AVL TECHNICAL CENTRE PVT. LTD.,NEW DELHI V. DCIT, CIRCLE-3(2), NEW DELHI

ITA 7705/DEL/2019

AI Insights

The case involves AVL Technical Private Limited appealing against the order of the Commissioner of Income Tax (Appeals)-44, New Delhi, which was itself an appeal against the assessment order passed by the Deputy Commissioner of Income Tax, Circle-3(2), New Delhi for the assessment year 2008-09. The primary contention was the violation of section 144C of the Income Tax Act, 1961, which mandates the issuance of a draft assessment order in cases where a variation prejudicial to the assessee is proposed. The Tribunal also examined the transfer pricing adjustments made by the Transfer Pricing Officer (TPO) and the subsequent actions taken by the Assessing Officer (AO) and CIT(A). The Tribunal's decision was influenced by several judicial precedents emphasizing the mandatory nature of issuing a draft assessment order during remand proceedings.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 791991 (ITAT-DELHI)
• Duration Of Justice: 6 year(s) 2 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-12-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Assessment Year: 2008-2009
• Appeal Filed On: 20-09-2019
• Other Referred Cases: Principal CIT vs. Sumitomo Corporation, Control Risk India (P) Ltd. v DCIT, Additional CIT v. Nokia India (P.) Ltd
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S.K. JHADAV
• Assessee Lawyers: VISHAL KALRA; TARANJEET KAUR
• Keywords: Transfer pricing; International transaction; Principle of natural justice; Procedural lapse
• Section: 143(3); 133(6); 14A

