Income Tax Appellate Tribunal - Delhi
Adidas India Marketing Private ... vs Acit Circle 1(1), New Delhi on 12 March, 2025
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'I': NEW DELHI
BEFORE SHRI MAHAVIR SINGH, VICE PRESIDENT
AND
SHRI MANISH AGARWAL, ACCOUNTANT MEMBER
ITA No.940/Del/2023
(ASSESSMENT YEAR 2018-19)
Adidas India Marketing Asst. CIT,
Private Limited Circle-1(1),
Office No.6, 2nd Floor, Vs. Delhi.
Sector B, Plot No.11,
Vasant Kunj, South West,
Delhi-110070.
PAN-AAACA5313P
(Appellant) (Respondent)
Assessee by Dr. Shashwat Bajpai, Adv.
Department by Sh. Dharam Veer Singh, CIT-DR
Date of Hearing 03/03/2025
Date of Pronouncement 12/03/2025
ORDER
PER MANISH AGARWAL, AM:
This appeal is filed by the assessee against the final order passed u/s 143(3)/144C(13) of the Income Tax Act, 1961 (the Act, in short) by the Asst. Commissioner of Income Tax, Circle 1(1), Delhi (referred to as AO) dated 28/02/2023 vide DIN & letter No. ITBA/COM/F/17/2022-23/1050225372(1) for the Assessment Year 2018-19.
2 ITA No.940 /Del/2023Adidas India Marketing Private Limited vs. ACIT
2. The assessee has challenged the final order by raising the following grounds of appeal:
"1. Final assessment order is void-ab-initio, bad in law and barred by limitation 1.1. On the facts and circumstances of the case and in law, the final assessment order dated February 28, 2023 passed by the learned Assistant Commissioner of Income tax, Circle 1(1), Delhi ('Ld. AO') is contrary to the provisions of the of the Income-tax Act, 1961 ('the Act') and is therefore void-ab-initio, bad in law and liable to be quashed 1.2. On the facts and circumstances of the case & in law, the final assessment Ld. AO dated February 28, 2023 passed by Ld. AO in contravention of the provisions of Section 144B(1)(xxix) of the Act which states that such order mandatorily to be passed by the National Faceless Assessment Centre and therefore, the order is without jurisdiction and liable to be quashed.
1.3. On the facts and circumstances of the case & in law, the final assessment Ld. AO dated February 28, 2023 is invalid and barred by limitation in view of the provisions of Section 144C(13) r.w.s. 144B(1) (xxix) of the Act, and is therefore liable to be quashed.
Transfer Pricing ('TP') Grounds TP adjustment with respect to Advertisement, Marketing and Promotion ('AMP') expenditure
2. On the facts and circumstances of the case, & in law, the Ld. Ld. AO/ Learned Transfer Pricing Officer ('Ld. TPO') [in pursuance to the directions of the Dispute Resolution Panel ('Ld. DRP')]. erred in enhancing the income of the Appellant by INR 12,01,20,375/- (on substantive basis) and INR 31,27,93,371/- (on protective basis) holding that alleged excessive AMP expenses is an international transaction.
2.1. On the facts and circumstances of the case and in law, the Ld. DRP/TPO/AO erred in holding that alleged excessive AMP expenses is an international transaction and in not appreciating that incurring of AMP expenditure by the Appellant for its own business and benefit does not constitute an "International Transaction" in terms of the Section 928 of the Act, thereby violating the principles laid down by the jurisdictional High Court.3 ITA No.940 /Del/2023
Adidas India Marketing Private Limited vs. ACIT 2.2. On the facts and circumstances of the case and in law, the Ld. DRP/AO/TPO erred in making an adjustment in respect of AMP expenses incurred by the Appellant on the ground that the intensity of the AMP function performed by the Appellant resulted in the creation of marketing intangible in respect of the brands owned by the Associated Enterprises ("AES").
2.3. On the facts and circumstances of the case and in law, the Ld. TPO/Ld. AO grossly erred in proposing adjustment basis an incorrect understanding of the functional profile of the Appellant, thereby characterizing it as a distributor instead of a manufacturer.
3. On the facts and circumstances of the case and in law, the Ld. DRP/AO/TPO erred in disregarding the judicial pronouncement/ findings of the Hon'ble Income-tax Appellate Tribunal ("ITAT") passed in Appellant's own case for Assessment Year(s) 2006-07 (ITA no. 3727/Del/ 2014), 2007- 08 (ITA No. 2770/Del/12 and C.O.85/Del/2013), 2008-09 (ITA 29/Del/14), AY 2010-11 (ITA No.1431/Del/2015), AY 2011-12 (ITA No.953/Del/2016) and AY 2012-13 (ITA No.953/De/2016) and in disregarding the binding decisions of the Jurisdictional High Court.
