Income Tax Appellate Tribunal - Pune
Deputy Director Of Income-Tax,, Pune vs Sandvik Information Technology,, Pune on 28 December, 2016
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IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "B", PUNE
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BEFORE SHRI R.K. PANDA, AM
AND SHRI VIKAS AWASTHY, JM
आयकर अपील सं. / ITA No.128/PUN/2014
#नधा&रण वष& / Assessment Year : 2005-06
DDIT (International Taxation)-II, .......... अपीलाथ /
Pune Appellant
बनाम v/s
Sandvik Information Technology AB,
C/o. Sandvik Asia Pvt. Ltd.,
Mumbai Pune Road, .......... यथ /
Dapodi, Pune - 411 012 Respondent
PAN : AADCA5375J
C.O. No.10/PUN/2015
(Arising out of ITA No.128/PUN/2014)
#नधा&रण वष& / Assessment Year : 2005-06
Sandvik Information Technology AB, .......... अपीलाथ /
C/o. Sandvik Asia Pvt. Ltd., Appellant
Mumbai Pune Road,
Dapodi, Pune - 411 012
PAN : AADCA5375J
बनाम v/s
DDIT (International Taxation)-II, .......... यथ /
Pune Respondent
Assessee by : Shri Danesh Bafna
Revenue by : Shri Amol Kamat (CIT)
सन
ु वाई क तार ख / घोषणा क तार ख /
Date of Hearing :23.12.2016 Date of Pronouncement:28.12.2016
आदे श / ORDER
PER VIKAS AWASTHY, JM :
This appeal by the Department is against the directions of Dispute Resolution Panel, Pune dated 06-09-2013 for the Assessment Year 2005-06.
2ITA No.128/PUN/2014 and CO No. 10/PUN/2015
2. The assessee has also filed Cross Objections. The cross objections are time barred by 142 days. The assessee has filed petition for condonation of delay supported by an affidavit citing reasons causing delay. After perusal of the same, we are satisfied that the delay in filing of the cross objections is not willful or deliberate. The delay of 142 days in filing of the cross objections is condoned. The cross objections are admitted for adjudication and are disposed of alongwith the appeal.
3. The brief facts of the case as emanating from records are : The assessee is a non-resident company incorporated in Sweden. During the period relevant to the assessment year under appeal the assessee received fees for I.T. support service to the tune of Rs.2,43,74,970/-. The assessee filed its return of income for the A.Y. 2005-06 on dated 28-10-2005 declaring Nil income. The original assessment was completed u/s.143(1). Thereafter, the Assessing Officer issued notice u/s.148 of the Act on 30-03-2012. The reasons for reopening were communicated to the assessee. The prime reason for reopening was that as per the details furnished by M/s. Sandvia Asia Ltd. (in short "SAL") in report 3CEB it was found that payment of Rs.2,38,85,567/- was made to the assessee. According to the Assessing Officer the information derived from the report 3CEB of SAL constitutes tangible material and has reason to believe that income chargeable to tax for A.Y. 2005-06 has escaped assessment. Accordingly, the provisions of section 148 r.w.s. 147 of the Act were invoked. The Assessing Officer vide draft proposed assessment order dated 31-12-2012 passed u/s.144C r.w.s. 143(3) r.w.s.147 of the Act proposed the addition of Rs.2,43,74,790/-.
3ITA No.128/PUN/2014 and CO No. 10/PUN/2015
4. Aggrieved by the draft proposed assessment order dated 31-12-2012, the assessee filed objections before the DRP challenging the reopening of the assessment, as well as addition made on merits.
The DRP vide impugned order allowed the objections raised by the assessee and held the reopening to be invalid. Against the findings of DRP, the Department is in appeal before the Tribunal.
5. The revenue has assailed the order of DRP by raising following grounds :
"1. On the facts and circumstances of this case, the DRP was not correct in dismissing the re-opening of the assessment as not being in accordance with the provisions of the law and terming the same to be invalid.
2. On the facts and circumstances of this case, the DRP was not correct in holding that the reopening was not based on the fact that there was a reason to believe that the income had escaped assessment since no assessment u/s 143(3) was completed in the assessment year under consideration.
