M/s. Asian Honda Motor Co. Ltd., New Delhi V. DCIT, Intl. Taxation, New Delhi

ITA 6142/DEL/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 6701 (ITAT-DELHI)
• Duration Of Justice: 11 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-10-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I2
• Next Hearing Date: 28-07-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 18-11-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N C SWAIN
• Keywords: Value adopted by valuation officer; Transfer pricing; Opportunity of being heard; International transaction; Period of limitation; Permanent establishment; Fair market value; Procedural lapse; Competent authority; Arm length price; Commercial expediency
• Section: 92C; 133A; 15

Judgement Text

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH I - 2 : NEW DELHI BEFORE SHRI I.C.SUDHIR , JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO. 6142/DEL/2015 (ASSESSMENT YEAR: 2010 - 11 ) ASIAN HONDA MOTOR CO. LTD, C/O. PDS LEGAL ATMARAM MANSION, OFFICE NO. 7, FIRST FLOOR, KG MARG, NEW DELHI PAN:AAICA2531P VS. DCIT, INT. TAXATION (APPELLANT) (RESPONDENT) ASSESSEE BY : MR. DEEPAK CHOPRA, ADV REVENUE BY: SHRI NC SWAIN, CIT DR DATE OF HEARING 28/07/ 2016 DATE OF PRONOUNCEMENT 25 / 10 /2016 O R D E R PER PRASHANT MAHARISHI, A. M. 01. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER DATED 09.09.2015 OF THE LD DRP - 2, NEW DELHI FOR THE ASSESSMENT YEAR 2010 - 11. 02. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - THE FOLLOWING GROUNDS OF APPEALS ARE MUTUALLY EXCLUSIVE AND WITHOUT PREJUDICE TO EACH OTHER. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW; GROUND 1: THAT ON THE FACTS AND IN LAW, THE LEARNED DEPUTY COMMISSIONER OF INCOME - TAX, NOIDA (HEREINAFTER REFERRED TO AS 'AO') PAGE 2 OF 13 ERRED IN ASSESSING THE INCOME OF THE APPELLANT FOR THE RELEVANT ASSESSMENT YEAR AT RS. 193,105,890 AS AGAINST THE RETURNED INCOME OF RS. 31 ,096,574. GROUND 2: THAT ON THE FACTS AND IN LAW, THE TPO ERRED IN CONCLUDING THAT THERE EXISTED A PERMANENT ESTABLISHMENT OF THE APPELLANT IN INDIA WHICH WAS NOT THE MANDATE ACCORDED TO HIM UNDER SECTION 92CA. GROUND 3: THAT ON THE FACTS AND IN LAW, THE T PO ACTED CONTRARY TO THE JURISDICTION VESTED IN HIM BY CONCLUDING THAT THE PROFIT ARISES FROM THE OFFSHORE SUPPLIES ARE TAXABLE IN INDIA OWING TO EXISTENCE OF PERMANENT ESTABLISHMENT IN INDIA, GROUND 4: THAT ON THE FACTS AND IN LAW, THE TPO/DRP FAILED IN N OT APPRECIATING THAT THE ADJUSTMENT MADE ON ACCOUNT OF INTEREST WAS HIT BY JURISDICTION BAR CONTAINED IN SECTION 92(3) AND CIRCULAR 14 OF 2001, AS IT RESULTED IN DECREASING THE OVERALL INCIDENCE OF TAX IN INDIA IN CONTEXT OF INDIAN PAYER/ASSOCIATED ENTERPR ISES. GROUND 5: THAT ON THE FACTS AND IN LAW, THE TPO/DRP MISERABLY FAILED TO APPRECIATE THAT THE TRANSACTION RELATING TO SALE OF RAW MATERIAL TO ASSOCIATED ENTERPRISES IN INDIA ALONG WITH THE APPLICABLE INTEREST ON DELAYED PAYMENT HAD BEEN FOUND TO MEET T HE ALP TEST BY APPLYING THE COMBINED TRANSACTION APPROACH IN THE ASSESSMENT PROCEEDING OF INDIAN ASSOCIATED ENTERPRISES AND AS SUCH NO ADJUSTMENT COULD BE MADE IN THE HANDS OF THE APPELLANT COMPANY. GROUND 6: THAT ON THE FACTS AND IN LAW, THE TPO/DRP FAIL TO APPRECIATE THAT IT WAS NOT WITHIN THEIR JURISDICTION TO QUESTION THE COMMERCIAL EXPEDIENCY OF THE TRANSACTION WHERE THE APPELLANT HAD SELECTED TO APPLY SIBOR ON THE TRANSACTION UNDER CONSIDERATION AND IT WAS NOT FOR THE TPO TO IMPOSE THAT LIBOR NOT BEIN G THE COMMERCIAL BETWEEN THE PARTIES. GROUND 7: WITHOUT PREJUDICE, THAT ON FACTS AND IN LAW, THE TPO/ DRP ERRED IN NOT CONSIDERING THAT THE RISK/REWARD MATRIX, COMMERCIAL RATIONAL AND THE BUSINESS EXPEDIENCY EXISTED IN CASE OF PAGE 3 OF 13 CHARGING INTEREST ON BUSINESS CREDIT EXTENDED TO THE AE IN THE NORMAL COURSE OF BUSINESS IS COMPLETELY DIFFERENT FROM THE CASE WHERE THE LOAN IS EXTENDED BY BANK IN TYPICAL FINANCING TRANSACTION. THE TPO/DRP FAILED TO APPRECIATE THAT IN THE APPELLANT'S CASE THE PURPOSE IS NOT TO EARN INTEREST INCOME FORM SUCH EXTENDED CREDIT. THEREBY ERRED IN CONSIDERING THE PLI (PROFIT LEVEL INDICATOR) USED BY BANKS IN THEIR NORMAL COURSE OF LENDING/BORROWING BUSINESS AS COMPARABLE UNCONTROLLED PRICE (CUP) FOR DETERMINING THE ARM'S LENGTH PRICE. GROUN D 8: THAT ON FACTS AND IN LAW, THE AO/ TPO/DRP HAS GROSSLY ERRED IN LAW AND FACTS IN INITIATING THE PENALTY UNDER SECTION 271BA, 271 AA AND 27 1G OF THE ACT AND ALLEGING THAT THE APPELLANT HAS NOT COMPLIED WITH THE PROVISION OF AFORESAID SECTIONS. IT IS IM PERATIVE TO MENTION THAT THE APPELLANT HAD DULY SUBMITTED ALL THE INFORMATION, TO THE EXTENT AVAILABLE AND HAD FILED ALL THE NECESSARY INFORMATION ON RECORD AND IN ANY CASE HAS MADE FULL AND COMPLETE DISCLOSURE AS REQUIRED UNDER THE INCOME TAX ACT, 1961. G ROUND 9: WITHOUT PREJUDICE: THAT ON FACTS AND IN LAW, THE TPO/ DRP ERRED IN NOT APPLYING THE PROVISO TO SECTION 92C OF THE ACT AND HAS FAILED TO ALLOW THE APPELLANT THE BENEFIT OF DOWNWARD VARIATION OF 5 PERCENT IN DETERMINING THE ALP. 03. APPELLANT IS A CO MPANY INCORPORATED UNDER THE LAWS OF THAILAND AND IS ENGAGED IN THE BUSINESS OF TRADING OF RESEARCH CONSUMABLES AND SPARE PARTS ETC. THE COMPANY IS AN ASSOCIATED ENTERPRISE OF HONDA MOTOR JAPAN. DURING THE COURSE OF ITS BUSINESS, IT IS ENTERED INTO SEVERAL TRANSACTIONS RELATING TO SALE OF RAW MATERIALS AND CONSUMABLES AND SPARE PARTS AND CAPITAL GOODS ETC. THE SURVEY UNDER SECTION 133A OF THE INCOME TAX ACT WAS CONDUCTED AT THE BUSINESS PREMISES OF HONDA SEIL CARS INDIA LTD ON 24/06/2010 . THE ABOVE COMPANY IS AN ASSOCIATED ENTERPRISE OF THE APPELLANT AND THEREFORE IT WAS FOUND THAT DURING THE YEAR UNDER CONSIDERATION , ASSESSEE HAS MADE THE INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISE. PAGE 4 OF 13 04. THE APPELLANT FILED ITS RETURN OF INCOME ON 14/10/2010 DECLARING INCOME OF RS. 3,10,96,574/ . SUBSEQUENTLY THE REFERENCE WAS MADE TO THE TRANSFER - PRICING OFFICER FOR DETERMINING THE ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE APPELLANT. THE REFERENCE WAS RECEIVED BY THE LD. TPO FO R DETERMINATION OF ARMS LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS ENTERED INTO THE BY THE ASSESSEE ON 22/03/2013 . I N ORDER TO ASCERTAIN THE RELEVANT FACTS A REFERENCE WAS MADE BY THE LD. ASSESSING OFFICER FOR SEEKING INFORMATION UNDER EXCHANGE OF INFORMATION ARTICLE OF INDO THAILAND DOUBLE TAXATION AVOIDANCE AGREEMENT IN CASE OF THE ASSESSEE BY THE JOINT SECRETARY, NEW DELHI AND COMPETENT AUTHORITY VIDE ITS LETTER DATED 26/12/2013 . THE RESPONSE TO THE ABOVE INFORMATION WAS RECEIVED IN THE OFFICE O F THE DIT TRANSFER PRICING 2, NEW DELHI ON 20/11/2014. SUBSEQUENTLY, BASED ON THIS INFORMATION THE LD. TRANSFER PRICING OFFICER PASSED AN ORDER UNDER SECTION 92CA (3) OF THE INCOME TAX ACT ON 31/12/2014 PROPOSING THE ADJUSTMENT TO THE TOTAL INCOME OF RS. 16200931 2 / - ON ACCOUNT OF THE INTEREST INCOME. 