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Judgment
PER C.N. PRASAD, JM,
This appeal is filed by the assessee against the final assessment order dated 30.09.2021 passed u/s.254/144C(5)/143(3) r.w.s. 144C of the Act giving effect to the directions of the DRP dated 08.09.2021 passed u/s.144C(5) of the Act.
The assessee has raised following grounds in its appeal :-
1.That on facts and circumstances of the case and in law, the Ld. AD erred in assessing the income of the Appellant under the normal provisions of the Act at INR 14,74,90,025, in pursuance to the directions of the Learned Dispute Resolution Panel ("Ld. DRP"), as against the returned loss of INR 2,37,85,638.
2.That on the facts and in the circumstances of the case and in law, the order passed by the Ld. AO is bad in law and void ab-initio as the same has been passed in pursuance to the Ld. DRP directions dated September 8, 2021 (issued with inordinate delay) which are equally bad in law. and thus, the orders of the lower authorities are liable to be quashed as barred by limitation.
3.That on the facts and circumstances of the case and in law, the final assessment order dated September 30, 2021 passed by the Ld. AO is bad in law and liable to be quashed for the reason that the notice of demand and tax computation which is a sine qua non for completion of the assessment proceeding, has not been provided to the Appellant and therefore, the final assessment proceedings cannot be held to be complete and the statutory timeline to complete has also elapsed.
4.That on the facts and circumstances of the case and in law, the final assessment order passed by the Ld. AO dated September 30, 2021 is barred by law of limitation as the Ld. AO has not determined the tax liability and the mandatory notice of demand along with computation of tax was neither attached with the final assessment order nor uploaded on the income tax portal, thus, the action of the Ld. AO is void ab-initio and the final assessment order deserves to be quashed.
5.That on the facts and in the circumstances of the case and in law, the Ld. AO/DRP erred in mechanically repeating similar orders despite specific direction of the Hon'ble Income Tax Appellate Tribunal in the 1st round of proceedings for passing a speaking order wherein an adjustment of INR 17,14,57,257 was made on account of international transactions undertaken by the Appellant.
6.That on the facts and in the circumstances of the case and in law, the Ld. AD/DRP / ΤΡΟ erred in rejecting transaction-by-transaction benchmarking approach fumished by the Appellant during assessment proceedings and erroneously using Transactional Net Margin Method (TNMM") on an aggregate basis.
7.That on the facts and in the circumstances of the case and in law, the Ld. AO/DRP/TPO erred In disregarding the benchmarking undertaken by the Appellant using Comparable Uncontrolled Price ("CUP") method with respect to import of raw materials from associated enterprises and Resale Price Method ("RPM") for benchmarking the trading segment of the Appellant.
8.That on the facts and in the circumstances of the case and in law, the Ld. AO/DRP/TPO erred in rejecting the benchmarking analysis conducted by the Appellant in relation to payment of service fee, considering Appellant's associated enterprise as the tested party.
9.That on the facts and in the circumstances of the case and in law, the Ld. AO/DRP/TPO erred in not restricting the adjustment made to the value of international transaction proportionately thereby, making an adjustment on the entire cost base of the Appellant including third party transactions
10.That on the facts and in the circumstances of the case and in law, the Ld. AO has erred in not allowing set-off of INR 1,81,594 reported under the head income from other sources while computing the assessed income for AY 2006-07.
11.That on the facts and in the circumstances of the case and in law, the Ld. AO has erred in initiating penalty proceedings under section 271(1)(c) of the Act.”
The ld. Counsel for the assessee at the outset referring to ground No.2 of grounds of appeal submitted that the order passed by the AO is bad in law and void ab initio as the same was passed pursuant to the directions of the DRP dated 08.09.2021 which was issued with inordinate delay and therefore, the directions of DRP as well as assessment order passed are liable to be quashed as barred by limitation.
The Ld. Counsel for the assessee submits that the assessee for the assessment year under consideration filed its return of income declaring loss of Rs.2,39,67,232/- and the case was selected for scrutiny by issue of notice u/s.143(2) of the Act. The Ld. Counsel submitted that a reference was made to the transfer pricing officer for determining arm’s length price u/s.92CA(3) in respect of international transactions entered into by the assessee during the financial year 2005-06 relevant to the assessment year 2006-07.
The TPO passed order dated 16.10.2009 determining the difference in arm’s length price of international transactions of the assessee with its associated enterprises not accepting the submissions of the assessee and an adjustment of Rs.18,72,68,697/- was proposed in the draft assessment order and the assessee had filed objections before the DRP. The DRP vide order dated 27.09.2010 had decided the matter and directed the AO to substitute the addition as per TPO’s letter to an extent of Rs.17,14,57,257/-. Accordingly, final assessment order was passed on 07.10.2010 u/s.143(3) r.w.s. 144C of the Act determining the income of the assessee at Rs.14,74,90,025/-.
The Ld. Counsel submitted that aggrieved by this assessment order the assessee preferred an appeal before this Hon’ble Tribunal and the Tribunal vide order dated 11.02.2011 in ITA No. 4999/Del/2010, the matter was restored back to the file for the DRP for considering all the objections of the assessee and pass a speaking order. The Ld. Counsel for the assessee submits that thereafter the revenue filed miscellaneous application before the Tribunal in 2019 against the order of the Tribunal dated 11.02.2011, which was dismissed by order dated 03.12.2019 in M. A. No. 638/Del/2019. The ld. Counsel for the assessee submits that thereafter the DRP had passed directions on 08.09.2021 after a period of more than 10-1/2 years and pursuant to such directions an assessment order was passed on 30.09.2021 determining the income of the assessee at Rs.14,74,70,025/- as was originally assessed in the assessment order passed on 07.10.2010.
The Ld. Counsel for the assessee submitted that even though there are no time limits specified in the Act to pass order by the DRP in the remand proceedings by the Tribunal a reasonable period should be adopted in passing directions. The Ld. Counsel for the assessee drawing analogy from the decisions rendered in the context of the provisions u/s.201 of the IT Act and the decisions rendered there in, especially the decisions of the Hon’ble Delhi High Court in the case of Bharti Airtel Ltd. Vs. Union of India (2017) (245 taxmann 80) and CIT Vs. NHK Japan Broadcasting Corporation (305 ITR 137) submitted that reasonable time of four years should be adopted in a case where no limitation is prescribed.
On the other hand the Ld. DR submitted that no time limit is prescribed in the Act to dispose of the objections of the assessee by the DRP when the matter is restored by the Tribunal and therefore, in the absence of any time limit the directions passed by the DRP even though with a delay such directions as well as final assessment order are valid in the eyes of law.
Heard rival contentions and perused the orders of the authorities below. In this case we find that the Tribunal by order dated 11.02.2011 restored the matter to the file of the DRP for considering all the objections of the assessee in a comprehensive manner and pass a speaking order since the DRP did not consider all the objections of the assessee while disposing of the objections. Thereafter, after a period of more than 10-1/2 years the DRP vide order dated 08.09.2021 gave directions on the objections and pursuant to such direction of DRP dated 08.09.2021 the AO passed final assessment order on 30.09.2021. Therefore, we observe that there is inordinate delay i.e. more than 10-1/2 years in disposing of the objections of the assessee by the DRP and passing of final assessment order by the AO pursuant to such inordinate delay of directions.
It is the contention of the assessee that since there is inordinate delay of more than 10-1/2 years in giving the directions and passing final assessment order such proceedings are bad in law and void ab initio. We find some merit in the contentions of the assessee. Even though there is no time limit prescribed in the Act in disposing of the objections of the assessee by the DRP in a setaside proceedings by the Tribunal, in our considered view such directions have to be passed within a reasonable period of time.
In the case of Bharti Airtel Vs. Union of India (supra) the Hon’ble Delhi High Court following the decisions in the case of CIT Vs. NHK Broadcasting Corporation (305 ITR 137) (Delhi) and CIT Vs. Commissioner of Income Tax v. Hutchison Essar Telecom Ltd (323 ITR 230) (Delhi) and Vodafone Essar Mobile Services Ltd. v. Union of India (2016) 385 ITR 436 (Delhi), held that a reasonable period of limitation was to be read into the Act for completion of the proceedings. The Hon’ble Delhi High Court also held that in the absence of any limitation period in respect of payments to non- residents u/s.195 r.w.s. 201 of the Act, proceedings could be initiated within the reasonable time.
In the case of CIT Vs. NHK Japan Broadcasting Corporation (305 ITR 137) (Delhi), the Hon’ble Delhi High Court observed as under :-
“Section 153(1)(a) prescribes the time-limit for completing the assessment which is two years from the end of the assessment year in which the income was first assessable. It is well-known that the assessment year follows the previous year and therefore, the time-limit would be three years from the end of the financial year. This seems to be a reasonable period as accepted under section 153. [Para 18]
Even though the period of three years would be a reasonable period as prescribed by section 153 for completion of proceedings, yet the Tribunal has in a series of decisions, taken the view that four years would be a reasonable time for initiation of action, in a case where no limitation is prescribed. [Para 19]
The rationale for this seems to be quite clear. If there is a time-limit for completing the assessment, then the time- Limit for initiating the proceedings must be the same, if not less. Nevertheless, the Tribunal has given a great period for commencement or initiation of proceedings. [para 20]
The Court was not inclined to disturb the time-limit of four years prescribed by the Tribunal. In terms of the decision of the Supreme Court in State of Punjab v. Bhatinda District co-op Mil (P.) Union Ltd. [2007] 11 SCC 363, action must be initiated by the competent authority under the Act where no limitation is prescribed, as in section 201 within that period of four years. [para 21]”
We observed that provisions of sub section (3) of section 201 of the Act were amended placing the time limit of six years for initiation of proceedings u/s.201 of the Act w.e.f. 01.04.2010. The assessment year involved in this case is assessment year 2006-07 and even assuming that the sub section (3) is applicable for A.Y. 2006-07, the proceedings cannot be initiated after the expiry of six years from the end of the financial year in which payment is made or credit is given, the directions passed by the DRP after lapse of more than 10-1/2 years is certainly not a reasonable period and it can be said that the proceedings of DRP/ AO are clearly barred by limitation. Thus, respectfully following the above decisions of the Hon’ble High Courts and applying ratio therein we hold that the directions of the DRP dated 08.09.2021 and the final assessment order passed by the AO on 30.09.2021 giving effect to such directions of the DRP are bad in law, void ab inito and barred by limitation. Ground No.2 of grounds of appeal is allowed.
Since we have held that the final assessment order and the DRP directions are barred by limitation, all other grounds need not be adjudicated at this stage as they become academic in nature and the same are left open.
In the result, the appeal of the assessee is partly allowed as indicated above and the stay application filed by the Assessee in S.A. No. 588/Del/2025 in ITA No.81/Del/2022 is dismissed as infructous.