DCIT 14 (3)(1), MUMBAI V. TATA COMMUNICATIONS TRANSFORMATION SERVICES LTD., MUMBAI

ITA 6240/MUM/2019

AI Insights

This case involves cross appeals by Tata Communications Transformation Services Limited (the assessee) and the Deputy Commissioner of Income Tax (the Revenue) concerning the assessment order for the Assessment Year 2008-09. The primary legal issue was the validity of the final assessment order passed without a draft assessment order as required under section 144C of the Income Tax Act, 1961. The assessee challenged the final assessment order on the grounds that the mandatory provision of section 144C was not followed, which led to the assessment order being declared null and void. The Tribunal's decision was influenced by precedents from the Supreme Court and High Courts, which emphasized the mandatory nature of issuing a draft assessment order, allowing the assessee to raise objections before the Dispute Resolution Panel.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 299630 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 11 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-09-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: J
• Next Hearing Date: 07-06-2023
• Assessment Year: 2008-2009
• Appeal Filed On: 30-09-2019
• Other Referred Cases: Addl. CIT vs. M/s. Nokia India Pvt. Ltd., The Pr. CIT vs. Lionbridge Technologies Pvt. Ltd., Asst. CIT vs. M/s. Zuari Cement Ltd., The Pr. CIT vs. M/s. Andrew Telecommunications P. Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; Principle of natural justice; International transaction; Question of law; Set aside
• Section: 143(3); 142(1); 143(1); 144C; 143(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “J” BENCH, MUMBAI BEFORE SHRI B R BASKARAN, AM AND MS. KAVITHA RAJAGOPAL, JM I TA N o. 588 2/ M u m / 20 19 ( A s s e ss me nt Y ea r: 20 0 8- 09 ) Tata Communications Transformations Services Limited D-21/C 36, G Block Bandra Kurla Complex, Mumbai-400 008 V s. Dy. CIT (TP)-4(2)(1) Air India Building, 5 th Floor, Nariman Point, Mumbai-400 021 P A N / G I R N o. AA CC V 3 18 9 A (Assessee) : (Revenue) a nd I TA N o. 624 0/ M u m / 20 19 ( A s s e ss me nt Y ea r: 20 0 8- 09 ) Dy. CIT-14(3)(1) 4 th Floor, Room No. 455, Aayakar Bhavan, M. K. Road, Mumbai-400 020 V s. Tata Communications Transformation Services Ltd. Plot No. C-21 and C-36 C Tower, BKC Vidyanagri PO, Bandra Kurla Complex, Bandra (E), Mumbai-400 098 P A N / G I R N o. AA CC V 3 18 9 Q (Revenue) : (Assessee) Assessee by : Shri Nitesh Joshi Revenue by : Shri Samuel Pitta D a te o f H e a r i n g : 08.06.2023 D ate of P ro n ou n ce me n t : 05.09.2023 O R D E R Per Kavitha Rajagopal, J M: These are cross appeals filed by the assessee and the Revenue, challenging the assessment order passed u/s. 143(3) r.w.s. 254 of the Income Tax Act, 1961 (‘the Act'), relevant to the Assessment Year (‘A.Y.’ for short) 2008-09. 2. The assessee has challenged the validity of the assessment order on the ground that the Assessing Officer ('A.O.' for short) has passed the final assessment order u/s. 2 I T A N o s . 5 8 8 2 & 6 2 4 0 / M u m / 2 0 1 9 ( A . Y . 2 0 0 8 - 0 9 ) Tata Communications Transformation Services Ltd. 143(3) r.w.s. 254 of the Act dated 28.01.2016 without passing the draft assessment order as per the provision of section 144C of the Act. 3. The brief facts are that the assessee is engaged in the business of providing Telecommunication Network Management Services rendering services from SEZ and STPI Zone and is a wholly owned subsidiary of Tata Communication Ltd. (TCL for short). The assessee filed its return of income dated 29.09.2008, declaring a total income of Rs.3,41,74,610/- and the same was processed u/s. 143(1) of the Act. The assessee company had provided the following services to its AEs during the year under consideration : 1. Provision of Telecommunication Network Management Service 2. Provision of Finance and Accounting services and recovery (receipt) and reimbursement of expenses (paid). 