Substantive Adjustment
4. Without prejudice to Ground no 2 and 3. On the facts and circumstances of the case and in law, the Ld. DRP/AO/TPO grossly erred in enhancing the income of the Appellant by INR 12,01,20,375 on a substantive basis by applying Residual Profit Split Method ("RPSM") which is mere extension of BLT for the purpose of benchmarking the AMP expense incurred by the Appellant. In doing so, the Ld. AO/Ld. TPO grossly erred in:
4.1. the application of RPSM by following erroneous, incorrect methodology based on fallacious assumptions and not in accordance with the provision of section 92C of the Act read with Rule 108(1)(d) of the Income-tax Rules, 1962:
4.2. applying profit split ratio of 25:75 to allocate profits between the AE and the Appellant on an arbitrary basis and without giving any basis.
Protective Adjustment
5. Without prejudice to the Ground 2 and 3, on the facts and in the circumstances of the case, & in law, the Ld. DRP/Ld. AO/TPO erred in proposing an addition of Rs. 31,27,93,371 on protective basis by holding that alleged excessive AMP expenses is an international transaction and in doing so have grossly erred in:
4 ITA No.940 /Del/2023Adidas India Marketing Private Limited vs. ACIT 5.1. proposing use of bright line test ("BLT) (AMP/Sales) for establishing the existence of international transaction and computing the value of adjustment on account of AMP adjustment in complete disregard of the binding decisions of the Jurisdictional High Court: and 5.2. imputing a mark-up of 17.58% (being operating profit ('OP')/ operating cost ('OC')) earned by the companies rendering marketing support services (MSS) on the alleged AMP expenses, without providing any cogent reason and selecting companies which are functionally different and ought to be excluded.
Both Protective and Substantive Adjustment
6. Without prejudice to the Ground 2 and 3, on the facts and in the circumstances of the case, & in law, Ld. DRP/AO/Ld. TPO erred in:
6.1. identifying the companies, which are not functionally comparable to the Appellant;
6.2. not providing the search process along with backup documentation such as accept-reject matrix to evaluate the appropriateness of the comparable proposed by the Ld. TPΟ, 6.3. not appreciating the arithmetical inaccuracies while computing the protective and substantive adjustment:
6.4. considering the selling & distribution and sales commission expenses paid to third parties by Appellant as alleged excessive AMP expenses; and TP adjustment with respect to payment of royalty
7. On the facts and circumstances of the case, & in law, the Ld. AO/Ld. TPO (in pursuance to the directions of the Ld. DRP) erred in enhancing the income of the Appellant by INR 30,22,65,369/-while holding that the international transaction pertaining to payment of royalty does not satisfy the arm's length principle envisaged under the Act, and in doing so have grossly erred in:
7.1. rejecting/not commenting on the comparable agreements accepted by the Appellant to benchmark royalty transaction using Comparable Uncontrolled Price ('CUP') method;
7.2. determining the arm's length royalty rate by considering royalty/sales ratio of companies basis information available in the Profit & Loss account 5 ITA No.940 /Del/2023 Adidas India Marketing Private Limited vs. ACIT of certain identified companies without having regard to the comparability conditions laid down under Rule 10B read with Section 92C for application of CUP method:
7.3. Without prejudice to Ground 7.2 above, the Ld. TPO/Ld. AO (following the directions of the Ld. DRP), erred on facts and in law:
7.3.1. Identifying the comparable companies, which are not functionally comparable to the Appellant;
7.3.2. not following the consistent approach while computing royalty/sales in the Appellant's case as followed in the case of comparable companies:
7.3.3. not providing the detailed search process along with backup documentation such as accept-reject matrix to provide Appellant an opportunity to evaluate the appropriateness of the benchmarking analysis.
TP adjustment with respect to payment of Intra Group Services (Payment of buying commission)
8. On the facts and circumstances of the case, & in law, the Ld. AO/Ld. TPO [in pursuance to the directions of the Ld. DRP) erred in enhancing the income of the Appellant by INR 10,06,01,977/-while holding that the international transaction pertaining to payment of buying commission does not satisfy the arm's length principle envisaged under the Act, and in doing so have grossly erred in:
8.1. disregarding the arm length's price (ALP) as determined by the Appellant in the TP documentation maintained by it in terms of Section 92D of the Act read with rule 10D of the Income Tax Rules, 1962 and arbitrarily applying the CUP method without any cogent basis;
8.2. holding that Appellant did not receive any tangible benefit in lieu of the services availed thereby challenging the commercial wisdom of the Appellant in making payment for services availed; and 8.3. disregarding the elaborate documentary evidence submitted as part of assessment proceedings to erroneously assume that 'no benefit' has been conferred upon the Appellant from the impugned international transactions pertaining to buying commission and thereafter determining the ALP of the said transactions as 'NIL;
9. Without prejudice to the grounds mentioned (Grounds 8.1 to 8.3) above, on the facts and circumstances of the case and in law, both the Ld. TPO and 6 ITA No.940 /Del/2023 Adidas India Marketing Private Limited vs. ACIT Ld. AO have erred in disallowing the payment of buying commission twice leading to double disallowance of the same expense.
