDS IT (TP) A No.15/Chny/2020 & IT (TP) A No.38/Chny/2021 :: 11 ::
standards and as per which, the Revenue has been recognized on the basis of percentage completion method. The AO, however, was not convinced with the explanation furnished by the assessee and according to the AO, when assessee follows mercantile system of accounting, income accrues the moment bill is raised. Further, unless assessee completes certain percentage of work, it cannot raise bill to its clients. Therefore, when the assessee has raised bill in legal perspective, the income accrues to the assessee. Therefore, the question of reversing such income does not arise. Therefore, rejected the arguments of the assessee and made addition towards reversal of billing in excess of Revenue.
5.1 The Ld.Counsel for the assessee submitted that the DRP is erred in sustaining addition towards billing in excess of Revenue by not accepting the Revenue recognition method followed by the assessee which is in line with the prescribed Accounting Standards and Income Computation & Disclosure Standards. The Ld.Counsel for the assessee further submitted that the assessee following this method of accounting for recognition of Revenue right from the beginning and the Department has accepted the method followed by the assessee in the past. Therefore, unless there is a change in the facts, the Department cannot follow a different method for the impugned assessment year. In this regard, the Ld.Counsel for the assessee has explained method of accounting followed by the assessee and recognition of Revenue in the books of accounts.
IT (TP) A No.15/Chny/2020 & IT (TP) A No.38/Chny/2021 :: 12 ::
5.2 The CIT-DR filed written submissions on this issue and argued that there is no dispute with regard to method followed by the assessee for recognition of Revenue, but fact remains that when entire cost is debited, how can they claim that there was excess billing in advances. Further, unless, the assessee does work, it cannot rise bill to its customers. Further, the moment bill is raised, Revenue is accrued to the assessee when the assessee is following mercantile system of accounting. The assessee could not adduce any evidences to defer Revenue which accrued and arises to the assessee. The AO/DRP has rightly rejected the arguments of the assessee. In this regard, the CIT-DR has filed written submissions which is re-produced as under:
One of the main issues in this appeal was related to billing in excess of revenue of Rs.52,31,62,000/-. The A.O proposed this addition on the fact that the appellant was following mercantile system of accounting and this amount was disclosed under current liabilities, as billing in excess of revenue without recognizing the same. Some of the basic facts as under;
1. The appellant was involved in construction contract.
2. They declared that percentage completion method was followed.
3. Contract revenue recognized on percentage completion method means on the stage of completion or on percentage of works completed, revenue has to be recognized. So, they always have to bill as per the cost incurred.
4. When entire cost is billed and debited, how come they can claim that there was excess billing in advance has not been explained. To whom they have billed in excess and on which contract it was billed excess not explained.
5. In the construction contract, the cost debited to P&E a/c was the actual cost incurred and the revenue has to be recognized on the basis of cost incurred.
6. From the movement of aggregate amount of contract cost, cost debited in to P&L a/c, billing in excess revenue noticed from the paper book that the appellant has been postponing the revenue recognition year after year.
7. This has been duly observed by DRP at paragraph 6.2.
8. DRP examined this aspect and held that billed/invoiced revenue is nothing but the revenue covered by the estimate of completion. Hence, all the invoiced revenue needs IT (TP) A No.15/Chny/2020 & IT (TP) A No.38/Chny/2021 :: 13 ::
to be accounted for the year in which invoices are raised. It was also held that if the work is not completed to the expected stage, the assessee would not have raised an invoice. No customer would pay or accept a bill for the work which is not completed. From the financials available from the paper book of the appellant the following facts are also brought on record;(EncI: Table-1)
1. AY: 2012-13: Factually, the aggregate amount of cost incurred up to 31.03.2012 was Rs. 192.93 Cr and the cost debited to P&L was Rs. 112.22 CrintheA.Y.2012-13.
2. AY 2013-14: As on 31.03.2013, the aggregate amount of construction cost was Rs.381.24 Cr and the cost debited to P&L a/c was Rs. 185.51 Cr.
3. AY 2014-15: As on 31.03.2014, the aggregate cost has gone up to Rs.525.76 Cr;
the cost of material debited into P&L a/c was Rs.173.26 Cr.