4. The assessee had adopted TNMM method for determining the arm's length price ('ALP' for short) of international transaction entered into with its AE. The profit level indicator (PLI) is OP/OC and the assessee has taken non AE’s as the tested party. The assessee has bench marked the said transaction of provision of Telecommunication Network Management Service (Rs.17.80 crores) and provision of supervision services (Rs.18.89 crores by using internal TNMM method. The assessee’s case was selected for scrutiny and the notice u/s. 143(2) and 142(1) of the Act dated 05.09.2011 and 30.11.2010 were issued and duly served on the assessee. The A.O. observed from the audited report filed by the assessee in Form No. 3CEB that the assessee had entered into international transactions with its AE and, hence, the A.O. made reference u/s. 92CA(1) of the Act to the Transfer Pricing Officer ('TPO' for short) for computation of the ALP 3 I T A N o s . 5 8 8 2 & 6 2 4 0 / M u m / 2 0 1 9 ( A . Y . 2 0 0 8 - 0 9 ) Tata Communications Transformation Services Ltd. pertaining to the international transaction. The TPO vide order dated 14.10.2011 had proposed an adjustment of Rs.12,76,01,546/- towards the international transaction of the assessee with respect to provision of Telecommunication Network Management Service and provision of Finance and Accounting services (administrative support services). The ld. A.O. passed the draft assessment order dated 12.12.2011. The assessee filed its objection before the ld.DRP against the adjustment proposed by the ld. TPO/A.O. and the ld. DRP vide order dated 23.08.2012 disposed off the objection raised by the assessee and directed the ld. TPO to calculate the mean margins of the comparable after excluding the comparable “Mold Tek Technologies Ltd.” from the list of comparables and to recompute the ALP thereupon. The ld. DRP also directed the ld. TPO to exclude the cost of recovery (of Rs.1,04,68,717/-) from the cost basis and to recompute the ALP accordingly. The ld. TPO in the order giving effect to the direction of the ld. DRP vide order dated 31.10.2012 proposed a revised adjustment of Rs.9,91,21,201.83/-. Subsequent to this, the A.O. vide order dated 27.11.2012 passed the final assessment order u/s. 143(3) r.w.s. 144C(5) of the Act determining the total income at Rs.14,02,26,473/- after making the proposed TP adjustment of Rs.9,91,21,202/-. 5. Aggrieved by the said order, the assessee was in appeal before the Tribunal and the co-ordinate bench (in ITA No. 643/Mum/2013 vide order dated 10.11.2014) had remanded the issue back to the file of the ld. A.O./TPO for recomputing the ALP of the international transactions after verifying the segmental results filed by the assessee which was not considered by the ld. A.O./TPO and the ld. DRP for the reason that the assessee did not maintain segmental accounts for the international transactions. The A.O. vide 4 I T A N o s . 5 8 8 2 & 6 2 4 0 / M u m / 2 0 1 9 ( A . Y . 2 0 0 8 - 0 9 ) Tata Communications Transformation Services Ltd. letter dated 22.01.2015 made a reference to the ld. TPO for giving effect to the order of the Tribunal dated 10.11.2014 and the ld. TPO vide order dated 23.12.2015 proposed a TP adjustment of Rs.1,95,36,467/-. Further, the ld. A.O. vide order dated 28.01.2016 passed the final assessment order by making the TP adjustment of Rs.1,95,36,767/- as proposed by the ld. TPO and determined the total income at Rs.5,37,11,077/-. 6. Aggrieved the assessee was in appeal before the ld. CIT(A), challenging the order of the ld. A.O. The ld. CIT(A) partly allowed the appeal of the assessee on the grounds of the merits of the method adopted by the assessee in determining the ALP and dismissed the additional ground challenging the validity of the assessment order by not passing a draft assessment order as per section 144C of the Act. 7. The assessee and the Revenue are in appeal before us challenging the order of the ld. CIT(A) on various grounds. 