3. On the facts and circumstances of the present case, the DRP was not correct in observing that there was no material on the basis of which the belief is formed since the material for formation of belief was definite and not vague and fanciful. The re-opening of the assessment was well within the scope of provisions of Income-tax Act and the reasons recorded by the Assessing Officer before issuing notice ujs.148 are explicit and good enough to make out a fit case for re-opening of the assessment.
4. As per provisions of Section 144C(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." Thus, the DRP should not have issued directions, directing the AO to drop the assessment proceedings.
5. The appellant craves leave to add to or modify any of the grounds of appeal."
6. Shri Amol Kamat representing the Department submitted that the original assessment in the case of assessee was framed u/s.143(1). The Assessing Officer had no occasion to verify the details furnished by the assessee. Subsequently, when the Assessing Officer 4 ITA No.128/PUN/2014 and CO No. 10/PUN/2015 examined the records of SAL it transpired that the assessee has received a sum of Rs.2,38,85,567/- from the said company on account of I.T. support services. It is not a case of reappraisal of documents on record or change of opinion. Since the Assessing Officer had not formed any opinion at the time of original assessment, there is no question of change of opinion at all. The Ld. Departmental Representative in support of his submissions placed reliance on the decision of Hon'ble Supreme Court of India in the case of Dy.CIT Vs. Zuari Estate Development & Investment Co. Ltd. reported as 63 taxmann.com 177 and the decision of Hon'ble Bombay High Court in the case of Indian Hume Pipe Co. Ltd. Vs. ACIT reported as 16 taxmann.com 180 (Bom.).
The Ld. Departmental Representative further submitted that the DRP has no power to annul the assessment. A conjoint reading of provisions of section 144C(5) and (8) of the Act would show that the DRP has power to confirm, reduce or enhance the additions proposed in draft assessment order but does not have sweaping powers to set aside the assessment order.
7. On the contrary, Shri Danesh Bafna appearing on behalf of the assessee submitted that the information on which the Assessing Officer has relied for initiating reassessment proceedings was already furnished by the assessee in prescribed Form 3CEB filed along with the return of income. The Ld. Authorised Representative referred to statement of computation of total income at page 15 of the paper book to show that the assessee in 'Notes' had categorically mentioned that the assessee has charged for rendering information technology services to SAL and Walter Tools India Pvt. Ltd. during the year ended 5 ITA No.128/PUN/2014 and CO No. 10/PUN/2015 on 31-03-2005. Since the assessee has recovered its cost from SAL and Walter Tools India Pvt. Ltd., the receipts in the hands of the assessee are pure reimbursement of costs. The assessee has not earned any income during the previous year ended on 31-03-2005 and hence there is no taxable event in India. The services provided by assessee includes : data network services, backup and recovery services and other operational services.
8. The Ld. Authorised Representative further pointed that in Form 3CEB at pages 17 to 24 of the paper book the assessee has specifically declared in 'Note' that "Sandvik Asia Ltd. has made certain payments in respect of I.T. support services to the assessee on the basis of actual costs incurred by the assessee. The assessee believes that such receipts being in the nature of reimbursement of expenses cannot be regarded as its income."
The Ld. Authorised Representative submitted that similar note has been given by the assessee and SAL in their respective Form 3CEB. The AO has placed reliance on Form 3CEB of SAL to initiate reassessment proceedings. The information which the revenue is alleging to be fresh tangible material and outside the books of the assessee is infact already provided by the assessee at the time of filing of return. Form 3CEB of the assessee and Form 3CEB of SAL have similar notes in so far as the payment of I.T. support service is concerned. The assessee had made full disclosure in its return of income. Therefore, no new tangible material was available with the Assessing Officer for invoking the provisions of section 148 r.w.s. 147 of the Act. The Ld. Authorised Representative contended that the case of assessee is not based on 'change of opinion'. The contention 6 ITA No.128/PUN/2014 and CO No. 10/PUN/2015 of the assessee is that there is no tangible material for reopening and the Assessing Officer has no fresh material or reason to believe that income of the assessee has escaped assessment within the meaning of section 147 of the Act.
9. The Ld. Authorised Representative contended that the case laws on which the department has placed reliance are distinguishable on facts. In the case of DCIT Vs. Zuari Estate Development and Investment Company Ltd. (supra) the Assessing Officer came across certain documents which form tangible material for initiating reassessment proceedings. Whereas, in the present case the Assessing Officer had no fresh material to form such belief.