4. AY 2015-16: However, as on 31.03.2015, the aggregate amount of contract cost was disclosed into Rs.481.93 Cr and the cost debited to P&L a/c was Rs.92.92 Cr. In this year, the amount of billing in excess of revenue disclosed was Rs.52.31 Cr and that was added into total income by the Assessing Officer. It was observed that these are already billed to the client and the cost incurred was already debited in the P&L a/c. Hence, there cannot be any such deferment.
5. However, the appellant claimed that it was "legally accrued" in subsequent assessment year. Cost is not differed; only revenue is differed.
6. The DRP also held that in AS-7, when the assessee follows percentage completion method for their construction contract, there cannot be billing in excess of revenue. Accordingly, the addition made in the draft order was upheld by DRP. 5.3 We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. There is no dispute with regard to the fact that the assessee is following mercantile system of accounting and percentage completion method in respect of project executed. In percentage completion method, the assessee estimates the stage of completion or percentage of completion of any project by taking into account the total estimated cost and the actual cost incurred till the period. Further, the Revenue is recognized in the books of accounts for the relevant Financial Year based on the percentage of work completion. In this case, the assessee has raised bills to its customers on the basis of percentage of work completed in a particular project. However, IT (TP) A No.15/Chny/2020 & IT (TP) A No.38/Chny/2021 :: 14 ::
deferred recognition of Revenue in the books of accounts, even though, income has been accrued to the assessee. It is a matter of fact that unless, the assessee completes work, the client will not release the payment and, if the work is not completed to the expected stage, the assessee cannot raise invoice. It is also an admitted fact that no customer would pay or accept a bill for the work which is not completed. However, when the assessee rises bills, the customer has also claimed the expenditure based on the invoices raised by the assessee. So, on one side, the customer claims the expenditure for the works executed by the assessee and the other side, the assessee does not recognize the income and shown it in current liabilities. This leads to clear anomaly in reporting income and expenditure. The assessee contents that part of the Revenue reported in future years, but the contention of the assessee cannot be accepted for the simple reason that when the assessee is following mercantile system of accounting, Revenue should be recognized as and when income accrues and arises to the assessee, irrespective of the fact that the assessee has received the income or not. In this case, the assessee has already raised invoices to its customers on the basis of percentage completion method and in our considered view, the moment assessee rises invoices, income accrues to the assessee. Therefore, the assessee needs to recognize Revenue when it has risen invoices. However, the assessee is postponing recognition of Revenue, even though, it has completed certain percentage of work and rise bills to the clients for the reasons best known to the IT (TP) A No.15/Chny/2020 & IT (TP) A No.38/Chny/2021 :: 15 ::
assessee. Therefore, we are of the considered view that there is no error in the reasons given by the AO/DRP to make additions towards billing in excess of Revenue, and thus, we are inclined to uphold the findings of the DRP and reject the ground taken by the assessee.
6. The next issue that came up for our consideration from additional grounds raised by the assessee is refund of excess DDT paid over and above the DTAA rate. The Ld.Counsel for the assessee fairly agreed that this issue is covered against assessee by the decision of ITAT Special Benches in the case of DCIT v. Total Oil India Pvt. Ltd., in ITA No.6997/Mum/2019, where it has been held that non-resident shareholders cannot take advantage of lower tax rate prescribed in DTAA for taxation of dividend where Dividend Distribution Tax is applicable.
6.1 The CIT-DR supporting the order of the DRP submitted that now this issue has been resolved by the decision of the ITAT Mumbai Bench in the case of Total Oil India Pvt. Ltd., where it has been held that DDT rate prevails over DTAA Rate in respect of dividend paid to non-resident shareholders.
6.2 We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. This issue has been decided against the assessee by the ITAT Special Bench, Mumbai in the case of Total Oil India Pvt. Ltd., in ITA No.6997/Mum/2019, where it IT (TP) A No.15/Chny/2020 & IT (TP) A No.38/Chny/2021 :: 16 ::
has been held that non-resident shareholders cannot take advantage of the lower tax prescribed in DTAA over taxation of dividend where dividend tax is applicable. Therefore, by following the decision of ITAT Special bench in the case of Total Oil India Pvt. Ltd., we reject the additional grounds of appeal filed by the assessee.