10. Corporate Tax Grounds 10.1. On the facts and in the circumstances of the case, & in law the Ld. DRP/AO erred in disallowing fee for buying agency services under section 40(a)(i) of the Act paid by the Appellant to adidas International Trading B.V ("alBV"), holding the same to fall within the definition of Fees for technical services ("FTS") under Section 9(1)(vii) of the Act and Article 12 (5) of the India-Netherlands Double Taxation Avoidance Agreement ("DTAA");
10.2. On the facts and circumstances of the case & in law, the Ld. DRP/AO erred in ignoring the fact that the issue of disallowance of buying commission is squarely covered in Appellant's own case for AY 2010-11 to 2012-13 by Hon'ble Income-tax Appellate Tribunal.
10.3. On the facts and in the circumstances of the case & in law, the Ld. DRP/AO erred in applying the meaning of FTS contained in Section 9(1)(vii) of the Act while interpreting the definition of FTS provided under Article 12(5) of the India-Netherlands DTAA;
10.4. Without prejudice to the above, the Ld. DRP/AO grossly erred in categorizing the services rendered by alBV into the scope of 'make available' as provided in Article 12(5) of the India-Netherlands DTAA, 10.5. Without prejudice to the above, the Ld. DRP/AO grossly erred in categorizing the services rendered by alTBV into the scope of 'make available' as provided in Article 12(5) of the India-Netherlands DTAA.
10.6. On the facts and circumstances of the case, & in law the Ld. AO has grossly erred in proposing to initiate penalty proceedings under section 270A of the Act.
The above grounds and sub-grounds are without prejudice to each other. The Appellant craves leave to alter, amend or withdraw all or any objections herein or add any further grounds as may be considered necessary either before or during the hearing."
3. Since in grounds of appeal Nos. 1 to 1.3, assessee has raised legal issues of jurisdiction and limitation thus the same are taken up first for consideration.
7 ITA No.940 /Del/2023Adidas India Marketing Private Limited vs. ACIT
4. Brief facts of the case are that the draft Assessment Order was passed on 06/09/2021 by National Faceless Assessment Centre. The assessee filed objections before ld. DRP on 05.10.2021 i.e. within the permissible time limit allowed for filing the objections before the ld. DRP. The ld. DRP has given directions in terms of its order passed u/s 144C(5) of the Act dt. 03.06.2022 wherein certain direction were given to the TPO. In compliance to the directions given by the ld. DRP, the TPO has passed the effect order on 14.07.2022 with a copy to the Jurisdictional assessing officer. Accordingly, the due date for passing of the final Assessment Order was 31.08.2022 as the effect order as per directions given by ld. DRP stood passed by TPO and served upon the Assessing officer i.e. the DCIT, Circle 1(1) Delhi on 14.07.2022. Since the final Assessment Order has been passed on 28.02.2023 which is in divergence to due date prescribed u/s144C (13) of the Act, the assessee submits that the final order passed by the Assessing Officer is barred by limitation, and hence, should be treated as void. It is further argued by the assessee that the order was passed by the Jurisdictional assessing officer whereas the draft order was passed by the Faceless Assessment Centre thus the final assessment order is against the provisions of section 144B relating to the faceless assessment scheme.
5. On the other hand the ld. CIT DR vehemently supported the order of the lower authorities and argued that in the present case the draft assessment order was passed by the Faceless Assessment officer and after the directions given by the ld. DRP while disposing 8 ITA No.940 /Del/2023 Adidas India Marketing Private Limited vs. ACIT the objections raised by the assessee, the effect order was passed by the TPO as certain issues were sent to the TPO by the ld. DRP. The TPO has passed the effect order which was received by the Jurisdictional assessing officer only on 16.02.2023 thus the final order passed by the Jurisdictional Assessing officer on 28.02.2023 is well within the period of limitations as provided in section 144C (13) of the Act. With regard to the other issue that draft assessment order passed by faceless assessment center and final order was passed by jurisdictional Assessing Officer, he submit that both the Faceless Assessing Officer and Jurisdictional Assessing Officer has concurrent jurisdiction. Thus, there is no error in final order passed in the instant case by jurisdictional Assessing Officer. He thus prayed that this ground of appeal of the assessee is devoid of any merits and be not allowed.
6. We have heard the parties and perused the material available on record. For the sake of ready reference, the Provisions of section 144C are reproduced as under:"
"144C. Reference to dispute resolution panel.
(1) 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.
(2) On receipt of the draft order, the eligible assessee shall, within thirty days of the receipt by him of the draft order-
(a) file his acceptance of the variations to the Assessing Officer; or
(b) file his objections, if any, to such variation with,-9 ITA No.940 /Del/2023
Adidas India Marketing Private Limited vs. ACIT
(i) the Dispute Resolution Panel; and
(ii) the Assessing Officer.
(3) The Assessing Officer shall complete the assessment on the basis of the draft order, if-
(a) the assessee intimates to the Assessing Officer the acceptance of the variation; or
(b) no objections are received within the period specified in sub- section (2).
