XL India Business Services Pvt. Ltd., New Delhi V. ACIT, New Delhi

ITA 16/DEL/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 82159 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 10 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-11-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 04-09-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 02-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y K VERMA
• Assessee Lawyers: NITIN NARANG; DEEPAK CHOPRA HARPREET AJMANI
• Keywords: Reopening of assessment; Transfer pricing; International transaction; Period of limitation; Tangible material; Difference of opinion; Valuation report; Time period of passing order; Reason to believe; Change of opinion; Reassessment proceedings
• Section: 147; 148; 92C; 143(3); 92

Judgement Text

I.T.A. NO .: 16 /DEL/1 3 ASSESSMENT YEARS 2007 - 08 PAGE 1 OF 11 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI I BENCH, NEW DELHI [CORAM: PRAMOD KUMAR AM AND C . M . GARG JM ] I.T.A. NO .: 16/DEL/13 ASSESSMENT YEAR: 2007 - 08 XL INDIA BUSINESS SERVICES PVT LTD .APPELLANT FF101, BUILDING NO G - 11, SARINES SONIA SAD AN COMMUNITY CENTRE, VIKASPURI, NEW DELHI 110 018 [PAN: AAACX0309A] VS. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 1 8 (1 ), NEW DELHI . RESPONDENT APPEARANCES BY: DEEPAK CHOPRA, HARPREET AJMANI AND NITIN NARANG , FOR THE APPELLANT Y K VERMA, FOR THE RESPONDENT O R D E R PER PRAMOD KUMAR: 1. THIS APPEAL IS DIRECTED AGAINST THE ORDER DATED 29 TH OCTO BER 2012 PASSED BY THE DEPUTY COMM ISSIONER OF INCOME TAX, CIRCLE 1 8 (1), NEW DELHI ( HEREINAFTER REFERRED TO AS THE ASSESSING OFFICER) U NDER SECTION 143 (3), READ WITH SECTION 144(C), OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT), FOR THE ASSESSMENT YEAR 2007 - 08 . 2. THE ASSESSEE HAS RAISED AN INTERESTING PRELIMINARY ISSUE CHALLENGING VALIDITY OF REOPENING OF ASSESSM ENT ON THE FACTS OF THIS CASE. THE RELATED GROUNDS OF APPEAL, WHICH WE WILL TAKE UP TOGETHER FOR DISPOSAL, ARE AS FOLLOWS: 1. THE FINAL ASSESSMENT ORDER DATED OCTOBER 31, 2012 PASSED BY THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 18(1) NEW DELHI (LEARN ED AO) PURSUANT TO THE DIRECTIONS OF THE HONBLE DISPUTE RESOLUTION PANEL (DRP), DRAFT ASSESSMENT ORDER DATED DECEMBER 28, 2011 PASSED BY LEARNED AO AND THE ORDERS DATED OCTOBER 15, 2010 AND OCTOBER 11, 2012 PASSED BY ADDITIONAL I.T.A. NO .: 16 /DEL/1 3 ASSESSMENT YEARS 2007 - 08 PAGE 2 OF 11 COMMISSIONER OF INCOME TA X, TRANSFER PRICING - II(2), NEW DELHI (LEARNED TPO), ARE BAD IN LAW AND VOID - AB - INITIO. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE DRP/AO HAVE GROSSLY ERRED IN NOT APPRECIATING THAT THE ASSESSMENT UNDER SECTION 147 OF THE ACT IS BARR ED BY LIMITATION AS PER THE PROVISIONS OF SECTION 153(2) OF THE ACT. 3. THAT ON THE FACTS AND IN LAW, THE LEARNED AO HAS ERRED IN COMPUTING THE TOTAL INCOME OF THE APPELLANT AT RS.27,806,100 AS AGAINST THE RETURNED INCOME OF RS.5,433,580 BY MAKING AN UPWARD ADJUSTMENT OF RS.22,372,524 WITH RESPECT TO TRANSFER PRICING (TP) MATTERS. 4. THAT ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO GROSSLY ERRED IN : (I) ASSUMING JURISDICTION WHILE ISSUING NOTICE UNDER SECTION 148 OF THE ACT, I N THE ABSENCE OF ANY MATERIAL TO FORM HIS BELIEF THAT CERTAIN INCOME HAS ESCAPED ASSESSMENT. (II) ASSUMING JURISDICTION FOR RE - OPENING THE ASSESSMENT UNDER SECTION 147 OF THE ACT, THEREBY TAKING SECTION 147 AS A RECOURSE TO SUBSTITUTE THE REGULAR ASSESSMENT P ROCEEDINGS UNDER SECTION 143(2)/143(3) OF THE ACT. 5. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE DRP/AO HAVE GROSSLY ERRED IN MAKING ASSESSMENT UNDER SECTION 143(3) READ WITH SECTION 144C(4)/147/148 OF THE ACT SINCE: (I) THE REFERENCE UN DER SECTION 92CA(1) MADE BY LEARNED AO ON DECEMBER 24, 2009 TO THE TPO BASED ON WHICH THE LEARNED AO HAS COMPUTED THE ARMS LENGTH PRICE IN THE DRAFT ORDER WAS AN INVALID REFERENCE AS THE SAME WAS MADE BEFORE THE INITIATION OF THE REASSESSMENT PROCEEDINGS UNDER SECTION 147 OF THE ACT WITHOUT THE PENDENCY OF ANY ASSESSMENT PROCEEDINGS; (II) L EARNED AO HAS HIMSELF STATED IN THE ORDER DATED NOVEMBER 21, 2011, DISPOSING OFF THE OBJECTIONS TO THE INITIATION OF THE REASSESSMENT PROCEEDINGS THAT BY AN INADVERTENT MIS TAKE, THE CASE WAS REFERRED TO THE TRANSFER PRICING OFFICER (TPO) FOR DETERMINING THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTION OF THE ASSESSEE ON 24.12.2009; (III) THE APPELLANT, IS NOT AN ELIGIBLE ASSESSEE AS DEFINED IN SECTION 144C(15)(B) OF THE A CT, AS THE VARIATION IN THE INCOME OF THE APPELLANT PROPOSED BY THE LEARNED AO IS NOT IN CONSEQUENCE OF AN ORDER PASSED UNDER SECTION 92CA(3) WHICH OUGHT TO HAVE BEEN PASSED BY THE TPO ON THE BASIS OF A VALID REFERENCE UNDER SECTION 92CA(1) OF THE ACT DURI NG THE COURSE OF THE REASSESSMENT PROCEEDINGS; (IV) NO REFERENCE WAS MADE BY THE LEARNED AO UNDER SECTION 92CA(1) TO THE TPO DURING THE ASSESSMENT PROCEEDINGS UNDER SECTION 147 OF THE ACT. I.T.A. NO .: 16 /DEL/1 3 ASSESSMENT YEARS 2007 - 08 PAGE 3 OF 11 3. IN ORDER TO ADJUDICATE ON THIS ISSUE, A FEW MATERIAL AND UNDISPUTED FACTS NEED TO BE TAKEN NOTE OF. THERE IS NO DISPUTE THAT THE ASSESSEE FILED THE RETURN OF INCOME OF 29 TH OCTOBER 2007, AND THAT THE TIME LIMIT FOR ISSUANCE OF NOTICE, UNDER SECTION 143(2), SELECTING THE CASE FOR SCRUTINY ASSESSMENT EXPIRED ON 30 TH SEPTEMB ER 2008. IT IS ALSO AN ADMITTED POSITION THAT IT WAS ONLY ON 24 TH DECEMBER 2009 THAT THE ASSESSING OFFICER MADE A REFERENCE, UNDER SECTION 92CA(3), TO THE TRANSFER PRICING OFFICER FOR DETERMINATION OF ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS E NTERED INTO BY THE ASSESSEE WITH ITS ASSOCIATED ENTERPRISES. THIS REFERENCE TO THE TPO, AND THE RESULTED PROCEEDINGS BEFORE HIM, CULMINATED IN THE ORDER DATED 15 TH OCTOBER 2010 PROPOSING AN ARMS LENGTH PRICE ADJUSTMENT OF RS 2,80,91,619. AS THERE WERE NO PROCEEDINGS PENDING BEFORE THE ASSESSING OFFICER, NOR WAS, FOR THAT PURPOSE, THE CASE OF THE ASSESSEE WAS EVEN PICKED UP FOR SCRUTINY ASSESSMENT UNDER SECTION 143(3), THE ASSESSING OFFICER PROCEEDED TO REOPEN THE ASSESSMENT, WHICH HAD BY THEN ACHIEVED FIN ALITY, BY REOPENING THE ASSESSMENT. WHILE DOING SO, AS EVIDENT FROM THE LETTER DATED 7 TH OCTOBER 2011 ISSUED BY THE ASSESSING OFFICER - COPY FILED BEFORE US AT PAGE 128 OF THE PAPER - BOOK, THE ASSESSING OFFICER RECORDED THE REASONS AS FOLLOWS: IN THIS CAS E, RETURN OF INCOME WAS FILED ON 29.10.2007 DECLARING INCOME OF RS 54,33,850. THE SAME WAS PROCESSED UNDER SECTION 143(1) OF THE INCOME TAX ACT, 1961. AS PER FORM 3CB, THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE WITH THE ASSOCIATED ENTERPR ISES WERE OF RS 40,11,86,678. TO ASCERTAIN AS TO WHETHER THE INTERNATIONAL TRANSACTIONS WITH THE AES WERE AT ARMS LENGTH, REFERENCE WAS MADE UNDER SECTION 92 CA(3) OF THE ACT TO TPO - II(4) NEW DELHI VIDE ORDER DATED 15/10/2010. THE TPO - II(4) FOUND THAT THE INTERNATIONAL TRANSACTIONS OF THE ASSESSEE WITH ITS ASSOCIATED ENTERPRISES WERE NOT AT ARMS LENGTH AND AN ADJUSTMENT OF RS 2,80,91,619 WAS DIRECTED TO BE MADE TO THE INCOME OF THE ASSESSEE. AS PER THE ORDER U/S 92CA(3) OF THE ACT, THE INCOME OF THE ASSES SEE HAS TO BE ENHANCED BY RS 2,80,91,619. CONSIDERING THE ABOVE FACT OF THE CASE, AS THE ASSESSEE HAS NOT VALUED ITS INTERNATIONAL TRANSACTIONS WITH ASSOCIATE ENTERPRISES AT ARMS LENGTH, RESULTING UNDER ASSESSMENT OF INCOME BY AN AMOUNT OF RS 2,80,91,61 9 SHOULD HAVE BEEN ADDED TO THE INCOME. I.T.A. NO .: 16 /DEL/1 3 ASSESSMENT YEARS 2007 - 08 PAGE 4 OF 11 4. THE ASSESSEE OBJECTED TO THIS INITIATION OF REASSESSMENT PROCEEDINGS. IT WAS CONTENDED THAT THE TIME LIMIT FOR ISSUANCE OF NOTICE UNDER SECTION 143(2) HAD EXPIRED AND THE PROPOSED REASSESSMENT PROCEEDINGS ARE IND EED USED AS A SUBSTITUTE FOR SECTION 143(2) WHICH, ACCORDING TO THE ASSESSEE, WAS NOT PERMISSIBLE IN VIEW OF JUDICIAL PRECEDENT IN THE CASE OF ACIT VS. M/S. MUTHOOT LEASING AND FINANCE LTD., 21 SOT 281. IT WAS ALSO POINTED OUT THAT REFERENCE TO TRANSFER PR ICING OFFICER WAS MADE AT A POINT OF TIME WHEN NO PROCEEDINGS WERE PENDING BEFORE THE ASSESSING OFFICER, WHEREAS IT IS SINE QUA NON THAT SUCH A REFERENCE CAN ONLY BE MADE IN THE COURSE OF ANY PROCEEDINGS. RELIANCE WAS ALSO PLACED ON HONBLE SUPREME COURT S DISMISSAL OF THE SLP IN THE CASE OF ITO VS. MASTER KESHAV SURI 228 ITR (STATUTE) 156 AGAINST DELHI HIGH COURTS JUDGMENT IN CM NO. 1162 OF 1997 ON THE QUESTION, WHETHER ACTION PERMISSIBLE UNDER SECTION 143(2) ON THE BASIS OF INFORMATION AVAILABLE IN THE RETURN, BUT NOT TAKEN AND IN RESPECT OF WHICH LIMITATION EXPIRED, CANNOT LEGALLY BE TAKEN UNDER SECTION 147/148 IF THE ASSESSING OFFICER HAS REASON TO BELIEVE THAT INCOME CHARG EABLE TO TAX HAS ESCAPED ASSESSM ENT. A REFERENCE WAS ALSO MADE TO THE DECISI ON OF THIS TRIBUNAL IN THE CASE OF ACIT VS OP CHAWLA 114 ITD 69 WHEREIN IT WAS OBSERVED THAT IN CASE T AX A UTHORITIES ARE PERMITTED TO REOPEN THE CASE WITHOUT THERE BEING TANGIBLE REASONS AND EXISTENCE OF BELIEF, IT WOULD DEEM THAT THE PROVISIONS OF SECTION 147 WOULD BE RENDERED AS SUBSTITUTE FOR SECTION 143(2), AN OBJECT WHICH THAT SECTION WAS NOT INTENDED TO ACHIEVE. IT WAS IN THIS BACKDROP AND RELYING UPON HONBLE SUPREME COURT JUDGMENT IN THE CASE OF GKN DRIVE SHAFTS INDIA LTD, 259 ITR 19 THAT THE ASSES SEE URGED THE ASSESSING OFFICER TO DROP THE REASSESSMENT PROCEEDINGS. NONE OF THESE SUBMISSIONS, HOWEVER, IMPRESSED THE ASSESSING OFFICER. HE DISMISSED THE OBJECTIONS SO RAISED BY THE ASSESSEE AND CONVEYED THE SAME TO THE ASSESSEE VIDE HIS LETTER DATED 21. 11.2011, WHICH, INTER ALIA, OBSERVED AS FOLLOWS : 2. THE FIRST OBJECTION OF THE ASSESSEE IS THAT THE REFERENCE TO TPO IN ABSENCE OF NOTICE U/S 143(2) WAS BAD IN LAW HENCE VOID AB INITIO. THUS THE BASIC PREMISE OF ISSUING NOTICE U/S 148 DOES NOT EXIST. T HIS OBJECTION OF THE ASSESSEE IS NOT SUSTAINABLE. THE COMMON LAW POSITION IN RELATION TO THE ADMISSIBILITY OF EVIDENCE EMPHASIZES ON THE RELEVANCE OF THE EVIDENCE RATHER THAN HOW IT WAS OBTAINED. FOR EXAMPLE, IN R V LEATHAM, WE FIND THE OFT - QUOTED STATEMEN T OF CROMPTON J., 'IT MATTERS NOT HOW YOU GET IT; IF YOU STEAL IT EVEN, IT WOULD BE ADMISSIBLE. SIMILAR VIEW WAS TOKEN IN ENGLISH I.T.A. NO .: 16 /DEL/1 3 ASSESSMENT YEARS 2007 - 08 PAGE 5 OF 11 LAW IN CASE OF R V SONG , WHERE IT WAS STATED THAT THERE WAS NO DISCRETION TO REFUSE TO ADMIT RELEVANT ADMISSIBLE EVIDENCE O N THE GROUND THAT IT WAS OBTAINED BY IMPROPER OR UNFAIR MEANS. THE COURT IS NOT CONCERNED WITH HOW IT WAS OBTAINED. ..... '. THERE IS A CATENA OF OTHER DECISIONS OF INDIAN COURTS ALSO WHICH SUPPORT THIS PROPOSITION. IN VIEW OF THE ABOVE, IT