7. The next issue that came up for our consideration from additional grounds of appeal filed by the assessee is deduction of cess paid in computing business income. The Ld.Counsel for the assessee fairly agreed that this issue is decided against assessee by the Hon'ble Supreme Court in the case of JCIT v. Chambal Fertilizers & Chemicals Ltd., reported in [2023] 450 ITR 164 (SC), where it has been held that cess on Income Tax paid is not deductible while computing income from business. 7.1 We have heard both the parties and perused the materials available on record. We find that the Hon'ble Supreme Court in the case of JCIT v. Chambal Fertilizers & Chemicals Ltd., had considered the issue and held that education cess claimed by the assessee would not be allowed as expenditure u/s.37 r.w.s.40(a)(ii) of the Act. Therefore, by following the decision of the Hon'ble Supreme Court in the case of JCIT v. Chambal Fertilizers & Chemicals Ltd., we reject the additional grounds of appeal filed by the assessee on this issue.
IT (TP) A No.15/Chny/2020 & IT (TP) A No.38/Chny/2021 :: 17 ::
8. In the result, appeal filed by the assessee in IT (TP) A No.15/Chny/2020 is partly allowed for statistical purposes. IT (TP) A No.38/Chny/2021 for the AY 2016-17:
9. The assessee has raised the following grounds of appeal:
The grounds of appeal listed below are independent and without prejudice to each other.
1. General grounds 1.1. The order of the Income-tax Officer, National e-Assessment Centre, Delhi ('Assessing Officer' or 'AO') passed pursuant to the order of the Transfer Pricing Officer
- 1(2), Chennai (Transfer Pricing Officer' or TPO') and the directions issued by the Dispute Resolution Panel (the 'DRP'), to the extent prejudicial to the Appellant, is erroneous, bad in law, and contrary to the facts and circumstances of the case. 1.2. The Learned AO, TPO and the Hon'ble DRP have, in the facts and circumstances of the case, erred in passing orders with unwarranted adjustments to the reported income of the Appellant by misapplying the provisions of the Act
2. Procedural irregularity and breach of time limit for completion of proceedings 2.1. The TPO has erred, in law by passing the transfer pricing (TP) order on 01 November 2019, which is beyond the timeline for completion of proceedings under section 92CA(3A) of the Act, and hence the TP order is invalid and unsustainable in law.
Further, the AO has erred, in law and facts, by passing a draft assessment order incorporating an invalid adjustment proposed in the TP order.
3. Grounds relating adjustment towards transfer pricing matters 3.1. The TPO/AO and DRP have erred in law and in facts, by not accepting the economic analysis undertaken by the Appellant in accordance with the provisions of the Act read with the Rules by re-determining the ALP in connection with the impugned international transactions of provision of engineering design services (EDS) and thereby holding that the Appellant's international transactions are not at arm's length. 3.2. The TPO/AO and DRP have erred in not providing for working capital adjustment on comparable companies to arrive at the ALP to account for difference between the Appellant and comparable companies.
3.3. The TPO/AO and DRP have erred, in law and facts, adopting inappropriate filters while selecting the companies comparable to the Appellant with respect to EDS segment 3.4. The TPO/AO and DRP have erred, in law and in facts, by rejecting the Appellant's contention to remove L&T Technology Services Limited, Neilsoft Private Limited and Intec Infra-Technologies Private Limited as comparable to the Appellant, though the IT (TP) A No.15/Chny/2020 & IT (TP) A No.38/Chny/2021 :: 18 ::
aforesaid companies are functionally different and do not satisfy the comparability criteria.
3.5. The TPO/AO and DRP have grossly erred, in law and in facts, by rejecting the Appellant's contention to include Accuspeed Engineering Services India Private Limited as comparable to the Appellant, as the said company is functionally similar and satisfies the comparability criteria.
4. Additions to the income under the head profits and gains from business or profession on account of billing in excess of revenue.
4.1. The AO and DRP have erred in making an addition of INR 1,05,82,000 whereas as per the financial statements, the difference between billing in excess of revenue between two years is INR 99,82,000.
4.2. The AO and DRP have grossly erred in making an addition of INR 1,05,82,000 on account of billing in excess of revenue by not accepting the revenue recognition principle adopted by the Assessee which is in line with the prescribed Accounting Standards (AS) and Income Computation and Disclosure Standards (ICDS). 4.3. The AO and DRP have grossly erred by not accepting the principles of Percentage Completion Method as prescribed under AS 7 issued by the Institute of Chartered Accountants of India (ICAI), which states that the revenue should be recognized for a contract on the basis of the percentage/ stage of completion of the contract.