Judgement Text

"ITA No. 7705_DEL_2019 AVL TECHNICAL CENTRE PVT LTD VS DCIT, CIRCLE-3(2) 1 | P a g e IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘H’, NEW DELHI BEFORE MS. MADHUMITA ROY, JUDICIAL MEMBER & MRS. RENU JAUHRI, ACCOUNTANT MEMBER ITA No. 7705/DEL/2019 Asstt. Year: 2008-09 AVL Technical Private Limited, CSC, C-9, Vasant Kunj, New Delhi-70 Vs DCIT Central Circle-3(2) New Delhi (APPELLANT) (RESPONDENT) PAN No. AADCA1470C Assessee by : Shri Vishal Kalra, Adv. & Ms. Taranjeet Kaur, , CA Revenue by : Shri S.K. Jhadav, CIT( DR) Date of Hearing: 09.12.2025 Date of Pronouncement: 11.12.2025 ORDER Per Renu Jauhri, Accountant Member: This appeal is filed by the Assessee against the order of the Commissioner of Income Tax (Appeal)-44, New Delhi [for short, Ld. CIT (A)], in the Appeal No. 03/2019-20/CIT(A)-44, order dated 28.06.2019. The Assessment was framed by Ld. Deputy Commissioner Income Tax [for short, Ld. DCIT], Circle-3(2), New Delhi for the AY 2008-09, u/s 254/143(3) r.w.s 144C of the Income Tax Act, 1961 (hereinafter referred to as “the Act”), vide his order dated 30.12.2016. Printed from counselvise.com ITA No. 7705_DEL_2019 AVL TECHNICAL CENTRE PVT LTD VS DCIT, CIRCLE-3(2) 2 | P a g e 2. The Assessee has raised following grounds of Appeal which are reproduced as below: “ (1) That on the facts and circumstances of the case and in law, the assessment order dated December 30, 2016 passed by the Assessing Officer (“AO”) is bad in law and void ab initio as the same has been passed in violation of provisions of section 144C of the Act. (2) That on the facts and circumstances of the case and in law, the AO/ Transfer Pricing Officer (TPO\") have erred in making the transfer pricing adjustment amounting to INR 1,50,55,862 in respect of international transactions entered by the Appellant with its Associated Enterprises (\"AE's\"). The CIT(A), further, erred in giving partial relief to the Appellant. (3) That on the facts and circumstances of the case and in law, the CIT(A)AOTPO have erred in rejecting the benchmarking analysis adopted by the Appellant using comparable companies engaged in IT enabled services (\"ITes\") / Business Process Outsourcing (\"BPO\") sector and re- characterising the functional profile of the Appellant as a technical consultancy service provider. (4) That on the facts and circumstances of the case and in law, the CIT(A)VAOTPO have erred in disregarding the benchmarking analysis adopted by the Appellant; wherein the international transactions (except payment of interest on external commercial borrowings) were benchmarked using companies engaged in IT enabled services (\"ITes\") / Business Process Outsourcing (\"BPO\") sector as comparable companies. (5) That on the facts and circumstances of the case and in law, the CIT(A) erred in summarily upholding the action of AO/ TPO to benchmark the international transactions undertaken by the Appellant , holding the same to be technical consultancy service provider on the basis of conjectures and incorrect appreciation of functional, asset and risk (\"FAR\") profile of the Appellant. (6) That on the facts and circumstances of the case, the CIT(A)/AO/TPO have erred in arbitrarily rejecting the Printed from counselvise.com ITA No. 7705_DEL_2019 AVL TECHNICAL CENTRE PVT LTD VS DCIT, CIRCLE-3(2) 3 | P a g e comparable companies selected by the Appellant for benchmarking its international transactions and further erred in arbitrarily selecting new companies, which were functionally dissimilar. (7) That on the facts and circumstances of the case and in law, the CIT(A)VAO/ TPO have erred in not granting the claim of the Appellant for capacity utilisation adjustment, without appreciating the submissions filed by the Appellant in this regard. (8) The ClT (A) has erred in upholding the action of the AO/ TPO to use unaudited data requisitioned by taking recourse to the provisions of section 133(6) of the Act, without appreciating that the same is in complete violation of the fundamental principles of natural justice since, (a) information which was not available with the Appellant was used; and (b) no opportunity was provided to cross-examine the companies whose information has been used. (9) That on the facts and circumstances of the case and in law, the AO/ TPO have erred in considering and the CIT(A) erred in upholding the use of single year financial data of the comparable companies, without taking into consideration the fact that that the same was not available in the public domain at the time of conducting the transfer pricing study.” 3. Brief facts of the case are that the assessee filed return for A.Y. 2008-09 on 25.09.2008, declaring a loss of Rs. 3,46,86,270/- . The case was taken up for scrutiny and a reference was made to the TPO as per provisions of section 92CA(1) of the Act by the Ld. AO. The assessment was completed u/s 143(3) at an assessed loss of Rs. 98,18,940/-. Besides addition of Rs. 24,77,365/-, as proposed by the TPO, addition on account of disallowance u/s 14A amounting to Rs. 62,168/- and, on account of provision for diminution in value of investment amounting to Rs. 34,797/- were made. Aggrieved, the assessee filed Printed from counselvise.com ITA No. 7705_DEL_2019 AVL TECHNICAL CENTRE PVT LTD VS DCIT, CIRCLE-3(2) 4 | P a g e an appeal before the Ld. CIT(A), who partly allowed the appeal by restricting the TP adjustment to Rs. 