Income Tax Appellate Tribunal - Jaipur
Yachiyo India Manufacturing Private ... vs Deputy Commissioner Of Income Tax, ... on 24 January, 2023
vk;dj vihyh; vf/kdj.k] t;iqj U;k;ihB] t;iqj
IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,"B" JAIPUR
Mk0 ,l- lhrky{eh] U;kf;d lnL; ,oa Jh jkBksM deys'k t;UrHkkbZ] ys[kk lnL; ds le{k
BEFORE: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM
vk;dj vihy la-@IT (TP) A No. 03/JP/2022
fu/kZkj.k o"kZ@Assessment Year : 2017-18
M/s Yachiyo India Manufacturing cuke National Faceless Assessment
Private Ltd., Vs. Centre, Delhi
Tapukara Industrial Area, Deputy Commissioner of
Distt. Alwar Income Tax, Circle-01
Alwar
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAACY 3388 E
vihykFkhZ@Appellant izR;FkhZ@Respondent
fu/kZkfjrh dh vksj l@
s Assessee by : Sh. Nishant Singhal, CA
jktLo dh vksj ls@Revenue by: Sh. Sanjay Dhariwal, CIT
lquokbZ dh rkjh[k@Date of Hearing : 15/11/2022
mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 24/01/2023
vkns'k@ORDER
PER: RATHOD KAMLESH JAYANTBHAI, AM This appeal by the assessee is marched against the order of the Assessing Officer dated 30.03.2022 for Assessment Year 2017-18 passed u/s 143(3) r.w.s 144C(13) read with section 144B of the Income-tax Act, 1961 [ for short "the Act"], which is in pursuant to the directions of the Dispute Resolution Panel [ for short DRP ].
2. The assessee has raised the following grounds in this appeal:-
2IT(TP) A No. 03/JP/2022 Yachiyo India Manufacturing Private Ltd. vs. DCIT "1. GENERAL 1.1 That the Hon'ble DRP / Ld. Assessing officer has erred in law and on facts and in circumstances of the case, in confirming the Ld. Transfer Pricing Officer (TPO) order passed under section 92CA(3) of the Act, taking the arm's length price of a part (81.34%) of royalty' paid to an associated enterprise (AE) at 'nil' in respect of goods manufactured and sold by assessee to a domestic fellow subsidiary.
1.2 That the Hon'ble DRP has erred in law and on facts in concurring with findings of the Assessing Officer / TPO and disregarding the economic analysis undertaken by the appellant for establishing the arm's length price of the international transactions undertaken by the appellant without appropriate justification.
2. GROUNDS WITH RESPECT TO PRINCIPLES OF NATURAL JUSTICE 2.1 That the Ld. AO has erred in law and on facts in passing the assessment order u/s 143 (3) r.w.s. 144C (13) r.w.s. 144B after the expiration of the period of limitation provided u/s 144C (13) of the Act which provides a time limit of one month from the end of the month in which directions of the Hon'ble DRP is received u/s 144C (5) of the Act thereby violating the principles of natural justice to mislead the cause of justice and clearly demonstrating a prejudiced mindset.
2.2 That the Ld. AO has erred in law and on facts in passing the assessment order u/s 143 (3) r.w.s. 144C (13) r.w.s. 144B without incorporating the reasons given by the Hon'ble DRP in respect of various objection filled by the assessee in its direction u/s 144C (5) at appropriate places in the assessment order thereby violating the principles of natural justice by issuing incomplete assessment order.
2.3 That the Ld. TPO/ Assessing Officer has erred in law and on facts in making an adjustment under section 92CA without returning a finding about existence of circumstance(s) specified in clauses (a) to (d) of sub-section (3) of Section 92C in case of the assessee.
3. GROUNDS AGAINST PROPORTIONATE DISALLOWANCE OF ROYALTY 3.1 That the TPO/Assessing Officer has erred in law and on facts in holding that the ALP of royalty payment of Rs. 81,61,912/- paid by the assessee is 'nil' by resorting to various frivolous/ incorrect/ baseless statements and misinterpreting the provisions contained in Section 92A of the Income Tax Act, 1961 which provides definition of Associated Enterprises which are not relevant to assesses case so as to mislead the cause of justice, thereby clearly demonstrating a prejudiced mindset driven with the single-minded intention to recommend a TP adjustment.