(4) The Assessing officer shall, notwithstanding anything contained in section 153, pass the assessment order under sub-section (3) within one month from the end of the month in which,-
(a) the acceptance is received; or
(b) the period of filing of objections under sub-section (2) expires.
(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 of
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.
10 ITA No.940 /Del/2023Adidas India Marketing Private Limited vs. ACIT (9) If the members of the Dispute Resolution Panel differ in opinion on any point, the point shall be decided according to the opinion of the majority of the members.
(10) Every direction issued by the Dispute Resolution Panel shall be binding on the Assessing Officer.
(11) No direction under sub-section (5) shall be issued unless an opportunity of being heard is given to the assessee and the Assessing Officer on such directions which are prejudicial to the interest of the assessee or the interest of the revenue, respectively.
(12) No direction under sub-section (5) shall be issued after nine months from the end of the month in which the draft order is forwarded to the eligible assessee.
(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, 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) The Board may make rules for the purposes of the efficient functioning of the Dispute Resolution Panel and expeditious disposal of the objections filed under sub-section (2) by the eligible assessee.
(15) For the purposes of this section,-
(a) "Dispute Resolution Panel" means a collegium comprising of three Commissioners of income-tax constituted by the Board for this purpose;
(b) "eligible assessee" means,-
(i) any person in whose case the variation referred to in sub-section (1) arises as a consequence of the order of the Transfer Pricing Officer passed under sub-section (3) of section 92-CA; and
(ii) any foreign company.' A reference is also made to the provisions of section 144B relating to the faceless assessment pertaining to the assessment completed in 11 ITA No.940 /Del/2023 Adidas India Marketing Private Limited vs. ACIT case of eligible assessee u/s 144C of the Act, the relevant provisions are as under:
144B.Faceless Assessment.
(1) Notwithstanding anything to the contrary contained in any other provision of this Act, the assessment, reassessment or recomputation under sub-section (3) of section 143 or under section 144 or under section 147, as the case may be, with respect to the cases referred to in sub-section (2), shall be made in a faceless manner as per the following procedure, namely:--
(i) the National Faceless Assessment Centre shall assign the case selected for the purposes of faceless assessment under this section to a specific assessment unit through an automated allocation system;
(ii) the National Faceless Assessment Centre shall intimate the assessee that assessment in his case shall be completed in accordance with the procedure laid down under this section;
(iii) a notice shall be served on the assessee, through the National Faceless Assessment Centre, under sub-section (2) of section 143 or under sub-
section (1) of section 142 and the assessee may file his response to such notice within the date specified therein, to the National Faceless Assessment Centre which shall forward the same to the assessment unit;
(iv) ....(xx) (xxi) in case of an eligible assessee, where there is a proposal to make any variation which is prejudicial to the interest of such assessee, as mentioned in sub-section (1) under section 144C, the National Faceless Assessment Centre shall serve the draft order referred to in clause (xx) on the assessee; (xxii)...(xxiii) (xxiv) where a draft order is served on the assessee as referred to in clause (xxi), such assessee shall,--
(a) file his acceptance of the variations proposed in such draft order to the National Faceless Assessment Centre; or
(b) file his objections, if any, to such variations, with-- (I) the Dispute Resolution Panel, and (II) the National Faceless Assessment Centre, within the period specified in sub-section (2) of section 144C; (xxv) ...(xxvi) (xxvii) where the eligible assessee files objections with the Dispute Resolution Panel, under sub-clause (b) of clause (xxiv), the National Faceless Assessment Centre shall send such intimation along with a copy of objections filed to the assessment unit;
(xxviii) the National Faceless Assessment Centre shall, in a case referred to in clause (xxvii), upon receipt of the directions issued by the Dispute Resolution Panel under sub-section (5) of section 144C, forward such directions to the assessment unit;
12 ITA No.940 /Del/2023Adidas India Marketing Private Limited vs. ACIT (xxix) the assessment unit shall, in conformity with the directions issued by the Dispute Resolution Panel under sub-section (5) of section 144C, complete the assessment within the time allowed in sub-section (13) of section 144C and initiate penalty proceedings, if any, and send a copy of the assessment order to the National Faceless Assessment Centre; (xxx) the National Faceless Assessment Centre shall, upon receipt of the assessment order referred to in clause (xxvi) or clause (xxix), as the case may be, serve a copy of such order and notice for initiating penalty proceedings, if any, on the assessee, along with the demand notice, specifying the sum payable by, or the amount of refund due to, the assessee on the basis of such assessment;
(xxxi) ...(xxxii) (2) ...
7. From the perusal of sub-section (13) of section 144C it is clear that the final assessment order has to be passed by the Assessing officer within a period of one month from the end of the month in which the directions from the DRP are received. Further as per clause (xxviii) and (xxix) of sub-section 1 to section 144B provides that the Faceless Assessment Centre after receiving the directions of the DRP, sent them to the Assessment unit who shall pass the final assessment order in accordance with section 144C(13). Thus in any case whether the assessment is completed by Jurisdictional Assessing officer or by Faceless assessing officer, the final order should be passed within the time prescribed u/s 144C(13) of the Act.
