M/s. Visual Graphics Computing Services (India) Pvt Limited, CHENNAI V. ACIT, CHENNAI

ITA 2073/CHNY/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61018 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-04-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 08-03-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 16-12-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: S E DASTUR
• Keywords: Transfer pricing; International transaction; Period of limitation; Avoidance of tax
• Section: 92F; 92E; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI BEFORE DR. O.K.NARAYANAN, VICE-PRESIDENT AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER ITA NO. 2073/(MDS)/2011 ASSESSMENT YEAR : 2007-08 M/S. VISUAL GRAPHICS COMPUTING SERVICES (INDIA) PVT. LIMITED, NO. 4 & 5 TH FLOOR, ASCENDAS INTERNATIONAL TECH PARK, CSIR ROAD, TARAMANI, CHENNAI- 600 113. VS. THE ASST. COMMISSIONER OF INCOME-TAX, COMPANY CIRCLE-III(4), CHENNAI - 600 034. PAN AAACV 3342 H (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI S. E.DASTUR, ADVOCATE RESPONDENT BY : SHRI ASHOK KUMAR, IRS, COMMISSIONER OF INCOME-TAX DATE OF HEARING : 8 TH MARCH, 2012 DATE OF PRONOUNCEMENT : 17 TH APRIL, 2012 O R D E R PER DR. O.K. NARAYANAN, VICE-PRESIDENT THIS IS A TRANSFER PRICING APPEAL(TPA) FILED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2007-08. THE APPEAL IS DIR ECTED AGAINST ITA 2073/11 :- 2 -: THE ORDER OF THE ASSESSING AUTHORITY DATED 24.09.20 11PASSED UNDER SEC.143(3) READ WITH SEC. 144C OF THE INCOME- TAX ACT, 1961. THE REFERENCE UNDER SEC.144C HAS BEEN MADE TO THE DISPUTE RESOLUTION PANEL (DRP) AT CHENNAI, IN THE C ONTEXT OF THE ORDER PASSED BY THE TRANSFER PRICING OFFICER(TPO)-I II AT CHENNAI ON 25.6.2010. THE DIRECTIONS OF THE DRP HAVE BEEN ISSUED ON 19.8.2011. 2. THE ASSESSEE IS A 99.995% SUBSIDIARY OF MCKINSEY & CO. INC., USA. THE BALANCE 0.005% OF SHARES IS HELD B Y MCKINSEY INTERNATIONAL INC., USA. THE ASSESSEE IS ENGAGED I N THE BUSINESS OF PREPARING POWER-POINT PRESENTATIONS AND ALSO IN DEVELOPING THE SOFTWARE NECESSARY FOR PREPARING SUCH PRESENTATIONS . THE ASSESSEE HAS ALSO STARTED A NEW DIVISION IN THE PRE VIOUS YEAR RELEVANT TO THE IMPUGNED ASSESSMENT YEAR BY NAME, G LOBAL FINANCE AND ACCOUNTING(GFA) DIVISION. THE SAID DIV ISION HAS OFFERED FINANCE AND ACCOUNTING SERVICES TO ITS ASSO CIATE ENTERPRISES(AE). 3. IN THE LIGHT OF THE TRANSACTIONS, THE ASSESSEE H AD WITH ITS AE, THE ISSUE OF DETERMINING THE ARMS LENGTH PRICE(ALP ), HAS BEEN REFERRED TO THE TPO. THE ASSESSEE HAS ADOPTED TRAN SACTIONAL ITA 2073/11 :- 3 -: NET MARGIN METHOD(TNMM) AS THE MOST APPROPRIATE MET HOD. OPERATING PROFIT TO COST OF PRODUCTION/SERVICE HAS BEEN ADOPTED AS THE PROFIT LEVEL INDICATOR (PLI). 4. THE ASSESSEE HAD FURNISHED ALL THE NECESSARY DET AILS INCLUDING COMPARABLE CASES AND OTHER OPERATING PART ICULARS AS REQUIRED UNDER THE ACT AND RULES. IN THE LIGHT OF THOSE TECHNICAL DETAILS FURNISHED BY THE ASSESSEE, THE TPO FOUND TH AT THE ASSESSEE HAS GIVEN CASES OF 18 COMPARABLE ENTITIES. THE ARITHMETIC MEAN OF OPERATING PROFIT OF THOSE COMPA RABLE ENTITIES IS WORKED OUT AT 21.92%. THE MARGIN OF THE ASSESSE E HAS BEEN COMPUTED AT 33.24%. THREE COMPANIES INCLUDED IN TH E LIST OF COMPARABLE CASES HAVE SHOWN HIGHER RATES OF MARGIN, THAN REPORTED BY THE ASSESSEE. THE COMPANY, MAPLE E SOL UTIONS LTD.(MESL), HAS SHOWN A MARGIN OF 45.07%; VISHAL IN FORMATION TECHNOLOGIES LTD.(VITL) AT 51.23% AND TSR DARSHAW L TD. TSRDL) AT 46.40%. THE TPO HAS ACCEPTED THE TNMM ME THOD ADOPTED BY THE ASSESSEE AND ALSO THE PLI AND FAR AN ALYSIS. ACCORDINGLY, SHE CAME TO THE FOLLOWING FINAL CONCLU SION : ITA 2073/11 :- 4 -: 7. ACCORDINGLY, IT IS EVIDENT THAT THE INTERNATION AL TRANSACTIONS CARRIED ON BY THE ASSESSEE WITH THE ASSOCIATE ENTERPRISE IS ABOVE ALP BY ` `` ` 4,48,50,795/- WHICH IS THE DIFFERENCE BETWEEN THE OPERATING PROFI T SHOWN BY THE ASSESSEE, ` 13,15,71,991/- AND THE OPERATING PROFIT, ` 8,68,20,996/- COMPUTED @ 21.92% OF THE OPERATING COST. THEREFORE, THE ALP OF THE INTERNATIONAL TRANSACTIONS IS COMPUTED AT ` 48,18,57,980/-. IT IS HEREBY CLARIFIED THAT THE FI NDINGS AND DISCUSSIONS MADE IN THIS ORDER ARE APPLICABLE O NLY IN RESPECT OF REFERENCE RECEIVED FOR ASSESSMENT YEA R 2007-08 AND NOT FOR SUBSEQUENT ASSESSMENT YEARS. 