MAY BE INFERRE D THAT THE REFERENCE TO TPO WAS INVALID BUT IT DOES INVALIDATE THE FINDINGS OF THE TPO WHICH ARE BASED ON THE FACTS OF THE CASE. THE ASSESSEE ITSELF APPEARED BEFORE THE TPO FROM TIME TO TIME AND DID NOT CONTEST OR, THE NOTICE ISSUED BY THE TPO TO COMPUTE T HE ARM'S LENGTH PRICE. THUS THE DIRECTIONS OF THE TPO EVEN ON AN IRREGULAR REFERENCE, FORM A VALID GROUND TO REOPEN THE PROCEEDINGS FOR REASSESSMENT. IN THE CASE OF KALYANJI MAVJI & CO. VS, CIT (SC) 102 ITR 287 THE HOR'BLE APEX COURT CLARIFIED THAT IT C ANNOT BE DISPUTED THAT THE OBJECT OF THE ACT WAS TO SEE THAT THE TAX COLLECTING MACHINERY IS MODE AS PERFECT AND EFFECTIVE AS POSSIBLE SO THAT THE TAXPAYER IS NOT ALLOWED TO GET AWAY WITH ESCAPED INCOME - TAX. IT WAS FURTHER OBSERVED THAT IT, THEREFORE, FOL LOWS THAT INFORMATION MAY COME FROM EXTERNAL SOURCES OR EVEN FROM MATERIAL ALREADY ON THE RECORD OR MAY BE DERIVED FROM THE DISCOVERY OF NEW AND IMPORTANT MATTER OR FRESH FACTS. ON THE SAME LINES, HON'BLE APEX COURT AGAIN REITERATED IN THE CASE OF OF KELVI NOTOR INDIA 2010 - TIOL - 06 - 5C - SC - IT - LB THAT THE PROVISION SHOULD NOT BE CONSTRUED SO AS TO GIVE ARBITRARY POWERS TO THE ASSESSING OFFICER TO RE - OPEN ASSESSMENTS ON THE BASIS OF 'MERE CHANGE OF OPINION' BUT ASSESSING OFFICER HAS POWER TO RE - OPEN, PROVIDED T HERE IS 'TANGIBLE MATERIAL' 'TO COME TO THE CONCLUSION THAT THERE IS ESCAPEMENT OF INCOME FROM ASSESSMENT. THE REPORT OF TPO IS TANGIBLE AND SUBSTANTIVE EVIDENCE OF THE FACT THAT THE INCOME OF ASSESSEE HAD ESCAPED ASSESSMENT TO THE TUNE OF RS. 2,80,91,619/ - . 3. IT HAS BEEN FURTHER OBJECTED THAT SEC. 148 CANNOT BE USED TO SUBSTITUTE SEC. 143(2). THIS OBSERVATION OF THE ASSESSEE IS ERRONEOUS. THE NOTICE U/S. 148 WAS NOT SENT TO SUBSTITUTE NOTICE U/S. 143(2). IN FACT NOTICE U/S. 143(2) WAS NEVER ISSUED, TH EREFORE, IT IS WRONG TO PRESUME THAT REASSESSMENT PROCEEDINGS U/S. 148 WERE TO SUBSTITUTE THE PROCEEDINGS AS SATED BY THE ASSESSEE. 4. THE NEXT GROUND OF OBJECTION IS THAT RE - ASSESSMENT SHOULD BE BASED ON FRESH MATERIAL/INFORMATION. IN THIS REGARD THE A TTENTION IS DRAWN TO DECISION OF HONBLE APEX COURT IN THE CASE OF KELVINATOR INDIA 2010 - TIOL - 06 - SC - SC - IT - LB WHEREIN IT WAS OBSERVED THAT ASSESSING OFFICER HAS POWER TO REOPEN, PROVIDED THERE IS TANGIBLE MATERIAL TO COME TO THE CONCLUSION THAT THERE IS E SCAPEMENT OF INCOME FROM ASSESSMENT. THE HONBLE APEX COURT DID NOT STRESS ON REQUIREMENT OF FRESH MATERIAL THE ONLY THING THAT WAS REQUIRED WAS AVAILABILITY OF TANGIBLE MATERIAL TO COME TO A CONCLUSION THAT INCOME HAS ESCAPED ASSESSMENT. SUCH MATERIAL MAY BE ALREADY AVAILABLE ON FILE OR MAY BE FRESH EVIDENCE. EVEN OTHERWISE, THE REPORT OF TPO FORMS A TANGIBLE FRESH MATERIAL INFORMATION FOR A REASONABLE MAN TO FORM AN OPINION THAT INCOME HAD ESCAPED ASSESSMENT. THE ASSESSEE FURTHER RELIED ON ORDER OF DHAR IA CONSTRUCTION CO. WHEREIN HONBLE APEX COURT OBSERVED THAT A CASE CANNOT BE REOPENED ON THE BASIS OF OPINION OF DVO. THIS CONTENTION OF THE ASSESSEE ALSO DOES NOT HOLD GROUND. THE ASSESSEE FAILED TO I.T.A. NO .: 16 /DEL/1 3 ASSESSMENT YEARS 2007 - 08 PAGE 6 OF 11 APPRECIATE THAT THE OPINION OF DVO CANNOT BE COMPARED T O DIRECTIONS OF TPO. THE OBSERVATIONS OF DVO ARE MERELY OBSERVATIONS WHICH ARE NOT BINDING ON THE ASSESSING OFFICER. THEY ONLY HAVE PERSUASIVE VALUE, WHEREAS THE FINDINGS OF TPO ARE BASED ON A SET OF FACTS AND ARE BINDING ON THE ASSESSING OFFICER. 