05. THEREFORE BASED ON THE ORDER OF THE LD. TRANSFER PRICING OFFICER, THE LD. ASSESSING OFFICER PASSED DRAFT ASSESSMENT ORDER ON 31/01/2015 DETERMINING THE TOTAL INCOME OF THE ASSESSEE AT RS. 478430996/ AGAINST THE RETURNED INCOME OF THE ASSESSEE OF RS. 3,10,96,574/ . AGGRIEVED BY THE ORDER OF THE LD. ASSESSING OFFICER, APPELLANT PREFERRED AN OBJECTION BEFORE THE LD. DISPUTE RESOLUTION PANEL VIDE DIRECTION DATED 09/09/2015 TO THE LD. ASSESSING OFFICER. CONSEQUE NTLY, ON THOSE DIRECTIONS, ORDER UNDER SECTION 143 (3) READ WITH SECTION 144C (5) OF THE INCOME TAX ACT, 1961, WAS PASSED ON 21/ 10/ 2015 WHEREIN AGAINST THE RETURNED INCOME OF THE ASSESSEE OF RS. 3 109 6574/ A TOTAL INCOME WAS ASSESSED AT RS. 478431000/ . AGGRIEVED BY THE ORDER OF THE LD. ASSESSING OFFICER THE APPELLANT HAS PREFERRED APPEAL BEFORE US RAISING ALMOST 9 GROUNDS OF APPEAL. 06. FURTHER DURING THE COURSE OF ASSESSMENT PROCEEDINGS WIDE LETTER DATED 27/07/2016 THE ASSESSEE MADE AN APPLICATION FOR A DMISSION OF THE ADDITIONAL GROUND OF APPEAL WHEREIN IT HAS RAISED GROUND NO. 10.1 AND 10.2 AS UNDER: - PAGE 5 OF 13 10.1 . WITHOUT PREJUDICE TO OVER OTHER GROUNDS OF APPEAL, WHETHER THE ORDER OF THE LD. TRANSFER PRICING OFFICER IS BARRED BY LIMITATION AS PROVIDED IN 3 RD PROVISO TO SECTION 92CA (3). 10.2 WITHOUT PREJUDICE TO OVER OTHER GROUNDS OF APPEAL, WHETHER THE ISSUE IN THE PRESENT CASE IS COVERED BY THE DECISION OF THE COORDINATE BENCH IN THE CASE OF THE ASSESSEE OF A BY 09 10. 07. APPELLANT SUBMITTED BEFORE US THAT THE ABOVE ISSUE IS JURISDICTIONAL ISSUE WHEN THE ORDER OF THE LD. ASSESSING OFFICER IS BARRED BY LIMITATION. HE FURTHER SUBMITTED THAT ABOVE ISSUE IS A LEGAL ISSUE, WHICH CAN BE RAISED BY THE ASSESSEE AT ANY POINT OF TIME , AND THEREFORE IT IS RAISED BEFORE BENCH. HE FURTHER SUBMITTED THAT NO FURTHER FACTS ARE REQUIRED TO BE ADDUCED BEFORE THE BENCH FOR THE PURPOSE OF ADJUDICATION OF THIS GROUND. THEREFORE, HE REQUESTED THAT THESE ADDITIONAL GROUNDS MAY BE ADMITTED. 08. LD. DE PARTMENTAL REPRESENTATIVE SUBMITTED THAT THE ADDITIONAL GROUND RAISED BY THE APPELLANT WERE NOT RAISED BEFORE THE LD. DISPUTE RESOLUTION PANEL, THEREFORE IT CANNOT BE RAISED BEFORE US. HE FURTHER SUBMITTED THAT IN ANY CASE, THE ORDER IS NOT BARRED BY LIMIT ATION OF TIME. 09. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS. THE ASSESSEE HAS RAISED THE LEGAL ISSUE BEFORE US THAT THE ORDER OF THE LD. ASSESSING OFFICER IS BARRED BY THE LIMITATION OF TIME AS HELD ON IDENTICAL FACTS IN THE ORDER IN THE CASE OF THE ASSESSEE HIMSELF FOR ASSESSMENT YEAR 2009 10. AS THE GROUND IS LEGAL IN NATURE AND DOES NOT REQUIRE FURTHER FACTS TO BE ADDUCED, WE ADMIT THE ABOVE GROUND OF APPEAL AND DECIDE IT FIRST . 10. THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT T HE RETURN OF INCOME WAS FILED BY THE ASSESSEE ON 14 / 10 / 2010 AND THE REFERENCE WAS RECEIVED BY THE LD. TRANSFER PRICING OFFICER FOR DETERMINATION OF ARM LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS ENTERED INTO THE BY THE ASSESSEE ON 22 /03/ 2013. HE FURTH ER SUBMITTED THAT ON 26 /12/ 2013 THE INDIAN COMPETENT AUTHORITY DULY FORWARDED THE OFFICIAL REQUEST TO THE JAPANESE COMPETENT AUTHORITY FOR EXCHANGE OF INFORMATION. HE FURTHER SUBMITTED THAT THE LD. TRANSFER PRICING OFFICER RECEI VED THE ABOVE SAID INFORMAT ION V IDE LETTER DATED 20/11/2014. THEREFORE, IT SUBMITTED THAT THE TIME LIMIT FOR COMPLETION OF THE ASSESSMENT ORDER IS 23 /12/ 2015 AND THEREFORE DATE OF LIMIT FOR PASSING THE ORDER OF THE LD. TRANSFER PRICING OFFICER WAS 25 /12/ 2014. HE PAGE 6 OF 13 SUBMITTED THAT IN VI EW OF THE PROVISIONS OF SECTION 92CA (3A) , WHERE A REFERENCE WAS MADE UNDER SUBSECTION ( 1 ) BEFORE THE 1 /06/ 2007 BUT THE ORDER UNDER SUBSECTION ( 3 ) HAS NOT BEEN MADE BY THE TRANSFER PRICING OFFICER BEFORE THE SAME DATE, OR A REFERENCE UNDER SUBSECTION ( 1 ) IS MADE OR AFTER THE 1 /06/2007 IN ORDER UNDER SUBSECTION ( 3 ) MAY BE MADE AT ANY TIME BEFORE 60 DAYS PRIOR TO THE DATE ON WHICH THE PERIOD OF LIMITATION REFERRED TO IN SECTION 153 AS THE CASE MAY BE, IN SECTION 15 3B FOR MAKING THE ORDER OF ASSESSMENT OR RE ASSESSMENT OR FRESH ASSESSMENT AS THE CASE MAY BE EXPIRES. HE FURTHER SUBMITTED THAT THEREFORE THE DATE OF LIMITATION FOR PASSING OF THE TRANSFER PRICING OFFICERS ORDER IS 25/12/2014 WHICH WAS PASSED BY THE LD. TRANSFER PRICING OFFICER ON 31/12/2014 . THER EFORE, THERE WAS A DELAY IN PASSING THE ORDER BY 6 DAYS AND THEREFORE THE ORDER OF THE LD. TRANSFER PRICING OFFICER IS INVALID AS IT IS BARRED BY LIMITATION. FOR THE ABOVE PROPOSITION HE RELIED ON THE DECISION OF THE COORDINATE BENCH IN ITA NO. 1132/DEL/20 15 FOR ASSESSMENT YEAR 2010 11 IN CASE OF HONDA TRADING CORPORATION, JAPAN DATED 15/09/2015. HE FURTHER SUBMITTED THAT IN CASE OF THE APPELLANT FOR ASSESSMENT YEAR 2009 2010 ON IDENTICAL FACTS AND CIRCUMSTANCES IN ITA NO. 6143/ DEL/ 2015 DATED 18/07/2016 . T HE SIMILAR ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE. 11. THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE PROVISIONS OF SUBSECTION (3A) SPEAK ABOUT THE WORD MAY AND NOT SHALL. THEREFORE, THE OUTER LIMIT FOR PASSING THE ORDER FOR THE LD. T RANSFER PRICING OFFICER IS NOT MANDATORY. HE FURTHER SUBMITTED THAT THE ONLY REASON FOR KEEPING THE TIME LIMIT UNDER THE PROVISIONS OF SECTION 153 OF THE ACT IS THAT THE LD. TRANSFER PRICING OFFICER SHOULD GET SOME TIME FOR COMPLETION OF HIS ASSESSMENT PRO CEEDINGS. HE FURTHER SUBMITTED THAT IN ANY CASE, THE ORDER PASSED BY THE LD. TRANSFER PRICING OFFICER IS NOT BARRED BY LIMITATION OF TIME, AS IT HAS BEEN PASSED ON 31/12/2014 . 12. WE HAVE CAREFULLY PERUSED THE RIVAL CONTENTIONS . IN THE PRESENT CASE THE TIME LI MIT FOR COMPLETION OF THE ASSESSMENT WAS 31/03/2014 . AS DURING THE COURSE OF ASSESSMENT PROCEEDINGS ON 26/12/2013 THE INDIAN COMPETENT AUTHORITY FORWARDED THE OFFICIAL REQUEST TO THE JAPANESE COMPETENT AUTHORITY FOR EXCHANGE OF INFORMATION. THE ABOVE INFOR MATION WAS RECEIVED BY THE LD. TRANSFER PRICING OFFICER ON 20/11/2014. PAGE 7 OF 13 THEREFORE, A PERIOD OF 329 DAYS IS REQUIRED TO BE EXCLUDED FROM THE PERIOD OF THE LIMITATION FOR PASSING THE ASSESSMENT ORDER . ACCORDINGLY, THE OUTER TIME - LIMIT FOR PASSING THE ASSESSME NT ORDER OF 31/03/2014 WILL GET EXTENDED BY 329 DAYS WHICH FALLS ON 23/02/2015 . FURTHER, 60 DAYS TIME SHOULD HAVE BEEN AVAILABLE BEFORE THE LD. ASSESSING OFFICER FOR PASSING ORDER OF ASSESSMENT AND THEREFORE, THE LD. TRANSFER PRICING OFFICER SHOULD HAVE PA SSED IS ORDER, LEAVING A TIME PERIOD OF 60 DAYS. THEREFORE, ACCORDINGLY, HIS ORDER SHOULD HAVE BEEN PASSED ON OR BEFORE 25/12/2014. HOWEVER, IN THE PRESENT CASE, IT HAS BEEN PASSED ON 31/12/2014. THEREFORE THERE IS APPARENTLY CLEAR - CUT DELAY OF 6 DAYS IN P ASSING THE ORDER BY THE LD. TRANSFER PRICING OFFICER. IDENTICAL ISSUE HAS BEEN CONSIDERED BY THE COORDINATE BENCH IN THE CASE OF HONDA TRADING CORPORATION, JAPAN VERSUS DCIT IN ITA NO. 1132/TEIL/2015 FOR ASSESSMENT YEAR 2010 11, DATED 15/09/2015 AS UNDER : - B. TIME LIMIT FOR PASSING OF ORDER BY THE TPO 6.1 THE LD. AR ALSO CHALLENGED THE PASSING OF THE ORDER BY THE TPO. IT WAS SUBMITTED THAT THE TPO PASSED ORDER ON 31.5.2014, WHICH WAS TIME BARRED AND, HENCE, THE SAME SHOULD BE ANNULLED LEADING TO THE QUASHING OF THE FINAL ASSESSMENT ORDER. IN THE OPPOSITION , THE LD. DR SUPPORTED THE REVENUE'S STAND. 6.2 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT HAS BEEN NOTICED ABOVE THAT THE PROVISIONS OF SECTION 92CA REQUIRING THE PASSING OF THE ORDER BY THE TPO DETERMINING THE ALP OF THE INTERNATIONAL TRANSACTIONS, CAME INTO BEING BY THE FINANCE ACT, 2002. AS PER SUB - SECTION (3) OF SECTION 92C, THE TPO IS REQUIRED TO PASS THE ORDER DETERMINING THE ALP OF THE INTERNATIONAL TRANSACTIONS. NO TIME LIMIT WAS INITIALLY GIVEN FOR THE PASS ING OF ORDER BY THE TPO. IT IS ONLY BY THE FINANCE ACT, 2007, THAT SUB - SECTION (3A) WAS INSERTED PROVIDING TIME LIMIT FOR THE PASSING AN ORDER BY THE TPO. NO AMENDMENT HAS BEEN CARRIED OUT IN THIS PROVISION THEREAFTER. SUB - SECTION (3A) OF SECTION 92CA CONT AINING THE RELEVANT TIME LIMIT FOR THE PASSING OF THE ORDER BY THE TPO, READS AS UNDER : PAGE 8 OF 13 '(3A) WHERE A REFERENCE WAS MADE UNDER SUB - SECTION (1) BEFORE THE 1ST DAY OF JUNE, 2007 BUT THE ORDER UNDER SUB - SECTION (3) HAS NOT BEEN MADE BY THE TRANSFER PRICING OFFICER BEFORE THE SAID DATE, OR A REFERENCE UNDER SUB - SECTION (1) IS MADE ON OR AFTER THE 1ST DAY OF JUNE, 2007, AN ORDER UNDER SUB - SECTION (3) MAY BE MADE AT ANY TIME BEFORE SIXTY DAYS PRIOR TO THE DATE ON WHICH THE PERIOD OF LIMITATION REFERRED TO IN S ECTION 153, OR AS THE CASE MAY BE, IN SECTION 153B FOR MAKING THE ORDER OF ASSESSMENT OR REASSESSMENT OR RECOMPUTATION OR FRESH ASSESSMENT, AS THE CASE MAY BE, EXPIRES.'. 6.3 IT TRANSPIRES FROM A READING OF THE ABOVE PROVISION THAT WHERE A REFERENCE IS MAD E TO THE TPO AFTER 1.6.2007, AN ORDER UNDER SUB - SECTION (3) MAY BE MADE AT ANY TIME BEFORE 60 DAYS PRIOR TO THE DATE ON WHICH THE PERIOD OF LIMITATION REFERRED TO IN SECTION 153, OR, AS THE CASE MAY BE, IN SECTION 153B, FOR MAKING THE ORDER OF ASSESSMENT O R RE - ASSESSMENT, ETC., EXPIRES. 6.4 THE LD. DR VEHEMENTLY CONTENDED THAT THE USE OF THE WORD 'MAY' IN THIS PROVISION FOR THE PASSING OF THE ORDER BY THE TPO WITHIN A PERIOD OF 60 DAYS OF THE LIMITATION SET OUT IN SECTION 153 INDICATES THAT THE ADHERENCE TO THIS TIME LIMIT IS NOT MANDATORY. HE CONTENDED THAT EVEN IF THE ORDER IS PASSED AFTER THE PERIOD OF 60 DAYS FROM THE PERIOD OF LIMITATION AS GIVEN U/S 153, STILL IT WOULD BE TREATED AS HAVING BEEN PASSED WITHIN TIME. THIS ARGUMENT WAS COUNTERED BY THE LD. AR. 6.5 THERE IS NO DOUBT THAT THE LEGISLATURE HAS USED THE WORD 'MAY' IN SUB - SECTION (3A) OF SECTION 92CA. THERE IS FURTHER NO DOUBT THAT THE AMBIT OF THE WORD 'MAY' IS DIFFERENT FROM THE WORD 'SHALL'. WHEREAS, ORDINARILY THE USE OF THE WORD 'SHALL' SIGN IFIES MANDATORY COMPLIANCE, THE WORD 'MAY' SIGNIFIES DIRECTORY COMPLIANCE. BUT AT TIMES, THE WORD 'MAY' CAN ALSO BE READ AS 'SHALL' AND VICE VERSA. IN FACT, ALL DEPENDS UPON THE CONTEXT AND THE BACKGROUND OF THE PROVISION IN WHICH SUCH A WORD IS USED. 6.6 SECTION 127 DEALS WITH THE POWER TO TRANSFER CASES. SUB - SECTION (1) OF THIS PROVISION PROVIDES THAT : 'THE DIRECTOR GENERAL OR CHIEF COMMISSIONER OR COMMISSIONER MAY, AFTER GIVING THE ASSESSEE