8. In the instant case one more facts is relevant to state that, the draft assessment order was passed by the Faceless Assessment Centre and the Final assessment order was passed by the jurisdictional Assessing officer thus the department itself has deviated from the faceless assessment system. At this stage we must 13 ITA No.940 /Del/2023 Adidas India Marketing Private Limited vs. ACIT refer the observations made by the AO in para 3.2 of the final assessment order which are as under:
"3.2 The draft order was issued at an assessed income of Rs. 306,97,12,330/- after making addition of Rs. 62,55,98,613/- as proposed by TPO and another addition of Rs. 10,06,01,977/- on account of disallowance u/s 40(a)(i) of the IT Act.
The assessee filed the appeal before the Hon'ble DRP on 05.10.2021, aggrieved with the above mentioned draft assessment order. The Hon'ble DRP vide its order u/s 144C(5) of the Act dt. 03.06.2022, with copies marked and served upon NeAC Delhi, ACIT-NeAC Unit-2(1)(1) Delhi and on CIT(NeAC-2) Delhi, issuing certain direction to the Ld. TPO/AO on the transfer pricing issues and rejected the submission of the assessee company related to the corporate issues.
4. In pursuance of aforesaid Hon'ble DRP order u/s 144C(5) dated 03.06.2022, the Ld. TPO/AO circle TP-1(1)(1) Delhi passed the order giving effect to the directions of eh Hon'ble DRP, and conveyed it to the undersigned, jurisdictional Assessing Office, vide E-mail on 16.02.2023 which is reproduced as under:
......."
9. From the above and also from the perusal of the effect order passed by TPO on 14.07.2022, it is evident that in the present case, effect order of TPO was having DIN and was digitally signed on the same day i.e. on 14/07/2022 and uploaded on IT portal, however, the copy of the said order was sent to the Jurisdictional assessing officer i.e. DCIT, Circle 1(1), New Delhi and not to the faceless assessing Centre. Further the effect order alongwith the Revenue audit objection was sent to the Jurisdictional assessing officer through email on 16.02.2023, in compliance to which the Jurisdictional assessing officer had passed the final order on 28.02.2023. It appears that no final order was passed by Jurisdictional assessing officer or by the Faceless Assessment Centre after the directions given by Ld. DRP on 03.06.2022 within 14 ITA No.940 /Del/2023 Adidas India Marketing Private Limited vs. ACIT a period of one month from the end of the month when such directions as per section 144C(13) of the Act were received by the Assessing Officer and it appears that when this lapse was noticed by the authorities, the TPO vide mail dt. 16.2.2023 intimated the Jurisdictional assessing officer about the effect order passed by this office on 14.07.2022. As per section 144C(13), the final assessment order passed by the Assessing Officer within a period of one month from the end of the month in which such direction is received. In the instant case the directions were given by Ld. DRP on 03/06/2022 which were received by AO/TPO on 07.06.2022 as is evident from the effect order passed by TPO dt. 14.07.2022. Further, the TPO's effect order was also passed on 14.07.2022 and uploaded on ITBA portal. Thus for the AO for passing the final order, the limitation expired on 31.07.2022. It is also relevant to state here that when DRP issued directions, TPO has no power to resume jurisdiction and the TPO could only pass the effect order which in no case extended the time limit for passing the Final Assessment Order available to Assessing Officer in terms of section 144C(13) of the Act. Accordingly, in the present case, the limitation for passing final order by AO expired on 31.07.2022, thus the final assessment order passed on 28.02.2023 is barred by limitations and is void and invalid order.
15 ITA No.940 /Del/2023Adidas India Marketing Private Limited vs. ACIT
10. The Hon'ble jurisdictional High Court in the case of PCIT Vs. M/s Fibrehome India Pvt. Ltd. in ITA No. 91 of 2024 vide order dt. 5.2.2024 has held as under:
"3. We note that an identical question has been answered by us in W.P.(C) 15381 of 2022 titled as "Louis Dreyfus Company India Private Limited vs. Deputy Commissioner of Income Tax Circle 13(1), Delhi & Ors." in favour of the assessee / petitioner. While dealing with this question, we had observed as follows:-
"14. The determination which the AO makes in the first instance is recognized to be a draft of the proposed order of assessment by virtue of section 144C(1) of the Act. If the assessee be aggrieved by the proposed order of assessment, it is entitled to file objections before the DRP in accordance with Section 144C(2) of the Act. The power of the AO to complete the assessment on the basis of the draft order stands interdicted in case objections have come to be preferred within the 30 day period as contemplated in Section 144C(2) of the Act. It is the DRP which thereafter proceeds to decide the objections and frame directions to enable the AO to complete the assessment in accordance with Section 144C(5) of the Act.
