Tyco Fire Security India Private Limited, Bangalore V. Assistant Commissioner Of Income Tax, Circle-7(1)(1), Bangalore

ITA 305/BANG/2022

AI Insights

The case involves Tyco Fire and Security India Pvt. Ltd., which appealed against the final assessment order issued by the ACIT Circle-7(1)(1), Bengaluru, for the assessment year 2017-18. The primary contention was the absence of a DIN on the DRP's directions, which are crucial for the validity of any official communication under the CBDT guidelines. The Tribunal examined whether the absence of DIN on the DRP's directions affected the legality of the subsequent assessment order. The Tribunal found that the final assessment order was indeed affected by the absence of DIN, leading to its quashing.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 302910 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 1 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-05-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: B
• Next Hearing Date: 30-05-2023
• Assessment Year: 2017-2018
• Appeal Filed On: 24-04-2022
• Other Referred Cases: NTPC Vs. CIT 229 ITR 383 (SC), Brandix Mauritious Holdings Ltd. ITA No.1542/Del/2020, Dilip Kothari vs. Principal CIT ITA No.405/Bang/2022, H.K. Suresh vs. Principal CIT ITA No.625/Bang/2021, Tata Medical Centre Trust vs. CIT ITA No.238/Kol/2021, Teleperformance Global Services Pvt. Ltd. vs. ACIT ITA No.2815/Mum/2022, Gerah Enterprises P. Ltd. vs. Principal CIT ITA No.740/Mum/2021, Shri Bangalore Narayan Das Vs. ITO IT(IT)A Nos.120 & 121/Bang/2022
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction; Additional evidence; Question of law
• Section: 142(1); 260A; 40(a)(ia); 144C; 143(2); 40a(ia); 119; 92CA

Judgement Text

IT(TP)A No.305/Bang/2022 Tyco Fire and Security India Pvt. Ltd., Bangalore IN THE INCOME TAX APPELLATE TRIBUNAL “B’’ BENCH: BANGALORE BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI GEORGE GEORGE K., JUDICIAL MEMBER IT(TP)A No.305/Bang/2022 Assessment Year: 2017-18 Tyco Fire and Security India Pvt. Ltd. D-601, RMZ Centennial Kundalahalli Main Road Bangalore 560 048 PAN NO : AABCT0087C Vs. ACIT Circle-7(1)(1) Bangalore APPELLANT RESPONDENT Appellant by : Shri M.P. Lohia, A.R. & Shri Hemen Chandariya, A.R. Respondent by : Shri Sunil Kumar Singh, D.R. Date of Hearing : 31.05.2023 Date of Pronouncement : 31.05.2023 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: This appeal by assessee is directed against the final assessment order of ACIT Circle-7(1)(1), Bengaluru dated 26.2.2022 for the assessment year 2017-18. The assessee has raised following grounds of appeal:- a) General grounds b) Ground relating to transfer pricing matters IS & S segment c) Grounds relating to transfer pricing matters – Payment of management service fee d) Grounds relating to transfer pricing matters – Payment of trademark license fee e) Grounds relating to corporate tax matters IT(TP)A No.305/Bang/2022 Tyco Fire and Security India Pvt. Ltd., Bangalore Page 2 of 11 2. The assessee has raised additional ground vide application dated 19.1.2023 as follows: Additional ground No.32: Passing of the DRP directions without allotting a Document Identification Number (DIN) The Hon’ble DRP panel has erred in passing DRP directions on 23 January 2022 in contravention of CBDT Circular No.19/2019 dated 14 August 2019 i.e., without allotting a computer generated Document Identification Number (DIN) and without recording invalid and deemed to have been never issued and thereby rendering the assessment proceedings null and void. 3. We have heard the both the parties on admission of additional ground. In our opinion, all the facts are already on record and there is no necessity of investigation of any fresh facts for the purpose of adjudication of above ground. Accordingly, by placing reliance on the judgement of Hon’ble Supreme Court in the case of NTPC Vs. CIT 229 ITR 383 (SC) we inclined to admit the additional grounds for the purpose of adjudication as there was no investigation of any fresh facts otherwise on record and the action of the assessee is bonafide. 