4.4. The AO and DRP have grossly erred by not following the principles of AS 7 and ICDS 3 and have held that revenue accrues basis invoices raised by the Company without considering the percentage/ stage of completion of the contract. 4.5. The AO and DRP have grossly erred in not considering the fact that the method of accounting is followed consistently by the Assessee over the years. 4.6. The AO and DRP have erred in not appreciating the fact that the amount is recognized as revenue in the subsequent years.
4.7. The AO and DRP have grossly erred in computing the disallowance amount by not considering the corresponding cost involved in amount billed in excess of revenue. 4.8. Further, the AO and DRP have failed to appreciate the principles upheld by various courts on the abovementioned aspects which are squarely applicable to the Appellant.
5. Interest for delayed remittance of Dividend Distribution Tax ('DOT') 5.1. The AO has erroneously computed interest for delayed remittance of DOT under section 115P of the Act amounting to INR 3,60,111.
6. Refund of excess DDT paid over and above the Double Taxation Avoidance Agreement ('DTAA') rate 6.1. In the facts and circumstances of the case and in law, the benefit of applicable DTAA between India and Germany ought to be extended qua the rate of tax on payment of dividend to the shareholders.
IT (TP) A No.15/Chny/2020 & IT (TP) A No.38/Chny/2021 :: 19 ::
6.2. In the facts of the case, since the dividend income was that of a non-resident recipient who was governed by the provisions of relevant DTAA, the lower rate ought to be applied.
6.3. In the facts of the case, the Appellant is entitled to refund of the DOT paid in excess over the amount to be paid as per DTAA as per the provision of section 137 of the Act read with Article 265 of the Constitution of India.
7. Allowance of cess as a deduction in computing the business income
7.1. In the facts and circumstances of the case and in law, the cess paid by the Appellant should be allowed as deduction in computing the taxable profits. 7.2. The AO and DRP have erred in stating that education cess is a tax for the purpose of section 40(a)(ii) and hence not allowable as a deduction from computing the taxable business profits of the Appellant.
7.3. The AO and DRP ought to have appreciated that the cess is neither levied on the profits or gains of any business or profession nor assessed at a proportion of or otherwise on the basis of any such profits or gains is only levied on the amount of tax and consequently is not covered as a part of section 40 of the Act.
8. Others 8.1. The AO has erred in adopting an amount of Nil as deduction under Chapter VI A in the computation sheet without appreciating that the Appellant is eligible for deduction of INR 7,00,000 under Chapter VIA of the Act. 8.2. The Appellant prays that the learned AO erred by not directing that the amount disallowed under section 40(a)(i) and section 40(a)(ia) would be allowable as a deduction in the subsequent year when the taxes with respect to the payments were remitted.
8.3. The AO has erroneously levied interest under section 234D of the Act. 8.4. The AO has erred in initiating penalty proceedings under section 270A of the Act.
8.5. The AO has erred in passing the order based on the original return of income filed by the Appellant without considering the modified return. The Appellant prays that directions be given to grant all such relief arising from the grounds of appeal mentioned supra and all consequential relief thereto. Further, the Appellant craves that the grounds raised above are without prejudice to each other. The Appellant craves leave to add to and/or to alter, amend, rescind, modify the grounds herein above or produce further documents before or at the time of hearing of this Appeal.
10. The brief facts of the case are that the assessee is engaged in the business of design and installation of paint finishing system to automobile manufactures. For the AY 2016-17, the assessee has filed its return of IT (TP) A No.15/Chny/2020 & IT (TP) A No.38/Chny/2021 :: 20 ::
income on 30.11.2016 declaring total income of Rs.28,86,05,780/-. The case was selected for scrutiny and during the course of assessment proceedings, reference was made to TPO to determine ALP of international transactions of the assessee with its AE. The TPO vide their order dated 01.11.2019 made a downward adjustment of Rs.3,84,71,227/- towards management services fees and upward adjustment of Rs.45,96,564/-
towards engineering design segment to the international transactions of the assessee. In pursuant to TPO order, the AO has passed draft assessment order u/s.144C of the Act on 16.12.2019, and proposed TP adjustment as suggested by the TPO. The AO had also made various additions towards disallowance of expenditure u/s.40(a)(ia) of the Act, additions towards billing in excess of Revenue & interest income. The assessee has filed objection against draft assessment order before the DRP- 2, Bangalore. The DRP, vide their order dated 22.03.2021 issued direction u/s.144C(5) of the Act. Thereafter, the AO passed final assessment order u/s.143(3) r.w.s.144C(13) of the Act on 30.04.2021 and determined total income of Rs.30,65,94,268/-. Aggrieved by the final assessment order, the assessee preferred an appeal before the Tribunal.