2,27,11,706/- and, deleting the addition on account of provision for diminution in value of investment amounting to Rs. 34,797/-. Aggrieved, the Assessee filed further appeal before the Tribunal. Vide order dated 04.09.2015, the Hon’ble Co-ordinate Bench restored the matter to the file of TPO/AO with regard to the addition made on account of TP adjustment. The matter was again referred to the TPO vide a fresh reference with regard to the matter set-aside for de novo examination; after taking approval of Ld. PCIT-1, Delhi. Pursuant to the TPO’s order u/s 92CA(3) dated 30.12.2016, the assessment was completed u/s 254/143(3) r.w.s 144C of the Act dated 30.12.2016, determining the total loss at Rs. 1,80,69,390/-, after making an addition on account of TP adjustment amounting to Rs. 1,65,54,708/. Aggrieved, the assessee again preferred an appeal before Ld. CIT(A). Vide order dated 28.06.2019, the appeal of the Assessee was partly allowed by Ld. CIT(A). Further aggrieved, the Assessee has filed the present appeal before the Tribunal against the order of Ld. CIT(A). 4.1 The First Ground of the appeal relates to the legal issue regarding violation of provisions of section 144C of the Act due to which, the order dated 30.12.2016 is liable to be quashed as contended by the assessee. Printed from counselvise.com ITA No. 7705_DEL_2019 AVL TECHNICAL CENTRE PVT LTD VS DCIT, CIRCLE-3(2) 5 | P a g e 4.2 Before us, the Ld. AR has submitted that while making the second round of assessment, the provisions of section 144C of the Act have been violated in so far as no draft order was issued by the Ld. AO, as mandated under sub- section 1 of Section 44C. He has argued that issuance of a draft assessment order is a condition precedent to passing a final order, in case a variation prejudicial to the Assessee is proposed to be made. In this regard, Ld. AR has relied upon several judicial pronouncements including some by the Hon’ble jurisdictional High Court wherein it has been held that even in the second round of assessment proceedings, the issuance of draft order u/s 144C is mandatory. Specifically, reliance has been placed on the following decisions: (1) Principal CIT vs. Sumitomo Corporation [2024] 166 taxmann.com 55 wherein it has been held that it was mandatory for the AO to pass a draft assessment order u/s 144C during remand proceedings and that a final assessment order passed without passing draft assessment order as mandated u/s144C of the Act is not tenable. (2) Control Risk India (P) Ltd. v DCIT: [2019] 107 taxmnn.com 82 (Del) wherein under similar circumstances where the matter was remitted to the TPO by the ITAT and the TPO undertook a fresh benchmarking analysis, and, thereafter, instead of passing a draft assessment order, the AO passed a final order. This was challenged by the assessee and finally quashed by the Hon’ble jurisdictional High Court. (3) Additional CIT v. Nokia India (P.) Ltd: [2018] 98 taxmann.com 373 (Del) Printed from counselvise.com ITA No. 7705_DEL_2019 AVL TECHNICAL CENTRE PVT LTD VS DCIT, CIRCLE-3(2) 6 | P a g e wherein the Hon’ble Apex Court has dismissed the SLP against the order of the Hon’ble High Court, highlighting that once there was a clear order of setting -aside of the assessment order with requirement of AO/TPO to undertake a fresh exercise of determining Arm’s Length Price, failure to pass a draft assessment order, would violate section 144C(1); this is not a curable defect in terms of section 292B of the Act. 4.3 On the other hand, Ld. DR has argued that this ground is being raised for the first time and, was not raised before the CIT(A). Moreover, the draft assessment order was duly issued during the first round of proceedings and in the second round undertaken as per the directions of the Hon’ble Co-ordinate Bench, there was no requirement to issue the draft assessment order once again. Ld. DR has also made an alternative plea and submitted that the procedural lapse in this regard, if any, would be covered by provisions of section 292B and, hence, argued that the legal ground raised by the assessee deserved to be dismissed. 5. We have heard the rival submissions and perused the material available on record. We have carefully gone through the various judicial pronouncements cited by the Ld. AR. We find that in the instant case, the issue regarding transfer pricing adjustment was restored to Ld. AO as per the directions of the Hon’ble Co-ordinate Bench. Thereafter, reference to TPO was made afresh after obtaining the approval of the prescribed authority. Under these circumstances, when the adjustment was proposed by the TPO which was Printed from counselvise.com ITA No. 7705_DEL_2019 AVL TECHNICAL CENTRE PVT LTD VS DCIT, CIRCLE-3(2) 7 | P a g e prejudicial to the interest of the assessee, a draft assessment order was mandatorily required to be issued u/s 144C(1) of the Act. In the light of these facts and noting that the issue stands squarely covered by the aforesaid decisions of the Hon’ble jurisdictional High Court, we, hereby, quash the order u/s 254/143(3) r.w.s. 144C dated 30.12.2016. In the result, appeal of the assessee is allowed. Order pronounced in the Open Court on 11-12-2025. Sd/- Sd/- (Madhumita Roy) (Renu Jauhri) Judicial Member Accountant Member Dated: 11.12.2025 Pooja Mittal Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asstt. Registrar, ITAT, New Delhi Printed from counselvise.com "