5. THUS, IN THE LIGHT OF THE ABOVE CONCLUSION, THE TPO MADE A FINDING FOR THE PURPOSE OF SEC.92 THAT THE RATE OF MARGIN AND PROFIT RETURNED BY THE ASSESSEE ARE ABOVE THE ALP AND, TH EREFORE, THE PROFIT REPORTED BY THE ASSESSEE BE ACCEPTED AND NO ADJUSTMENT IS CALLED FOR IN THE CASE OF THE ASSESSEE. 6. IN THE LIGHT OF THE ORDER OF THE TPO, THE ASSESS ING OFFICER HAS PASSED A DRAFT ASSESSMENT ORDER UNDER SEC.144C( 1) OF THE ITA 2073/11 :- 5 -: ACT. THE ASSESSING AUTHORITY HAS PROPOSED THEREIN, THREE DISALLOWANCES. THE ASSESSEE IS A UNIT ENTITLED FO R THE DEDUCTION AVAILABLE UNDER SEC.10A. THEREFORE, THE ASSESSING AUTHORITY HAS TO COMPUTE THE QUANTUM OF DEDUCTION AVAILABLE TO TH E ASSESSEE UNDER THAT SECTION. IN THIS CONTEXT, THE FIRST PRO POSITION OF DISALLOWANCE MADE BY THE ASSESSING OFFICER IS THAT LEASE LINE CHARGES INCURRED BY THE ASSESSEE HAVE TO BE REDUCED FROM THE EXPORT TURNOVER ON THE GROUND THAT THOSE EXPENSES W ERE INCURRED FOR THE DELIVERY OF SOFTWARE OUTSIDE INDIA. SO ALS O, HE PROPOSED DEDUCTION OF FOREIGN TRAVEL EXPENSES FROM THE EXPO RT TURNOVER FOR THE REASON THAT IT WAS INCURRED IN PROVIDING TECHNI CAL SERVICES OUTSIDE INDIA. THESE DISALLOWANCES HAVE BEEN PROPO SED IN COMPUTING THE EXPORT TURNOVER FOR THE PURPOSE OF SE C.10A, PLACING RELIANCE ON THE DEFINITION OF EXPORT TURNOVER PRO VIDED IN CLAUSE (IV) OF EXPLANATION 2 TO SEC.10A. THE SECOND DISAL LOWANCE PROPOSED BY THE ASSESSING OFFICER IS THE EXPENDITUR E ESTIMATED TO HAVE BEEN INCURRED FOR EARNING NON TAXABLE INCOME. THE ASSESSING OFFICER PROPOSED 0.5% OF THE INVESTMENT AS PER CLAUSE (III) OF RULE 8D READ WITH SEC.14A. THE ASSESSING OFFICER OPINED THAT EVEN IF RULE 8D WAS NOT APPLICABLE FOR THE IMP UGNED ASSESSMENT YEAR 2007-08, STILL IT WOULD BE LOGICAL TO APPLY THOSE ITA 2073/11 :- 6 -: RULES. THE THIRD AND MOST IMPORTANT DISALLOWANCE P ROPOSED BY THE ASSESSING OFFICER IS THAT HE WOULD REDUCE THE QUANT UM OF ELIGIBLE DEDUCTION UNDER SEC.10A BY ` 4,48,50,975/-. THIS AMOUNT IS THE EXCESS OF THE PRICE REALIZED BY THE ASSESSEE OVER THE ALP DETERMINED BY THE TPO. IT IS THE CASE OF THE ASSE SSING OFFICER THAT THIS EXCESS PROFIT WORKED OUT IN THE CONTEXT O F TRANSFER PRICING STUDY IS NOT ENTITLED FOR DEDUCTION UNDER SEC.10A I N THE LIGHT OF THE PROVISIONS CONTAINED IN SUB-SEC.(7) THEREOF READ WI TH SEC.80IA(10). HE HELD THAT THIS EXCESS PROFIT IS B EYOND THE ORDINARY PROFITS TO BE CONSIDERED FOR GIVING DEDU CTION UNDER SEC.10A. PROVISIONS CONTAINED IN SECTIONS 10A(7) A ND 80IA(10) AUTHORIZE THE ASSESSING AUTHORITY TO LIMIT THE QUAN TUM OF DEDUCTION AVAILABLE UNDER SEC.10A TO THE ORDINARY PROFITS EARNED BY AN ELIGIBLE UNIT. THIS PROVISION IS IN FACT MEA NT FOR SNUBBING THE TENDENCY OF ASSESSEES TO OVERSTATE THE PROFITS OF E LIGIBLE UNITS TO CLAIM UNDESERVED DEDUCTION UNDER SEC.10A AND TO UND ERSTATE THE PROFITS OF NON-ELIGIBLE UNITS TO SAVE TAX. IT IS T O DISCOURAGE SIMILAR DUBIOUS METHOD OF TAX EVASION, THAT THE STATUTE HAS IMPORTED THE CONCEPT OF ORDINARY PROFITS IN THE SCHEME OF SEC. 10A. IN THE PRESENT CASE, THE ASSESSING AUTHORITY TREATED THE P ROFIT IN EXCESS OF THE ALP PROFIT AS EXTRAORDINARY IN THE CONTEXT OF SEC.10A AND ITA 2073/11 :- 7 -: LIMITED THE DEDUCTION UNDER THAT SECTION TO THE ALP PROFIT TREATING IT ON THE ORDINARY PROFITS. IN FACT, THE ASSESSING AUTHORITY ADOPTED THE ORDER OF TPO TO DECIDE THE BENCHMARK OF ORDINA RY PROFITS FOR GIVING DEDUCTION UNDER SEC.10A. THE ALP PROFIT COM PUTED BY THE TPO HAS BEEN ADOPTED AS SUCH ON THE ORDINARY PROFI TS. ACCORDINGLY, HE PROPOSED TO EXCLUDE THE EXCESS PROF IT QUA THE ALP PROFIT FROM THE SCOPE OF SEC.10A DEDUCTION. 7. THE DRAFT ORDER HAS BEEN TAKEN UP BY THE ASSESSE E BEFORE THE DRP. THE DRP SUMMARIZED THE OBJECTIONS OF THE ASSESSEE AGAINST THE DRAFT ASSESSMENT ORDER IN THE FOLLOWING ITEMS: (I) ERRONEOUS DISALLOWANCE OF DEDUCTION UNDER SEC .10A (II) EXCLUSION OF FOREIGN TRAVEL EXPENDITURE INCUR RED IN FOREIGN CURRENCY FROM EXPORT TURNOVER WHILE COMPUTI NG DEDUCTION UNDER SEC.10A (III) MISCELLANEOUS OBJECTIONS (IV) EXCLUSION OF TELECOMMUNICATION CHARGES FROM E XPORT TURNOVER WHILE COMPUTING DEDUCTION UNDER SEC.10A (V) DISALLOWANCE UNDER SEC.14A OF THE ACT. ITA 2073/11 :- 8 -: 8. THE DRP REJECTED ALL THE OBJECTIONS RAISED BY TH E ASSESSEE AND CONFIRMED EVERY PROPOSAL MADE BY THE ASSESSING OFFICER IN HIS DRAFT ASSESSMENT ORDER. 9. AS A CULMINATION OF ALL THE PROCEEDINGS SO FAR D ISCUSSED, THE ASSESSING OFFICER FINALLY PASSED THE ASSESSMENT ORD ER UNDER SEC.143(3) VERBATIM INCORPORATING THE EARLIER PROPO SALS MADE BY HIM IN THE DRAFT ASSESSMENT ORDER AND CONFIRMED BY THE DRP. 10. IT IS IN THIS CONTEXT THAT THE ASSESSEE HAS COM E IN APPEAL BEFORE US. 11. THE ASSESSEE HAS FILED DETAILED GROUNDS OF APP EAL BEFORE US. THE GROUNDS ARE ARRANGED SEGMENT-WISE PERTAINI NG TO DIFFERENT ISSUES. 12. THE FIRST ISSUE RAISED BY THE ASSESSEE REFLECT ED IN GROUND NOS. 2.1 TO 2.4 IS LEGAL IN NATURE. THE GROUND IS THAT THE DRAFT ASSESSMENT ORDER PASSED BY THE ASSESSING AUTHORITY UNDER SEC.144C(1) IS VOID AB INITIO AND CONSEQUENTLY THE FINAL ASSESSMENT ORDER IS BARRED BY LIMITATION. THIS LEG AL ISSUE, WILL BE CONSIDERED, AFTER WE ADJUDICATE THE GROUNDS RAISED BY THE ASSESSEE ON THE MERITS OF VARIOUS DISALLOWANCES. ITA 2073/11 :- 9 -: 13. THE FIRST SUCH GROUND IS STATED IN GROUND NOS.3 .3.1 TO 3.3.10. THE GROUND, IN SPECIFIC, IS THAT THE DRP HAS ERRED IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW IN C ONFIRMING THE ACTION OF THE ASSESSING OFFICER IN REDUCING ` 4,48,50,975/- FROM THE ELIGIBLE DEDUCTION UNDER SEC.10A, RESORTING TO THE DIFFERENCE BETWEEN THE ALP DETERMINED BY THE TPO AND THE ACTUA L OPERATING PROFIT REPORTED BY THE ASSESSEE. 14. WE HEARD SHRI S.E.DASTUR, THE LEARNED SENIOR C OUNSEL APPEARING FOR THE ASSESSEE IN DETAIL. IT IS THE C ASE OF THE LEARNED SENIOR COUNSEL THAT THE ASSESSING OFFICER AND THE D RP HAVE ERRED IN LAW TO INVOKE SEC.10A(7) ALONG WITH SEC.80IA(10) OF THE ACT IN EXCLUDING, A PORTION, OUT OF THE ELIGIBLE AMOUNT OF PROFITS ENTITLED FOR DEDUCTION UNDER SEC.10A. THE LEARNED SENIOR CO UNSEL STATED THAT THEY HAVE NOT ESTABLISHED THAT THE BUSINESS TR ANSACTED BETWEEN THE ASSESSEE AND ITS AE ARE ARRANGED SO AS TO YIELD MORE THAN ORDINARY PROFITS WITH A SCHEME IN MIND TO INFLATE THE PROFITS OF THE ELIGIBLE UNIT BY UNDERSTATING THE PR OFITS OF INELIGIBLE UNIT. THE AUTHORITIES BELOW HAVE NOT MADE OUT ANY SUCH CASE OF UNDUE ADVANTAGE ATTEMPTED BY THE ASSESSEE IN TRANS ACTING WITH ITS AE AND INFLATING THE OPERATING PROFIT REPORTED. IT IS THE CASE OF ITA 2073/11 :- 10 -: THE LEARNED SENIOR COUNSEL THAT THE PROVISIONS OF L AW STATED IN SEC.10A(7) AND SEC.80IA(10) DO NOT REFER TO ALP COM PUTED UNDER SEC.92 OF THE ACT TO BE TREATED AS ORDINARY PROFIT S FOR THE PURPOSE OF DEDUCTION UNDER SEC.10A. 15. THE LEARNED SENIOR COUNSEL EXPLAINED THAT SEC.8 0IA WHICH IS NECESSARY TO INVOKE SEC.10A(7) CANNOT BE APPLIED IN THE CASE OF AN INTERNATIONAL TRANSACTION. THE LOWER AUTHORITIE S HAVE MIS- CONSTRUED THAT THE ALP DETERMINED UNDER SEC.92 OF T HE ACT IS THE SAME, AS THE ORDINARY PROFITS MENTIONED IN SEC.10A( 7); WHEREAS THE SCHEME AND PURPOSE OF THOSE PROVISIONS ARE ENTI RELY DIFFERENT. SEC.80IA(10) IS CONCERNED WITH AN ELIGIBLE DEDUCTIO N. THE PURPOSE OF SEC.80IA(10) IS TO ENSURE THAT THE UNIT ELIGIBLE FOR CLAIMING DEDUCTION UNDER SEC.80IA OR, FOR THE PRESE NT CASE, SEC.10A DOES NOT ARRANGE ITS AFFAIRS WITH ANOTHER U NIT NOT ENTITLED FOR THE DEDUCTION, IN SUCH A MANNER THAT THE PROFIT OF THE ELIGIBLE UNIT IS INFLATED AND THE PROFIT OF THE INELIGIBLE U NIT IS SUBDUED. BUT THE ABOVE CONCEPT OF SEC.80IA(10) WOULD NOT BE APPL ICABLE IN TRANSFER PRICING CASES. 16. THE LEARNED SENIOR COUNSEL FURTHER EXPLAINED TH AT IN A TRANSACTION BETWEEN AN ELIGIBLE UNIT AND ANOTHER EN TITY OUTSIDE INDIA NOT LIABLE TO TAX IN INDIA, THERE CANNOT BE A CASE THAT THE ITA 2073/11 :- 11 -: REVENUE WOULD BE ADVERSELY AFFECTED EVEN IF THE ELI GIBLE UNIT IN INDIA CHARGES A HIGHER PRICE TO THE UNIT OUTSIDE IN DIA. THE REVENUE SHOULD NOT BE CONCERNED, WHETHER THE ELIGIB LE UNIT MAKES A PROFIT OF ` 100/- OR ` 150/- ON A TRANSACTION WITH OVERSEAS UNIT, AS SUCH PROFIT WHATEVER ITS QUANTUM, WOULD NO T BE BROUGHT TO TAX BY VIRTUE OF DEDUCTION UNDER SEC.10A CLAIMED BY THE ELIGIBLE UNIT. THE AE WOULD NOT CLAIM ANY DEDUCTION OF THE PAYMENTS RESULTING IN THE PROFIT OF EITHER OF ` 10/- OR ` 15/- AS SUCH, THE PAYMENTS MADE OUTSIDE INDIA ARE NOT TAXABLE IN INDI A. IF AT ALL, IT IS ONLY THE REVENUE OF THE FOREIGN COUNTRIES WHICH WOULD BE ADVERSELY AFFECTED AND NOT AT ANY RATE INDIAN REVEN UE. THEREFORE, HE SUBMITTED THAT SEC.10A(7) WOULD NOT B E APPLICABLE TO A TRANSACTION OF THE PRESENT TYPE BETWEEN AN ELI GIBLE UNIT AND ITS OVERSEAS AE. ON THE OTHER HAND, WHEN PROFITS M ORE THAN ORDINARY LEVEL ARE TRANSFERRED TO INDIA TO ITS ELIG IBLE UNIT, INDIAN REVENUE GAINS THEREFROM, AS THE HIGHER PROFITS OF T HE ELIGIBLE UNIT IN INDIA WOULD ULTIMATELY FLOW BACK TO THE ASSESSEE S FOREIGN COMPANY WHICH HOLDS ITS ENTIRE SHARE CAPITAL THROUG H THE MEDIUM OF DIVIDEND ON WHICH THE ASSESSEE WOULD PAY A HIGHE R DIVIDEND DISTRIBUTION TAX UNDER SEC.115O OF THE ACT. THE LE ARNED SENIOR COUNSEL FURTHER STATED THAT SUCH A HIGHER AMOUNT OF INWARD ITA 2073/11 :- 12 -: REMITTANCE WOULD RESULT IN HIGHER FOREIGN EXCHANGE EARNINGS BY OUR COUNTRY. 17. APART FROM THE ABOVE SUBMISSIONS ON MERITS AND FACTS OF THE CASE, THE LEARNED SENIOR COUNSEL, FURTHER RAIS ED A LEGAL CONTENTION THAT SEC.92(3) PROVIDES THAT SEC.92 IS N OT TO BE APPLIED IN A CASE WHERE THE COMPUTATION OF INCOME UNDER SUB -SECTION (1) HAS THE EFFECT OF REDUCING THE INCOME CHARGEABLE TO TAX. 18. THE LEARNED SENIOR COUNSEL FURTHER EXPLAINED TH AT IF THE PROFITS EARNED BY THE ASSESSEE ARE COMPARABLE WITH THE PROFITS EARNED BY OTHER COMPANIES IN THE SAME INDUSTRY, SEC .10A(7) CANNOT APPLY. HE EXPLAINED THAT EVEN IF SEC.10A(7) HAS TO BE APPLIED, THE ASSESSING OFFICER HAS TO DUTIFULLY DEM ONSTRATE THAT THE COURSE OF TRANSACTIONS BETWEEN THE ASSESSEE AN D ITS AE IS SO ARRANGED AS TO PRODUCE MORE THAN ORDINARY PROFITS. HE FURTHER EXPLAINED THAT THE ALP DETERMINED UNDER SEC.92 CANN OT FORM BASIS FOR CALCULATING ORDINARY PROFITS UNDER SEC.10 A. SEC.10A WAS INTRODUCED MUCH BEFORE THE INTRODUCTION OF TRANSFER PRICING PROVISIONS. THEREFORE, ALP COULD NEVER HAVE ENVISA GED TO BE THE BASIS FOR DETERMINATION OF ORDINARY PROFITS FOR THE PURPOSES OF SEC. 10A(7)/ 80IA(10). ITA 2073/11 :- 13 -: 19. THE LEARNED SENIOR COUNSEL CONTENDED THAT ALP H AS TO BE COMPUTED BY ADOPTING THE MOST APPROPRIATE METHOD. THE MOST APPROPRIATE METHOD MAY BE A PROFIT BASED METHOD (CO ST PLUS METHOD, TRANSACTIONAL NET MARGIN METHOD OR PROFIT S PLIT METHOD) OR A PRICE BASED METHOD (COMPARABLE UNCONTROLLED PRICE METHOD OR RE-SALE PRICE METHOD). IN THE LATTER CASE, THE DET ERMINATION OF ALP DOES NOT INVOLVE DETERMINATION OF PROFITS AT AL L. IN SUCH CASES, THE PROFIT WOULD ONLY BE A DERIVED FIGURE. THEREFORE, THERE IS NO LINKAGE BETWEEN ALP AND ORDINARY PROFITS. ALP IS A CONCEPT DETERMINED AS PER THE RULES AND PROCEDURES LAID DOWN IN THE STATUTE. ORDINARY PROFITS ON THE OTHER HAND, IS A COMMERCIAL CONCEPT TO BE UNDERSTOOD AS EXCLUDING SUPER PROFIT. IT WOULD NOT BE CORRECT TO INCORPORATE THE CONCEPT OF ALP TO DET ERMINE ORDINARY PROFITS. 20. THE LEARNED SENIOR COUNSEL HAS PLACED RELIANCE ON THE FOLLOWING DECISIONS : (1) TWEEZERMAN (INDIA) (P) LTD. V. ACIT [133 TTJ (C HN) 308] (2) DIGITAL EQUIPMENT INDIA LTD. V. DCIT (103 TTJ ( BANG) 329) (3) MENTOR GRAPHICS (NOIDA) PVT. LTD. V. DCIT (109 ITD 101) (4) LINCOLN PHARMACEUTICALS LTD. V. ITO [38 SOT 376 (AHD)] ITA 2073/11 :- 14 -: 21. SHRI ASHOK KUMAR, THE LEARNED COMMISSIONER APPE ARING FOR THE REVENUE JUSTIFIED THE STAND OF THE LOWER AUTHOR ITIES ON THE ISSUE, WHETHER SUPER PROFIT COMPUTED IN THE CONTEXT OF SEC.92 COULD BE CONSIDERED FOR RECOMPUTING THE DEDUCTION U NDER SEC.10A(7). THE LEARNED COMMISSIONER EXPLAINED THA T THE REFERENCE TO THE TPO WAS NECESSITATED BECAUSE OF TH E INTERNATIONAL TRANSACTIONS ENTERED INTO BETWEEN THE ASSESSEE AND ITS AE. HE EXPLAINED THAT REFERENCE TO THE TPO IS NOT SOMETHING STRANGE IN THE ASSESSMENT PROCEEDINGS; ON THE OTHER HAND, IT IS A PART OF THE ASSESSMENT PROCEEDINGS. IT IS IN THE C OURSE OF STUDY OF THE ALP AND OTHER TP MATTERS THAT THE TPO COMES TO A FACTUAL FINDING THAT THE PROFITS REPORTED BY THE ASSESSEE IS HIGHER THAN THE PROFITS COMPUTABLE ON ALP. 22. THE LEARNED COMMISSIONER ARGUED THAT THE DISCUS SION AND FINDING MADE BY THE TPO ARE PART AND PARCEL OF THE MATERIALS AVAILABLE FOR ASSESSMENT. THE ASSESSING AUTHORITY HAS TO MAKE NECESSARY ADJUSTMENTS IN THE ASSESSMENT ORDER IN TH E LIGHT OF THE FINDINGS RECORDED IN THE ORDER OF THE TPO. EVEN IF NO ADJUSTMENT WAS CALLED FOR IN THE TP TRANSACTIONS AS SUCH, THE SUPER PROFIT COMPUTED IN THE ORDER OF THE TPO HAS A DIRECT NEXUS WITH THE QUANTUM OF DEDUCTION AVAILABLE TO THE ASSESSEE UND ER SEC.10A. ITA 2073/11 :- 15 -: HE, THEREFORE, STATED THAT THE REDUCTION OF THE SUP ER PROFIT FROM THE DEDUCTION AVAILABLE UNDER SEC.10A HAS BEEN RIGHTFUL LY ATTEMPTED BY THE ASSESSING AUTHORITY. 23. ONCE THE REPORT OF THE TPO IS PLACED ON RECORD, THE ASSESSING OFFICER MAY PROPOSE ADJUSTMENTS EITHER ON THE INTERNATIONAL TRANSACTIONS OR ON REGULAR ASPECTS OF COMPUTATION OF INCOME DEPENDING UPON THE FINDING RECORDED IN THE O RDER OF THE TPO. ONCE THE ASSESSMENT ORDER IS CONNECTED TO THE ORDER OF THE TPO AS WELL, THE ASSESSING OFFICER HAS TO PASS A DR AFT ASSESSMENT ORDER WHICH MAY EITHER BE ACCEPTED BY TH E ASSESSEE OR TAKEN UP BEFORE THE DRP. ALL THOSE MATTERS ARE OF PROCEDURAL NATURE. THE CRUCIAL ISSUE IS THAT AS A RESULT OF A SSESSMENT PROCEEDINGS INCLUDING THE ORDER OF THE TPO, WHETHER A FINDING OF FACT IS AVAILABLE ON THE QUESTION OF ORDINARY PROF ITS OR NOT. WHERE THE TPO MAKES A FINDING THAT THE PROFITS REPO RTED BY THE ASSESSEE IS ABOVE THE ORDINARY PROFITS, THE EXCE SS OF THAT PROFIT HAS TO BE DEALT IN BY THE ASSESSING OFFICER WITHIN THE PROVISIONS CONTAINED IN SEC.10A. IT IS IN THAT CONTEXT, THE A SSESSING OFFICER HAS RESORTED TO SEC.10A(7) READ WITH SEC.80IA(10) A ND DISALLOWED THAT EXCESS PROFIT IN COMPUTING THE ELIGIBLE DEDUCT ION UNDER ITA 2073/11 :- 16 -: SEC.10A. HE SUPPORTED THE ORDERS OF THE LOWER AUTH ORITIES ON THIS POINT. 24. WE HEARD BOTH SIDES IN DETAIL AND CONSIDERED TH E ISSUE. AS FAR AS THE PRESENT CASE IS CONCERNED, THE TPO HAS M ADE A CATEGORICAL FINDING THAT THE OPERATING PROFIT REPOR TED BY THE ASSESSEE IS HIGHER THAN THE PROFIT WORKED OUT ON T HE BASIS OF ALP. THE TPO, THEREFORE, CONCLUDED THAT NO TP ADJU STMENT IS CALLED FOR IN THE PRESENT CASE. THE ASSESSING OFFI CER HAS MADE THE REFERENCE TO THE TPO UNDER SEC.92CA. THE REFER ENCE IS MADE FOR THE PURPOSE OF COMPUTING INCOME ARISING FR OM AN INTERNATIONAL TRANSACTION WITH REGARD TO ALP AS PRO VIDED IN SEC.92. THEREFORE, IT IS TO BE SEEN THAT THE SCOPE AND EXTE NT OF REFERENCE MADE BY THE ASSESSING OFFICER TO THE TPO IS CONFINE D TO THE SINGULAR PURPOSE STATED IN SEC.92. SECTIONS 92A, 9 2B, 92C, 92CB, 92D, 92E AND SEC.92F ARE ALL, PRECISELY DEFIN ING AND FACILITATING PROVISIONS ULTIMATELY FOR THE PURPOSE OF COMPUTING THE INCOME AS STATED IN SEC.92. ALL THE ABOVE STATED S ECTIONS PROVIDED IN CHAPTER X OF THE INCOME-TAX ACT, 1961 B ELONG TO A SEPARATE CODE AS SUCH, ENACTED FOR THE PURPOSE OF C OMPUTING INCOME FROM INTERNATIONAL TRANSACTIONS HAVING REGAR D TO ALP SO AS TO CONFIRM THAT THERE IS NO AVOIDANCE OF TAX BY AN ASSESSEE. ITA 2073/11 :- 17 -: THEREFORE, WHERE IN A CASE, THE TPO SUGGESTS THAT T HE OPERATING PROFIT DECLARED BY AN ASSESSEE IS COMPATIBLE TO AL P NORMS AND NO ADJUSTMENT IS NECESSARY, THE OPERATION OF ALL TH OSE PROVISIONS COME TO AN END. IF THE ASSESSING OFFICER HAS TO MA KE ANY OTHER ADJUSTMENT TOWARDS COMPUTING DEDUCTION AVAILABLE UN DER SEC.10A, THE COMPUTATION HAS TO BE MADE IN THE CONT EXT OF SEC.10A(7) READ WITH SEC.80IA(10). 25. IT IS CLEAR THAT IN A CASE OF TRANSFER PRICING ASSESSMENT, IT HAS GOT TWO SEGMENTS. THE FIRST SEGMENT CONSISTS O F RULES AND PROCEDURES FOR COMPUTING THE INCOME OTHER THAN THE INCOME ARISING OUT OF INTERNATIONAL TRANSACTIONS WITH ASSO CIATE ENTERPRISE. THE SECOND SEGMENT CONSISTS OF RULES AND PROCEDURES IN CONNECTION WITH COMPUTATION OF INCOME FROM INTERNAT IONAL TRANSACTIONS WITH AE ON THE BASIS OF ALP. THE SECO ND SEGMENT RELATING TO COMPUTATION OF ALP, IS A SET OF RULES F OR THE PURPOSES OF TRANSFER PRICING MATTERS AND THOSE PROCEDURES AN D RULES CAN BE USED ONLY FOR THE PURPOSE SERVING THE OBJECT OF SEC.92. WHEN THE TPO STATES THAT THERE IS NO NEED OF TP ADJUSTME NT, THE MATTER SHOULD END THERE AND ANY OTHER ADJUSTMENT THAT THE ASSESSING OFFICER WOULD LIKE TO MAKE WITH REFERENCE TO THE FI RST SEGMENT ITA 2073/11 :- 18 -: MUST BE MADE INDEPENDENT OF THE ORDER OF THE TPO UN DER SEC.92CA. 26. TO STATE IN SIMPLE TERMS, THE TP REGIME IS DIFF ERENT FROM REGULAR COMPUTATION OF INCOME. SEC.10A BELONGS TO T HAT PART OF REGULAR COMPUTATION OF INCOME AND IT SHOULD BE COMP UTED INDEPENDENT OF TP REGULATIONS AND TP ORDERS. IT IS NOT THEREFORE, PERMISSIBLE FOR THE ASSESSING OFFICER TO WORK OUT S EC.10A DEDUCTION ON THE BASIS OF ALP PROFIT GENERATED OUT OF THE ORDER OF THE TPO. 27. IN FACT THESE ISSUES HAVE ALREADY BEEN CONSIDER ED IN VARIOUS ORDERS OF THE TRIBUNAL. THE ITAT, CHENNAI A BENCH