3IT(TP) A No. 03/JP/2022 Yachiyo India Manufacturing Private Ltd. vs. DCIT 3.2 That the Id. TPO/AO has erred in law and on facts in holding that the position of the appellant company with regard to manufactured goods sold to the domestic fellow subsidiary (frivolously adjudged as AEs) is that of a 'contract manufacturer' and ignoring the fact that the Functional, Asset and Risk (FAR) profile of the assessee for sales made or to be made to unrelated parties is similar to the sales made to domestic fellow subsidiary. The ld. TPO/AO also ignored the Technical Assistance Agreement whereby the Holding Company has granted an indivisible, non-transferable, non-exclusive right and license (with-out the right to grant sub-license) to the appellant's operation.
3.3 That the Id. TPO/ AO has erred in law and on facts in ignoring the fact that the royalty paid by the assessee pertains to use of intellectual property rights and technical know-how and expertise in manufacture of products and not for use of 'Yachiyo' brand name or logo and that the use of these intellectual property rights and technical know-how and expertise is critical to appellant's operations.
3.4 That the Id. TPO/ AO has erred in law and on facts in adopting a completely contradictory position of accepting the Transactional Net Margin Method ('TNMM') as the most appropriate method with the Combined Transaction approach on one hand, and yet seeking to question appropriateness of individual elements of operating cost on the other, thereby failing to appreciate fundamental TP principles.
3.5 That the Id. TPO/ AO has erred in law and on facts in failing to appreciate that, based on the TNMM applied by the assessee in its TP documentation study, its operating profit margin (as arrived at after deducting its entire royalty) was higher than that of the comparable companies, thereby evidencing the arm's length nature of its international transactions (including the international transaction relating to payment of royalty on domestic sales made to Group Companies).
3.6 That the Id. TPO/AO has erred in law and on facts in holding that royalty is paid to same AE to whom Goods are sold, when in fact royalty is paid to one AE and goods are sold to other domestic fellow subsidiary, and in making erroneous remarks that such an arrangements tantamount to transfer profits out of India in the garb of royalty whereas these transactions are undertaken on a principle-to- principle basis under a Licensed arrangement.
3.7 That the Ld. TPO/AO has erred in law and on facts in adopting a completely contradictory position of accepting the fact that Sales of manufactured goods made to domestic group companies is not covered by provisions of specified domestic transactions and hence are not reportable transactions on the one hand, and yet claiming to make these transactions as a basis for rejecting the Royalty calculations and payment to international AE (Holding Company).
4IT(TP) A No. 03/JP/2022 Yachiyo India Manufacturing Private Ltd. vs. DCIT 3.8 That the Ld. TPO/AO has erred in law and on facts in adopting CUP method to benchmark Royalty as a separate class of transaction and taking ALP at "Nil" with-out providing any basis or external comparable while not rejecting the transfer pricing documentation / study wherein the said transaction has been computed to be at ALP.
The above Grounds of appeal are all independent and without prejudice to one and another. The Appellant also craves leave to supplement to cancel amend add and/ or otherwise alter or modify, any or all grounds of the appeal stated hereinabove.
3. The fact as culled out from the assessment record is that the assessee company is engaged in the business of manufacturing of automobile parts such as fuel tanks, sunroofs and other plastic automotive products. Yachiyo Japan holds 88.13 % of the equity share capital of Yachiyo India and thus is an associated enterprise (AE) by virtue of control.
For the year under consideration the case of the assessee was taken up for complete scrutiny and accordingly notice u/s 143(2) of the Income Tax Act, 1961, dated 25/09/2018 was also served on the assessee. Subsequent notice u/s 142(1) dated 26/12/2019 was also served on the assessee, calling for various details. The assessee vide reply on various dates, furnished details. During the course of assessment proceedings, it was noticed that the assessee has entered into international transaction with its associated enterprises. Therefore, ld. AO considered necessary to refer the computation of arm's length price to Transfer Pricing Officer [ for short "TPO"] with reference to such international Transaction. Therefore, in 5 IT(TP) A No. 03/JP/2022 Yachiyo India Manufacturing Private Ltd. vs. DCIT accordance with the provisions of Section 92CA of the I.T. Act and in compliance to CBDT Instruction No. 03/2016 dated 10/03/2016.