11. The Ld.Counsel for the assessee referring to Ground No.2.1 of the assessee's appeal submitted that the order passed by the TPO on 01.11.2019 is beyond the time limit prescribed u/s.153(1) & (4) of the Act, and thus, consequent draft assessment order passed by the AO, directions IT (TP) A No.15/Chny/2020 & IT (TP) A No.38/Chny/2021 :: 21 ::
issued by the DRP, and final assessment order passed by the AO is null and void and liable to be quashed. In this regard, he relied upon the decision of ITAT Chennai Benches in the case of M/s.Verizon Data Services India Pvt. Ltd. v. ITO in IT (TP) A No.37/Chny/2021 for the AY 2016-17.
12. The CIT-DR supporting the order of the DRP submitted that if you consider the time limit provided u/s.153(1) & (4) of the Act, the TPO should pass their order at least 60 days prior to completion of assessment order and if you count said 60 days from the date of the order passed by the TPO, it is well time within the time limit prescribed under the Act, and thus, arguments of the Ld.Counsel for the assessee should be rejected.
13. We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. As per provisions of Sec.153(1) of the Act, normal time limit for completion of assessment is prescribed at 21 months from the end of the assessment year, in which, the income was first assessable. As per provisions of Sec.153(4) of the Act, in case, a reference to the TPO, time limit gets extended for a further period of 12 months. As per provisions of Sec.92CA of the Act, the TPO should pass their order at least 60 days prior to the last date, the period of limitation referred to in sec.153 of the Act, for making assessment aspects.
The assessment year involved in the present case is AY 2016-17. The extended time limit for completion of assessment in the given case is 31.12.2019. The period of 60 days prior thereto would run till 01.11.2019 IT (TP) A No.15/Chny/2020 & IT (TP) A No.38/Chny/2021 :: 22 ::
and any date prior thereto would come to 31st October or before. If an order was passed on 01.11.2019, then same would be barred by limitation and this legal principle is supported by the decision of Hon'ble jurisdictional High Court of Madras in the case of M/s.Pfizer Healthcare India Pvt. Ltd. & Ors. in WP No.32688 of 2019 order dated 07.09.2020. The co-ordinate Bench of ITAT in the case of M/s.Verizon Data Services India Pvt. Ltd., in IT (TP) A No.37/Chny/2021 order dated 18.11.2022 had considered an identical issue and by following the decision of the Hon'ble High Court of Madras in the case of M/s.Pfizer Healthcare India Pvt. Ltd., held that TP order passed by the TPO on 01.11.2019 is beyond limitation prescribed u/s.92CA(3) of the Act, and consequently, final assessment order passed by the AO on 30.04.2021 would be barred by limitation, since, in terms of section 153(1) r.w.s.153(4) of the Act, the same should have been passed on or before 31.12.2019. The same is accordingly liable to be quashed. The relevant findings of the Tribunal are as under:
5. The undisputed fact that emerges is that for AY 2016-17, the order has been passed by Ld. TPO u/s 92CA (3) on 01.11.2019. As per the decision of Hon'ble Single Judge in cited decision of M/s Pfizer Healthcare India Pvt. Ltd. & ors. (supra), this order would be barred by limitation. In this decision, bunch of assessee invoked writ jurisdiction of Hon'ble Court on the ground that the order passed u/s 92CA(3) was barred by limitation by one day. It was noted that in terms of Sec.92CA(3A), an order has to be passed by TPO before 60 days prior to the last day on which the period of limitation referred to in Sec.153 for making assessment expires. The assessment is to be completed within 21 months from end of assessment year in which the income was first assessable. Therefore. Counting from 31.03.2017, the assessment was to be framed on or before 31.12.2019. The period of 60 days prior thereto would run till 01.11.2019 and any date prior thereto would mean 31st of October or before. Since the order was passed on 01.11.2019, the same would be barred by limitation. The relevant observations were as under: -
"19. The revenue relies on the amendment to Section 92CA(4) which requires the Assessing Officer to compute total income of an assessee after receipt of the transfer pricing order. Prior to 01.06.2007, it was mandatory for the Assessing Authority to accept the ALP determined by the TPO and the phrase used in the provision was 'having regard to'. Post amendment, the provision made it compulsory for the IT (TP) A No.15/Chny/2020 & IT (TP) A No.38/Chny/2021 :: 23 ::
Assessing Authority to adopt the ALP as determined by the TPO and the phrase 'having regard to' was replaced by the phrase 'in conformity with'. Thus, according to the revenue, the AO hardly need apply his mind with respect to the ALP determined and the prescription of 60 days is merely for internal convenience of the different officers to facilitate step by step completion of assessment.