5. I N VIEW OF THE ABOVE, THE OBJECTION FILED BY YOU AGAINST THE INITIATION OF RE - ASSESSMENT PROCEEDINGS IS REJECTED. YOU ARE REQUESTED TO COMPLY WITH THE RE - ASSESSMENT PROCEEDINGS AND FILE YOUR RETURN IN COMPLIANCE TO NOTICE U/S. 148 ON THE REASSESSMENT SHALL BE FRAMED EX - PARTE. 5. IT WAS IN THIS BACKDROP THAT THE ASSESSING OFFICER , DESPITE OBJECTIONS BY THE ASSESSEE PROCEEDED WITH REASSESSMENT PROCEEDINGS AND, THUS, FINALIZED THE DRAFT ASSESSMENT ORDER. AGGRIEVED BY THE STAND SO TAKEN BY THE ASSESSING OFFIC ER, THE ASSESSEE RAISED OBJECTION AGAINST THE SAME BEFORE THE DISPUTE RESOLUTION PENAL (DRP), BUT WITHOUT ANY SUCCESS. THE DRP WAS OF THE VIEW THAT ONCE THE TRANSFER PRICING OFFICERS REPORT WAS AVAILABLE TO THE ASSESSING OFFICER AND THE SAID REPORT INDIC ATED THAT AN ADJUSTMENT OF RS.2,80,91,619 WAS REQUIRED TO BE MADE TO THE ARMS LENGTH PRICE OF INTERNATIONAL TRANSACTION ENTERED INTO BY THE ASSESSEE, THERE WAS INDEED SUFFICIENT MATERIAL ON RECORD TO FORM A BELIEF THAT INCOME OF THE ASSESSEE HAS ESCAPED A SSESSMENT. AS REGARDS THE ASSESSEES RELIANCE ON THE DECISION IN THE CASE OF DHARIA CONSTRUCTION CO. (SUPRA), THE DRP WAS OF THE VIEW THAT THE FACTS OF THE CASE WERE DISTINGUISHABLE, IN AS MUCH AS, WHILE THE DVOS REPORT IS NOT BINDING ON THE ASSESSING OFF ICER, A TRANSFER PRICING OFFICERS REPORT IS BINDING ON THE ASSESSING OFFICER. THE DRP THEN TOOK NOTE OF THE RECENT JUDICIAL PRECEDENT IN SUPPORT OF THE PROPOSITION THAT AT THE STAGE OF INITIATION OF REASSESSMENT PROCEEDINGS IT WOULD NOT BE NECESSARY FOR T HE ASSESSING OFFICER TO COME TO THE CONCLUSION THAT INCOME HAD INDEED ESCAPED ASSESSMENT, BUT AS LONG AS THERE ARE REASONS FOR THE ASSESSING OFFICER TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT, IT MEETS THE REQUIREMENT OF LAW. RELIANCE WAS ALSO PLACED TO HONBLE SUPREME COURT JUDGMENT IN THE CASE OF KALYANJI MAVJI & CO. VS. CIT, 102 ITR 287 AND CIT VS KELVINATOR OF INDIA LTD (320 ITR 561). THE DRP ALSO NOTED THAT SECTION 92CA(1), WHICH EMPOWERS THE ASSESSING OFFICER TO MAKE REFERENCE TO THE TRANSFER PRICI NG OFFICER, DOES NOT REQUIRE PENDENCY OF ANY PROCEEDINGS BEFORE HIM. IT WAS, ACCORDING TO THE DRP, SUFFICIENT THAT THE ASSESSING OFFICER CONSIDERS IT NECESSARY TO MAKE REFERENCE. THE STAND OF THE ASSESSING OFFICER IN REOPENING THE ASSESSMENT WAS, THUS, CO NFIRMED AND I.T.A. NO .: 16 /DEL/1 3 ASSESSMENT YEARS 2007 - 08 PAGE 7 OF 11 APPROVED. ACCORDINGLY, THE ASSESSING OFFICER PROCEEDED TO ISSUE THE FINAL ASSESSMENT ORDER, AGGRIEVED BY WHICH, THE A SSESSEE IS IN APPEAL BEFORE US. 6. LEARNED C OUNSEL FOR THE ASSESSEE , APART FROM REITERATING THE SUBMISSIONS MADE BEFORE THE AU THORITIES BELOW, SUBMITS THAT THE REASSESSMENT PROCEEDINGS ARE REQUIRED TO BE QUASHED AS THESE PROCEEDINGS WERE INITIATED ON THE BASIS OF TRANSFER PRICING OFFICERS ORDER, WHICH ITSELF WAS BAD IN LAW, IN AS MUCH AS REFERENCE WAS MADE TO THE TRANSFER PRICI NG OFFICER AFTER THE END OF TIME LIMIT AVAILABLE F OR ISSUANCE OF NOTICE UNDER SECTION 143(2) AND BEFORE THE COMMENCEMENT OF REASSESSMENT PROCEEDINGS. IT WAS POINTED OUT THAT AT THE POINT OF TIME WHEN REFERENCE TO THE TRANSFER PRICING OFFICER WAS MADE, NO P ROCEEDINGS WERE PENDING BEFORE THE ASSESSING OFFICER. OUR ATTENTION WAS THEN INVITED TO HONBLE BOMBAY HIGH COURTS JUDGMENT IN THE CASE OF CWT VS. SONA PROPERTIES PVT. LTD., 327 ITR 592 WHEREIN IT WAS HELD THAT REASSESSMENT PROCEEDINGS INITIATED ON THE BA SIS OF A VALUATION REPORT OBTAINED AFTER CLOSE OF ASSESSMENT PROCEEDINGS CANNOT CONSTITUTE INFORMATION BASED ON WHICH REASSESSMENT PROCEEDINGS CAN BE INITIATED. IT WAS ALSO SUBMITTED THAT SIMILAR POSITION EMERGES