IN THE CASE OF TWEEZERMAN (INDIA) (P) LTD. V. ACIT (13 3 TTJ 308) HAS CONSIDERED THE MATTER IN DETAIL AND HELD THAT T HE REDUCTION OF ELIGIBLE PROFITS OF AN ASSESSEE AS DONE BY THE ASSE SSING OFFICER BY INVOKING THE PROVISIONS OF SEC.80IA(10) READ WIT H SEC.10B(7), IN THE CONTEXT OF TPOS ORDER IS UNSUSTAINABLE. TH E TRIBUNAL HAS HELD THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED T O INVOKE THE PROVISIONS OF SEC.80IA(10) READ WITH SEC.10B(7) SO AS TO REDUCE THE ELIGIBLE PROFITS ON THE BASIS OF THE ALP COMPUT ED BY THE TPO WITHOUT SHOWING HOW HE DETERMINED THAT THE ASSESSEE HAD SHOWN MORE THAN ORDINARY PROFITS. ITA 2073/11 :- 19 -: 28. AS RIGHTLY ARGUED BY THE LEARNED SENIOR COUNSEL , ALP IS DETERMINED ON THE BASIS OF THE MOST APPROPRIATE MET HOD. MOST APPROPRIATE METHOD IS CHOSEN EITHER ON PROFIT BASIS METHOD OR PRICE BASIS METHOD. IN THE LATTER CASE, PROFITS AR E NOT AT ALL CONSIDERED. IN THAT METHOD, PROFIT IS ONLY A DERIV ATIVE OF PRICES. WHEN PROFITS ITSELF NOT WORKED OUT, HOW IT IS JUSTI FIED TO ADOPT ALP PROFITS TO DETERMINE WHAT IS ORDINARY PROFITS FOR THE PURPOSE OF SEC.10A(7)? 29. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE HOLD THAT THE ASSESSING OFFICER HAS ERRED IN REDUCING ` 4,48,50,795/- FROM THE ELIGIBLE PROFITS OF THE ASSESSEE UNDER SEC.10A. T HE SAID ADJUSTMENT MADE BY THE ASSESSING AUTHORITY IN COMPU TING THE DEDUCTION UNDER SEC.10A IS ACCORDINGLY, DELETED. 30. THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE . 31. THE SECOND ISSUE OF EXCLUSION OF FOREIGN TRAVEL EXPENSES AND LEASE LINE CHARGES FROM EXPORT TURNOVER HAS ALR EADY BEEN DECIDED BY ITAT, CHENNAI SPECIAL BENCH IN THE CASE OF ITO VS. SAK SOFT LTD. [30 SOT 55 (CHENNAI) (SB)]. THE SPEC IAL BENCH HAS HELD THEREIN THAT IF EXPENSES ARE TO BE REDUCED FROM EXPORT TURNOVER, THEY HAVE TO BE REDUCED FROM THE TOTAL TU RNOVER ALSO, TO MAINTAIN THE PARITY. IN VIEW OF THE ABOVE DECISION RENDERED BY THE ITA 2073/11 :- 20 -: SPECIAL BENCH, WE HOLD THAT ALL SUCH ADJUSTMENTS MA DE BY THE ASSESSING OFFICER TO THE EXPORT TURNOVER OF THE ASS ESSEE ALSO BE MADE IN THE TOTAL TURNOVER OF THE ASSESSEE AS WELL. THESE ISSUES ARE THUS DECIDED IN FAVOUR OF THE ASSESSEE. 32. THE LAST ISSUE ON MERIT IS REGARDING THE DISALL OWANCE MADE UNDER SEC.14A. IT IS THE CASE OF THE ASSESSEE THA T IT HAS NOT INCURRED ANY EXPENDITURE TOWARDS EARNING OF DIVIDEN D INCOME. THE DIVIDEND YIELDING INVESTMENTS WERE MADE OUT OF SURPLUS INTERNAL ACCRUAL GENERATED FROM BUSINESS AND THE SA LE PROCEEDS OF INVESTMENTS. NO OTHER EXPENSES HAD BEEN INCURRE D FOR MAKING THE INVESTMENTS. IT IS THE CASE OF THE LEARNED SEN IOR COUNSEL APPEARING FOR THE ASSESSEE THAT RULE 8D OF THE I.T .RULES, 1962 WAS INSERTED WITH EFFECT FROM 24.3.2008 AND IS APPL ICABLE PROSPECTIVELY FROM THE ASSESSMENT YEAR 2008-09 ONWA RDS AND IS NOT APPLICABLE TO THE IMPUGNED ASSESSMENT YEAR. WI THOUT PREJUDICE TO THE ABOVE CONTENTION, IT IS THE CASE O F THE LEARNED SENIOR COUNSEL THAT IF AT ALL ANY DISALLOWANCE IS T O BE MADE UNDER SEC.14A, THE DISALLOWANCE MAY BE LIMITED TO 2% OF T HE DIVIDEND INCOME AS WAS DONE BY THE TRIBUNAL IN THE CASE OF M/S. RANE BRAKE LININGS LTD. V. DCIT IN ITA NO.745/MDS/2005. ITA 2073/11 :- 21 -: 33. WE CONSIDERED THE MATTER. AS RIGHTLY POINTED O UT BY THE LEARNED SENIOR COUNSEL, RULE 8D IS NOT APPLICABLE F OR THE IMPUGNED ASSESSMENT YEAR. BUT, THE ASSESSEE HAS EA RNED SUBSTANTIAL AMOUNT OF DIVIDEND INCOME. EVEN IF, TH ERE MAY NOT BE ANY DIRECT VISIBLE EXPENDITURE TO EARN SUCH DIVIDEN D INCOME, A REASONABLE PORTION OF THE TOP MANAGEMENT TIME/EXPEN DITURE COULD BE ATTRIBUTED TO EARNING OF THAT INCOME. IT IS BAS ED ON THE GENERAL PRINCIPLE THAT NO INCOME IS GRATUITOUS AND EVERY IN COME IS EARNED AFTER INCURRING CERTAIN EXPENSES. THEREFORE, A REA SONABLE DISALLOWANCE IS CALLED FOR. AS QUANTIFICATION IS N OT PERMISSIBLE UNDER RULE 8D FOR THE IMPUGNED ASSESSMENT YEAR, THE DISALLOWANCE HAS TO BE MADE ON THE BASIS OF REASONA BLENESS AND FAIRNESS. IN THE PRESENT CASE, THE ASSESSING OFFIC ER HAS MADE A DISALLOWANCE OF ` 9,81,686/-. WE MODIFY THE DISALLOWANCE TO A SUM OF ` 6 LAKHS ON A FAIR BASIS. THIS ISSUE IS DECIDED PA RTLY IN FAVOUR OF THE ASSESSEE . 34. ANOTHER INCIDENTAL GROUND RAISED BY THE ASSESSE E IS AGAINST THE LEVY OF INTEREST UNDER SEC.234B AND 234D OF THE ACT. WE MAY STATE THAT THESE ARE CONSEQUENTIAL IN NATURE AN D, THEREFORE, DO NOT CALL FOR ANY FORMAL ADJUDICATION. ITA 2073/11 :- 22 -: 35. ANOTHER GROUND RAISED BY THE ASSESSEE IN THE P RESENT APPEAL IS THAT THE ASSESSING OFFICER HAS ERRED IN I NITIATING PENALTY PROCEEDINGS UNDER SEC.271(1)(C). THIS GROUND IS BE YOND THE SCOPE OF THE PRESENT APPEAL. 36. NOW, WE ARE COMING BACK TO THE LEGAL ISSUE RAIS ED BY THE ASSESSEE AND ARGUED BY THE LEARNED SENIOR COUNSEL AT LENGTH. 37. IT IS THE ARGUMENT OF THE LEARNED SENIOR COUNSE L THAT THE ASSESSING OFFICER HAD NO JURISDICTION TO PASS A DRA FT ASSESSMENT ORDER, AS NO TRANSFER PRICING ADJUSTMENT WAS SUGGES TED BY THE TPO. THEREFORE, THE DRAFT ORDER AND THE DRP DIRECT IONS ARE WITHOUT JURISDICTION. IF SO, THE LEARNED SENIOR CO UNSEL CONTENDED THAT THE FINAL ORDER PASSED BY THE ASSESSING OFFICE R IS BARRED BY LIMITATION. 38. THE LEARNED SENIOR COUNSEL EXPLAINED THAT SEC.1 44C(1) PROVIDES THAT THE ASSESSING OFFICER SHALL, NOTWITHS TANDING ANYTHING TO THE CONTRARY CONTAINED IN THE ACT, IN T HE FIRST INSTANCE, FORWARD A DRAFT OF THE PROPOSED ORDER OF ASSESSMENT TO THE ELIGIBLE ASSESSE, IF HE PROPOSES TO MAKE, ON OR AFTER THE 1 ST DAY OF OCTOBER, 2009, ANY VARIATION IN THE INCOME OR LOSS RETURNED WHICH IS PREJUDICIAL TO THE INTEREST OF SUCH ASSESSEE. T HE LEARNED SENIOR ITA 2073/11 :- 23 -: COUNSEL REITERATED THAT THUS, SEC.144C(1) CAN APPLY ONLY IN CASE OF AN ELIGIBLE ASSESSEE. 39. SEC.144C(15)(B) DEFINES ELIGIBLE ASSESSEE TO MEAN (I) ANY PERSON IN WHOSE CASE THE VARIATION REFERRED TO IN S UB-SEC.(1) ARISES AS A CONSEQUENCE OF THE ORDER OF THE TPO PAS SED UNDER SUB-SEC.(3) OF SEC.92CA; AND (II) ANY FOREIGN COMPA NY. THE LEARNED SENIOR COUNSEL POINTED OUT THAT CLAUSE(II) OF SEC.144C(15)(B) DOES NOT APPLY TO THE PRESENT CASE, AS THE ASSESSEE IS AN INDIAN COMPANY. CLAUSE(I) ALSO DOE S NOT APPLY SINCE IN THE PRESENT CASE, THE TPO HAS NOT PRESCRIB ED ANY ADJUSTMENT IN THE TRANSFER PRICING ORDER. SO, THE ASSESSING OFFICER HAD NO JURISDICTION TO PASS A DRAFT ORDER U NDER SEC.144C(1). THEREFORE, THE ORDER IS WITHOUT JURIS DICTION AND LIABLE TO BE ANNULLED. IT IS THE CASE OF THE LEARNED SENI OR COUNSEL THAT CONSEQUENT TO THE ABOVE, ALL THE VARIATIONS PROPOSE D IN THE DRAFT ORDER WILL HAVE TO BE DROPPED. 40. AS A CULMINATION OF THE ABOVE PROCESS, IT IS TH E ARGUMENT OF THE LEARNED SENIOR COUNSEL THAT AS NO TRANSFER PRIC ING ADJUSTMENT WAS PROPOSED IN TPOS ORDER, THE ASSESSING OFFICER SHOULD HAVE PASSED THE ASSESSMENT ORDER UNDER SEC.143(3) WITHIN THE SPECIFIED PERIOD OF LIMITATION, WHICH WAS NOT DONE BY HIM. THE ITA 2073/11 :- 24 -: LEARNED SENIOR COUNSEL CONCLUDES THAT THE ORDER IS ILLEGAL AND THE SAID ILLEGALITY CANNOT BE CURED. HE HAS POINTED OU T THAT THERE IS A DIFFERENCE BETWEEN AN ILLEGAL ORDER AND AN IRREGULA R ORDER. 41. WE HAVE THOUGHTFULLY CONSIDERED THE ABOVE LEGAL ARGUMENTS ADVANCED BY THE LEARNED SENIOR COUNSEL. 42. THE SOUL OF TRANSFER PRICING REGIME IS SEC.92 O F THE ACT, WHICH PROVIDES THAT ANY INCOME ARISING FROM AN INTE RNATIONAL TRANSACTION SHALL BE COMPUTED HAVING REGARD TO THE ALP. SEC.92 ARISES IN A CASE WHERE THE ASSESSEE IS HAVING TRANS ACTIONS WITH FOREIGN AE. THEREFORE, SEC.92A PROVIDES FOR THE ME ANING OF AE. AGAIN, LOGICALLY SEC.92B PROVIDES THE MEANING OF IN TERNATIONAL TRANSACTION. THEREAFTER COMES SEC.92C, WHICH PROVI DES FOR COMPUTATION OF ALP FOR THE PURPOSE OF SEC.92. SEC. 92CA IS TO PROVIDE FOR REFERENCE TO AND DETERMINATION OF ALP B Y THE TPO. SEC.92CB GIVES POWER TO CENTRAL BOARD OF DIRECT TAX ES TO MAKE SAFE HARBOUR RULES. SEC.92D DECLARES THE LIABILITY OF THE CONCERNED PERSON TO MAINTAIN THE NECESSARY INFORMAT ION ON INTERNATIONAL TRANSACTIONS. SEC.92E PRESCRIBES FOR A REPORT TO BE OBTAINED FROM CHARTERED ACCOUNTANT. SEC.92F PROVID ES THE DEFINITION OF CERTAIN TERMS USED IN TRANSFER PRICIN G LAW. ITA 2073/11 :- 25 -: 43. THUS, IT COULD BE SEEN THAT THE LAW STATED IN S ECTIONS 92 TO 92F FOR COMPUTING THE INCOME FROM INTERNATIONAL TRA NSACTIONS HAVING REGARD TO ALP, HAS BEEN PROVIDED UNDER CHAPT ER X, AS SPECIAL PROVISIONS RELATING TO AVOIDANCE OF TAX. 44. ON THE OTHER HAND, THE PROCEDURE FOR ASSESSMENT IS PROVIDED IN CHAPTER XIV OF THE ACT. CHAPTER XIV RU NS FROM SEC.139 TO 158. AN ASSESSMENT HAS FINALLY TO BE CO NCLUDED UNDER SEC.143(1) OR SEC.143(3) OR SEC.144(4). IN THE PRE SENT CASE, THE ASSESSMENT HAS BEEN MADE UNDER SEC.143(3) . 