3.1 The assessee has also filed additional evidence vide letter dated 19.1.2023, which consists of the following: IT(TP)A No.305/Bang/2022 Tyco Fire and Security India Pvt. Ltd., Bangalore Page 3 of 11 3.2 This additional evidence is admitted as the assessee has failed to produce the same before lower authorities due to inadvertence. 4. Facts of the case are that the assessee company is engaged in the business of Design, Supply, Installation, Testing and Commissioning of Fire Alarm, Fire Hydrant and Access Control System and has filed its Return of Income for the A.Y.2017-18 on 30.11.2017 declaring total income at 'NIL'. The Case was selected for Scrutiny through CASS by NFAC. Accordingly, a notice u/s 143(2) was issued on 09.08.2018 which was duly served on the assessee. Notice u/s 142(1) was also issued thereafter to the assessee calling for relevant details/ documents in support of return filed by them. In compliance to these notices, the assessee furnished details online through e-proceeding facility from time to time. Arm's Length Price u/s 92CA of the Act 4.1 From the details submitted it was observed by NFAC that the assessee has entered into huge international transactions with its Associates Enterprises (AEs). Therefore, after getting approval of the Pr.CIT Bangalore-7, Bangalore, the case was referred to the Transfer Pricing Officer, Bangalore for computation of Arm's Length Price u/s. 92CA of the Income Tax Act, 1961 with regard to the International transaction. 4.2 The Deputy Commissioner of Income Tax, Transfer Pricing- 2(2)(2), Bangalore, vide order u/s. 92CA of the Act dated 25.01.2021 determined the adjustment of Rs. 45,07,92,701/- to the arm's length price u/s. 92CA of the Act. The relevant portion of TPO's order dated 22.01.2021 is reproduced as under: IT(TP)A No.305/Bang/2022 Tyco Fire and Security India Pvt. Ltd., Bangalore Page 4 of 11 Sl.No. Description Adjustment u/s 92CA (in Rs.) 1 IS&S segment 19,42,57,549 2 Payment of Trademark License fee 5,19,36,475 3 Payment of Management fee 20,45,98,577 Total 45,07,92,701 4.3 Incorporating the said adjustments as well as proposing a disallowance u/s 40A(ia) of the Act of Rs.13,20,907/-, a draft order u/s 144C of the Act was made in this case on 22.4.2021, proposing total income of the assessee as under: Toal income as per return of income 17,74,426 Add: As per Transfer Pricing as discussed above in para 2 45,07,92,071 Add: Disallowance of Expense made to non-resident as discussed above in para 3 19,84,074 Total income assessed: 45,45,50,571 4.4 Accordingly, the AO framed the assessment order as follows: Total income as per return of income 17,74,426 Add: Difference between the Arm’s Length Price u/s 92CA(3) of the Act (As above) 45,07,92,071 Add: Disallowance of Expense made u/s 40(a)(ia) of the Act (As above) 19,84,074 Total income: Rounded off to: 45,45,50,571 45,45,50,570 4.5 Against this assessee is in appeal before us. 5. First of all, we deal with the additional ground raised before us. 5.1 It is noted that the ld DRP has manually given direction on 23.11.2022 having no DIN. The final assessment order has been passed on 26.2.2022 with DIN. IT(TP)A No.305/Bang/2022 Tyco Fire and Security India Pvt. Ltd., Bangalore Page 5 of 11 6. The ld. A.R. submitted that the ld. DRP given the directions on 23.1.2022 without having any DIN number. Consequently, the final assessment order dated 26.2.2022 passed is bad in law and the ld. AR requested to quash the same. 7. The ld. D.R. submitted that the additional ground raised by the assessee is not maintainable for the following reasons: a) The ld. DRP’s order has been passed by the Panel as per the ITBA-DRP Instruction No.1 vide F.No. System /ITBA/Inst/International Taxation/DRP/183/2016-17-8668 dated 30.12.2016, wherein vide para 3(h) following instruction has been given:- h. Manual to system: Through the facility of “Manual to System” user can upload the final order/signed order prepared outside the ITBA system by scanning the same and selecting manual to system as a mode of generating the DRP order. Such uploaded order will be linked with DRP proceedings and the DRP proceedings will then be marked as completed. 7.1 The ld. D.R. further submitted that before passing the ld. DRP’s directions in ITBA through “Manual to system” procedure as laid down in the above mentioned instruction of the DIT (Systems), New Delhi all the communications were made to the assessee through ITBA and all the correspondence were having DIN. The case was also heard virtually through Webex. He submitted that the DPR direction issued by the Panel dated 23.1.2022 is also having DIIN No.ITB/DRP/M/144C(5) /2021-22/1039120348 which was also intimated by this office through ITBA on 27.1.2022. Therefore, the objection of the assessee that the order passed was MANUAL and was not having DIN have no legs to stand, as the signed and scanned copy of order was uploaded in ITBA through Manual to System module as IT(TP)A No.305/Bang/2022 Tyco Fire and Security India Pvt. Ltd., Bangalore Page 6 of 11 pe the ITBA instruction. Since the order was not passed manually there was no need to record reasons. 8. We have heard the rival submissions and perused the materials available on record. In this case, ld. DRP’s order was passed on 23.01.2022, which is manually passed having no DIN but the final assessment order has been passed on 27.01.2022 with DIN by separate intimation as follows: IT(TP)A No.305/Bang/2022 Tyco Fire and Security India Pvt. Ltd., Bangalore Page 7 of 11 8.1 Thus, it means that the ld. DRP’s order was manually passed on 23.1.2022 and at that time, no DIN was generated. As per circular no.19/2019 dated 14.8.2019 issued by the Central Board of Direct Taxes (CBDT) it has been strictly mentioned that any communication issued by any Income Tax Authority (ITA) without DIN shall be treated as invalid and shall be deemed to never have been issued. 8.2 Further, in the circular 19/2019 the CBDT has also prescribed some exceptional circumstances wherein the ITA can issue any manual communication without DIN but there will be proper recording of reasons in the specified format and prior approval of designated authorities has to be taken before issuance of such communication. Thereafter, such manual communication has to be regularized within 15 days of its issuance. 8.3 Similar issue came for consideration in ITA No.1542/Del/2020 dated 18.9.2022 for the AY 2011-12 before Delhi bench of ITAT in the case of Brandix Mauritious Holdings Ltd. which is a company against which draft asessment order was passed by the Assessing Officer (AO/Revenue) on 30.12.2018. The assessee had filed its objections before Dispute Resolution Panel (DRP) which were disposed of by the DRP via order dated 20.9.2019. Thereafter, the final assessment order was passed by the AO on 15.10.2019 u/s 147/144(C)(13)/143(3) of the Act. The major issue which has been originated in the final assessment order was, that it was issued by the AO without quoting Document Identification Number (DIN) in body of such communication. 8.4 Aggrieved by the order of AO the Assessee preferred an appeal before the Income Tax Appellate Tribunal (ITAT) wherein the Hon'ble ITAT simply applied the guidelines of circular 19/2019 and held that assessment order dated 15.10.2019 framed u/s 147/144C(13)/143(3) of the Act is invalid and deemed to have never IT(TP)A No.305/Bang/2022 Tyco Fire and Security India Pvt. Ltd., Bangalore Page 8 of 11 been issued as it fails to mention the DIN in its body by adhering to circular 19/2019. 8.5 Thereafter, the revenue filed an Appeal u/s 260A of the Act before the Hon'ble High Court of Delhi with the supporting that circular 19/2019 only applies to the communications emanating from the revenue, not to the substantive orders passed to the Assessee. Further, it is also submitted by the revenue that failure to generate and allocate DIN in this case is a mistake or at best, a defect and/or an omission (which can be covered or cured u/s 292B of the Act), which ought not to invalidate the assessment proceedings. 8.6 In response to the contention of the revenue, the Assessee submitted that circular 19/2019 is binding on the revenue and error (i.e., not quoting DIN in order) is jurisdictional in nature and therefore, cannot be corrected by taking recourse to Section 292B of the Act. In support of their contentions the Assessee relied on various case laws of Hon'ble Supreme Court which have similar facts/issues. Issue before the Hon'ble High Court in the case of Brandix Mauritious Holdings Ltd. in ITA No.163/2023 dated 20.3.2023: 8.7 Whether the order of the ITAT to not sustain the final assessment order dated 15.10.2019 in compliance with the circular 19/2019 passed by the AO call for the interference of the Hon'ble High Court i.e., whether any substantial question of law arises for consideration, which, inter alia, would require the Hon'ble High Court to examine whether the issue is debatable or if there is an alternate view possible? IT(TP)A No.305/Bang/2022 Tyco Fire and Security India Pvt. Ltd., Bangalore Page 9 of 11 Decision of the Hon'ble High Court: 8.8 The Hon'ble court observed that it is well established that circulars issued by the CBDT in exercise of its powers u/s 119 of the Act are binding on the revenue and this principle stands enunciated in a long line of judgements including the judgements of Hon'ble Supreme Court in various cases. 8.9 It has been further observed that the argument advanced on behalf the revenue, that recourse can be taken to Section 292B of the Act, is untenable, having regard to the phraseology used in paragraph 4 of the circular 19/2019. The object and purpose of the issuance of the 2019 Circular was to create an audit trail. Therefore, the communication relating to assessments, appeals, orders, etc. which find mention in paragraph 2 of the 2019 Circular, without DIN, can have no standing in law, having regard to the provisions of paragraph 4 of the 2019 Circular. 8.10 Thereafter, the Hon'ble court held that given the language employed in the 2019 Circular, there is neither any scope for debate nor is there any leeway for an alternate view which is different than the view which has been taken by ITAT. 8.11 Hence, the Hon'ble Court has dismissed the appeal of the revenue by mentioning that "we find no error in the view adopted by the Tribunal. The Tribunal has simply applied the provisions of the 2019 Circular and thus, reached a conclusion in favour of the Assessee". 8.12 Further, we rely on the following orders of the coordinate benches of this Tribunal, wherein similar view has been taken by the Tribunal: a) Circular No.19/2019 dated 14.8.2019 issued by the CBDT IT(TP)A No.305/Bang/2022 Tyco Fire and Security India Pvt. Ltd., Bangalore Page 10 of 11 b) Dilip Kothari vs. Principal CIT in ITA No.405/Bang/2022 (Bangalore ITAT) dated 31.10.2022. c) H.K. Suresh vs. Principal CIT in ITA No.625/Bang/2021 (Bangalore ITAT) dated 06.12.2022 d) Tata Medical Centre Trust vs. CIT in ITA No.238/Kol/2021 (Kolkata ITAT) dated 18.07.2022 e) Teleperformance Global Services Pvt. Ltd. vs. ACIT in ITA No.2815/Mum/2022 (Mumbai ITAT) dated 24.4.2023 f) Gerah Enterprises P. Ltd. vs. Principal CIT in ITA No.740/Mum/2021 (Mumbai ITAT) dated 30.3.2022 g) Shri Bangalore Narayan Das Vs. ITO in IT(IT)A Nos.120 & 121/Bang/2022 dated 17.3.2023 of ITAT Bangalore 8.13 In view of this, we quash the impugned final assessment order. Since we have allowed the legal issue in additional ground No.32, we refrain from going to other grounds/additional grounds of appeal raised before us, which are kept open. 8.14 The additional evidences were not considered at this stage as we have allowed the appeal of the assessee on legal issue. However, the additional evidence kept it open. 9. In the result, the appeal filed by the assessee is partly allowed. Order pronounced in the open court on 31 st May, 2023 Sd/- (George George K.) Judicial Member Sd/- (Chandra Poojari) Accountant Member Bangalore, Dated 31 st May, 2023. VG/SPS IT(TP)A No.305/Bang/2022 Tyco Fire and Security India Pvt. Ltd., Bangalore Page 11 of 11 Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(Judicial) 5. The DR, ITAT, Bangalore. 6. Guard file By order Asst. Registrar, ITAT, Bangalore.