15. In terms of sub-section (13) of Section 144C of the Act, the AO is mandated to complete the assessment "in conformity with the directions" as framed by the DRP. That very provision commands the AO to complete the assessment within one month from the end of the month in which such a direction is received.
16. This is evident from Section 144C of the Act which is extracted herein below:-
........
17. As is manifest from a reading of sub-section (13) of Section 144C of the Act, the AO is not accorded any discretion in the framing of an order of assessment once directions have come to be framed by the DRP. In fact, the 16 ITA No.940 /Del/2023 Adidas India Marketing Private Limited vs. ACIT provision requires the AO to frame an order of assessment in conformity with those directions and without providing any further opportunity of hearing to the assessee. This principle of law has been affirmed by the Bombay High Court in the aforenoted paragraphs of Vodafone Idea and in Shell India Markets Private Limited v. Additional Commissioner of Income Tax Officer, National Faceless Assessment Centre & Ors. The relevant paragraph of the decision in Shell India are extracted hereinbelow:
"10. Sub-section (13) of Section 144C, therefore, is very clear inasmuch as the Assessing Officer shall, upon receipt of the directions issued under sub-section (5), in conformity with the directions, complete the assessment within one month from the end of the month in which such direction is received, Sub-section (13) also provides that the Assessing Officer can complete the assessment without providing any further opportunity of being heard to the assessee.
This means that the moment the Assessing Officer receives the directions under sub-section (5), he has to straightaway complete the assessment and he does not even have to hear the assessee. The Assessing Officer shall simply comply with the directions received from the DRP within one month from the end of the month in which such direction is received."
18. In this backdrop, we note that both the judgments of the Bombay High Court in Shell India and Vodafone Idea construe the time lines as provided in Section 144C to be mandatory in character. In our considered opinion, this interpretation is in accord with the intent behind insertion of that provision and the bare text and spirit of that section. Thus, we accord our approval to the interpretation as set out in the aforenoted decisions of the Bombay High Court.
19. Further, the procedure of assessment as provided under Section 144C does not envisage or contemplate the interdiction or involvement of the TPO once a directive has been framed by the DRP. The role of the TPO comes to an end once an order as contemplated under Section 92 CA(4) 17 ITA No.940 /Del/2023 Adidas India Marketing Private Limited vs. ACIT of the Act has come to be framed and remitted to the AO. There was thus no occasion for the TPO having resumed proceedings post the passing of the direction by the DRP on 20 June 2022.
20. Undisputedly, the directive of the DRP came to be uploaded on the ITBA portal on 24 June 2022. It is additionally stated to have been dispatched through Speed Post to the third respondent (TPO) and the fourth respondent (Additional/Joint/Deputy/Assistant Commissioner of Income Tax, National Faceless Assessment Centre, New Delhi) on 27 June 2022. It is thereafter that the TPO appears to have passed the order dated 25 July 2022.
XXX XXX XXX
22. It is thus manifest that as per the provisions of E-as, 2019, all orders, notices and decisions have to be necessarily uploaded on the ITBA portal and as part of the larger faceless assessment regime which now holds the field. The uploading of the directive of the DRP on the ITBA portal would thus constitute valid and sufficient service and the period of limitation as prescribed in Section 144C(13) of the Act would be liable to be computed bearing that crucial date in mind. Once the aforesaid position becomes clear, it is evident that the order of assessment, if at all could have been framed lastly by 31 July 2022. There has thus been an abject failure on the part of the first respondent to comply with the mandatory timelines as incorporated in the aforenoted provisions. Accordingly, the writ petition is liable to be allowed and the impugned order of assessment and the consequential penalty proceedings are thus liable to be set aside on this short score alone."
4. We, consequently, find no merit in the instant appeal and the same shall stand dismissed."
In the case of Vodafone Idea Limited V. CPC, Benglauru, Writ Petition No.15398 of 2023 (Bombay High Court) vide order dated 8.11.2023 has held as under:
18 ITA No.940 /Del/2023Adidas India Marketing Private Limited vs. ACIT "20. Section 144C of the Act is a self contained provision which carves out a separate class of assessees, i.e.. 'eligible assessee Section 144C of the Act was inserted in the Finance Act of 2009 and came into effect from 1 October 2009. In the notes on clauses to the Finance Bill. 2009 (Budget 2009-2010), the reason for insertion of Section 144C is given as under:
"The subjects of transfer pricing audit and the taxation of foreign company are at nascent stage in India. Often the Assessing Officers and Transfer Pricing Officers tend to take a conservative view. The correction of such view take very long time with the existing appellate structure.
With a view to provide speedy disposal, it is proposed to amend the Income-tax Act so as to create an alternative dispute resolution mechanism within the income-tax department and accordingly, section 144C has been proposed to be inserted so as to provide inter alia the Dispute Resolution Panel as an alternative dispute resolution mechanism."