In the case of Indian Hume Pipe Co. Ltd. Vs. ACIT, the assessee at the time of filing original return of income had claimed exemption u/s.54EC without disclosing dates on which amounts were invested in specified securities. For claiming exemption u/s.54EC, date of investment is vital and material information for determining assessee's eligibility for claiming exemption. There was no full and proper disclosure by assessee of all material facts necessary for assessment. In such circumstances the Hon'ble Court upheld the reopening of assessment.
10. The Ld. Authorised Representative to reinforce his submissions placed reliance on the decision of Hon'ble Bombay High Court in the case of Khubchandani Healthparks (P.) Ltd. Vs. ITO reported as 68 taxmann.com 91 (Bom.). The Ld. Authorised Representative contended that the Hon'ble jurisdictional High Court in the said case has considered the judgment of Hon'ble Supreme Court of India in the case of CIT Vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd. reported as 291 7 ITA No.128/PUN/2014 and CO No. 10/PUN/2015 ITR 500, as well as the judgment in the case of DCIT Vs. Zuari Estate Development and Investment Company Ltd. (supra). The Hon'ble High Court after considering both the decisions held that notice issued u/s.148 would be without jurisdiction for absence of reason to believe that income has escaped assessment even in a case where assessment has been completed earlier by intimation u/s.143(1). Similar view has been taken by the Hon'ble Gujarat High Court in the case of Prakriya Pharmacem Vs. ITO reported as 66 taxmann.com
149. In the said case the Hon'ble High Court has considered the decisions of Hon'ble Apex Court in both the cases, i.e. Rajesh Jhaveri Stock Brokers Pvt. Ltd. (supra) and Zuari Estate Development and Investment Company Ltd. (supra). The Ld. Authorised Representative further placed reliance on the decision of Hon'ble Delhi High Court in the case of Orient Craft Ltd. reported as 354 ITR 536 to buttress his submissions that in the absence of tangible material, reassessment proceedings initiated by the Assessing Officer are not sustainable in the eye of law even if the original assessment was made u/s.143(1) of the Act.
11. In respect of ground No.4, the Ld. Authorised Representative submitted that the DRP has inherent power to annul assessment. The Ld. Authorised Representative submitted that perusal of section 144C(5) would show that the DRP has power to issue such directions as "it thinks fit" for the guidance of Assessing Officer to complete the assessment. The power to issue directions includes power to annul or modify the assessment. The Ld. Authorised Representative in support of his submissions placed reliance on the decision of Hon'ble Bombay High Court in the case of Vodafone India Service Pvt. Ltd. Vs. UOI & others reported as 359 ITR 133 (Bombay) and subsequently followed 8 ITA No.128/PUN/2014 and CO No. 10/PUN/2015 in Vodafone India Services Pvt. Ltd. Vs. ACIT reported as 361 ITR 531(Bom.) (hereinafter referred to as "Vodafone-II case")
12. We have heard the submissions made by the representatives of rival sides and have perused the orders of authorities below. We have also considered various decisions on which reliance has been placed by both the sides. Two issues have emerged from the grounds raised in the appeal and the submissions made by the representatives of both the sides :
(a) whether the reassessment proceedings initiated by the Assessing Officer are valid and sustainable; and
(b) whether the DRP has power to annul assessment.
13. The Assessing Officer initiated reassessment proceedings on the basis of details furnished by SAL (one of the group company of assessee) in Report 3CEB. As per the information derived from the documents of SAL, payment of Rs.2,38,85,567/- has been made to the assessee on account of I.T. support service fees. The Assessing Officer treated the said information as tangible material and initiated proceedings u/s.148 r.w.s. 147 of the Act against the assessee. The case of the Department is that on the basis of above said information the Assessing Officer has "reason to believe" that income of assessee for A.Y. 2005-06 has escaped assessment.