A REASONABLE OPPORTUNITY OF BEING HEARD IN THE MATTER, WHEREVER IT IS PAGE 9 OF 13 POSSIBLE TO DO SO, AND AFTER RECORDING HIS REASONS FOR DOING SO, TRANSFER ANY CASE FROM ONE OR MORE ASSESSING OFFICERS SUBORDINATE TO HIM (WHETHER WITH OR WITHOUT CONCURRENT JURISDICTION) TO ANY OTHER ASSESSING OFFICER OR ASSESSING OFFICERS (WHETHER WITH OR WITHOUT CONCURRENT JURISDICTION) ALSO SUBORDINATE TO HIM'. DISPUTE AROSE IN SAHARA HOSPITALITY LTD. V. CIT [2013] 352 ITR 38/[2012] 211 TAXMAN 15/25 TAXMANN.COM 29 9 (BOM.) AS TO WHETHER OR NOT GIVING THE ASSESSEE A REASONABLE OPPORTUNITY OF BEING HEARD BEFORE THE TRANSFER OF CASE BY THE CHIEF COMMISSIONER, IN THE BACKDROP OF THE USE OF THE WORD 'MAY' IN THE PROVISION, BE CONSIDERED AS MANDATORY. THE HON'BLE BOMBAY H IGH COURT HAS HELD THAT THE WORD 'MAY' IN SECTION 127 SHOULD BE READ AS 'SHALL' AND HENCE THE GRANTING OPPORTUNITY TO THE ASSESSEE IS MANDATORY. 6.7 SECTION 16 OF THE WEALTH - TAX ACT, 1957 DEALS WITH THE ASSESSMENT OF WEALTH. SECTION 16A HAVING MARGINAL NOT E OF 'REFERENCE TO VALUATION OFFICER' PROVIDES THROUGH SUB - SECTION (1) THAT : 'FOR THE PURPOSE OF MAKING AN ASSESSMENT (INCLUDING AN ASSESSMENT IN RESPECT OF ANY ASSESSMENT YEAR COMMENCING BEFORE THE DATE OF COMING INTO FORCE OF THIS SECTION) UNDER THIS AC T, WHERE UNDER THE PROVISIONS OF SECTION 7 READ WITH THE RULES MADE UNDER THIS ACT OR, AS THE CASE MAY BE, THE RULES IN SCHEDULE III, THE MARKET VALUE OF ANY ASSET IS TO BE TAKEN INTO ACCOUNT IN SUCH ASSESSMENT, THE ASSESSING OFFICER MAY REFER THE VALUATIO N OF ANY ASSET TO A VALUATION OFFICER (A) IN A CASE WHERE THE VALUE OF THE ASSET AS RETURNED IS IN ACCORDANCE WITH THE ESTIMATE MADE BY A REGISTERED VALUER IF THE ASSESSING OFFICER IS OF OPINION THAT THE VALUE SO RETURNED IS LESS THAN ITS FAIR MARKET VALUE ; (B) IN ANY OTHER CASE, IF THE ASSESSING OFFICER IS OF OPINION (I) THAT THE FAIR MARKET VALUE OR THE ASSET EXCEEDS THE VALUE OF THE ASSET AS RETURNED BY MORE THAN SUCH PERCENTAGE OF THE VALUE OF THE ASSET AS RETURNED OR BY MORE THAN SUCH AMOUNT AS MAY BE PRESCRIBED IN THIS BEHALF; OR (II) THAT HAVING REGARD TO THE NATURE OF THE ASSET AND OTHER RELEVANT CIRCUMSTANCES, IT IS NECESSARY SO TO DO'. IN RAJ PAUL OSWAL V. CWT [1988 ] 171 ITR 489/[1987] 35 TAXMAN 509 (PUNJ. & HAR.) , THERE AROSE A QUARREL AS TO THE MEANING OF THE WORD 'MAY' USED IN SECTION 16A IN THE CONTEXT OF MAKING REFERENCE TO THE VALUATION OFFICER. SETTLING THE CONTROVERSY, THE PAGE 10 OF 13 HON'BLE HIGH COURT HELD THAT THE WOR D 'MAY' USED IN SECTION 16A(1)(B), SHOULD BE READ AS 'SHALL'. IT HELD THAT IF THE LEGISLATIVE INTENT HAD BEEN TO ACCORD TOTAL DISCRETION TO THE WTO TO MAKE A REFERENCE TO THE VALUATION OFFICER OR NOT IN CASES WHICH WERE COVERED BY CLS. (A) & (B) OF SUB - S. (1) OF S. 16A OF THE WT ACT, THEN THERE WAS NO NECESSITY OF PROVIDING THE GUIDELINES IN CL. (A) OR IN SUB - CLS. (I) AND (II) OF CL. (B) OF SUB - S. (1) OF S. 16A. IT WAS, THEREFORE, HELD THAT THE LEGISLATURE BY PRESCRIBING THE CONTINGENCIES, IN WHICH, BY IMPL ICATION, IT WOULD NOT BE NECESSARY TO MAKE A REFERENCE, ALSO AGAIN BY NECESSARY IMPLICATION BE TAKEN TO HAVE INTENDED THAT THE REFERENCE TO VALUATION OFFICER WAS MUST IF THE GIVEN CONTINGENCIES DID NOT EXIST. IN THIS REGARD, THE HON'BLE HIGH COURT OBSERVED THAT : 'THERE IS NO DOUBT ABOUT THE FACT THAT THE USE OF EXPRESSION 'MAY' AND 'SHALL' TO SOME EXTENT SERVES AN INDICIA TO THE INTENTION OF THE LEGISLATURE