8. The learned Authorised Representative ('ld. AR' for short) for the assessee contended that the assessee had two international transactions namely Network Management Services and Finance and Accounting services for which the Tribunal had directed the ld. TPO/A.O. to determine the ALP after considering the segmental accounts of the assessee and had restored it back to the ld. TPO/A.O. with the said direction. The ld. AR further stated that the Tribunal has not given any findings on the merits. The ld. AR had submitted that even in the set aside proceeding, the ld. A.O. is bound to pass the draft assessment order as per the transfer pricing provision which is mandatory in nature. The ld. AR relied on the following decisions for the proposition that the assessment order 5 I T A N o s . 5 8 8 2 & 6 2 4 0 / M u m / 2 0 1 9 ( A . Y . 2 0 0 8 - 0 9 ) Tata Communications Transformation Services Ltd. passed without the draft assessment order and without following the mandatory requirement of section 144C of the Act is held to be null and void: • Addl. CIT vs. M/s. Nokia India Pvt. Ltd. (SLP (Civil) Diary Nos. 7302/2018) • The Pr. CIT vs. Lionbridge Technologies Pvt. Ltd. (in ITA No. 622 of 2016 vide order dated 03.12.2018) • Asst. CIT vs. M/s. Zuari Cement Ltd. (CC 16694/2013) 9. The learned Departmental Representative ('ld.DR' for short), on the other hand, controverted the said fact and stated that there was no requirement for passing of the draft assessment order in a remand matter as per the scheme of section 144C which does not expressly specify that the draft assessment order even in case of remand proceedings have to be passed. The ld. AR further contended that the assessee had taken this ground only as an additional ground before the ld. CIT(A) for the reason that the assessee was not in any way prejudiced by non passing of the draft assessment order. The ld. DR further to this had stated that the final assessment order dated 28.01.2016 was passed in consequence of the direction of the Tribunal and if draft assessment order would have been passed in this case, then it would have caused unnecessary complications when the assessee decides to again object the draft assessment order before the ld. DRP in which case there would be two varied directions issued to the ld. TPO/A.O. from the ld. DRP as well as from the Tribunal’s directions. The ld. DR relied on the order of the ld. CIT(A). 10. We have heard the rival submissions and perused the materials available on record. It is observed that the assessee had entered into two international transactions with its AE relating to Network Management Services and Finance and Accounting services for which the assessee had determined the ALP based on the comparability of 6 I T A N o s . 5 8 8 2 & 6 2 4 0 / M u m / 2 0 1 9 ( A . Y . 2 0 0 8 - 0 9 ) Tata Communications Transformation Services Ltd. the said transactions with non AE transactions and the assessee had determined the profit on these two transactions with the non AEs at 6.50% against the profit margin of AE transactions at 17.47%. The ld. TPO had selected 21 comparables and arrived at 28.57%. In the first round of litigation, the Tribunal had remanded these issue back to the file of the ld. TPO/A.O. with a direction to redetermine the ALP of these two international transactions after duly verifying the segmental results of the assessee which were not considered by the ld.A.O/TPO for the reason that the TP study made by the assessee has consolidated the two transactions together and had compared the same with the non AE transactions. The ld.A.O. then passed the impugned assessment order dated 28.01.2016 u/s. 143(3) r.w.s. 254 of the Act after recomputing the TP adjustments to Rs.1,95,36,467/-. It is observed that the assessee in its appeal before the first appellate authority has challenged the legal ground that the assessment order is bad in law for the reason that the A.O. has failed to passed the draft assessment order prior to the final assessment order and the same was dismissed by the ld. CIT(A). 11. The Revenue is also in appeal challenging the order of the ld. CIT(A) on the grounds of the TP adjustment made by the ld. TPO/A.O. and confirmed by the ld. CIT(A). It is evident that the ld. A.O. has not passed the draft assessment order in this case and had directly passed the final assessment order. The ld. AR had relied on the decision of the Hon'ble Apex Court in the case of M/s. Zuari Cement Ltd. (supra) and M/s. Nokia India Pvt. Ltd. (supra) and the decision of Hon'ble Jurisdictional High Court in the case of Lionbridge Technologies Pvt. Ltd. (supra) and The Pr. CIT vs. M/s. Andrew Telecommunications P. Ltd. (in Tax Appeal No. 144 of 2017 vide order dated 7 I T A N o s . 