OUT OF THE DECISION OF HONBLE SUPREME COUR T IN THE CASE OF ACIT VS. DHARIA CONSTRUCTION CO. 328 ITR 515. LEARNED COUNSEL SUBMITTED THAT NO REFERENCE COULD HAVE BEEN MA DE BY THE ASSESSING OFFICER UNDER SECTION 92CA(3) OF THE ACT AS THERE WERE NO PROCEEDINGS PENDING BEFORE HIM AT ANY STAGE . LEARNED COUNSEL SUGGESTED THAT THE PROVISIONS OF SECTION 92C AND 92CA OF THE ACT HAVE TO BE READ IN HARMONY SINCE SECTION 92C RELATES TO COMPUTATION OF ARMS LENGTH PRICE AND SECTION 92CA PERMITS THE ITO TO MAKE REFERENCE FOR THE PURPOSE OF DETERMINATION OF ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS. IT WAS, THUS, IMPERATIVE THAT THERE MUST BE A PROCEEDING FOR ASSESSMENT OF INCOME IN THE COURSE OF WHICH REFERENCE CAN BE MADE. REFERENCE MADE WITHOUT ANY PENDING PROCEEDING FOR ASSESSMENT OF INCOME WOULD BE , ACCORDING TO THE LEARNED C OUNSEL, AN EXERCISE IN FUTILITY SINCE THE ASSESSING OFFICER WAS NOT COMPETENT TO PASS DRAFT ORDER U/S. 144C OF THE ACT. HE EMPHATICALLY ARGUED THAT REFERENCE BEING MADE TO THE TRANSFER PRICING OFFICER IS NOT AN ACADEMIC EXERCISE AND THEREFORE, UNLESS THE ASSESSING OFFICER IS COMPETENT TO FRAME AN ASSESSMENT ORDER, THEY CANNOT BE BESTOWING JURISDICTION I.T.A. NO .: 16 /DEL/1 3 ASSESSMENT YEARS 2007 - 08 PAGE 8 OF 11 TO MAKE A REFERENCE. LEARNED COUNSEL THEN RAISED THE PLEA THAT EVEN IF VALIDITY OF REASSESSMENT PROCEEDINGS IS TAKEN TO BE EXISTIN G, THE IMPUGNED ORDER IS NOT SUSTAINABLE IN LAW, IN AS MUCH AS , A DRAFT ASSESSMENT ORDER UNDER SECTION 144C , AS HAS BEEN ISSUED IN THIS CASE CAN ONLY BE ISSUED IN A SITUATION IN WHICH TRANSFER PRICING OFFICE R HAS PASSED A VALID ORDER UNDER SECTION 92CA(3) DURING THE ASSESSMENT PROCEEDINGS. IT IS POINTED OUT THAT ONLY ORDER PASSED BY THE TRANSFER PRICING OFFICER WAS PRIOR TO INITIATION OF REASSESSMENT PROCEEDINGS AND AS SUCH THE ASSESSEE COULD NOT BE TREATED AS AN ELIGIBLE ASSESSEE U/S. 144C(15) OF THE ACT. THE IMPACT OF THIS ISSUANCE OF DRAFT ASSESSMENT ORDER ON THE VALIDITY OF THE IMPUGNED ASSESSMENT ORDER IS THAT IF NO DRAFT ASSESSMENT ORDER COULD HAVE BEEN ISSUED IN THE FACTS OF THIS CASE, AS IS ASSESSEES CONTENTION, THE ASSESSMENT WOULD HAVE BEEN TIME BARRED ON 31 ST MARCH, 2012 WHEREAS IN THE PRESENT CASE ASSESSMENT ORDER IS PASSED ON 31 ST OCTOBER, 2012. WE ARE THUS URGED TO UPHOLD THE REASSESSMENT PROCEEDINGS ON THE GROUND THAT THE PROCEEDINGS ITSELF WERE BAD IN LAW AND ON THE GROUND THAT THE REASSES SMENT ORDER WAS PASSED AFTER THE LIMITATION PERIOD EXPIRED. LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. IT WAS SUBMITTED THAT PLAIN READING OF SECTION 92CA(1), UNDER WHICH REFERENCE TO TRANSFER P RICING OFFICER WAS MADE, WOULD SHOW THAT IT IS NOT THE CONDITION PRECEDENT THAT THERE MUST BE PENDING PROCEEDINGS BEFORE THE ASSESSING OFFICER TO MAKE THIS REFERENCE. IT WAS ALSO POINTED THAT ONCE THE ASSESSING OFFICER RECEIVES AN ORDER FROM THE TRANSFER P RICING OFFICER, WHICH INDICATES THAT ARMS LENGTH PRICE IS REQUIRED TO BE MADE TO VALUE THE INTERNATIONAL TRANSACTION THAT ASSESSEE HAS ENTERED INTO WITH ITS ASSOCIATE ENTERPRISE, IT IS CLEARLY A CASE FOR ANY REASONABLE PERSON TO COME TO THE CONCLUSION AND TO HOLD BELIEF THAT INCOME HAS ESCAPED ASSESSMENT. THE REASONS OF REOPENING OF ASSESSMENT WERE, THUS, ACCORDING TO THE LEARNED DEPARTMENTAL REPRESENTATIVE, LEGALLY SOUND AND WHOLLY SUSTAINABLE IN LAW. HE EMPHATICALLY ARGUED THAT THERE IS NO BAR ON REFERE NCE BEING MADE TO THE TRANSFER PRICING OFFICER BY THE ASSESSING OFFICER WHETHER OR NOT THERE IS ANY PENDING PROCEEDING BEFORE THE