21. Thus, if the provisions of Section 144C as mandated by the Statute are not strictly adhered the entire object of providing for an alternate redressal mechanism in the form of DRP stand defeated. That is not the intention of the legislature when the provision was introduced in the Act. Section 144C(10) of the Act provide that the directions of DRP are binding on the AO. By failing to pass any order in terms of the provision, the AO cannot be permitted to defeat the entire exercise and render the same futile. When a Statute prescribes the power to do a certain thing in a certain way, then the thing must be done in that way and other methods of performance are forbidden. Once the statute has prescribed a limitation period for passing the final order, it is expected that the internal procedure of the department should mould itself to give meaning to and act in aid of the provision. Any procedural defect (there is none in this case) in the internal mechanism of the working of E- assessment Scheme, cannot operate against the interest of assessee. Hence, the FAO cannot be believed that the DRP direction was received by him only on 23rd August 2023 despite being uploaded on the ITBA portal on 25th March 2021. The failure on the part of department to follow the procedure under Section 144C of the Act is not merely a procedural irregularity, but is an illegality and vitiates the entire proceeding.
22. In a decision in the matter of Turner International India Private Limited v. Deputy Commissioner of Income Tax, Circle-25(2), New Delhi, the Delhi High Court has held that the question "whether the final assessment order stands vitiated for failure to adhere to the mandatory 19 ITA No.940 /Del/2023 Adidas India Marketing Private Limited vs. ACIT requirements of Section 144C of the Act?", is no longer res integra and any order passed contrary to Section 144C of the Act cannot be sustained.
23. In a decision cited by Mr. Mistri in the matter of Shell India Markets (P) Ltd. (supra), this Court has also held as follows:
"10. Sub-section (13) of Section 144C, therefore, is very clear inasmuch as the Assessing Officer shall, upon receipt of the directions issued under Sub-section (5), in conformity with the directions, complete the assessment within one month from the end of the month in which such direction is received. Sub-section (13) also provides that the Assessing Officer can complete the assessment without providing any further opportunity of being heard to the assessee. This means that the moment the Assessing Officer receives the directions under Sub-section (5), he has to straightaway complete the assessment and he does not even have to hear the assessee. The Assessing Officer shall simply comply with the directions received from the DRP within one month from the end of the month in which such directions is received."
24. In view of the aforesaid discussion, we have no hesitation in holding that the assessment order dated 31" August 2023 passed by FAO two years after the DRP directions, is time barred and cannot be sustained. Consequently, the ROI as filed has to be accepted. Petitioner is entitled to receive the refund together with interest, in accordance with law. The procedure to be completed within 30 days of this order being unloaded. This would, however, not preclude revenue, should the need arise, from reopening the assessment by following due process and in accordance with law.
25. Rule is thus made absolute in terms of prayer clause (A) which reads as under:
"A. that this Hon'ble Court be pleased to issue a Writ of Mandamus or any other writ in the nature of Mandamus, order or direction under Article 226 of the Constitution of India calling for the records of the case so as to examine the failure of Respondent Nos. 1 and 2 to give refund of tax paid by the Petitioner for the assessment year 2016-2017 which is in excess of legitimate tax due on the returned income of the Petitioner and directing Respondent Nos. 1 and 2 to forthwith grant the refund for the assessment year 2016-2017 along with the applicable rate of interest."20 ITA No.940 /Del/2023
Adidas India Marketing Private Limited vs. ACIT
26. Before we part, we strongly recommend that a detailed enquiry be initiated on the failure on the part of the Faceless Assessing Officer concerned to act in accordance with the provisions of the Act and the lack of diligence on the part of officials concerned and the system itself insofar as it relates to the present assessment. Strict action should be taken against persons responsible for the laxity and lethargy displayed which has caused a huge loss to the exchequer and in turn to the citizens of this country. A copy of this order be circulated to the CBDT and the Principal Secretary, Ministry of Finance, GOI.
27. Mr. Singh seeks stay of the judgment. Stay refused."
Further the decision of Hon'be Madras HighCourt in the case of M/s Taeyang Metal India Private Limited vs. DCIT in Writ Petition No.12159 of 2023 and W.M.P. No.11989 of 2023 vide order dated 23.02.2024 has held as under:
"6. The interpretation of sub-section 13 of Section 144C takes centre stage in the adjudication of this dispute. The said sub-section is set out below:
"(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."
From the above provision, it is evident that the specified time limit is one month from the end of the month in which directions are received. It is also clear that the time limit should be computed from the date of receipt of directions issued under sub-section (5) thereof. Sub-section (5) of Section 144C deals with the issuance of directions by the DRP. The admitted position is that the DRP issued directions on 16.06.2022 and this fact is borne out by examining the proceedings of the DRP, which is contained at page Nos. 122 to 130 of the typed set of papers. The said proceedings also record that the copy of the directions of the DRP is being forwarded to the assessee, the assessing officer and the TPO. The assessing officer referred to therein is the National Faceless Assessment Centre, Delhi. The petitioner has placed on record a communication from the Secretary and ACIT to the DRP. The said communication states that the assessing officer in the captioned case is the National Faceless Assessment Centre, Delhi and that a scanned 21 ITA No.940 /Del/2023 Adidas India Marketing Private Limited vs. ACIT copy of the proceedings was uploaded to the National Faceless Assessment Centre on 17.06.2022.