5 8 8 2 & 6 2 4 0 / M u m / 2 0 1 9 ( A . Y . 2 0 0 8 - 0 9 ) Tata Communications Transformation Services Ltd. 16.07.2018). It is observed that in the case of M/s. Andrew Telecommunications P. Ltd. (supra) it is held that the issuance of draft order after remand entitled the assessee to raise any objection before the ld. DRP on the proposed variation which according to the court is not a mere formality but a mandatory requirement. The Hon'ble High Court further held that when the matter was set aside for denovo adjudication, it resumes the first stage as per the provision of section 144C(1) of the Act, making the earlier orders null and void and in which case the issuance of draft assessment order was mandatory as per the scheme of section 144C of the Act. The relevant extract of the said decision is cited hereunder for ease of reference: 18. Now to consider whether after remand, it was necessary to issue a draft assessment order. Firstly, the issuance of a draft assessment order is not an empty formality. When a draft assessment order is passed and copy is given to the Assessee, the Assessee can raise objections before the Dispute Resolution Panel on any of the proposed variations. There is a right given to the Assessee to object, and to have the objections considered not by the Assessing Officer, but by the Dispute Resolution Panel. 19. The Tribunal, by order dated 1 October 2012, set aside the entire exercise and the matter was relegated to the Assessing Officer. Once the matter was sent back to be decided afresh it went back to the stage of Section 144C(1) of the Act. Since the Tribunal set aside the proceedings on the ground of violation of principles of natural justice, the first exercise was void and without jurisdiction. Therefore, nothing remained on the record, including the draft assessment order. Therefore, issuance of a draft assessment order was necessary. We do not find from the scheme of Section 144C that if the proceedings were to be started a fresh on remand, the draft assessment order is not required to be given. Non issuance of the draft assessment order has thus vitiated the final assessment order. 20. In the case of JCB India, the Division Bench of the Delhi High Court in identical circumstances has held that after the remand on facts, the draft assessment order was necessary. 21. The view taken by the Tribunal in the impugned order that for want of issuance of draft order, the assessment order is without jurisdiction, cannot be faulted with. No substantial question of law arises in the present appeal. The appeal is dismissed. 12. The ld. AR has also relied on the decision of the M/s. Nokia India Pvt. Ltd. (supra) which on similar proposition the Hon’ble Delhi High Court has held that the mandatory provision of section 144C of the Act would also apply to the assessment order passed in consequence of the set aside proceeding and the defect in the same is not of curable 8 I T A N o s . 5 8 8 2 & 6 2 4 0 / M u m / 2 0 1 9 ( A . Y . 2 0 0 8 - 0 9 ) Tata Communications Transformation Services Ltd. defect u/s. 292B of the Act. The said order was also upheld by the ld. Hon'ble Apex Court. 13. By respectfully following the above said decision, we hold that the assessment order passed in consequence of the direction of the Tribunal without passing of the draft assessment order u/s. 144C of the Act is held to be null and void-ab-initio. As the assessment order has been declared as invalid the other grounds of appeal raised by the assessee by way of additional grounds, requires no adjudication and hereby becomes infructuous. 14. In the result, the appeal filed by the assessee is allowed and the appeal filed by the Revenue is dismissed. Order pronounced in the open court on 05.09.2023. Sd/- Sd/- (B R Baskaran) (Kavitha Rajagopal) Accountant Member Judicial Member Mumbai; Dated : 05.09.2023 Roshani , Sr. PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. CIT - concerned 4. DR, ITAT, Mumbai 5. Guard File BY ORDER, (Dy./Asstt. Registrar) ITAT, Mumbai