ASSESSING OFFICER. IT WAS SUBMITTED THAT IN THE ABSENCE OF ANY SUCH RESTRICTIONS BEING PROVIDED BY THE STATUTE, IT WOULD NOT B E PROPER FOR US TO READ THOSE RESTRICTIONS INTO THE PROVISIONS. IT WAS ALSO SUBMITTED THAT THE ASSESSEE I.T.A. NO .: 16 /DEL/1 3 ASSESSMENT YEARS 2007 - 08 PAGE 9 OF 11 HAS ALL ALONG CO - OPERATED WITH THE PROCEEDINGS BEFORE THE TRANSFER PRICING OFFICER AND THUS, IT CANNOT BE OPEN TO THE ASSESSEE TO OBJECT TO THE LOGICAL OUTCOME OF PROCEEDINGS BEFORE THE TRANSFER PRICING OFFICER. IT WAS CERTAINLY NOT AN ACADEMIC EXERCISE. THE TRANSFER PRICING OFFICER WAS TO ASCERTAIN THE ARMS LENGTH PRICE OF INTERNATIONAL TRANSACTION. IT WAS, ACCORDING TO THE LEARNED DEPARTMENTAL REPRESE NTATIVE, THE NATURAL COROLLARY OF THE ASCERTAINMENT OF ARMS LENGTH PRICE OF INTERNATIONAL TRANSACTION THAT IS ENTERED BY THE ASSESSEE WITH ITS ASSOCIATE ENTERPRISE, THAT ADDITIONS ARE REQUIRED TO BE MADE IN RESPECT OF THE TRANSACTIONS WHERE THE ASSESSEE I S FOUND NOT TO HAVE ENTERED SUCH TRANSACTION AT AN ARMS LENGTH PRICE. AS REGARDS THE ISSUE THAT THE ASSESSEE IS NOT ELIGIBLE ASSESSEE SINCE NO ORDER UNDER SECTION 92CA(3) WAS PASSED AFTER COMMENCEMENT OF ASSESSMENT PROCEEDINGS, THE LEARNED DEPARTMENTAL R EPRESENTATIVE SUBMITTED THAT SECTION 144C(15) ONLY REFERS TO THE EXISTENCE OF AN ORDER UNDER SECTION 92CA(3) AND THAT NO WAY REQUIRES THAT SUCH REPORT MUST BE OBTAINED DURING THE RELATED PROCEEDINGS. THIS OBJECTION RAISED BY THE ASSESSEE ALSO, ACCORDING TO THE LEARNED DEPARTMENTAL REPRESENTATIVE, WAS NOT SUSTAINABLE IN LAW. LEARNED DR ALSO REFERRED TO AND RELIED UPON THE STAND OF THE AUTHORITIES BELOW IN THIS REGARD. IT WAS, THUS, URGED TO CONFIRM THE STAND OF THE AUTHORITIES BELOW IN THIS REGARD AND DECLIN E TO IN TERFERE IN THE MATTER. IN A SHORT REJOINDER, LEARNED C OUNSEL FOR THE ASSESSEE REITERATED HIS CONTENTIONS. HE ONCE AGAIN SUBMITTED THAT ALL THE LAWS ARE TO BE READ IN HOLISTIC MANNER AND SO AS TO MAKE THESE PROVISIONS WORKABLE RATHER THAN REDUNDANT. IT WAS ONCE AGAIN REITERATED THAT THE REFERENCE TO THE TRANSFER PRICING OFFICER WAS MADE WHEN NO ASSESSMENT PROCEEDINGS WERE PENDING AND THAT MERE CO - OPERATION IN THE PROCEEDINGS BEFORE THE TRANSFER PRICING OFFICER CANNOT CONFER JURISDICTION ON THE ASSESS ING OFFICER AND IN ANY CASE CAN NOT PRE - E MPT ANY LEGAL PROTECTION AVAILABLE TO THE ASSESSEE. HE, THUS, SUBMITTED THAT THE VERY FOUNDATION THAT THE RE - ASSESSMENT PROCEEDING IS WHOLLY BASED ON UNSUSTAINABLE LEGAL PROPOSITIONS AND MANOEUVRING SO AS TO DEFEAT T HE SCHEME OF LIMITATION ENVISAGED U/S. 143(2). HE THUS URGED TO HOLD THAT THESE PROCEEDINGS ARE INVALID AND CONSEQUENTLY THE IMPUGNED ORDER IS NON - EST. I.T.A. NO .: 16 /DEL/1 3 ASSESSMENT YEARS 2007 - 08 PAGE 10 OF 11 8 . THE PLEA OF THE ASSESSEE IS INDEED WELL TAKEN. A REFERENCE TO THE TRANSFER PRICING OFFICER, IN THE ABSENCE OF ANY PROCEEDINGS PENDING BEFORE THE ASSESSING OFFICER , IS INDEED UNSUSTAINABLE IN LAW. AS HELD BY HONBLE KARNATAKA HIGH COURT, IN THE CASE OF THE CIT VS SAP LABS PVT LTD [JUDGMENT DATED 25 TH AUGUST 2014 IN ITA NOS. 842 OF 2008 AND 339 OF 2010] , UNLESS AN INCOME TAX RETURN, IN RESPECT OF WHICH NOTICE UNDER SECTION 143(2) CAN BE ISSUED, IS PENDING BEFORE THE ASSESSING OFFICER, A REFERENCE TO THE TRANSFER PRICING OFFICER CANNOT BE MADE BY THE AO. AS TO WHAT IS THE RELEVANCE OF AN ORDER PASSED BY T HE TRANSFER PRICING OFFICERS ORDER, IN A SITUATION IN WHICH THE REFERENCE ITSELF IS UNSUSTAINABLE IN LAW, WE FIND GUIDANCE FROM HONBLE BOMBAY HIGH COURTS JUDGMENT IN THE CASE OF CWT VS SONA PROPERTIES (327 ITR 592). THAT WAS A CASE IN WHICH THE ASSESSIN G OFFICER HAD MADE A REFERENCE TO THE DEPARTMENTAL VALUATION OFFICER AFTER THE END OF THE ASSESSMENT PROCEEDINGS. THEIR LORDSHIPS HELD THAT SUCH A REFERENCE COULD NOT HAVE BEEN MADE UNDER THE SCHEME OF THE ACT BECAUSE THE ASSESSMENT PROCEEDINGS HAD COME TO AN END BEFORE THE POINT OF TIME WHEN SUCH A REFERENCE WAS MADE, AND AS SUCH THE REFERENCE ITSELF WAS LEGALLY INVALID. THE STAND OF THE REVENUE WAS THAT EVEN IF REFERENCE TO THE DVO IS TO BE HELD TO BE INVALID, THE DVOS REPORT CONSTITUTED INFORMATION AND AS SUCH IT CO ULD BE A GOOD BASIS FOR COMING TO THE CONCLUSION THAT WEALTH HAS ESCAPED ASSESSMENT. REJECTING THIS PLEA, THEIR LORDSHIPS OBSERVED THAT, A REPORT CALLED BY AN AUTHORITY HAVING NO JURISDICTION WOULD BE A NULLITY AT LAW AND CONSEQUENTLY PROCEED INGS BASED SOLELY ON SUCH REPORT CONSIDERING THE REQUIREMENT OF S. 17 WOULD BE ILLEGAL AND WILL HAVE TO BE QUASHED . IN EFFECT THUS, IT IS HELD THAT WHEN REFERENCE ITSELF IS INVALID, THE REPORT RECEIVED AS A RESULT OF THE SAID REFERENCE CANNOT CONSTITUTE MATERIAL FOR FORMING THE BELIEF THAT AN INCOME OR WEALTH TAX ESCAPED ASSESSMENT. THIS PRECISELY APPLIES TO THE SITUATION BEFORE US. THERE IS NO CONTRARY DECISION BY ANY OF THE HONBLE COURTS ABOVE, INCLUDING THE HONBLE JURISDICTIONAL HIGH COURT. HOWEVER, THIS BINDING JUDICIAL PRECEDENT IS DISTINGUISHED BY THE AUTHORITIES BELOW ON THE GROUND THAT WHILE DVOS REPORT IS NOT BINDING ON THE ASSESSING OFFICER, THE TPOS ORDER IS BINDING ON THE ASSESSING OFFICER. THAT ASPECT OF THE MATTER, HOWEVER, IS WHOLLY IRRE LEVANT INASMUCH THE REASSESSMENT PROCEEDINGS WERE QUASHED IN SONA PROPERTIES CASE (SUPRA) FOR THE SHORT REASON OF ILLEGALITY FOR REFERENCE RATHER THAN ON THE CONSEQUENCE OF THE I.T.A. NO .: 16 /DEL/1 3 ASSESSMENT YEARS 2007 - 08 PAGE 11 OF 11 REPORT OBTAINED AS A RESULT OF THE REFERENCE. WE ARE NOT INCLINED TO ACCEPT T HE PLEA THAT THE MATERIAL FACTS OF THIS CASE VIS - - VIS THAT OF SONA PROPERTIES CASE , SO FAR AS RELEVANT TO THE PRINCIPLE OF LAW LAID DOWN BY HONBLE BO MBAY HIGH COURT , ARE ANY DIFFERENT. THE DISTINCTION BEING SOUGHT TO BE MADE OUT BY THE REVENUE AUTHORITI ES IS DEVOID OF LEGALLY SUSTAINABLE MERITS. 9. FOR THE REASONS SET OUT ABOVE, AND RESPECTFULLY FOLLOWING THE LAW LAID DOWN BY HONBLE KARNATAKA HIGH COURT IN THE CASE OF SAP LABS (SUPRA) AND BY HONBLE BOMBAY HIGH COURT IN THE CASE OF SONA PROPERTIES (SUP RA) AND AS THERE ARE NO DECISIONS HOLDING ANYTHING CONTRARY TO THESE DECISIONS BY ANY OF THE HONBLE COURTS ABOVE, WE HOLD THAT THE VERY INITIATION OF REASSESSMENT PROCEEDINGS, ON THE FACTS OF THIS CASE, ARE NOT SUSTAINABLE IN LAW. WE ACCORDINGLY SET ASID E THE REASSESSMENT PROCEEDINGS. THE REASSESSMENT ORDER THUS STANDS QUASHED. 10. AS THE REASSESSMENT PROCEEDINGS ARE HELD TO BE LEGALLY UNSUSTAINABLE, ALL OTHER GROUNDS OF APPEAL, WHICH DEAL WITH THE MERITS OF THE ADDITIONS MADE DURING THE REASSESSMENT PRO CEEDINGS, ARE RENDERED INFRUCTUOUS. WE SEE NO NEED TO DEAL WITH THESE GROUNDS OF APPEAL. 11. IN THE RESULT, THE APPEAL IS ALLOWED IN THE TERMS INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT TODAY ON 25 TH DAY OF NOVEMBER, 2014. SD/XX SD/XX C M GARG PRAMOD KUMAR (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) NEW DELHI, THE 25 TH DAY OF NOVEMBER 2014 COPIES TO : (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) DRP (5) DEPAR TMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ETC ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES, NEW DELHI