45. WHETHER AN ASSESSMENT IS BARRED BY LIMITATION O R NOT, IS A QUESTION TO BE DETERMINED WITHIN THE LAW STATED UND ER CHAPTER XIV AND NOT UNDER THE PROVISIONS OF STATUTE CONTAIN ED IN CHAPTER X RELATING TO TRANSFER PRICING REGIME. THE ORDER P ASSED BY THE TPO UNDER SEC.92CA(3) IS NOT AN ASSESSMENT ORDER. IT IS A REFERENCE ORDER MADE BY THE TPO WHICH IS TO BE CONS IDERED BY THE ASSESSING OFFICER TO MAKE TRANSFER PRICING ADJU STMENTS WHICH FORM PART OF THE FINAL ASSESSMENT ORDER. LIKE-WIS E, THE DRAFT ASSESSMENT ORDER IS ALSO NOT AN ASSESSMENT ORDER. IT IS ONLY A STATUTORY COMMUNICATION CONVEYED TO THE ASSESSEE ST ATING THE ADJUSTMENTS PROPOSED BY HIM, IN THE LIGHT OF THE RE FERENCE ORDER OBTAINED FROM THE TPO. IT IS SOMETHING LIKE A PRE- ASSESSMENT ITA 2073/11 :- 26 -: NOTICE. CONSEQUENTLY, THE ORDER PASSED BY THE DRP U NDER SEC.144C IS ALSO NOT AN ASSESSMENT/APPELLATE ORDER BUT ONLY AN ORDER REVIEWING THE PROPOSALS MADE BY THE ASSESSING OFFICER IN HIS DRAFT ASSESSMENT ORDER. 46. WHEN WE GO THROUGH THESE DIFFERENT SCHEMES, IT IS EASY TO FIND THAT THE ASSESSING AUTHORITY IS WITHIN THE COM PETENCE OF LAW TO REFER THE MATTER TO THE TPO, IF THE ASSESSEE HA D ENTERED INTO INTERNATIONAL TRANSACTIONS WITH ITS AE. IT IS, AS A RESULT OF THE REFERENCE MADE BY THE ASSESSING AUTHORITY, THAT SUB SEQUENT ORDER OF THE TPO AND THE ORDER OF THE DRP ARE FOLLOWED. WHILE MAKING PROPOSALS ON THE BASIS OF THE ORDER OF THE TPO, THE ASSESSING OFFICER MAY PROPOSE ADJUSTMENTS WHICH IN FACT DO NO T FALL UNDER THE SEGMENT OF TP MATTERS BUT FALL UNDER THE SEGMEN T OF NON-TP MATTERS. FOR THE REASON THAT THE ASSESSING OFFICER HAS MADE SUCH A MISTAKE, IT IS NOT POSSIBLE TO HOLD THAT AN ERRONEOUSLY PASSED DRAFT ASSESSMENT ORDER WILL MAKE THE ASSESSM ENT ORDER PASSED UNDER SEC.143(3), TIME BARRED. THE ASSESSIN G OFFICER HAS MADE A REFERENCE TO THE TPO AND ON THE BASIS OF TH E ORDER OF THE TPO, HE HAS MADE A DRAFT ORDER. IN THE SAID DRAFT ORDER, THERE IS NO PROPOSAL ON TP MATTERS, BUT HE MADE A PROPOSAL O N SEC.10A DEDUCTION. BUT THE MATERIAL NECESSARY FOR MAKING S UCH A ITA 2073/11 :- 27 -: PROPOSAL, EVEN IF ERRONEOUS, WAS GENERATED FROM THE ORDER OF THE TPO. THEREFORE, THE ASSESSING OFFICER PROPOSED TO REDUCE THE SUPER PROFIT FROM THE COMPUTATION OF SEC.10A DEDUCT ION. THAT MAY NOT BE IN ACCORDANCE WITH THE PROCEDURE PRESCR IBED. BUT IT DOES NOT MEAN THAT THE ASSESSING OFFICER SHOULD HAV E NEVER PASSED SUCH A DRAFT ASSESSMENT ORDER. IF THE ASSES SING OFFICER HAS TO MAKE SUCH ADJUSTMENT IN THE LIGHT OF THE INF ORMATION AVAILABLE FROM THE ORDER OF THE TPO, THEN HE HAS TO PASS A DRAFT ASSESSMENT ORDER. WHETHER THOSE ADJUSTMENTS ARE SU STAINABLE OR NOT, IS A DIFFERENT ISSUE. THE LEGALITY OR ILLEGAL ITY OF THOSE ADJUSTMENTS DO NOT DETERMINE THE VALIDITY AND LIMIT ATION OF AN ASSESSMENT MADE UNDER SEC.143(3). 47. THEREFORE, IT IS NECESSARY TO SEE THAT THE REFE RENCE MADE TO THE TPO, THE ORDER PASSED BY THE TPO, THE DRAFT ASS ESSMENT ORDER PASSED BY THE ASSESSING OFFICER AND THE DIREC TIONS ISSUED BY THE DRP ARE ALL PRE-ASSESSMENT PROCEDURES OF AID AND GUIDANCE PROVIDED TO THE ASSESSING AUTHORITY BY THE STATUTE. IF ANY IRREGULARITY IS COMMITTED BY THE ASSESSING OFFI CER IN FOLLOWING THE ABOVE SET OF PRE-ASSESSMENT PROCEDURES, SUCH IR REGULARITY DOES NOT MAKE THE ASSESSMENT ORDER ILLEGAL. AT THE BEST, IT MAKES THE ORDER ONLY IRREGULAR. ITA 2073/11 :- 28 -: 48. IN THE PRESENT CASE, WHEN THE ADJUSTMENTS MADE BY THE ASSESSING OFFICER ARE DELETED BY THE TRIBUNAL, THAT IRREGULARITY IS AUTOMATICALLY CURED. IN SUCH CIRCUMSTANCES, THE AS SESSMENT ORDER NEED NOT BE INVALIDATED. THE ASSESSMENT ORDE R DOES NOT BECOME VOID AB INITIO. IN THE PRESENT CASE, THE I RREGULARITY WILL BE RECTIFIED AS SOON AS THE ASSESSING OFFICER PASSES T HE ORDER TO GIVE EFFECT TO THE ORDER OF THE TRIBUNAL. 49. THEREFORE, WE ARE NOT ABLE TO ACCEPT THE ARGUME NT OF THE LEARNED SENIOR COUNSEL THAT THE IMPUGNED ASSESSMENT IS BARRED BY LIMITATION. 50. IN RESULT, THIS APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON TUESDAY, THE 17 TH OF APRIL, 2012 AT CHENNAI. SD/- SD/- (VIKAS AWASTHY) (D R.O.K.NARAYANAN) JUDICIAL MEMBER VICE-PRESIDENT CHENNAI, DATED THE 17 TH APRIL, 2012 MPO* COPY TO : APPELLANT/RESPONDENT/CIT/CIT(A)/DR