Accordingly, after obtaining approval from the Pr. Commissioner of Income tax, Alwar, communicated vide letter No. T-1018-Approval-92CA/2019- 20/1296 dated 16/08/2019, reference was made to the Deputy/Assistant Commissioner of Income Tax, TPO 2(3)(2), New Delhi on 22/08/2019. Vide order dated 31.12.2020, the TPO made following adjustments :
Particulars Amount Payment of Royalty by assessee (5% of Net sales - foreign or domestic)(A) 10034314 Sale to AEs (B) 81.34% Sale to non-AEs (C=100-A) 18.66% Royalty at Arm's Length Price (D=A*C%) 1872402 TP adjustment of Royalty 8161912
On the basis of the above order, and after examining the details on record, the assessment is proposed to be completed as follows:
Income returned Rs. 9,98,84,770.00
Add: Adjustment as above - Rs. 81,61,912.00
..........................
Rs.10,80,46, 682.00
4. On account of the said adjustment made, assessee preferred their objections before the ld. DRP. The ld. DRP given their finding and rejected the objections vide order dated 27.12.2021. The relevant finding of the ld.
DRP is reiterated here in below:
6IT(TP) A No. 03/JP/2022 Yachiyo India Manufacturing Private Ltd. vs. DCIT "4.3.8 The Panel has considered the rival submissions. The legal position in this regard is well- settled to the effect that if it was established that each international transaction was so inextricably linked to the other that the one could not survive without the other, it could be said that it formed a part of a transaction. The Hon'ble Punjab and Haryana High Court in Knorr- Bremse India P Ltd v ACIT [2015] 63 taxmann.com (Punjab & Haryana) explained the law in the following words:
"If it is established that each transaction was so inextricably linked to the other that the one could not survive without the other, it could be said that it formed a part of a transaction and that it was an international transaction. Take, for instance, a case where an AE offers to provide a bouquet of services and goods to the assessen each priced differently but on the understanding that the pricing was dependent upon the assessen accepting all the services and/or all the goods. In that event, it would not be open to the assessen to accept only some of the goods or the services at the prices indicated. It either takes all or none. This would normally constitute one transaction."
[Emphasis Supplied] 4.3.8.1 From the copies of the agreement, it can be noticed that the assessee has been granted a non-inclusive right to manufacture and sell the product in the territory using the knowhow and patents furnished by the AE. The YIM can however, make changes in design through its own initiative with the approval of Yachio, Japan. Thus, the use of knowhow and other non- inclusive rights are not linked to the manufacturing activities and they can be used in exercise independently of them with prior written approval or permission of the AE. Further, the royalty is to be charged by the AE on sale to relate as well as the non related parties. Thus, the two transactions cannot be said to be integrated or interlinked and in that view of the matter, the TPO has rightly carried out a separate benchmarking of royalty, apart from the manufacturing segment. The payment of royalty as per the terms of payment has been fixed as percentage of sales. Even in deciding on a brand name and/or a trademark to be used for the product as well as for advertisements and sales promotion material of any kind requires a prior consultation and a prior written consent of the AE The royalty transaction clearly belongs to a different class and cannot be bunched with other classes of transaction under TNMM for the purposes of benchmarking. Thus, it cannot be denied that royalty constitutes a separate international transaction in 7 IT(TP) A No. 03/JP/2022 Yachiyo India Manufacturing Private Ltd. vs. DCIT the facts of the given case, which is subject to prior consultation, prior consent and prior approval of the AE.
4.3.8.2 Law in this regard has further been explained by the Delhi Bench of the Hon'ble ITAT in JCB India Ltd v DCIT (2016) 69 taxmann.com 383 (Delhi-Trib.) in the following words:
"7.7 On going through the facts and ratio of the decisions in Sony Ericsson Mobile Communication India (PJLtd's case (supra) and Knorr-Bremse (supra), it is manifest that the contention of the ld. AR for aggregating all the international transactions including 'Payment of royalty', and then applying TNMM on entity level, cannot be upheld because the international transaction of Payment of royalty' is independent of other transactions. The tribunal in assessee's own case has also jettisoned such argument advanced on behalf of the assessee for earlier years and has rightly held that the ALP of the international transaction of 'Payment of royalty' should be done separately on a transaction by transaction approach, which has been rightly interpreted by the assessee as a CUP method, that was employed by the assessee in its transfer pricing study report for the e year under consideration. Ergo, we turn down the argument of the Id. AR and approve in principle that the TNMM cannot be applied and the international transaction of payment of royalty in respect of model 3DX has to be benchmarked by applying CUP as the most appropriate method."