20. Much has been stated about the use of the words in the computation itself, such as 'may', 'shall', the absence of reference to 'month' as it may have led to an ambiguity of whether the period should be reckoned as 30 or 31 days and the absence of the phrase 'no order shall be made' as used in Section 153. This, according to the revenue, leads to the conclusion that there is nothing sacrosanct about the period of 60 days which must be construed as flexible.
21. On the question of alternate remedy, I see no reason to relegate the petitioners to the Assessing Authority for completion of draft assessment that may be challenged before the DRP. Limitation, which is the issue raised in these writ petitions, is a mixed question of law and facts, but there are no disputes on factual aspects in the present case. The writ petitions are thus, held to be maintainable.
22. Limitation has been prescribed for each stage/process in an assessment, commencing with the filing of a return, transfer pricing proceedings under Section 92, filing of objections to draft assessment order in terms of Section 144C(2), passing of final order of assessment after expiry of the period for filing of objections in terms of Section 144C(4), issuance of directions by the DRP in terms of Section 144C(12) and passing of final assessment order after receipt of directions from the DRP in terms of Section 144C(13). An assessment involving issues of transfer pricing is thus measured by limitation at every step.
23. On the question of interpretation of the language employed in the provisions, the following judgements of the Supreme Court settle the position that one should not proceed blindly on the basis of the words/phrases employed in Statute, whether 'may', 'shall', 'no order shall be passed' or 'within' and the scheme of assessment in entirety as well as the intention of Legislature qua that scheme of assessment must be taken into account.
Drawing support from various judicial precedents, it was finally held by Hon'ble Court as under: -
29. The provisions of Section 144C prescribe mandatory time limits both pre and post the stage of passing of a transfer pricing order. Assessments involving transfer pricing issues are different and distinct from regular assessments and the intention of Legislature is to fast track such assessments. Bearing in mind the specialized nature of such assessments, a separate set of Officers attend to the framing of assessments and the DRP has been constituted for redressal of disputes involving TP issues, in a timely fashion. In this scheme of things, I am unable to accept the submission that the period of 60 days stipulated for passing of an order of transfer pricing, is only directory or a rough and ready guideline. This argument is rejected.
30. Now, coming to the question of how the 60 day period is to be computed, the critical question would be whether the period of 60 days would be computed including the 31st of December or excluding it. Section 153 states that no order of assessment shall be made at any time after the expiry of 21 months from the end of the assessment year in which the income was first assessable. The submission of the revenue is to the effect that limitation expires only on 12 a m of 01.01.2020. However, this would mean that an order of assessment can be passed at 12 a m on 01.01.2020, whereas, in my view, such an order would be held to be barred by limitation as proceedings for assessment should be completed before 11.59.59 of 31.12.2019. The period of 21 months therefore, expires on 31.12.2019 that must stand excluded since Section 92CA(3A) states 'before 60 days prior to the date on IT (TP) A No.15/Chny/2020 & IT (TP) A No.38/Chny/2021 :: 24 ::
which the period of limitation referred to Section 153 expires'. Excluding 31.12.2019, the period of 60 days would expire on 01.11.2019 and the transfer pricing orders thus ought to have been passed on 31.10.2019 or any date prior thereto. Incidentally, the Board, in the Central Action Plan also indicates the date by which the Transfer Pricing orders are to be passed as 31.10.2019. The impugned orders are thus, held to be barred by limitation.
It has been pointed out that the present assessee was also a party to this litigation. Since at that stage, the draft assessment order was under challenge by assessee before Ld. DRP, it was directed by Hon'ble Court that the petitioner would pursue the remedy opted by them.
6. The revenue's writ appeals against this decision came up for hearing before Division Bench of Hon'ble Court which was disposed-off on 31.03.2022 wherein the writ appeals were dismissed and the adjudication of Ld. Judge was confirmed. With respect to assessee, the revenue preferred similar WA No.2051 of 2021 which was disposed-off on 16.09.2021 wherein it was held that since the assessee chose to avail alternative provided under the Act by approaching DRP, it would be open for the assessee to canvass all legal and factual issues before Tribunal before which the appeal was pending at that stage.
7. The assessee raised similar legal plea before Ld. DRP who held that the intention was never to make this time limit of 60 days mandatory since the expression used in Sec.
92CA(3A) is "may" in contrast to "shall" as used in Sec. 92CA(4). The word "may" could not be read as "shall" and therefore, the time period was not mandatory. It was further observed by Ld. DRP that the department has not accepted the ruling and preferred Writ Appeals with the division bench and therefore, to keep the matter alive, the objection raised by the assessee were dismissed. Aggrieved, the assessee is in further appeal before us.
8. The undisputed position that emerges is that now the division bench has dismissed the Writ appeals of the revenue and confirmed the adjudication of Hon'ble Single Judge. Accordingly, the legal plea as raised by Ld. Sr. Counsel squarely favors the case of the assessee. Therefore, we would hold that considering the statutory time limit, the order passed by Ld. TPO u/s 92CA(3) on 01.11.2019 would be barred by limitation and consequence as mentioned in para-4 would follow. In other words, this order would be time barred as a result of which the assessee would cease to be an eligible assessee and therefore, the machinery of Sec.144C would not be triggered. The Ld. AO is not required to pass the draft assessment order; DRP would not have any jurisdiction to adjudicate the matter. Consequently, the final assessment order passed on 30.04.2021 would be barred by limitation since in terms of Sec. 153(1) r.w.s. 153(4), the same should have been passed on or before 31.12.2019. The same is accordingly, liable to be quashed. Accepting first two legal propositions of Ld. Sr. Counsel, we would hold that the assessment would be nullity since it is barred by limitation. Delving into other legal ground as well as entering into the merits of the assessment has been rendered merely academic in nature.
14. In this case, the TPO has passed their order on 01.11.2019 and assessment year involved is AY 2016-17. In our considered view, the case is squarely covered by the decision of ITAT Chennai Benches in the case of M/s.Verizon Data Services India Pvt. Ltd. Thus, by following the decision of co-ordinate Bench, we quashed order passed by the TPO and consequent IT (TP) A No.15/Chny/2020 & IT (TP) A No.38/Chny/2021 :: 25 ::
draft assessment order passed by the AO, directions issued by the DRP and final assessment order passed by the AO.
15. The assessee has raised various grounds challenging additions made by the AO in pursuant to TP adjustment and other corporate tax issues. Since, the assessment order passed by the AO would be held to be nullity and liable to be quashed dwelling into other issues on merits of the assessment has been rendered merely academic in nature and thus, does not require any specific adjudication.
16. In the result, appeal filed by the assessee in IT (TP) A No.38/Chny/2021 is allowed.
17. In the result, appeal filed by the assessee in IT (TP) A No.15/Chny/2020 is partly allowed for statistical purposes and appeal filed by the assessee in IT (TP) A No.38/Chny/2021 is allowed.
Order pronounced on the 10th day of May, 2023, in Chennai.
Sd/- Sd/-
(महावीर िसं ह) (मंजूनाथा.जी)
(MAHAVIR SINGH) (MANJUNATHA.G)
उपा /VICE PRESIDENT लेखा सद य/ACCOUNTANT MEMBER
चे ई/Chennai,
दनांक/Dated: 10th May, 2023.
TLN
आदेश क ितिलिप अ ेिषत/Copy to:
1. अपीलाथ / Appellant 3. आयकर आयु" / CIT 5. गाड फाईल / GF
2. यथ / Respondent 4. िवभागीय ितिनिध / DR