AND HELPS IN DECIDING AS TO WHETHER THE GIVEN REQUIREMENT IS DIRECTORY OR MANDATORY IN CHARACTER, BU T THE USE OF EXPRESSION 'MAY' OR 'SHALL' IS NEVER CONSIDERED DECISIVE IN THAT REGARD'. IT WAS THUS HELD THAT THE MOMENT THE ESTIMATED VALUE EXCEEDED THE RETURNED VALUE OF THE ASSET BY MORE THAN WHAT IS ENVISAGED BY R. 3B, THEN THE WTO HAD NO OPTION, BUT TO MAKE A REFERENCE AND HE IS NOT TO WAIT FOR A REQUEST FROM THE ASSESSEE TO MAKE A REFERENCE. SIMILAR VIEW HAS BEEN EXPRESSED BY THE HON'BLE DELHI HIGH COURT IN SHARBATI DEVI JHALANI V. CWT [1986] 159 ITR 549 . IT IS VIVID FROM THE ABOVE DISCUSSION THAT THE USE OF WORD 'MAY' OR 'SHALL' IN A PROVISION IS NOT CONCLUSIVE OF ITS MANDATORY OR DIRECTORY NATURE. ONE NEEDS TO GO THROUGH THE TEXT OF THE PROVISION AND THE CONTEXT IN WHI CH SUCH A WORD HAS BEEN USED. 6.8 REVERTING TO SECTION 92CA, WE FIND THAT THE FINANCE ACT, 2007 INSERTED SUB - SECTION (3A) CARRYING THE TIME LIMIT OF SIXTY DAYS FOR PASSING OF THE ORDER BY THE TPO BEFORE THE EXPIRY OF TIME LIMIT FOR COMPLETION OF ASSESSMENT BY THE AO U/S 153. DESPITE THE USE OF THE WORD 'MAY', THE TIME LIMIT FOR PASSING THE ORDER BY THE TPO IS MANDATORY, AS IN THE OTHERWISE SITUATION OF THE TPO HAVING BEEN ALLOWED MORE TIME BY IMPLICATION, SAY OF THREE MONTHS OR MORE, COULD AT THAT TIME HAVE FRUSTRATED THE PROVISIONS OF SECTION 153 FOR THE PASSING OF THE ASSESSMENT ORDER BY THE AO. THUS WE HAVE NO PAGE 11 OF 13 HESITATION IN HOLDING THAT THE USE OF THE WORD 'MAY' IN SUB - SECTION (3A) OF SECTION 92CA IS TO BE CONSTRUED AS 'SHALL', THEREBY MAKING THIS TIME LI MIT AS MANDATORY AND NOT DIRECTORY. AS SUCH, IT IS HELD THAT THE TPO IS BOUND BY THE GIVEN TIME LIMIT FOR PASSING OF HIS ORDER. 6.9 HAVING HELD THAT THE WORD 'MAY' IN SECTION 92CA(3A) SHOULD BE READ AS 'SHALL', WE ONCE AGAIN NOTE THAT PRIOR TO THE INSERTIO N OF SECTION 144C BY THE FINANCE ACT, 2009, THE TIME LIMIT FOR COMPLETION OF ASSESSMENT WAS CONTAINED IN SECTION 153 AND ACCORDINGLY THE TIME LIMIT FOR THE PASSING OF THE ORDER BY THE TPO WAS ALSO SET OUT ACCORDINGLY IN SECTION 92CA W.R.T. THE TIME LIMIT F OR THE COMPLETION OF ASSESSMENT AS PER SECTION 153. HOWEVER, WITH THE INSERTION OF SECTION 144C, THE TIME LIMIT FOR THE COMPLETION OF ASSESSMENT, OR IN OTHER WORDS, FOR PASSING OF THE FINAL ASSESSMENT ORDER, STOOD SHIFTED TO SUB - SECTION (4) OR (13) OF SECT ION 144C AND GOT DETACHED FROM SECTION 153. ALONG WITH THIS, PASSING OF DRAFT ORDER ALSO BECAME MANDATORY, FOR WHICH WE HAVE HELD ABOVE THAT THE SAME IS REQUIRED TO BE PASSED WITHIN A REASONABLE TIME AND IT HAS GOT NO RELATION WITH THE TIME LIMIT GIVEN IN SECTION 153. WHEN THE POSITION IS SUCH THAT THE DRAFT ORDER HAS TO BE PASSED INDEPENDENT OF THE TIME LIMIT GIVEN IN SECTION 153, THERE APPEARS SOME LOGIC IN NOT CONTINUING WITH THE TIME LIMIT FOR THE PASSING OF THE ORDER BY THE TPO TAGGED WITH THE TIME LIM IT GIVEN IN SECTION 153. IT HAS LED TO INCOHERENCE IN THE PROVISIONS. THIS POSITION CAN BE SET RIGHT ONLY WITH A SUITABLE LEGISLATIVE AMENDMENT. 