[Emphasis Supplied] 4.3.8.3 In Gruner India P Ltd v DCIT [2016] 70 taxmann.com 240 (Delhi - Trib.), another Bench of ITAT Delhi deprecated the practice of aggregation of royalty with other international transaction in the following words:
"5.7 It is simple and plain that cross subsidization of the international transactions in a combined approach is impermissible. It is clear from section 92(1) that if an international transaction is recorded showing a lower income than its ALP income, then it is the higher ALP income, which should be considered for the purpose of computation of the total income. Section 92(3) of the Act manifests that the provisions of this section shall not apply in a case where the computation of income having regard to ALP has the effect of reducing income chargeable to tax. The net effect of section 92(3) is that if transacted value income from an international transaction is more than its arm's length price income, then, the ALP 8 IT(TP) A No. 03/JP/2022 Yachiyo India Manufacturing Private Ltd. vs. DCIT Income should be discarded and the actual income should be considered. To sum up, it is the higher of actual income or the ALP income from an international transaction, which should to be taken into consideration for computing the total income. It does not mean that the actual more income from one international transaction vis-a-vis its ALP income should be combined with another unrelated transaction which gives actual income less than the ALP income and then both be processed together under this Chapter so as to set off the income (Transacted income minus ALP income) from the first transaction with the potential income arising from the second transaction (ALP income minus transacted value income). When we consider more than one separate transaction under the combined umbrella of TNMM on an entity level, it is quite possible that a probable addition on account of transfer pricing adjustment arising from one international transaction may be usurped by the income from the other international transaction giving higher income on transacted value. That is the reason for which the legislature has provided for determining the ALP of each international transaction separately from the others. As the international transactions of payment of royalty and fees for technical services are separate transactions and not closely linked with the other transactions with which the assessee has merged them, we cannot permit such merger or aggregation for the purpose of the determining their ALP on entity level under TNMM. We, therefore, reject this contention raised on behalf of the assessee.
5.8 Under these circumstances, we are of the considered opinion that the TPO was justified in segregating the international transactions of payment of royalty and fees for technical services from other international transactions as these are not linked with import of raw material etc. from its AE. The assessee's contention in this regard is, ergo, repelled."
[Emphasis Supplied) 4.3.8.4 The case law relied upon by the ld. AR for the assessee are rendered in the context of closely linked international transactions and do not advance the case of the assessee in any manner. Though it is not necessary to go into the specific cases cited by the Id. AR in the submission, suffice it to say that these cases only reiterate the settled principle that transactions which are closely interlinked can be grouped together for benchmarking. However, there is no support in these cases for the proposition that a royalty transaction which requires independent and separate approval of the AE can be said to be linked 9 IT(TP) A No. 03/JP/2022 Yachiyo India Manufacturing Private Ltd. vs. DCIT with the license to manufacture so as to be clubbed together for the purpose of benchmarking.
4.3.9 The Panel, accordingly, finds no error in the action of the TPO. Accordingly the objections raised in ground number 3.1 to 3.8 are rejected."
5. After receipt of the directions the ld. AO confirmed the additions as directed in the draft assessment order vide his order dated 30.03.2022 which is passed u/s. 143(3) r.w.s 144C(13) read with section 144B of the Act.
6. Feeling aggrieved and dissatisfied with the order of the Assessing Officer, the assessee company has preferred this appeal in this tribunal.
7. The ld. AR appearing on behalf of the assessee supported his arguments by their written submission which is reiterated here in below;
"Apropos the issue of Transfer Pricing adjustment to Royalty amounting to INR 81,61,912
1. Brief note on the assessee:
a. M/s Yachiyo Industry Co., Ltd. Japan (Yachiyo, Japan) is the holding company of the Yachiyo India Manufacturing Private Limited and is part of the Honda Motor Group Japan with the ultimately holding Company being Honda Motor Co. Ltd. Japan 10 IT(TP) A No. 03/JP/2022 Yachiyo India Manufacturing Private Ltd. vs. DCIT b. Yachiyo is a world leader in the plastic fuel tank technology and its business consist of manufacturing of automobile parts such as fuel tanks, sunroofs and other plastic automotive products.
c. Yachiyo Japan holds 88.13% of the equity share capital of Yachiyo India and thus is an associated enterprise (AE) by virtue of control.
2. The international transactions of the assessee Company are as follows:
Particulars / Segment Amount in INR Method used Import of Raw Material 1,18,924,580 (Including deemed international transaction u/s 92B (2) of the Act) Import of Capital Assets 10,409,411 TNMM method using Technical Assistance Fees* 4,971,865 the Combined Royalty (For use of License and transaction approach Technical Know How of Yachiyo 10,034,314 Japan) Receipt of other Income 2,381,653 Reimbursement of other expenses 2,052,110 Interest on External Commercial 952,977 CUP method Borrowing Guarantee Fee's 268,622 CUP method Re-imbursement of Expenses 26,474,517 Any other method
3. The assessee has used the Transactional Net Margin Method (TNMM) to benchmark its international transactions. For this benchmarking, the assessee has clubbed its international transactions (except for Interest on external commercial borrowings and Guarantee fee) and claimed that its profit margin (operating profit by sales) was 10.49 (%) percent whereas Benchmark profit margin was 7.30 (%) percent. Thus, the assessee claimed that profitability was sufficient for establishing that the assessee's international transaction was carried out at arm's length price.
4. A reference to the Transfer Pricing officer was made by the Ld. AO and consequently, "Notice u/s. 92CA(2) and 92D(3) of the Income Tax Act, 1961 -
Computation of Arm's Length Price-Assessment Year 2017-18- reg" was issued ITBA/TPO/S/92CA/2019-20/1020399864(1) dated 14.11.2019 and ITBA/TPO/S/92CA/2019-20/1021641818(1) dated 04.12.2019 providing a list of questionnaire.
11IT(TP) A No. 03/JP/2022 Yachiyo India Manufacturing Private Ltd. vs. DCIT
5. Summary of Notices issued with reference no., date of issue, and response date by the assessee has been documented for your kind perusal:
Notice Reference No. Description Date of Issue Date of Remarks Response ITBA/TPO/S/92CA/2019 Notice u/s. 92CA(2) and 14.11.2019 Not applicable Not replied since
-20/1020399864(1) 92D(3) of the Income Tax another notice Act, 1961. issued before Questionnaire of limitation period information and documents required ITBA/TPO/S/92CA/2019 Notice u/s. 92CA(2) and 04.12.2019 26.12.2019 [Refer Point 11 of
-20/1021641818(1) 92D(3) of the Income Tax the paper-book] Act, 1961.
Questionnaire of information and documents required ITBA/TPO/F/17/2019- Proceeding u/s 92CA(3) - 22.01.2020 Seeked Hearing now 20/1024106627(1) Seeking remaining adjournment adjourned till information in the dated 05.02.2020 questionnaire dated 27.01.2020 04.12.2019 ITBA/TPO/F/17/2019- Proceeding u/s 92CA(3) - 27.01.2020 20/1024297886(1) Confirmation of adjournment till 05.02.2020
- - - 05.02.2020 Submission of [Refer Point 11 of pending the paper-book] information to the questionnaire dated 04.12.2019 ITBA/TPO/F/17/2019- Notice u/s. 92CA(2) of the 13.02.2020 Response due New notice 20/1025123637(1) Income Tax Act, 1961 was by received before 02.03.2020 end of limitation For benchmarking of period Royalty, details of sales to AE and Non-AE requested 12 IT(TP) A No. 03/JP/2022 Yachiyo India Manufacturing Private Ltd. vs. DCIT ITBA/TPO/F/17/2019- Notice u/s. 92CA(2) r.w.s. 24.02.2020 25.02.2020 Response to 20/1025640547(1) 129 of the Income Tax Attendance for Notice dated Act, 1961 oral hearing 13.02.2020 was with new submitted on Information regarding incumbent. 12.03.2020 [Refer change in incumbent. Point 11 of the paper-book] ITBA/TPO/F/17/2019- Notice u/s. 92CA(2) r.w.s. 18.03.2020 Not applicable Lockdown 20/1026755163(1) 129 of the Income Tax announced from Act, 1961 24.03.2020 Information regarding Proceedings change in incumbent. became "Sine-
Dine"
ITBA/TPO/F/17/2020- Proceedings u/s 92CA (2) 23.10.2020 03.11.2020 Reply submitted 21/1028383123(1) of the Income Tax Act, to Show cause 1961- notice on issues identified.
a. Intimation of
Benchmarking of [Refer Point 11 of
Royalty by CUP the paper-book]
b. Assessee
proposed to be
acting as
"Contract
Manufacturer"
c. Benchmarking of
Reimbursement
of Expenses
ITBA/TPO/F/17/2020- Proceeding u/s 92CA (2) 06.11.2020
21/1028512340(1) of the Income Tax Act,
1961 25.11.2020
TBA/TPO/F/17/2020-
21/1028630723(1) Personal hearing for 17.11.2020
discussion of matters in
SCN
6. Vide our submission dated 26.12.2019, submission dated 05.02.2020, and submission dated 12.03.2020 - the transfer pricing study was place on records along with Fact sheet, copy of invoices, benefit test which clearly demonstrated 13 IT(TP) A No. 03/JP/2022 Yachiyo India Manufacturing Private Ltd. vs. DCIT that the assessee has performed all the requirements of transfer pricing provisions with respect to benchmarking, choice of tested party, selection of most appropriate method etc. Such facts and records have been placed on records by the TPO and has not been objected anywhere.
7. Out of the above expenditure, the TPO referred to royalty expenditure on domestic sales to group companies and issued a show cause notice ITBA/TPO/F/17/2020-21/1028383123(1) dated 23/10/2020.
8. Vide our submission dated 03.11.2020, detailed reply to all the three matters were placed on record. The TPO in its final order, accepted our response to all matters except for erroneously benchmarking of Royalty by applying CUP and taking the ALP as NIL for sales made to domestic group companies.
9. In response to the order of the TPO dated 31.12.2020, the Ld. AO vide its draft order dated 19.04.2021 has affirmed the adjustment by enhancing the income to the extent of the adjustment.
10. In response to this draft order, the assessee has raised the Grounds of objection to the Honorable DRP Bench - New Delhi to seek relief vide objection no. 145/21-22 dated 31 May 2021.
11. The final order of the Hon'ble DRP bench u/s 144C (5) vide DIN DIN ITBA/DRP/M/144C(5)/2021-22/1038150930(1) dated 23.12.2021.
12. The said order of the Hon'ble DRP bench was received by the assessee on 04.01.2022.
13. Pursuant to the said Hon'ble DRP bench, the final assessment order of the Ld. AO u/s 143(3) r.w.s. 144C(13) r.w.s. 144B vide DIN ITBA/AST/S/143(3)/2021- 22/1042069367(1) dated 30.03.2022, Demand Order u/s 156 vide DIN ITBA/AST/S/156/2021-22/1042069462(1) dated 30.03.2022 and Computation Sheet vide ITBA/AST/S/216/2021-22/1042069541(1) dated 30.03.2022."
8. The assessee in their memo of appeal raised various grounds as reiterated here in above in para 2 and has also filed written submission.
14IT(TP) A No. 03/JP/2022 Yachiyo India Manufacturing Private Ltd. vs. DCIT Amongst all grounds so raised, vide ground no. 2, assessee challenge the jurisdiction of the ld. AO in passing the order in contravention of the provision of the law as enacted vide section 144C(13) of the Act. On this ground the submission of the assessee's authorized representative is that the assessment order passed u/s 143(3) r.w.s 144C(13) read with section 144B of the Act is barred by limitation since the same was passed beyond the maximum time limit u/s. 144C(13) of the Act and hence it is liable to be quashed as time barred and he relied on the following time line:
1. In response to this draft order, the assessee has raised the Grounds of objection to the Honorable DRP Bench - New Delhi to seek relief vide objection no.
145/21-22 dated 31 May 2021.
2. The final order of the Hon'ble DRP bench u/s 144C (5) vide DIN DIN ITBA/DRP/M/144C(5)/2021-22/1038150930(1) dated 23.12.2021.
3. The said order of the Hon'ble DRP bench was received by the assessee on 04.01.2022.
4. Pursuant to the said Hon'ble DRP bench, the final assessment order of the Ld. AO u/s 143(3) r.w.s. 144C(13) r.w.s. 144B vide DIN ITBA/AST/S/143(3)/2021- 22/1042069367(1) dated 30.03.2022, Demand Order u/s 156 vide DIN ITBA/AST/S/156/2021-22/1042069462(1) dated 30.03.2022 and Computation Sheet vide ITBA/AST/S/216/2021-22/1042069541(1) dated 30.03.2022."
The ld. AR of the assessee submitted that the Hon'ble DRP has issued direction on 13.01.2022 and the assessment under dispute is passed on 30.03.2022. This fact is also confirmed in the submission of ld. DR filed in the form of chart wherein from the system, the ld. DR has filed all sequence 15 IT(TP) A No. 03/JP/2022 Yachiyo India Manufacturing Private Ltd. vs. DCIT of the event that has happened under the faceless assessment scheme at Sr. No. 15. It is categorically confirmed that the Hon'ble DRP's order passed u/s 144C(5) of the Act is passed on 13th Jan, 2022 whereas the assessment order is uploaded at Sr. No. 64 of the chart of the submitted by ld. DR which is dated 30.03.2022. Based on this date of events the ld. AR of the assessee submitted that the assessment order passed on 30.03.2022 beyond the time prescribed and thus same is null and void.
9. Per contra, ld. DR supported the order of the lower authority, against the submission of the assessee, ld DR submitted that although the order is not passed within the time line given u/s 144C(13) of the Act but it is just a procedural formalities. The passing of the order of the Assessing Officer, after the passing of Hon'ble DRP order is just a mere formalities as the assessee is not supposed to have any opportunity of being heard in person.
Not only that AO has no power to deviate from the directions of the Hon'ble DRP. Thus, it is mere a just an effect order to be passed and is mere formality and it although passed after the gap will not vitiated the assessment done by the ld. AO. But at the same time, since, the assessment proceeding was under faceless regime, ld. DR sought time to place on record the correct time line of the all the event from the CPC.
16IT(TP) A No. 03/JP/2022 Yachiyo India Manufacturing Private Ltd. vs. DCIT Subsequently, ld. DR filed a submission on 21.09.2022 wherein all the events were listed in the chart obtained from the NaFAC. Summarily he supported the order the assessment order and submitted that it is merely an effect order.
10. We have considered the rival contentions and submission placed on record by both the parties, the orders of the lower authorities and also gone through the judicial decision cited before us to drive home to the contentions so raised. The bench noted from the detailed chart filed by the ld. DR. In that chart the event starts at Sr. no. 1 with the issue of notice dated 14.08.2018, the order of the DRP was issued on 27.12.2021 is noted at SR. no. 50 having date 13.01.2022 where in the DRP order forwarded to AO and finally ends at Sr. No. 67 for issue of notice of demand dated 30.03.2022. Thus, before us it is not disputed by the parties that the order of the DRP passed on 27.12.2021 and final order of the assessment passed on 30.03.2022. Based on these non-disputed facts we find force in the arguments of the ld. AR of the assessee. The purpose of providing the DRP route came by Finance Act, 2009 wherein the bill gives the justification of introducing the provision is as under:
17IT(TP) A No. 03/JP/2022 Yachiyo India Manufacturing Private Ltd. vs. DCIT The dispute resolution mechanism presently in place is time consuming and finality in high demand cases is attained only after a long drawn litigation till Supreme Court. Flow of foreign investment is extremely sensitive to prolonged uncertainity in tax related matter. Therefore, it is proposed to amend the Income- tax Act to provide for an alternate dispute resolution mechanism which will facilitate expeditious resolution of disputes in a fast track basis.
11. Keeping in the mind the purpose of this act we have perused the provision of section 144C of the Act and the same is reiterated here in below :
"144C. (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 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,--
(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 or section 153B, pass the assessment order under subsection (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.18
IT(TP) A No. 03/JP/2022 Yachiyo India Manufacturing Private Ltd. vs. DCIT (5) The Dispute Resolution Panel shall, in a case where any objection is received under sub-section (2), issue such directions, as it thinks fit, for the guidance of the Assessing Officer to enable him to complete the assessment. (6) The Dispute Resolution Panel shall issue the directions referred to in sub- section (5), after considering the following, namely:--
(a) draft order;
(b) objections filed by the assessee;
(c) evidence furnished by the assessee;
(d) report, if any, of the Assessing Officer, Valuation Officer or Transfer Pricing Officer or any other authority;
(e) records relating to the draft order;
(f) evidence collected by, or caused to be collected by, it; and
(g) result of any enquiry made by, or caused to be made by, it. (7) The Dispute Resolution Panel may, before issuing any directions referred to in sub-section (5),--
(a) make such further enquiry, as it thinks fit; or
(b) cause any further enquiry to be made by any income-tax authority and report the result of the same to it.
(8) The Dispute Resolution Panel may confirm, reduce or enhance the variations proposed in the draft order so, however, that it shall not set aside any proposed variation or issue any direction under sub-section (5) for further enquiry and passing of the assessment order.
Explanation.--For the removal of doubts, it is hereby declared that the power of the Dispute Resolution Panel to enhance the variation shall include and shall be deemed always to have included the power to consider any matter arising out of the assessment proceedings relating to the draft order, notwithstanding that such matter was raised or not by the eligible assessee.
(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.
19IT(TP) A No. 03/JP/2022 Yachiyo India Manufacturing Private Ltd. vs. DCIT (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 or section 153B, the assessment without providing any further opportunity of being heard to the assessee, within one month from the end of the month in which such direction is received. (14) 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. (14A) The provisions of this section shall not apply to any assessment or reassessment order passed by the Assessing Officer with the prior approval of the Principal Commissioner or Commissioner as provided in sub-section (12) of section 144BA. [(14B) The Central Government may make a scheme, by notification in the Official Gazette, for the purposes of issuance of directions by the dispute resolution panel, so as to impart greater efficiency, transparency and accountability by--
(a) eliminating the interface between the dispute resolution panel and the eligible assessee or any other person to the extent technologically feasible;
(b) optimising utilisation of the resources through economies of scale and functional specialisation;
(c) introducing a mechanism with dynamic jurisdiction for issuance of directions by dispute resolution panel.
(14C) The Central Government may, for the purpose of giving effect to the scheme made under sub-section (14B), by notification in the Official Gazette, direct that any of the provisions of this Act shall not apply or shall apply with such exceptions, modifications and adaptations as may be specified in the notification:
Provided that no direction shall be issued after the 31st day of March, [2024]. (14D) Every notification issued under sub-section (14B) and sub-section (14C) shall, as soon as may be after the notification is issued, be laid before each House of Parliament.] (15) For the purposes of this section,--
(a) "Dispute Resolution Panel" means a collegium comprising of three Principal Commissioners or Commissioners of Income-tax constituted by the Board for this purpose;
(b) "eligible assessee" means,--20
IT(TP) A No. 03/JP/2022 Yachiyo India Manufacturing Private Ltd. vs. DCIT
(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 92CA; and [(ii) any non-resident not being a company, or any foreign company.]"
12. From the plain reading of the provision of the Act and considering the undisputed fact that the direction of the ld. DRP issued on 23.12.2022 which was served to the AO in January 2022 and therefore, the assessment order should have been passed by end of February 2022, but ultimately in this case the assessment order is passed on 30.03.2022. As the facts of the present case and decision cited by the ld. AR of the assessee in the case of M/s. Sheel India Markets Private Limited Vs. ACIT in write petition no 3298 dated 2021 wherein the Hon'ble Bombay High Court has quashed the the assessment order as it is passed beyond the time line provided in Section 144C(13). Respectfully, following the said decision we hold that the entire assessment order is ex facie illegal.
13. Since, the appeal is decided only on the jurisdictional ground and the other grounds on merits are not adjudicated being academic in nature.
In the result the appeal of the assessee is allowed.21
IT(TP) A No. 03/JP/2022 Yachiyo India Manufacturing Private Ltd. vs. DCIT Order pronounced in the open court on 24/01/2023.
Sd/- Sd/-
¼ Mk0 ,l- lhrky{eh ½ ¼ jkBksM deys'k t;UrHkkbZ ½
(Dr. S. Seethalakshmi) (Rathod Kamlesh Jayantbhai)
U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member
Tk;iqj@Jaipur
fnukad@Dated:- 24/01/2023
*Ganesh Kr.
vkns'k dh izfrfyfi vxzfs 'kr@Copy of the order forwarded to:
1. The Appellant- Yachiyo India Manufacturing Private Limited, Alwar
2. izR;FkhZ@ The Respondent- DCIT, Circle-01, Alwar
3. vk;dj vk;qDr@ The ld CIT
4. vk;dj vk;qDr¼vihy½@The ld CIT(A)
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur
6. xkMZ QkbZy@ Guard File (IT(TP) A No. 03/JP/2022) vkns'kkuqlkj@ By order, lgk;d iathdkj@Asstt. Registrar