14. The Ld. Authorised Representative has brought to our notice that the information derived from alleged tangible material for initiating reassessment proceedings was already furnished by the assessee in Form 3CEB filed along with return of income. The assessee has placed on record its return of income along with the computation of income and Form 3CEB in the form of paper book. 9 ITA No.128/PUN/2014 and CO No. 10/PUN/2015
The relevant extract of Form 3CEB furnished by assessee alongwith its return of income giving details of transactions with Associated Enterprises are reproduced hereinunder :
Sr. Name and address of Description of Amount paid/received or Method used for No. the associated such mutual payable/receivable in the determining the enterprise and whom agreement or transaction arm's length the international arrangement price (see section transaction has been 92(c)(1) entered into As per books As computed by of account the assessee having regard to the arm's length price Clause 12(a) Clause 12(b) Clause 12(c) Clause 12(d) 1 Sandvik Asia Limited, Reimbursement 23 885 567 23 885 567 Not Applicable Mumbai Pune Road, of IT support (Refer Note 1) Dapodi, Pune service fees 411012 2 Walter Tools India Reimbursement 489 403 489 403 Not Applicable Private Limited, of IT support (Refer Note 2) Mumbai Pune Road, service fees Dapodi, Pune 411012 Note 1 : Sandvik Asia Limited has made certain payments in respect of IT support services to the assessee on the basis of actual costs incurred by the assessee. The assessee believes that such receipts being in the nature of reimbursement of expense cannot be regarded as its income.
In this regard, the Asst. Commissioner of Income-tax, Circle-8, has, vide his order dated 14 May 2004 issued under section 195 of the Income-tax Act, 1961, authorized Sandvik Asia Limited to make payment to the assessee for such services without deducting tax at source.
Note 2: Walter Tools India Private Limited has made certain payments in respect of IT support services to the assessee on the basis of actual costs incurred by the assessee. The assessee believes that such receipts being in the nature of reimbursement of expenses cannot be regarded as his income."
15. A comparative study of Form 3CEB of SAL on the basis of which the Assessing Officer has invoked the provisions of section 148 r.w.s 147 of the Act and Form 3CEB furnished by the assessee reveal that similar 'Note' has been made in Form 3CEB of both the companies. Further, the fact that the assessee has charged for the services rendered is also mentioned in computation sheet. Thus, it cannot be said that any fresh tangible material has come to the knowledge of the Assessing Officer. The material on the basis of which the Assessing Officer has initiated reassessment proceedings was already placed on 10 ITA No.128/PUN/2014 and CO No. 10/PUN/2015 record by the assessee at the time of filing of return of income. The assessee had made full disclosure of the receipts. The said receipts are claimed by the assessee to be reimbursement of expenditure and not as income. It is clearly evident from records that the assessee had already made disclosure of the receipts from SAL and Walter Tools India Pvt. Ltd. at the time of filing of return of income. The Assessing Officer has erred in invoking the provisions of section 148 r.w.s. 147 of the Act, for reopening on the basis of same information derived from the documents of group concern, i.e., SAL.
The Assessing Officer can have ' reason to believe' for reopening assessment if there is any 'tangible material' in his possession. In the present case we are of considered view that the Assessing Officer had no new information or tangible material to come to the conclusion that there is escapement of income. If the Assessing Officer chooses to close his eyes on the material/documents furnished by assessee and starts scanning the documents of other concerns and in the process comes across some information about assessee, which the assessee has already disclosed, such information cannot partake the character of "new tangible material".
16. In so far contentions of the department that the Assessing Officer did not get opportunity to apply his mind on the documents furnished by assessee as the original assessment was completed u/s.143(1), we do not find any force in the said contentions. The Hon'ble Delhi High Court in the case of CIT Vs. Orient Craft Ltd. (supra) has held that expression, 'reason to believe' does not have different meaning, where assessments are framed u/s.143(1) and 11 ITA No.128/PUN/2014 and CO No. 10/PUN/2015 where assessment is completed u/s.143(3) of the Act. The relevant extract of the findings of the Hon'ble High court are as under :
"13. Having regard to the judicial interpretation placed upon the expression "reason to believe", and the continued use of that expression right from 1948 till date, we have to understand the meaning of the expression in exactly the same manner in which it has been understood by the courts. The assumption of the Revenue that somehow the words "reason to believe" have to be understood in a liberal manner where the finality of an intimation under Section 143(1) is sought to be disturbed is erroneous and misconceived. As pointed out earlier, there is no warrant for such an assumption because of the language employed in Section 147; it makes no distinction between an order passed under section 143(3) and the intimation issued under section 143(1). Therefore it is not permissible to adopt different standards while interpreting the words "reason to believe" vis-à-vis Section 143(1) and Section 143(3). We are unable to appreciate what permits the Revenue to assume that somehow the same rigorous standards which are applicable in the interpretation of the expression when it is applied to the reopening of an assessment earlier made under Section 143(3) cannot apply where only an intimation was issued earlier under Section 143(1). It would in effect place an assessee in whose case the return was processed under Section 143(1) in a more vulnerable position than an assessee in whose case there was a full-fledged scrutiny assessment made under Section 143(3). Whether the return is put to scrutiny or is accepted without demur is not a matter which is within the control of assessee; he has no choice in the matter. The other consequence, which is somewhat graver, would be that the entire rigorous procedure involved in reopening an assessment and the burden of proving valid reasons to believe could be circumvented by first accepting the return under Section 143(1) and thereafter issue notices to reopen the assessment. An interpretation which makes a distinction between the meaning and content of the expression "reason to believe" in cases where assessments were framed earlier under Section 143(3) and cases where mere intimations were issued earlier under Section 143(1) may well lead to such an unintended mischief. It would be discriminatory too. An interpretation that leads to absurd results or mischief is to be eschewed."
17. The Hon'ble Bombay High Court in the case of Khubchandani Healthparks (P) Ltd. Vs. ITO (supra) has reiterated that notice issued u/s.148 would be without jurisdiction for absence of 'reason to believe' that income has escaped assessment even in case where assessment has been completed earlier by intimation u/s.143(1) of the Act. The Hon'ble High Court while holding so, considered the decisions rendered by the Hon'ble Apex Court in the case of CIT Vs. Rajesh Jhaveri Stock Brokers (P) Ltd. reported as 291 ITR 500 and 12 ITA No.128/PUN/2014 and CO No. 10/PUN/2015 CIT Vs. Zuari Estate Development & investment Co. Ltd. (supra). The relevant extract of the judgment rendered in the case of Khubchandani Healthparks (P) Ltd. Vs. ITO (supra) reads as under :
"3. On hearing the parties, we find that the Apex Court in Assistant Commissioner of Income Tax Vs. Rajesh Jhaveri Stock Brokers P. Ltd. 291 ITR 500, had an occasion to deal with identical facts, namely reopening Notices issued under Section 148 of the Act where assessment is completed earlier by Intimation under Section 143(1) of the Act. In the above case, the Apex Court held that a Notice for-reopening an assessment under Section 148 of the Act could only be justified if the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment. This decision of the Supreme Court in Rajesh Jhaveri Stock Brokers P. Ltd. (Supra) has not been disturbed by the Apex Court in Zuari Estate Development and Investment Co. Ltd. (Supra). In fact, the Supreme Court in Zuari Estate Development and Investment Co. Ltd. (Supra) makes a specific reference to its decision in Rajesh Jhaveri Stock Brokers P. Ltd. (Supra) to hold that where the assessment has been completed by Intimation under Section 143(1) of the Act, there can be no question of change of opinion.
4. We further find that the Apex Court in Zuari Estate Development and Investment Co. Ltd. (Supra) has not dealt with the issue whether before invoking Section 148 of the Act, the Assessing Officer must have reason to believe that income chargeable to tax has escaped assessment, where the original assessment has been completed by Intimation under Section 143(1) of the Act. The Revenue is trying to infer that because the Apex Court in Zuari Estate Development and Investment Co. Ltd. (Supra) has set aside the order of this Court and restored the issue to be decided on merits by the Tribunal, it must be inferred that the Apex Court had come to the conclusion that reason to believe was not necessary for issuing reassessment Notices where the regular assessment was completed under Section 143(1) of the Act. As rightly pointed out by Mr. Pardiwalla, it can equally be inferred that the Apex Court in the above case had come to the conclusion that there is reason to believe that income had escaped assessment and consequently restored the issue to the Tribunal to decide the reassessment proceedings on merits."
18. Thus, in view of the facts of the present case and the case laws discussed above we hold that the Assessing Officer had no tangible material to justify his "reason to believe" that income has escaped assessment. The reassessment proceedings initiated by the Assessing Officer u/s.147 are without jurisdiction and hence, are not sustainable. Accordingly ground No.1 to 3 raised by Department in appeal are dismissed.
13ITA No.128/PUN/2014 and CO No. 10/PUN/2015
19. The second issue in appeal is, Whether the DRP has power to annual assessment. Before proceeding further to decide the issue, it would be relevant to first see the relevant provisions of the Act which define the powers of DRP. Reference to DRP is made u/s.144C. The scope of DRPs jurisdiction is envisaged in subsection (5) to (8) of section 144C. For the sake of quick reference, the relevant provisions of section 144C are reproduced hereinunder :
"(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." A perusal of the provisions show that DRP on receipt of objections shall issue such directions, as it thinks fit after considering 14 ITA No.128/PUN/2014 and CO No. 10/PUN/2015 the relevant documents and records as specified in sub-section (6). A further study of sub-section (8) clarifies that the DRP has power to confirm, reduce or enhance the variations proposed in the draft order, but has no power to set aside any proposed variation or issue any directions to pass assessment order after further enquiry.
20. The Hon'ble Bombay High Court in the case of Vodafone India Services Pvt. Ltd. Vs. UOI and others (supra) and Vodafone-II case had explained the provisions of section 144C relating to the powers of DRP in adjudicating various issues including jurisdictional issues. The Hon'ble High Court held that the DRP has wide powers to adjudicate objections filed by the assessee. The DRP's power to confirm would also include the power not to confirm. The relevant extract of the judgment rendered by Hon'ble Apex Court in the case of Vodafone India Services Pvt. Ltd. Vs. UOI and others is as under :
"85. Once this is accepted the fallacy in the petitioner's interpretation of section 144C(8) is clear. The words " the variations proposed in the draft order" used in sub-section (8) obviously refer to the variations in the income or loss return in the draft assessment order referred to in sub- section (1)of section 144-C. Thus, sub-section (8) of section 144-C empowers the DRP to confirm, reduce or enhance the variations proposed in the draft order as a whole and not the variations in the arm's length price of the international transactions alone. The DRP, therefore, is entitled to confirm, reduce or enhance any variations in the draft order and the draft order, as we have held, may contain variations in the income or loss return generally.
86. We also agree with the Advocate General that if the assessee chooses to file an objection before the DRP, he must do so in respect of the entire draft order and not merely in respect of a part thereof. In other words, once an assessee opts to file objections before the DRP he cannot restrict the same only insofar as it relates to the international transactions. A view to the contrary would render the entire assessment proceedings unworkable. The assessee cannot possibly have a part of the assessment order decided by the DRP and a part of it decided in an appeal before the CIT(Appeals). There is, in any event, no provision for the same in the Act.15 ITA No.128/PUN/2014 and CO No. 10/PUN/2015
87. Moreover, the DRP has vide jurisdiction as is evident, inter-alia, from sub-section (8) of section 144-C. The DRP is required to issue directions under sub-section (5) after considering a variety of matters mentioned in sub-section (6) of section 144-C. First, clause (a) of sub-section (6) does not restrict the DRP's consideration to any particular aspect or aspects of the draft order. Clause (b) of sub-section (2) of section 144-C does not restrict the nature of the objections that can be filed before the DRP. Similarly, clause (b) of sub-section (6) of section 144-C does not restrict the DRP's consideration to any particular type of the objections. It merely refers to "objections filed by the assessee". Sub-section (6)(c) does not limit the DRPs consideration of the evidence to any particular aspect or issue. It refers in general to the "evidence furnished by the assessee". Clause (d) also does not limit the consideration by the DRP to any particular aspect of the report of the AO or the TPO. Nor does it limit the consideration by the DRP to the nature of the report relating to the draft assessment order.
Sub-section (6) and especially clauses (a) and (b) thereof illustrate that the DRP would also be entitled to consider whether or not the TPO was entitled to exercise jurisdiction.
88. This view is not repugnant to the words "confirm, reduce or enhance" in section 144C(8). The suggestion that these three words refer only to the valuation or quantification of the arm's length price is unfounded. A reduction or an enhancement indeed relate to the valuation or quantification. The word 'confirm', however, is much wider. The DRP's power to confirm would include the power not to confirm. It would include the power to annul the variations or any of them. The doubt, if any, is set to rest by the use of the words "may confirm". Once the entire draft order is before the DRP for confirmation, it is axiomatic that it would have the power to consider the entire draft assessment order, including the question as to whether the unreported transactions are international transactions or not or even whether the TPO considered was a transaction at all.
The Division Bench of the Gujarat High Court in Veer Gems (supra) also held that the issue whether there was an international transaction or not can also be examined by the DRP.
89. This view, in fact, protects the right of an assessee who would otherwise be deprived of a valuable right of one appeal. An appeal against the order of the DRP lies only to the ITAT. The Legislature could hardly be expected to have intended to deprive an assessee of a valuable right of an appeal without express words to that effect. We do not suggest that the Legislature is not competent to do so. We are not inclined, however, to ascribe to the Legislature an intention to deprive an assessee of such a right in the absence of any provision or even words to that effect."
Again in Vodafone-II case, where the petitioner/assessee had contended that the powers of DRP are limited and the DRP has no power to set aside any proposed variation, the Hon'ble High Court 16 ITA No.128/PUN/2014 and CO No. 10/PUN/2015 reiterated the law laid down in Vodafone India Services Pvt. Ltd. Vs. UOI (supra) and held :
"28. Thus it would be open to DRP to consider all issues, including the jurisdictional issue of no income arising and/or affected by the International Transaction. This the DRP can do by issuing final directions under section1 44C(5) to the Assessing Officer or before issuing final directions, by issuing directions under section 144C(7) to the assessing officer to make a further enquiry and report."
21. In view of the law laid down by the Hon'ble Bombay High Court we answer the second question in affirmative. Thus, it can be safely construed that the DRP has power to adjudicate jurisdictional issues and has also has power to set aside any proposed variations.
Accordingly the ground No.4 raised in the appeal by Department is dismissed.
22. Before parting with the order, we would like to observe that the Department in Vodafone-II case had taken a stand that the DRP has got wide powers. In the written submissions before the Hon'ble High Court, on the issue the Department had submitted :
"25. On the above issue, the revenue has submitted in their written submissions as under :
"The petitioner is not correct in contending that the powers conferred in sub-section (5) of Section 144C to the DRP are curtailed by its sub-section (8), particularly when fetters are put on the DRP 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. In this context, it is submitted that a purposive construction should be given to this sub-
section by harmoniously reading the entire scheme of section 144C, including sub-sections (6, (7) and (12) and sub-section (13). It is further submitted that fetter to set aside the issue of directions is limited to further enquiry by the AO which can be read with sub-section (13) so that the completion of assessment is expedited within available limited time of nine (9) months."
17ITA No.128/PUN/2014 and CO No. 10/PUN/2015 In the present case, the Department has taken just the opposite stand. Here, the Department has contended that the powers of DRP are not wide enough to set aside the assessment. The Department cannot be allowed to approbate and reprobate on same issue in different cases, before different forums. The Department while defending/assailing the orders of the authorities below is oscillating between two extreme views.
23. The assessee in cross objections has raised the following solitary ground :
"Without prejudice to the relief granted by the Hon'ble Dispute Resolution Panel ['the DRP"] in relation to reopening of the assessment proceedings beyond four years, the Learned DRP erred in not adjudicating upon Objection No.2 being receipts for IT Support Services amounting to INR 2,43,74,790.
It is further prayed that the Hon'ble Appellate Authority is entitled to consider the claim and has the power to adjudicate the same in accordance with law."
Since, the appeal of Revenue has been dismissed, the ground raised by assessee in CO has become academic and hence requires no adjudication. Accordingly the CO is dismissed as infructuous.
24. In the result, the appeal of Department and the Cross Objections of assessee are dismissed.
Order pronounced on Wednesday, the 28th day of December, 2016.
Sd/- Sd/-
(R.K. PANDA) (VIKAS AWASTHY)
लेखा सद य / ACCOUNTANT MEMBER या#यक सद य / JUDICIAL MEMBER
पण
ु े / Pune; दनांक Dated : 28 December, 2016.
th
Satish
18
ITA No.128/PUN/2014 and
CO No. 10/PUN/2015
आदे श क) *#त,ल!प अ-े!षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent
3. CIT(A)-IT/TP, Pune
4. CIT- IT/TP, Pune
5. "वभागीय %त%न&ध, आयकर अपील य अ&धकरण, "बी" / DR, ITAT, "B" Pune;
6. गाड+ फाईल / Guard file.
आदे शानस ु ार/ BY ORDER,स // True Copy // //True Copy// व-र.ठ %नजी स&चव / Sr. Private Secretary आयकर अपील य अ&धकरण ,पण ु े / ITAT, Pune