7. From the above discussion, the conclusion that emerges is that the directions of the DRP were forwarded to the assessing officer, i.e. National Faceless Assessment Centre, Delhi by uploading the same on 17.06.2022. Although learned senior standing counsel contends that the jurisdictional assessing officer received the directions only on 17.03.2023, for purposes of sub-section (13) of Section 144C, the date of receipt should be reckoned as B COREY date of receipt by the National Faceless Assessment Centre on 17.06.2022. The internal arrangement by which the assessment proceedings relating to the petitioner were purportedly transferred so as to ensure that the proceedings are not barred by limitation is not material for this purpose. Indeed, as contended by learned counsel for the petitioner, the communication dated 12.04.2022 from the PCCIT of the National Faceless Assessment Centre seeking approval for transfer so as to complete assessment within the period of limitation underscores the fact that the income tax authorities were mindful of the fact that assessment would be barred by limitation unless such assessment is proceeded with and completed expeditiously.
8. All that remains is to examine whether the assessment proceedings would be barred by limitation if computed from the end of June 2022. If so computed, the period of one month expired on 31.07.2022, whereas the assessment order came to be issued on 25.03.2023. Hence, the assessment order was issued beyond the time limit specified in sub-section (13) of Section 144C. By taking into account not only statutory prescription but also the interpretation thereof by the Division Bench of this Court in Roca and that of the Division Bench of the Delhi High Court in Louis Dreyfus, 1 conclude that the assessment order cannot be sustained.
9. In view of the conclusion that the assessment proceedings are barred by limitation, it is unnecessary to examine as to whether the assessing officer was duly authorized to exercise jurisdiction either under the WhatsApp message issued on 13.04.2022 or upon the physical file being signed on 21.04.2022."
Further the decision of the ITAT, Chennai Bench 'D" in the case of M/s Cognizant Technology Solutions India Private Limited (as successor-in-interest of M/s KBACE Technologies Private 22 ITA No.940 /Del/2023 Adidas India Marketing Private Limited vs. ACIT Limited) vs. ACIT in IT(TP)A 61/CHNY/2023 vide order dated 29/05/2024 has held has under:
"10. We have heard rival submissions in the light of facts of the case, evidence placed on record and judicial citations relied upon. Ground of appeal no.1 is general in nature and hence bereft of any meritorious adjudication. Coming to grounds of appeal Nos. 2 to 6 whereby the assesse has challenged procedural irregularities in giving effect proceedings and thus arguing that the AO dated 18.05.2023 is barred by limitations, we find considerable force in the arguments put forth by the assesse. Facts on records indicate that the DRP Bangalore had given its directions on 01.12.2022. Within the meanings of section 144C(13) was incumbent on the AO to have passed his order on or before 31.01.2023. The DR could not controvert the said timeline by placing any evidence suggesting different service dates upon the AO. The Law prescribed u/s. 144C(13) unequivocally postulates that pursuant to the receipt of directions in a calendar month, the AO is mandated to pass his final order before the end of following calendar month. Statutory stipulations prescribed in 144C(13) do not make any difference as to whether a set aside assessments would be given different timelines. The argument of CIT(DR) have accordingly been found to be not in consonance with statutory regulations governing the matter.
11. The case law relied upon by the assesse of 18/05/2023 Adobe system supra supports its case. Accordingly, the order u/s 143(3) r.w.s 1440 F.W.S 920A r.w.s 254 of the Income Tax Act dated 18.05.2023 is held to be barred by limitation and hence quashed. The grounds of appeal numbers 2-6 thus stands allowed."
11. In the light of the above discussion, we are of the considered view that the final order passed by the Jurisdictional assessing officer is invalid on limitations issue. Accordingly, the same is hereby quashed. As a consequence, Grounds appeal Nos. 1 containing sub grounds Nos. 1.1 and 1.3 of the assessee are allowed.
23 ITA No.940 /Del/2023Adidas India Marketing Private Limited vs. ACIT
12. Regarding the legal ground of appeal No.1.2, that the final assessment order is passed by Jurisdictional Assessing Officer whereas the draft order was passed by Faceless Assessment Centre, since, we have already decided and allowed the assessee's ground of appeal No.1.1 and 1.3 taken on limitation issue, thus this ground along with other grounds of appeal taken become academic and not adjudicated
13. In the result appeal of the assessee is allowed.
Order pronounced on 12/03/2025
Sd/- Sd/-
(MAHAVIR SINGH) (MANISH AGARWAL)
VICE PRESIDENT ACCOUNTANT MEMBER
Dated: 12/03/2025
PK/Sr. Ps
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR
ITAT NEW DELHI