6.10 HAVING HELD THAT THE TIME LIMIT GIVEN IN SUB - SECTION (3A) OF SECTION 92CA IS MANDATORY FOR THE PASSING OF THE ORDER BY THE TPO, LET US FIND OUT THE TIME AVAILABLE WITH THE TPO FOR THE PASSING OF HIS ORDER. IT HAS BEEN NOTICED ABOVE THAT THE TIME LIMIT AS PER SECTION 153(1) READ WITH THE THIRD PROVISO AND CLAUSE (VIII) OF THE EXPLANATION TO THE SECTION, COMES A T 7TH JUNE, 2014. PERIOD OF 60 DAYS PRIOR TO SUCH TIME LIMIT COMING AS PER SECTION 153, AVAILABLE WITH THE TPO FOR PASSING HIS ORDER, COMES TO AN END ON 8TH APRIL, 2014. AS AGAINST THIS, THE ORDER WAS ACTUALLY PASSED BY THE TPO ON 31ST MAY, 2014. THUS, THE ORDER PASSED BY THE TPO IS PATENTLY TIME BARRED. C. CONSEQUENCES OF VALID DRAFT ORDER AND TPO'S TIME BARRED ORDER PAGE 12 OF 13 7. THE LD. AR ARGUED THAT SINCE THE DRAFT ORDER AS WELL AS THE ORDER OF THE TPO WERE TIME BARRED, THE FINAL ASSESSMENT ORDER PASSED BY THE A O WAS LIABLE TO BE SET ASIDE. WE HAVE HELD ABOVE THAT THE DRAFT ORDER WAS PASSED WITHIN TIME AND ONLY THE ORDER OF THE TPO IS TIME - BARRED. WHEN AN ORDER IS PASSED WITHOUT JURISDICTION OR BEYOND THE PERMISSIBLE TIME, IT IS CONSIDERED AS NULL AND VOID. THE E FFECT OF PASSING A NULL AND VOID ORDER IS THAT IT IS CONSIDERED AS NON EST, MEANING THEREBY, THAT IT ENTAILS ALL THE CONSEQUENCES OF NOT HAVING BEEN PASSED AT ALL AND IS IGNORED FOR ALL PRACTICAL PURPOSES. THE HON'BLE MADRAS HIGH COURT IN VIJAY TELEVISION (P.) LTD. V. DRP [2014] 369 ITR 113/225 TAXMAN 35/46 TAXMANN.COM 100 CONSIDERED A CASE IN WHICH THE ASSESSMENT ORDER WAS DIRECTLY PASSED WITHOUT ROUTING THROUGH DRAFT ORDER OR DRP. THE HON'BLE COURT HELD IT TO BE A NON - CURABLE DEFECT AND RESULTANTLY THE ASSESSMENT WAS QUASHED. IT WAS HELD THAT WHEN THERE IS AN OMISSION ON THE PART OF THE AO TO FOLLOW THE MANDATORY PROCEDURE PRESCRIBED UNDER THE ACT, SUCH AN OMISSION CANNOT B E TERMED AS A MERE PROCEDURAL IRREGULARITY AND IT CANNOT BE CURED. EXTANTLY, WE ARE CONFRONTED WITH A SITUATION IN WHICH THE DRAFT ORDER HAS BEEN PASSED IN TIME BUT THE LAPSE HAS COME IN THE PASSING OF THE ORDER BY THE TPO. THE CONSEQUENCE OF THE ABOVE SCE NARIO IS THAT THE PASSING OF A VALID AND PROPERLY TIMED DRAFT ORDER CANNOT LEAD TO THE SETTING ASIDE OF THE FINAL ASSESSMENT ORDER. HOWEVER THE PASSING OF THE TIME BARRED ORDER BY THE TPO, WHICH IS AGAIN A MANDATORY PROCEDURE PRESCRIBED UNDER THE ACT, WOUL D BE A NON - CURABLE DEFECT, HAVING THE CONSEQUENCE AS IF IT WAS NOT PASSED. IN SUCH CIRCUMSTANCES, THOUGH THE FINAL ASSESSMENT ORDER WOULD BE SAVED BUT THE ADDITION ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT ARISING FROM THE DETERMINATION OF THE ALP OF THE I NTERNATIONAL TRANSACTIONS BY THE TPO AS EMANATING FROM HIS TIME BARRED ORDER, WOULD BE UNSUSTAINABLE. WE HOLD ACCORDINGLY AND DIRECT THE DELETION OF ADDITION ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT MADE IN THE FINAL ASSESSMENT ORDER. 13. THEREFORE RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH WE ALSO HOLD THAT ADDITION MADE ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT THE FINAL ASSESSMENT ORDER DOES NOT SURVIVE. 14. IN THE RESULT ADDITIONAL GROUND RAISED BY THE ASSESSEE IS ALLOWED. PAGE 13 OF 13 15. IN VIEW OF OUR DECISION WITH RESPECT TO GROUND NO. 10.1 AND 10.2 WHEREIN WE HAVE HELD THAT THE TRANSFER PRICING ADJUSTMENT MADE IN THE FINAL ASSESSMENT ORDER DOES NOT SURVIVE AND NO OTHER ADDITION IS MADE BY THE LD. ASSESSING OFFICER IN THE FINAL ASSESSMENT ORDER PA SSED ON 31/12/2014 NO OTHER ISSUE REMAINS TO BE DECIDED. IN VIEW OF THIS GROUND NO. 129 OF THE APPEAL IS PREFERRED BY THE ASSESSEE ARE DISMISSED WITHOUT ADJUDICATION. 16. IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COUR T ON 2 5 / 10 /2016. - S D / - - S D / - ( I.C.SUDHIR ) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 2 5 / 10 /2016 A K KEOT COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI