Danone SA, Gurgaon V. ACIT, Circle-Int. Tax. 1(2)(2), New Delhi

ITA 592/DEL/2021

AI Insights

The case involves Danone SA, a non-resident corporate entity from France, which was assessed for the year 2016-17 under the Income-tax Act, 1961. The assessment was initially selected for limited scrutiny to verify the correctness of international transactions reported in Form 3CEB. However, the Assessing Officer expanded the scope to examine whether the revenue from these transactions was taxable in India as Fee for Technical Services (FTS). The Tribunal found that this expansion was beyond the permissible scope of limited scrutiny and was not supported by the necessary prior approval from the concerned authorities, leading to the quashing of the assessment order.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 300593 (ITAT-DELHI)
• Duration Of Justice: 13 year(s) 4 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-12-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 06-09-2022
• Assessment Year: misc
• Appeal Filed On: 24-07-2009
• Other Referred Cases: Danone Asia Pte Limited Vs. ACIT
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; Double taxation relief; International transaction
• Section: 143(3); 119

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH: ‘D’ NEW DELHI BEFORE SHRI G.S. PANNU, HON’BLE PRESIDENT AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA No.592/Del/2021 Assessment Year: 2016-17 DANONE SA, BDO India LLP, The Palm Spring Plaza, Office No.1501- 08, 15 th Floor, Sector-54, Golf Course Road, Gurgaon Vs. ACIT, Circle-Intl. Tax-1(2)(2), New Delhi PAN :AAFCD2454F (Appellant) (Respondent) ORDER PER SAKTIJIT DEY, JM: Captioned appeal has been filed by the assessee assailing the final assessment order dated 17.03.2021 passed under section 143(3) read with section 144C(13) of the Income-tax Act, 1961 (in short ‘the Act’) pertaining to assessment year 2016-17 in pursuance to the direction of learned Dispute Resolution Panel (DRP ). Appellant by Sh. Himanshu Sinha, Advocate Sh. Vibhu Gupta, CA Respondent by Ms. Sapna Bhatia, CIT(DR) Date of hearing 07.09.2022 Date of pronouncement 02.12.2022 ITA No.592/Del/2021 AY: 2016-17 2 | P a g e 2. In addition to the grounds raised in the memo of appeal, vide letter dated 25 th July, 2022, the assessee has raised the following additional ground and sought admission of the said ground in terms of Rule 11 of Income Tax (Appellate Tribunal) Rules, 1963: “That under the facts and circumstances of the case, the Ld. AO erred in examining an issue which was beyond the scope of limited scrutiny initiated vide notice dated 08.08.2017, rendering the assessment proceeding null, void and without jurisdiction.” 3. Learned Departmental Representative strongly objected to the admission of the additional ground. 4. Having considered rival submissions, we are of the view that the additional ground raised by the assessee is on a purely legal and jurisdictional issue going to the root of the matter. Therefore, we are inclined to admit the additional ground for adjudication, at the outset. 5. Briefly the facts are, the assessee is a non-resident corporate entity incorporated in France and tax resident of that country. Assessee’s case was selected for limited scrutiny to evaluate/verify “whether value of international transaction in respect of mutual agreement or arrangement has been correctly shown in Form 3CEB”. Finding that the assessee has entered into ITA No.592/Del/2021 AY: 2016-17 3 | P a g e various international transactions with its Indian Associated Enterprises (AE), the Assessing Officer made a reference to the Transfer Pricing Officer (TPO) to examine the arm’s length nature of the transaction. It is a fact that the TPO accepted the value of international transactions, hence, did not suggest any adverse adjustment. However, the Assessing Officer while proposing the draft assessment order held that the revenue received by the assessee are in the nature of Fee for Technical Services (FTS), hence, taxable in India. Accordingly, he completed the assessment by bringing to tax 10% of the revenue received by the assessee. Thereafter, the assessee filed objections before learned DRP, however, the objections were rejected and the assessment was finalized. 6. We have heard the parties and perused the materials on record. While deciding identical issue in case of another group company of the assessee, viz., Danone Asia Pte Limited Vs. ACIT, the Tribunal in order dated 29.11.2022 in ITA No.376/Del/2021 has held as under: “13. We have considered rival submissions in the light of decisions relied upon and perused the material on record. 14. Undisputedly, assessee’s case was selected for limited scrutiny to examine whether value of international transactions in respect of mutual agreement or arrangement have been correctly shown in Form ITA No.592/Del/2021 AY: 2016-17 4 | P a g e 3CEB. In other words, the scrutiny was only for the purpose of verifying whether the international transactions with the related parties have been correctly declared by the assessee in the audit report. It is a fact on record that the assessing officer noticing that assessee has entered into international transactions with AE had made a reference to the TPO to evaluate the arm’s length nature of such transactions in the context of assessee’s claim that the revenue received in respect of such transactions are not taxable in India. 15. Undisputedly, the TPO after examining the transactions as reported in Form 3CEB, passed an order accepting the value of the transactions. Thus, the order of the TPO demonstrates that the assessee had correctly reported the international transactions with the AE in Form 3CEB. In fact, out of the four transactions reported by the assessee, the assessing officer has accepted three and only made a deviation in respect of one transaction relating to provision of training services generating revenue of Rs.16,20,992. The Assessing Officer has treated it as FTS both under domestic law as well as India – Singapore DTAA. The question arising for consideration is, whether the Assessing Officer could have expanded the scope of the limited scrutiny to traversed into a completely different arena of examining whether an item of revenue received by the assessee falls in the category of FTS. Once, the international transactions reported in Form 3CEB have been verified by the TPO and no adjustments were suggested, it has to be accepted that assessee has reported the transactions correctly. Therefore, then, the purpose of limited scrutiny gets sub-served and the matter should have ended there. However, the Assessing Officer exceeding his jurisdiction has ventured into recheracterizing the nature and character of a particular item of income, which in our view, is beyond the scope of limited scrutiny. This is so because, in terms of CBDT Instruction nos. 20/2015 and 5/2016 read with DGIT(Vigilance) letter dated 30 th November, 2017 before venturing into other issues outside the scope of limited scrutiny, the Assessing Officer should have taken prior approval of PCIT/CIT. 16. Admittedly, in the facts of the present appeal, the assessing officer has not taken any such approval of the concerned authorities. Therefore, the assessment order passed is in violation of CBDT Instructions, referred to above. Therefore, the question which arises for consideration is, what will be the fate of such an order passed in violation of the extant CBDT Instructions/circulars. 17. We find the answer to the aforesaid question in the decisions cited before us by learned counsel for the assessee. As per the ratio ITA No.592/Del/2021 AY: 2016-17 5 | P a g e laid down by the co-ordinate Benches in these decisions, violation of norms of limited scrutiny in terms with the CBDT instructions and conversion to complete scrutiny without seeking prior approval would render the assessment order not only without jurisdiction but a nullity in the eyes of law. This is so because, as per section 119 of the Act CBDT instructions/circulars are binding on Assessing Officer. That being the legal position enunciated in the decisions cited before us, the impugned assessment order has to be declared as wholly without jurisdiction, hence, null and void. That being the case, the assessment order deserves to be quashed. Accordingly, we do so. Consequently, the impugned order of learned Commissioner (Appeals) is hereby set aside. Since, while deciding the additional ground raised by the assessee, we have quashed the assessment order, the other grounds raised by the assessee having become infructuous, do not require adjudication at this stage. 18. However, the parties are at liberty to contest the issues raised in these grounds, if, they arise in any other proceeding in future. 7. The ratio laid down in the aforesaid decision of the Coordinate Bench applies mutatis mutandis to the present appeal as well. Accordingly, we quash the impugned assessment order. Consequently, the order of learned Commissioner (Appeals) is set aside. 8. In the result, the appeal is allowed, as indicated above. Order pronounced in the open court on 2 nd December, 2022 Sd/- Sd/- (G.S. PANNU) (SAKTIJIT DEY) PRESIDENT JUDICIAL MEMBER Dated: 2 nd December, 2022. RK/- Copy forwarded to: 1. Appellant 2. Respondent ITA No.592/Del/2021 AY: 2016-17 6 | P a g e 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi