Asst. CIT, Circle-6, Pune V. Sas Research & Development (India) Pvt. Ltd., Pune

ITA 810/PUN/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 0958 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 5 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-09-2016
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 19-07-2016
• Assessment Year: 2004-2005
• Appeal Filed On: 05-04-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Reopening of assessment; Transfer pricing; Search and seizure; Opportunity of being heard; International transaction; Wholly owned subsidiary; Avoidance of tax; Validity of assessment; Reason to believe; Reassessment proceedings
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 92C; 271(1)(b); 139; 143(3); 92; 92D; 92B; 92F; 92A; 92E; 143(1); 144C; 143(2); 264; 64; 113; 13; 153; 22; 92CA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE , . . , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI R.K. PANDA, AM . / ITA NO. 810 /PN/201 3 / ASSESSMENT YEAR : 20 04 - 05 THE DY . COMMISSIONER OF I NCOME TAX, CIRCLE 6, PUNE . / APPELLANT VS. SAS RESEARCH & DEVELOPMENT (INDIA) PVT. LTD., LEVEL 2A & LEVEL - 3, CYBERCITY, TOWER - 5, MAGARPATTA CITY, HADAPSAR, PUNE 41101 3 . / RESPONDENT PAN NO.AA ECS8099L . / CO NO. 03 /PN/201 5 / ASSESSMENT YEAR : 20 04 - 05 (OUT OF ITA NO.810/PN/2013) (OUT OF ITA NO.810/PN/2013) SAS RESEARCH & DEVELOPMENT (INDIA) PVT. LTD., LEVEL 2A & LEVEL - 3, CYBERC ITY, TOWER - 5, MAGARPATTA CITY, HADAPSAR, PUNE 411013 / CROSS OBJECT OR PAN NO.AA ECS8099L VS. THE DY. COMMISSIONER OF INCOME TAX, CIRCLE 6, PUNE . / RESPONDENT . / CO NO. 0 4 /PN/201 5 / A SSESSMENT YEAR : 20 0 5 - 0 6 (OUT OF ITA NO.811/PN/2013) SAS RESEARCH & DEVELOPMENT (INDIA) PVT. LTD., LEVEL 2A & LEVEL - 3, CYBERCITY, TOWER - 5, MAGARPATTA CITY, HADAPSAR, PUNE 411013 / CROSS OBJECT OR PAN NO.AA ECS8099L 2 ITA NO. 810 /PN/20 1 3 CO NO S . 03 & 04 /PN/201 5 ITA NOS.1850 & 1927/PN/2013 SAS RESEARCH & DEVELOPMENT (I) PVT. LTD. VS. THE DY. COMMI SSIONER OF INCOME TAX, CIRCLE 6, PUNE . / RESPONDENT . / ITA NO. 1850 /PN/201 3 / ASSESSMENT YEAR : 20 0 6 - 0 7 SAS RESEARCH & DEVELOPMENT (INDIA) PVT. LTD., LEVEL 2A & LEVEL - 3, CYBERCITY, TOWER - 5, MAGARPATTA CITY , HADAPSAR, PUNE 411013 . / APPELLANT PAN NO.AA ECS8099L VS. THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE 6, PUNE . / RESPONDENT . / ITA NO. 1 927 /PN/201 3 / ASSESSMENT YEAR : 20 06 - 07 / ASSESSMENT YEAR : 20 06 - 07 THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE 6, PUNE . / APPELLANT VS. SAS RESEARCH & DEVELOPMENT (INDIA) PVT. LTD., LEVEL 2A & LEVEL - 3, CYBERCITY, TOWER - 5, MAGARPATTA CITY, HADAPSAR, PUNE 411013 . / RESPONDENT PAN NO.AA ECS8099L ASSESSEE BY : SHRI M.P. LOHIA REVENUE BY : S /S HRI S.K. RASTOGI, CIT AND SUSHIL KULKARNI / DATE OF HEARING : 1 9 .0 7 .201 6 / DATE OF PRONOUNCEMENT: 16 . 0 9 .201 6 3 ITA NO. 810 /PN/20 1 3 CO NO S . 03 & 04 /PN/201 5 ITA NOS.1850 & 1927/PN/2013 SAS RESEARCH & DEVELOPMENT (I) PVT. LTD. / ORDER PER SUSHMA CHOWLA, JM: OU T OF THIS BUNCH OF APPEALS, ONE APPEAL FILED BY THE REVENUE AND TWO CROSS OBJECTIONS FILED BY THE ASSESSEE ARE AGAINST CONSOLIDATED ORDER OF CIT(A) - IT/TP , PUNE, DATED 2 1 .0 1 .201 3 RELATING TO ASSESSMENT YEAR S 20 04 - 05 AND 2005 - 06 AGAINST RESPECTIVE ORDER S PAS SED UNDER SECTION 143(3) OF THE INCOME - TAX ACT, 1961 (IN SHORT THE ACT). FURTHER, T HE CROSS APPEAL FILED BY THE ASSESSEE AND THE REVENUE ARE AGAINST THE ORDER OF CIT(A) - IT/TP, PUNE, DATED 12 .0 8 .2013 RELATING TO ASSESSMENT YEAR 200 6 - 0 7 AGAINST ORDER PASS ED UNDER SECTION 143(3) R.W.S. 147 OF THE INCOME - TAX ACT, 1961 (IN SHORT THE ACT) . 2. ALL THE APPEALS AND CROSS OBJECTIONS RELATING TO THE SAME ASSESSEE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE . 3. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE IN THE FIRST INSTANCE WITHDREW CROSS OBJECTIONS FILED BY THE ASSESSEE BOTH IN ASSESSMENT YEARS 2004 - 05 AND 2005 - 06, HENCE, THE SAME ARE DISMISSED AS WITHDRAWN. THE ASSESSEE HAS ALSO FILED AN APP LICATION UNDER RULE 27 FOR ASSESSMENT YEARS 2004 - 05 AND 2005 - 06. 4. FIRST, WE SHALL TAKE UP THE APPEAL IN ITA NO.810/PN/2013 RELATING TO ASSESSMENT YEAR 2004 - 05. THE GROUNDS OF APPEAL RAISED BY THE REVENUE ARE AS UNDER: - 1. THE ORDER OF THE COMMISSION ER OF INCOME - TAX (APPEALS) IS CONTRARY TO LAW AND TO THE FACTS AND CIRCUMSTANCES OF THE CASE. 4 ITA NO. 810 /PN/20 1 3 CO NO S . 03 & 04 /PN/201 5 ITA NOS.1850 & 1927/PN/2013 SAS RESEARCH & DEVELOPMENT (I) PVT. LTD. 2. THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED ON FACTS AND IN LAW IN DIRECTING THE AO T O APPLY THE TURNOVER FILTER WHEN THERE IS NO CORRELATION BETWEEN TUR NOVER AND PROFITABILITY OF COMPANIES IN I.T. SECTOR. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE COMMISSIONER OF INCOME - TAX (APPEA L S) ERRED IN DIRECTING THE AO TO CONSIDER THE AGGREGATE MARGIN OF THE ASSESSEE FROM ONSITE AS WELL AS OFFSHORE SERVICES FOR COMPUTING THE ALP DESPITE THE FACT THAT THE MARK UP FOR ONSITE AND OFFSHORE SERVICES WERE DIFFERENT FORM EACH OTHER. 4. THE COMMISSIONER OF INCOME - TAX (APPEALS) ERRED ON FAC T S AND IN LAW IN NOT APPRECIATING THE FACT THAT DIFFE RENT MARKUPS FOR ONSITE AND O FFSHORE SERVICES INDICATE TOWARDS FUNCTIONAL AND RISK PROFILE BEING DIFFERENT FOR ONSITE & OFFSHORE SEGMENTS. 5. FOR THIS AND SUCH OTHER REASONS AS MAY BE URGED AT TH E TIME OF HEARING THE ORDER OF THE COMMISSIONER OF INCOME - TAX (APPEALS) MAY BE VACATED AND THAT OF THE AO BE RESTORED. 5. THE GROUND OF APPEAL NO.1 RAISED BY THE REVENUE IS GENERAL IN NATURE AND HENCE, THE SAME IS DISMISSED. 6. THE ISSUE IN GROUNDS OF APPEAL NO.2 TO 4 IS AGAINST THE ORDER OF CIT(A) IN ADJUDIC ATING THE ISSUE OF TRANSFER PRICING ADJUSTMENT. ADJUDIC ATING THE ISSUE OF TRANSFER PRICING ADJUSTMENT. 7. BRIEFLY, IN THE FACTS OF THE CASE, THE ASSESSEE WAS ENGAGED IN PROVIDING SOFTWARE DEVELOPMENT SERVICES TO SAS GROUP ENTITIES. THE ASSESSEE WAS WHOLLY OWNED SUBSIDIARY OF SAS INSTITUTE INC, USA. THE ASSE SSEE DURING THE YEAR UNDER CONSIDERATION HAD UNIT REGISTERED UNDER SOFTWARE TECHNOLOGY PARK SCHEME OF GOVERNMENT OF INDIA. FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD FILED RETURN OF INCOME DECLARING TOTAL INCOME OF RS.2,04,740/ - . THE ASSESSEE WAS PROVIDING SOFTWARE DEVELOPMENT SERVICES TO THE SAS GROUP COMPANIES OVERSEAS. DURING THE YEAR, IT HAD TWO UNDERTAKINGS; ONE IN PUNE AND THE OTHER IN MUMBAI. THE UNDERTAKING IN MUMBAI WAS SHUT DOWN IN FEBRUARY, 2004 AND WAS NOT REGISTERED UNDER SOFTWARE T ECHNOLOGY PARK SCHEME. HOWEVER, PUNE UNIT WAS REGISTERED UNDER SOFTWARE TECHNOLOGY PARK SCHEME. THOUGH THE ASSESSEE HAD TWO SEPARATE UNITS, THE ASSESSEE HAD NOT MAINTAINED 5 ITA NO. 810 /PN/20 1 3 CO NO S . 03 & 04 /PN/201 5 ITA NOS.1850 & 1927/PN/2013 SAS RESEARCH & DEVELOPMENT (I) PVT. LTD. SEPARATE BOOKS OF ACCOUNT. THE ASSESSEE WAS ENTITLED TO CLAIM THE DEDUCTION UNDER SECTION 10A OF THE ACT IN RESPECT OF PUNE UNIT. REFERENCE UNDER SECTION 92CA(1) OF THE ACT WAS MADE BY THE ASSESSING OFFICER TO THE TRANSFER PRICING OFFICER (IN SHORT THE TPO) FOR COMPUTATION OF ARM'S LENGTH PRICE IN RELATION TO INTERNATIONAL TRANSACTI ON . THE TPO NOTED THAT THE ASSESSEE HAD PROVIDED SEVERAL SERVICES TO ITS ASSOCIATE ENTERPRISES AS TABULATED AT PAGE 2 OF THE ORDER OF TPO. THE ASSESSEE WAS PROVIDING BOTH ON - SITE AND OFF - SITE SERVICES. THE TPO ALSO NOTED THAT THE ASSESSEE IN ITS TRANSFE R PRICING REPORT HAD PREPARED SEGMENTAL PROFITABILITY FOR SOFTWARE DEVELOPMENT AND SOFTWARE CONSULTANCY SERVICES. THE TNMM METHOD WAS APPLIED USING OPERATING MARGIN OVER OPERATING COST AS THE PROFIT LEVEL INDICATOR (PLI), IN ORDER TO TEST THE ARMS LENGTH NATURE OF ITS INTERNATIONAL TRANSACTIONS. THE ASSESSEE IN THE TP STUDY REPORT HAD REPORTED THAT IT HAD EARNED MARK - UP OF 7.50% OF COST FOR THE SOFTWARE DEVELOPMENT ACTIVITY DURING THE YEAR. THE MARK - UP EARNED BY THE COMPARABLE COMPANIES SELECTED BY THE ASSESSEE WERE 2.20%. HOWEVER, THE TPO REJECTED MANY OF THE SAID COMPANIES SELECTED AS COMPARABLE BY THE ASSESSEE ON ACCOUNT OF ABNORMAL RESULTS SHOWN BY THE SAID COMPANIES AND THE ARITHMETIC MEAN OF MARGINS OF BALANCE COMPANIES WORKED OUT TO 14.18%. THE ASSESSEE WAS CONFRONTED WITH THE SAID DETAILS AND WAS ASKED TO EXPLAIN AS TO WHY AN ADJUSTMENT SHOULD NOT BE MADE TO ARM'S LENGTH PRICE OF TRANSACTIONS BY TAKING THE REVISED MARGINS OF COMPARABLES. THE ASSESSEE IN TURN, EXPLAINED ITS CASE WHICH IS NOT ACC EPTED BY THE TPO. THE TPO NOTED THAT IT WAS NOT THAT LOSS MAKING COMPANIES HAD BEEN REMOVED FROM THE LIST OF COMPARABLES. HOWEVER, ONLY THOSE COMPANIES WHICH HAD REPORTED HUGE LOSSES IN 2004 OR WHICH HAD VERY GOOD PROFITS IN 2003 AND HAD BECOME LOSS MAKI NG COMPANIES IN 2004, HAD BEEN REJECTED SINCE THEY WERE NOT DEMONSTRATING CONSISTENT RESULTS. THE TPO ALSO POINTED OUT THAT ALL THE ABNORMALITIES WHETHER ON PROFIT OR LOSS SIDE HAD 6 ITA NO. 810 /PN/20 1 3 CO NO S . 03 & 04 /PN/201 5 ITA NOS.1850 & 1927/PN/2013 SAS RESEARCH & DEVELOPMENT (I) PVT. LTD. BEEN ELIMINATED BY EVEN EXCLUDING THE COMPANIES WHICH WERE SHOWING VERY HI GH PROFIT MARGINS. THE CONTENTION OF ASSESSEE TO REJECT THE COMPANIES HAVING MARGIN OF 40% WAS ALSO BRUSHED ASIDE HOLDING THAT WHERE TWO COMPANIES OUT OF SET OF COMPANIES HAD SHOWN 40% OF MARK - UP, IT CANNOT BE SAID TO BE ABNORMAL. THE NEXT CONTENTION OF ASSESSEE WAS THAT THE SOFTWARE DEVELOPMENT SERVICES AND THE SOFTWARE CONSULTANCY SERVICES SHOULD BE CLUBBED AND THEN THE MARGINS OF COMPARABLES WOULD FALL +/ - 5% OF ARMS LENGTH RANGE. THE TPO NOTED THAT BOTH THESE SERVICES WERE SHOWN AS SEPARATE SEGMENTS IN TP STUDY REPORT OF THE YEAR AND WERE BENCHMARKED SEPARATELY. THE ASSESSEES CONTENTION OF AGGREGATING THE SOFTWARE DEVELOPMENT AND SOFTWARE CONSULTANCY WAS NOT ACCEPTED BY THE TPO AS THE MARK - UP IN SOFTWARE ACTIVITIES WAS 7.5% AND THE MARK - UP IN SOFTW ARE CONSULTANCY WAS 15.04%. THE TPO IN THIS REGARD OBSERVED THAT THE MARK - UP DEMONSTRATED THAT THE ACTIVITIES UNDERTAKEN BY THE ASSESSEE WERE DIFFERENT FROM FUNCTIONAL AND RISK P E RSPECTIVE AND HENCE, THE ASSESSEE WAS BEING REMUNERATED AT SEPARATE MARK - UP UNDER THE SAID SEGMENT, THEREFORE, THE SAME HAD TO BE CONSIDERED SEPARATELY. THE TPO PROPOSED AN ADJUSTMENT OF RS. 62,83,059/ - IN THE SOFTWARE DEVELOPMENT TRANSACTIONS. THE ASSESSEE HAD ALSO DECLARED TRANSACTIONS OF PROVISION OF SOFTWARE CONSULTANCY SERVI CES, AGAINST WHICH SEPARATE SEGMENTAL PROFITS WERE SHOWN . HOWEVER, THE ASSESSEE HAD EARNED MARK - UP OF 15.04% OF COST IN RESPECT OF SUCH INTERNATIONAL TRANSACTIONS, THE MARGINS OF COMPARABLE COMPANIES SELECTED FOR BENCHMARKING THE FIRST TRANSACTION OF SOFT WARE DEVELOPMENT SERVICES WERE APPLIED IN BENCHMARKING THE PROVISION OF SOFTWARE CONSULTANCY SERVICES ALSO . WHERE THE ASSESSEE HAD EARNED COST PLUS MARK - UP OF 15.04% AND AS THE MAR GIN OF COMPARABLE COMPANIES AS EARLIER WORKED OUT WAS 14.18% AND SINCE THE ASSESSEE HAD EARNED HIGHER MARK - UP AT 15.04%, THE VALUE OF SAID INTERNATIONAL TRANSACTION WAS ACCEPTED TO BE AT ARMS LENGTH. THE THIRD SET OF TRANSACTIONS OF 7 ITA NO. 810 /PN/20 1 3 CO NO S . 03 & 04 /PN/201 5 ITA NOS.1850 & 1927/PN/2013 SAS RESEARCH & DEVELOPMENT (I) PVT. LTD. REIMBURSEMENT OF EXPENSES BY THE ASSESSEE TO OVERSEAS GROUP AND TO THE ASSESSEE BY THE OVERSEAS W AS ACCEPTED TO BE AT ARMS LENGTH. THE TPO PROPOSED AN ADJUSTMENT OF RS. 62,83,059/ - ON ACCOUNT OF ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTION S . THE ASSESSING OFFICER IN THE ORDER PASSED UNDER SECTION 143(3) OF THE ACT MADE AN ADDITION OF RS.62,83,05 9/ - ON ACCOUNT OF ADJUSTMENT AS PROPOSED BY THE TPO. THE ASSESSING OFFICER ALSO RE - COMPUTED THE DEDUCTION UNDER SECTION 10A OF THE ACT BY RE - COMPUTING THE PROFITS FOR COMPUTING DEDUCTION UNDER SECTION 10A OF THE ACT. 8. IN APPEAL BEFORE THE CIT(A), THE A SSESSEE FILED WRITTEN SUBMISSIONS WHICH ARE INCORPORATED IN THE APPELLATE ORDER AT PAGES 3 TO 7 OF THE APPELLATE ORDER. VARIOUS ISSUES WERE RAISED BY THE ASSESSEE BEFORE THE CIT(A) IN RESPECT OF TP ADJUSTMENT MADE BY THE ASSESSING OFFICER BY NOT ALLOWING THE RISK ADJUSTMENT, REJECTION OF LOSS MAKING COMPANIES, APPLYING THE TURNOVER FILTER AND ALSO AS TO WHETHER THE MARGINS FROM ENTIRE SOFTWARE DEVELOPMENT SERVICES WERE TO BE CONSIDERED. THE CIT(A) DID NOT ALLOW THE CLAIM OF ASSESSEE TO GRANT RISK ADJUSTME NT. FURTHER, THE CIT(A) ALSO CONFIRMED THE ORDER OF TPO IN EXCLUDING THE LOSS MAKING COMPANIES FROM LIST OF COMPARABLES ON THE GROUND THAT THE ASSESSEE WAS A CAPTIVE SERVICE PROVIDER AND OPERATED IN COST PROTECTIVE ENVIRONMENT AND THE BUSINESS M ODULE FOLL OWED BY THE ASSESSEE DID NOT ENVISAGE INCURRING OF LOSSES. WITH REGARD TO TURNOVER FILTER, THE CIT(A) NOTED THAT BEFORE THE TPO THE ASSESSEE HAD REQUESTED FOR APPLYING FILTER OF RS.1 TO 50 CRORES. HOWEVER, THE CIT(A) NOTED THAT THE TPO HAD NOT APPLIED AN Y TURNOVER FILTER. THE CIT(A) TOOK NOTE OF THE DECISION OF BANGALORE BENCH OF TRIBUNAL IN GENISYS INTEGRATING SYSTEM (INDIA) PVT. LTD. VS. DCIT (2012) 64 DTR 225 (BANG) (TRIB) , WHEREIN THE TRIBUNAL HAD APPROVED AND APPLIED THE TURNOVER FILTER OF RS.1 TO 2 00 CRORES WHERE GENISYS S TURNOVER WAS RS.8.15 CRORES . T HE CIT(A) 8 ITA NO. 810 /PN/20 1 3 CO NO S . 03 & 04 /PN/201 5 ITA NOS.1850 & 1927/PN/2013 SAS RESEARCH & DEVELOPMENT (I) PVT. LTD. NOTED THAT THE ASSESSEES TURNOVER WAS RS.10.08 CRORES AND HE DIRECTED THE ASSESSING OFFICER TO APPLY TURNOVER FILTER OF RS.1 TO 200 CRORES AND TO EXCLUDE THE COMPARABLES WHICH HAD TURNOVER OF MORE THAN RS.200 CRORES FROM THE LIST OF COMPARABLES. THE ASSESSING OFFICER WAS THUS, DIRECTED TO EXCLUDE IGATE GLOBAL SOLUTION LTD., INFOSYS TECHNOLOGIES LTD., LARSEN & TOUBRO INFOTECH LTD. AND SATYAM COMPUTER SERVICES LTD. FROM THE SET OF COMPARABLE COMPANIES. THE NEXT PLEA RAISED BY THE ASSESSEE WAS AGAINST THE ORDER OF TPO IN ONLY CONSIDERING THE OPERATING MARGINS DERIVED FROM OFF - SHORE SOFTWARE DEVELOPMENT SERVICES AND NOT FROM THE ENTIRE SOFTWARE DEVELOPMENT SERVICES. THE CONTENTION OF THE ASSE SSEE IN THIS REGARD WAS THAT THE SOFTWARE DEVELOPMENT SERVICES RENDERED FROM INDIA AND ON - SITE SOFTWARE DEVELOPMENT SERVICES WERE OF SIMILAR NATURE COMPRISING OF SOFTWARE DEVELOPMENT ACTIVITY. IT WAS FURTHER STRESSED THAT THE SET OF COMPARABLE COMPANIES C ONSIDERED FOR BOTH THESE ACTIVITIES WERE SAME. MOREOVER, THE COMPARABLE COMPANIES WHICH WERE ENGAGED IN THE SOFTWARE DEVELOPMENT ACTIVITIES HAD BOTH OFF - SHORE AND ON - SITE DELIVERY MODELS AND SEPARATE MARGINS WERE NOT REPORTED AS BOTH THE ACTIVITIES WERE C OMPLEMENTARY TO EACH OTHER. THE ASSESSEE THUS, STRESSED THAT THERE WAS NO REASON TO ADOPT FINANCIAL RESULTS OF ONLY OF OFF - SHORE DEVELOPMENT MODEL . T HE CIT(A) HELD THAT HE WAS IN AGREEMENT WITH THE CONTENTION OF ASSESSEE THAT ON - SITE SOFTWARE SERVICES AN D OFF - SHORE SERVICES SHOULD NOT BE TREATED DIFFERENTLY ESPECIALLY WHEN COMPARABLE COMPANIES RESULTS REFLECTED COMBINED MARGIN FROM BOTH THE SERVICES OF ON - SITE AND OFF - SHORE SOFTWARE SERVICES. THE CIT(A) FURTHER HELD THAT IF THE TPO HAD COMPARED THE COMB INED MARGINS OF BOTH THE SEGMENTS, THEN THERE WAS NO JUSTIFICATION TO ADOPT THE ASSESSEES MARGIN ONLY FROM ON - SITE SOFTWARE SERVICES. ACCORDINGLY, THE ASSESSING OFFICER WAS DIRECTED TO ADOPT THE AGGREGATE MARGINS FROM THE ENTIRE SOFTWARE DEVELOPMENT SERV ICES OF THE ASSESSEE. 9 ITA NO. 810 /PN/20 1 3 CO NO S . 03 & 04 /PN/201 5 ITA NOS.1850 & 1927/PN/2013 SAS RESEARCH & DEVELOPMENT (I) PVT. LTD. 9. THE REVENUE IS IN APPEAL AGAINST THE ORDER OF CIT(A), WHEREIN BY WAY OF GROUND OF APPEAL NO.2, THE ISSUE RAISED IS AGAINST THE DIRECTION OF CIT(A) TO APPLY TURNOVER FILTER AS THERE WAS NO CORRELATION BETWEEN TURNOVER AND PROFITA BILITY OF COMPANIES IN IT SECTORS. THE REVENUE IS ALSO IN APPEAL AGAINST THE DIRECTIONS OF CIT(A) IN CONSIDERING THE AGGREGATE MARGINS OF ASSESSEE FROM ON - SITE AS WELL AS OFF - SHORE SERVICES FOR COMPUTING THE ARM'S LENGTH PRICE DESPITE THE FACT THAT THE MA RK - UP FOR ON - SITE AND OFF - SHORE WERE DIFFERENT FROM EACH OTHER. THE SAID ISSUE HAS BEEN RAISED BY WAY OF GROUND OF APPEAL NO.3. BY WAY OF GROUND OF APPEAL NO.4, THE REVENUE HAS AGITATED THAT THE CIT(A) HAS ERRED IN NOT APPRECIATING THE FACT THAT THERE WE RE DIFFERENT MARK - UPS FOR ON - SITE AND OFF - SHORE SERVICES, WHICH INDICATE TOWARDS FUNCTIONAL AND RISK PROFILE BEING DIFFERENT FOR ON - SITE AND OFF - SHORE SEGMENTS. 10. THE GROUND OF APPEAL NO.1 RAISED BY THE REVENUE IS GENERAL IN NATURE AND HENCE, THE SAME IS DISMISSED. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE REFERRED TO THE TP STUDY REPORT FILED BY THE ASSESSEE AND POINTED OUT THAT THE ASSESSEE ITSELF HAS REPORTED PROVISION OF SOFTWARE DEVELOPMENT SERVICES TO ITS ASSOCIATE ENTERPRISES AT R S.10.08 CRORES AND THE PROVISION OF ON - SITE SERVICES TO ITS ASSOCIATE ENTERPRISES AT RS.1.70 CRORES SEPARATELY IN THE SAID REPORT. HE FURTHER POINTED OUT THAT THE ASSESSEE IN TP STUDY REPORT HAD SEPARATELY BENCHMARKED TWO TRANSACTIONS AND HAD PREPARED ITS REPORT. IN RESPECT OF PROVISION OF SOFTWARE DEVELOPMENT SERVICES, THE ASSESSEE HAD SELECTED 24 COMPANIES WHOSE ARITHMETIC MEAN OF MARGIN WORKED OUT TO 2.20% AS AGAINST THE PLI OF ASSESSEE AT 7.5%, WHICH WAS FOUND TO BE AT ARMS LENGTH BY THE ASSESSEE. H OWEVER, THE TPO REJECTED THE COMPANIES WHERE THE DATA WAS NOT AVAILABLE OR WHERE THE COMPANIES WERE HAVING LOSSES OR THE 10 ITA NO. 810 /PN/20 1 3 CO NO S . 03 & 04 /PN/201 5 ITA NOS.1850 & 1927/PN/2013 SAS RESEARCH & DEVELOPMENT (I) PVT. LTD. COMPANIES WERE HAVING ABNORMAL LOSSES. THE TPO THUS, REVISED THE LIST OF COMPARABLES WHOSE MEAN WORKED OUT TO 14.18%. HE FURTHER POIN TED OUT THAT IN RESPECT OF SECOND TRANSACTION OF PROVISION OF ON - SITE SERVICES, S A ME COMPARABLES WERE TAKEN AND SINCE THE ASSESSEE HAD SHOWN ITS MARGINS HIGHER THAN THE MEAN MARGINS OF SAID COMPANIES, NO ADJUSTMENT WAS PROPOSED. BEFORE THE CIT(A), THE ASS ESSEE HAD TAKEN ONE OBJECTION THAT FILTER RS.1 TO 50 CRORES BE APPLIED, HOWEVER, THE CIT(A) DIRECTED THAT FILTER OF RS.1 TO 200 CRORES BE APPLIED. IN THIS REGARD, THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE PLACED RELIANCE ON THE ORDER OF TPO , IN RESPECT OF SECOND PART OF ORDER OF CIT(A), WHEREIN HE HAD DIRECTED THAT BOTH THE SERVICES PROVIDED BY THE ASSESSEE SHOULD BE CONSIDERED CUMULATIVELY. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE POINTED OUT THAT IN RESPECT OF AFORESAID SERV ICES, THE ASSESSEE WAS REIMBURSED AT COST PLUS 7.5% AND IN RESPECT OF ON - SITE SERVICES, WHICH WAS REIMBURSED AT COST PLUS 15.04%. OUR ATTENTION WAS FURTHER DRAWN TO THE TP STUDY REPORT, WHEREIN AT PAGE 23, THE ANALYSIS OF TRANSACTIONS OF PROVISIONS OF SOF TWARE DEVELOPMENT SERVICES WAS CARRIED OUT AND AT PAGE 34, THE ANALYSIS OF PROVISION OF ON - SITE SERVICES WAS CARRIED OUT AND BOTH WERE SEPARATELY ANALYZED. EVEN IN THE SUMMARY OF CONSEQUENCES AT PAGE 38, THE ASSESSEE HAD CONCLUDED THAT AS AGAINST ITS NET PROFIT MARGINS OF 7.5% ON OPERATING COST, THE SAME WAS WITHIN RANGE OF ITS COMPARABLES. IN RESPECT OF PROVISION FOR ON - SITE SERVICES, WHEREIN NET PROFIT MARGINS FROM ON - SITE SERVICES BY THE ASSESSEE WAS 15.04% AND OPERATING COST FOUND TO BE WITHIN RANGE O F ITS COMPARABLES. FURTHER REFERENCE WAS MADE TO THE COMPUTATION OF MARGIN ANALYSIS OF SOFTWARE SERVICES COMPARABLES AT PAGES 68 AND 69 FOR PROVISION OF OFF - SHORE SERVICES AND AT PAGE 70 FOR PROVISION OF ON - SITE SERVICES. THE LEARNED DEPARTMENTAL REPRESE NTATIVE FOR THE REVENUE STRESSED THAT THE ASSESSEE ITSELF HAD BENCHMARKED THE TWO TRANSACTIONS SEPARATELY AND THE CIT(A) IN SKETCHY 11 ITA NO. 810 /PN/20 1 3 CO NO S . 03 & 04 /PN/201 5 ITA NOS.1850 & 1927/PN/2013 SAS RESEARCH & DEVELOPMENT (I) PVT. LTD. SITUATION HAD DIRECTED THE MERGING OF TWO. HOWEVER, THE ORDER OF CIT(A) WAS TOTALLY SILENT ON THAT. THE LEARNED DEPARTMENT AL REPRESENTATIVE FOR THE REVENUE FURTHER STRESSED THAT AS FAR AS FAR OF TWO SERVICES ARE CONCERNED, THE SAME WERE SEPARATE. RELIANCE IN THIS REGARD WAS PLACED ON THE RATIO LAID DOWN BY PUNE BENCH OF TRIBUNAL IN TIBCO SOFTWARE INDIA (P.) LTD. VS. DCIT (20 15) 56 TAXMANN.COM 91 (PUNE - TRIB.) , RELATING TO ASSESSMENT YEAR 2008 - 09 AND TIBCO SOFTWARE (INDIA) (P.) LTD. VS. DCIT (2015) 58 TAXMANN.COM 215 (PUNE - TRIB.) , RELATING TO ASSESSMENT YEAR 2009 - 10 . JUST BECAUSE THE COMPARABLES PICKED UP BY THE ASSESSEE WERE SAME AND RESULTS OF TWO I.E. PROVISION OF OFF - SHORE AND ON - SITE SERVICES SHOULD BE CLUBBED, AS PER THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE WAS WRONG AND SUBMISSIONS OF THE ASSESSEE BEFORE THE CIT(A) IN THIS REGARD, ESPECIALLY IN THE CASE OF ASSESSEE WHERE SEPARATE WORKING WAS AVAILABLE , WAS INCORRECT . 1 1 . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE IN REPLY, POINTED OUT T HAT THE CIT(A) IN THE FIRST INSTANCE HAD EXCLUDED THE BIG TURNOVER COMPANIES BY APPLYING THE TURNOVER FILTER AND IN THIS REGARD FOUR COMPANIES WERE EXCLUDED. OUR ATTENTION AS DRAWN TO THE COMPUTATION AT PAGE 152 OF THE PAPER BOOK, WHEREIN BEFORE THE CIT(A) THE ASSESSEE HAD PROVIDED OPERATING REVENUE OF SEVERAL COMPANIES. COMING TO THE SECOND ASPECT OF THE ISSU E DECIDED BY THE CIT(A), THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT GOLDSTONE TECHNOLOGIES LTD. HAD MADE SEGMENTAL REPORTING OF ITS EARNINGS. HOWEVER, IN RESPECT OF OTHERS, NO SEPARATE FIGURES WERE AVAILABLE TO SHOW WHETHER TH EY HAVE ON - SITE AND OFF - SHORE OR ONLY OFF - SITE SERVICES PROVIDED TO ITS ASSOCIATE ENTERPRISES. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FURTHER POINTED OUT THAT WHILE BENCHMARKING THE INTERNATIONAL TRANSACTIONS IN ASSESSMENT YEAR 2006 - 07, TH E TPO HIMSELF HAS MERGED THE RESULTS OF PROVISION 12 ITA NO. 810 /PN/20 1 3 CO NO S . 03 & 04 /PN/201 5 ITA NOS.1850 & 1927/PN/2013 SAS RESEARCH & DEVELOPMENT (I) PVT. LTD. OF OFF - SITE AND ON - SITE SERVICES AS CUMULATIVELY PROVIDED BY THE ASSESSEE. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FURTHER STRESSED THAT IN THE TP STUDY REPORT ITSELF, IT WAS POINTED OUT THA T THESE TWO SERVICES WERE FUNCTIONALLY SIMILAR AND SAME SET OF COMPARABLES WERE PICKED UP TO BENCHMARK THE INTERNATIONAL TRANSACTIONS. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FURTHER POINTED OUT THAT IF THE ISSUE OF TURNOVER IS DECIDED IN F AVOUR OF THE ASSESSEE, THEN THE APPLICATION MOVED UNDER RULE 27 WOULD BECOME ACADEMIC. 1 2 . THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE IN REJOINDER POINTED OUT THAT SOME HANDICAPS AS WITH THE ASSESSEE WERE WITH TPO AND WHERE THE ASSESSEE SAYS THAT INFOSYS IS COMPARABLE IN ITS TP STUDY REPORT, THEN TURNOVER FILTER FAILS. HE FURTHER STRESSED THAT THE ASSESSEE WAS SHIFTING HIS STAND WHICH SHOULD NOT BE ALLOWED. IN RESPECT OF GENISYS, IT WAS POINTED OUT THAT IT WAS ENGAGED IN BOTH THE ACTIVITIES OF PROVISION OF ON - SITE AND OFF - SHORE SERVICES AND IN THE TP ANALYSIS WHILE BENCHMARKING INTERNATIONAL TRANSACTIONS, THE RESULTS OF TWO ACTIVITIES ARE SEPARATE. 1 3 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE PRESENT APPEAL IS FILED B Y THE REVENUE AGAINST THE ORDER OF CIT(A) IN ALLOWING RELIEFS TO THE ASSESSEE ON CERTAIN ISSUES WHILE BENCHMARKING THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE WITH ITS ASSOCIATE ENTERPRISES. THE ASSESSEE WAS ENGAGED IN PROVIDING SOFTWARE D EVELOPMENT SUPPORT AND SOFTWARE CONSULTANCY SERVICES TO SAS GROUP ENTITIES. VARIOUS TRANSACTIONS WERE ENTERED INTO BY THE ASSESSEE WITH ITS ASSOCIATE ENTERPRISES DURING THE YEAR UNDER CONSIDERATION. HOWEVER, THE ISSUE WHICH ARISES FOR ADJUDICATION I S IN RESPECT OF PROVISION OF SOFTWARE DEVELOPMENT SUPPORT SERVICES TO SAS INC BY THE ASSESSEE 13 ITA NO. 810 /PN/20 1 3 CO NO S . 03 & 04 /PN/201 5 ITA NOS.1850 & 1927/PN/2013 SAS RESEARCH & DEVELOPMENT (I) PVT. LTD. TO THE EXTENT OF RS.10.08 CRORES. THE INTERNATIONAL TRANSACTION WHICH IS THE SUBJECT MATTER OF APPEAL IS THE PROVISION OF ON - SITE SERVICES TO SAS GROUP COMPANIES AT R S.1.70 CRORES. THE ASSESSEE HAD APPLIED TNMM METHOD USING OP/OC AS PLI IN ITS TP STUDY REPORT WHILE BENCHMARKING THE INTERNATIONAL TRANSACTION. ADMITTEDLY, THE ASSESSEE HAD BENCHMARKED THE TWO SERVICES I.E. PROVISION OF SOFTWARE DEVELOPMENT SERVICES TO T HE SAS AND PROVISION OF ON - SITE SERVICES TO OVERSEAS SAS GROUP COMPANIES SEPARATELY BY USING OP/OC AS PLI , IN ITS TP STUDY REPORT . IN RESPECT OF PROVISION OF SOFTWARE DEVELOPMENT SERVICES, THE ASSESSEE WAS BEING REIMBURSED AT COST PLUS 7.5%, WHEREAS IN RE SPECT OF ON - SITE SERVICES PROVIDED TO OVERSEAS GROUPS, THE ASSESSEE WAS BEING REIMBURSED AT COST PLUS 15.04%. HOWEVER, IN THE TP STUDY REPORT, THE ASSESSEE PICKED UP SAME SET OF COMPARABLES WHOSE ARITHMETIC MEAN WORKED OUT TO 11.7 5% AND THE SAME WAS HELD TO BE ARMS LENGTH PRICE IN RESPECT OF BOTH THE TRANSACTIONS SEPARATELY. THE TPO RE - WORKED THE ARITHMETIC MEAN OF MARGINS OF COMPARABLE COMPANIES BY APPLYING THE FINANCIAL DATA FOR THE FINANCIAL YEAR 2003 - 04 AND IN THIS REGARD, BECAUSE OF ABNORMAL RESULTS SHOWN BY CERTAIN COMPANIES, THE LIST OF COMPANIES TO BE COMPARED WITH THE RESULTS SHOWN BY THE ASSESSEE WERE REVISED AND FOR THE PROVISION OF SOFTWARE DEVELOPMENT SERVICES, THE ARITHMETIC MEAN OF SAID COMPARABLES BY APPLYING SINGLE YEARS DATA WORKED OUT TO 14.18%. CONSEQUENTLY, THE TPO PROPOSED AN ADJUSTMENT TO THE ARM'S LENGTH PRICE OF PROVISION OF SOFTWARE SERVICES BY THE ASSESSEE TO ITS ASSOCIATE ENTERPRISES. HOWEVER, THE ASSESSEE IN RESPECT OF PROVISION OF ON - SITE SERVICES HAD SHOWN ITS MARGIN AT 15 .04% , THE SAME WAS HELD TO BE AT ARM'S LENGTH PRICE AND NO ADJUSTMENT WAS PROPOSED ON ACCOUNT OF SAID SERVICES PROVIDED BY THE ASSESSEE TO ITS ASSOCIATE ENTERPRISES. THE CIT(A) WHILE DECIDING THE APPEAL OF ASSESSEE HAD DIRECTED THE ASSESSING OFFICER / TPO TO APPLY TURNOVER FILTER OF RS.1 TO 200 CRORES WHILE FINALLY SELECTING THE LIST OF COMPARABLES. THE REVENUE 14 ITA NO. 810 /PN/20 1 3 CO NO S . 03 & 04 /PN/201 5 ITA NOS.1850 & 1927/PN/2013 SAS RESEARCH & DEVELOPMENT (I) PVT. LTD. IS IN APPEAL AGAINST THE DIRECTIONS OF CIT(A) AND POINTED OUT THAT THERE IS NO MERIT IN SUCH DIRECTIONS. 14. HOWEVER, WE FIND MERIT IN THE ORDE RS OF CIT(A) THAT WHILE BENCHMARKING INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE WITH ITS ASSOCIATE ENTERPRISES, THE COMPARISON SHOULD BE MADE WITH SUCH COMPANIES BY APPLYING FAR ANALYSIS I.E. FUNCTIONS, ASSETS & RISK ANALYSIS . WHILE APPLYING THE SAID ANALYSIS , RECOURSE SHOULD BE MADE TO COMPARING THE MARGINS DECLARED BY THE TESTED PARTY WITH SUCH COMPARABLES WHO ARE FALLING WITHIN TURNOVER CRITERIA. THE BANGALORE BENCH OF TRIBUNAL IN BENCH OF TRIBUNAL IN GENISYS INTEGRATING SYSTEM (INDIA) PVT . LTD. VS. DCIT (SUPRA) HAD APPLIED TURNOVER FILTER OF RS.1 TO 200 CRORES IN THE CASE OF CONCERN WHICH WAS SHOWING TURNOVER OF RS. 8.15 CRORES. THE ASSESSEE BEFORE US HAS DECLARED TURNOVER OF RS.10.08 CRORES IN SEGMENT OF PROVISION OF SOFTWARE DEVELOPMENT SERVICES AND IN VIEW OF FILTER APPLIED BY THE BANGALORE BENCH OF TRIBUNAL IN BENCH OF TRIBUNAL IN GENISYS INTEGRATING SYSTEM (INDIA) PVT. LTD. VS. DCIT (SUPRA), WE UPHOLD THE ORDER OF CIT(A) IN APPLYING THE TURNOVER FILTER OF RS.1 TO 200 CRORES. THE HONB LE BOMBAY HIGH COURT IN CIT VS. M/S. PENT AIR WATER INDIA PVT. LTD. IN TAX APPEAL NO.18 OF 2015 VIDE JUDGMENT DATED 16.09.2015 HAVE HELD THAT TURNOVER IS RELEVANT FACTOR TO CONSIDER THE COMPARABILITY . IN THE FACTS OF THE CASE BEFORE THE HONBLE HIGH COURT, THE QUESTION WAS WITH REGARD TO EXCLUSION OF THREE COMPANIES I.E. (I) HCL COMNET SYSTEMS & SERVICES LTD., (II) INFOSYS BPO LTD. AND (III) WIPRO LTD. ON THE GROUND THAT THE TURNOVER OF THE SAID COMPANIES WAS HIGH AS COMPARED TO THE TURNOVER OF ASSESSEE IN T HAT CASE AT RS.11 CRORES. THE TURNOVER OF HCL COMNET SYSTEMS & SERVICES LTD. WAS RS.260.18 CRORES, OF INFOSYS BPO LTD. , WAS RS.649.56 CRORES AND OF WIPRO LTD. WAS RS. 939.78 CRORES. THE SAID COMPANIES WERE EXCLUDED BY THE TRIBUNAL ON THE BASIS OF TURNOVER FILTER, WHICH WAS APPROVED BY THE HONBLE 15 ITA NO. 810 /PN/20 1 3 CO NO S . 03 & 04 /PN/201 5 ITA NOS.1850 & 1927/PN/2013 SAS RESEARCH & DEVELOPMENT (I) PVT. LTD. HIGH COURT. THE HONBLE HIGH COURT HELD THAT THE SAID COMPANIES A RE NO DOUBT LARGE AND DISTINCT COMPANIES WHERE THE AREA OF DEVELOPMENT OF SUBJECT SERVICES ARE DIFFERENT AND AS SUCH THE PROFIT EARNED THEREFROM CA NNOT BE BENCHMARKED OR EQUATED WITH THE RESPONDENT - COMPANY. APPLYING THE SAID RATIO TO THE FACTS BEFORE US, WE UPHOLD THE ORDER OF CIT(A) IN EXCLUDING THE COMPANIES WHOSE TURNO VER WAS MORE THAN RS.200 CRORES. THUS, GROUND OF APPEAL NO.2 RAISED BY THE REV ENUE IS DISMISSED. 1 5 . NOW, COMING TO THE NEXT DIRECTION OF THE CIT(A) IN HOLDING THAT THE MARGINS OF PROVISION OF SOFTWARE DEVELOPMENT SERVICES AND PROVISION OF ON - SITE SERVICES BY THE ASSESSEE TO ITS ASSOCIATE ENTERPRISES HAVE TO BE COMPUTED CUMULATIVEL Y. THE FIRST ASPECT TO BE NOTED IN THE CASE IS THAT WHILE THE ASSESSEE IS PROVIDING SEVERAL SERVICES TO ITS ASSOCIATE ENTERPRISES AND IT HAS RECOGNIZED THAT IT IS PROVIDING TWO KINDS OF SERVICES I.E. PROVISION OF SOFTWARE DEVELOPMENT SERVICES AND PROVISIO N OF SOFTWARE CONSULTANCY SERVICES. IN RESPECT OF SOFTWARE DEVELOPMENT ACTIVITY, THE ASSESSEE WAS REIMBURSED AT COST PLUS 7.5% MARK - UP AND IN RESPECT OF SOFTWARE CONSULTANCY SERVICES, IT WAS REIMBURSED AT COST PLUS 15.04%. THE SOFTWARE CONSULTANCY SERVI C ES WERE OFF - SITE AND THE SOFTWARE CONSULTANCY SERVICES WERE PROVIDED ON - SITE TO THE ASSOCIATE ENTERPRISES. THE FINANCIALS OF THE ASSESSEE PROVIDES SEGMENTAL DETAILS IN RESPECT OF BOTH THESE SERVICES I.E. OFF - SITE AND ON - SITE SERVICES , T HE MARGINS AT WHICH THE ASSESSEE IS REIMBURSED BY ITS ASSOCIATE ENTERPRISES IN RESPECT OF OFF - SITE SERVICES IS LOWER AT COST PLUS 7.5% AND IN RESPECT OF ON - SITE SERVICES IS HIGHER AT COST PLUS 15.04%. IN ITS TP STUDY REPORT, THE ASSESSEE HAD BENCHMARKED TWO TRANSACTIONS SEP ARATELY AND HAD HELD THEM TO BE AT ARM'S LENGTH PRICE BY TAKING THE MEAN OF LIST OF COMPARABLES. HOWEVER, SINCE THIS WAS THE START OF TRANSFER PRICING STUDY PROVISIONS, THE COMPLETE DETAILS WERE NOT LOOKED INTO BY BOTH THE ASSESSEE AND 16 ITA NO. 810 /PN/20 1 3 CO NO S . 03 & 04 /PN/201 5 ITA NOS.1850 & 1927/PN/2013 SAS RESEARCH & DEVELOPMENT (I) PVT. LTD. THE REVENUE. THE F OLLOWING PATTERN APPLIED BY THE ASSESSEE. THE TPO ALSO APPLIED THE MARGINS OF SAME SET OF COMPARABLES BOTH FOR OFF - SITE AND ON - SITE SERVICES. IN VIEW THEREOF, THE CASE OF ASSESSEE BEFORE US IS THAT MARGINS OF BOTH THE SERVICES SHOULD BE CLUBBED IN ORDER TO BENCHMARK THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATE ENTERPRISES VIS - - VIS THE MEAN MARGIN SHOWN BY THE COMPARABLES. WE FIND NO MERIT IN THE CLAIM OF ASSESSEE IN THIS REGARD AND WE ARE AT VARIANCE WITH THE ORDER OF CIT(A) I N THIS REGARD. THE LAW HAS DEVELOPED IN THE FIELD OF TRANSFER PRICING PROVISIONS. THE ISSUE AS TO WHETHER AN ACTIVITY BEING PROVIDED BY A CONCERN ON ACCOUNT OF OFF - SITE SERVICES AND ON - SITE SERVICES HAVE BEEN COMPARED AND IT HAS BEEN HELD THAT THE COMPAN Y ENGAGED IN PROVIDING ON - SITE SERVICES IS UN - COMPARABLE TO THE COMPANY ENGAGED IN PROVIDING OFF - SHORE SERVICES. THE SAID RATIO HAS BEEN LAID DOWN BY THE PUNE BENCH OF TRIBUNAL IN TIBCO SOFTWARE INDIA (P.) LTD. VS. DCIT RELATING TO ASSESSMENT YEAR 2008 - 0 9 (SUPRA) AND TIBCO SOFTWARE (INDIA) (P.) LTD. VS. DCIT RELATING TO ASSESSMENT YEAR 2009 - 10 (SUPRA). 16. IN VIEW OF THE SAID PROPOSITION, WHEREIN IT HAS BEEN HELD THAT THE COMPANY PROVIDING OFF - SHORE SERVICES TO ITS ASSOCIATE ENTERPRISES STAND ON A DIFFE RENT FOOTING FROM THE COMPANY RENDERING ON - SITE SERVICES TO ITS CLIENTS, THEN EVEN IN A CASE WHERE ONE COMPANY ITSELF PROVIDING BOTH THE SAID SERVICES, THE SAME HAVE TO BE CONSIDERED SEPARATELY WHILE BENCHMARKING THE INTERNATIONAL TRANSACTIONS. THE BASIS ON WHICH THE ASSESSEE BEFORE US IS BEING REIMBURSED ON ACCOUNT OF ITS OFF - SITE SERVICES IS COST PLUS 7.5% AND FOR ON - SITE SERVICES, IT IS BEING REIMBURSED AT COST PLUS 15.04%, WHICH ITSELF ESTABLISH THAT THE TWO SERVICES PROVIDED BY THE ASSESSEE ARE DIFFER ENT AND THE SAME CANNOT BE CLUBBED FOR THE PURPOSE OF BENCHMARKING THE INTERNATIONAL TRANSACTIONS. WE REVERSE THE ORDER OF CIT(A) IN THIS REGARD AND DIRECT THE ASSESSING OFFICER TO RE - COMPUTE THE 17 ITA NO. 810 /PN/20 1 3 CO NO S . 03 & 04 /PN/201 5 ITA NOS.1850 & 1927/PN/2013 SAS RESEARCH & DEVELOPMENT (I) PVT. LTD. SAME. WHERE THE MARK - UP EARNED BY THE ASSESSEE IS DIFFEREN T FROM TWO ACTIVITIES CARRIED ON BY IT THAT ESTABLISHED THAT THE ACTIVITIES UNDERTAKEN WERE DIFFERENT ON ACCOUNT OF FUNCTIONAL AND RISK PERSPECTIVE. SINCE THE ASSESSEE IN THE PRESENT CASE WAS BEING REMUNERATED AT SEPARATE MARK - UP FOR EACH OF THE ACTIVITY, THEN BOTH THE ACTIVITIES HAVE TO BE CONSIDERED SEPARATELY WHILE BENCHMARKING ARM'S LENGTH PRICE OF TRANSACTIONS PERSE. MERELY BECAUSE THE SAME SET OF COMPARABLES HAVE BEEN UTILIZED DOES NOT JUSTIFY THE CASE OF ASSESSEE. THE ASSESSING OFFICER IS DIRECTED TO BENCHMARK THE INTERNATIONAL TRANSACTIONS OF PROVISION OF SOFTWARE DEVELOPMENT SERVICES I.E. OFF - SITE SERVICES INDEPENDENTLY FROM ON - SITE SERVICES PROVIDED BY WAY OF CONSULTANCY SERVICES PROVIDED BY THE ASSESSEE. THE ASSESSING OFFICER IS ALSO DIRECTED TO ADOPT THE SEGMENTAL DETAILS OF COMPARABLES, IF AVAILABLE FOR BENCHMARKING THE INTERNATIONAL TRANSACTIONS OF ASSESSEE . ACCORDINGLY, THIS ASPECT OF TRANSFER PRICING ADJUSTMENT, IF ANY, IS REMITTED BACK TO THE FILE OF ASSESSING OFFICER, WHO IS DIRECTED TO ADOPT ONLY THE MARGINS OF SOFTWARE CONSULTANCY SERVICES I.E. OFF - SITE SERVICES IN ORDER TO COMPUTE THE ADDITION, IF ANY, ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT. ACCORDINGLY, THE GROUNDS OF APPEAL NO.3 AND 4 RAISED BY THE REVENUE ARE THUS, ALLOWED. TH E GROUNDS OF APPEAL RAISED BY THE REVENUE ARE THUS, PARTLY ALLOWED. 17. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE HAS POINTED OUT THAT IN CASE THE TURNOVER FILTER IS APPLIED AS DIRECTED BY THE CIT(A), THEN THE APPLICATION MOVED UNDER RULE 27 OF INCOME TAX RU LES, 1962 (IN SHORT THE RULES) WOULD BECOME ACADEMIC . SINCE WE HAVE UPHELD THE TURNOVER FILTER APPLIED BY THE CIT(A), THE APPLICATION UNDER RULE 27 OF THE R ULES IS DISMISSED AS ACADEMIC. 18 ITA NO. 810 /PN/20 1 3 CO NO S . 03 & 04 /PN/201 5 ITA NOS.1850 & 1927/PN/2013 SAS RESEARCH & DEVELOPMENT (I) PVT. LTD. 18. THE ASSESSEE HAD ALSO FILED APPLICATION UNDER RULE 27 OF THE RULES FOR ASSESSMENT YEAR 2005 - 06. BUT NO PLEA HAS BEEN RAISED BY THE LEARNED ASSESSMENT YEAR 2005 - 06. BUT NO PLEA HAS BEEN RAISED BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE AND THE SAME IS DISMISSED. 1 9 . THE ASSESSEE IN ITA NO.1850/PN/2013 RELATING TO ASSESSMENT YEAR 2006 - 07 HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - O N TH E F A C T S A ND IN THE CI RC UM S TAN CES OF TH E CA SE AND IN L AW , TH E C IT(A) AND TH E A O / TR A N S F E R PRI C IN G OFF I CER ( H E R E INAFT E R REF E RRED T O A S ' T PO ' ) HAV E: VALIDITY OF REASSESSMENT PROCEEDINGS: VALIDITY OF REASSESSMENT PROCEEDINGS: 1 . E RRED IN UPHOLDIN G TH E VA LIDI TY O F R EAS SES S MENT PROC EE DIN GS CONDUCT E D BY AO UND E R S E CTION 14 7 OF TH E AC T . NON REFERENCE TO THE TPO DURING REASSESSMENT PROCEEDINGS 2 . ASS UM I N G BUT W ITH O UT A DMITTIN G TH A T TH E R E AS SESS M E N T PR OCE EDIN GS AR E VALID AND W ITHOUT PR EJ UDI CE T O TH E A B OVE G R O UND , ERR E D IN UPHOLDIN G TH A T TH E R E W AS NO N EE D T O MAK E FRE S H REF E R E NC E T O TH E T PO F O R D E T E RMIN A TI O N O F A RM ' S L E N G TH PRI CE OF INT E RNATI O NAL TR A N SACT I O N S , A FTER INITIA T IN G P RO CE E DIN GS UNDER SEC TI O N 1 4 7 OF TH E AC T . DEPRIVATION OF OPPORTUNITY OF APPEAL BEFORE THE DRP DEPRIVATION OF OPPORTUNITY OF APPEAL BEFORE THE DRP 3 . WITHOUT PREJUDIC E T O TH E A BOV E GR O UNDS R E GARDIN G V ALIDIT Y O F RE ASS E SS M E NT P R OC EE DINGS UND E R SECTI O N 14 7 OF TH E AC T , E RR E D IN UPH O LDIN G THE I SS UANC E OF TH E O RD E R UND E R SE CTION 1 43( 3) READ W ITH SE CTION 14 7 OF TH E ACT ALONG WITH TH E NOTIC E O F D E MAND IN S T EA D OF I SS UIN G ORD E R UND E R S E CTION 144 C O F TH E ACT , OBJE C TI O N AGA IN S T WHI C H W OULD H AVE B EE N FIL E D BEFOR E DRP . 20 . THE ASSESSEE HAS CHALLENGED THE RE - ASSESSMENT PROCEEDINGS CONDUCTED BY THE ASSESSING OFFICER UNDER SECTION 147 OF THE ACT AND HAS FURTHER CHALL ENGED THE RE - ASSESSMENT PROCEEDINGS ORDER PASSED BY MAKING TRANSFER CHALL ENGED THE RE - ASSESSMENT PROCEEDINGS ORDER PASSED BY MAKING TRANSFER PRICING ADJUSTMENT TO THE INTERNATIONAL TRANSACTION WITHOUT MAKING FRESH REFERENCE TO THE TPO. 2 1 . BRIEFLY, IN THE FACTS OF THE PRESENT CASE, THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF ASSESSING OFFICER PASSED UNDER SECTION 143(3) R.W.S. 147 OF THE ACT. THE ORIGINAL RETURN OF INCOME WAS FILED BY THE ASSESSEE DECLARING TOTAL INCOME OF THE ORIGINAL RETURN OF INCOME WAS FILED BY THE ASSESSEE DECLARING TOTAL INCOME OF 19 ITA NO. 810 /PN/20 1 3 CO NO S . 03 & 04 /PN/201 5 ITA NOS.1850 & 1927/PN/2013 SAS RESEARCH & DEVELOPMENT (I) PVT. LTD. RS. 14,06,487/ - AFTER CLAIMING DEDUCTION OF RS. 3,53,65,382/ - UNDER SECTION 10A OF THE ACT ON 24.11.200 6. IN ORDER TO UNDERSTAND THE ISSUE, IT IS NECESSARY TO GO THROUGH CHRONOLOGICAL EVENTS IN RESPECT OF ASSESSMENT / APPELLATE / RE - ASSESSMENT PROCEEDINGS INITIATED IN THE CASE OF THE ASSESSEE. THE ASSESSEE HAS FURNISHED TABULATED DETAILS IN THIS REGARD . THE PERUSAL OF EVENTS REFLECTS THAT CONSEQUENT TO THE ASSESSEE FILING THE RETURN OF INCOME , NOTICE UNDER SECTION 143( 2 ) OF THE ACT W AS ISSUED ON 31.12.2007 AND THE ASSESSING OFFICER MADE REFERENCE TO THE TRANSFER PRICING OFFICER (IN SHORT THE TPO ), WHO I N TURN, PASSED AN ORDER UNDER SECTION 92CA(3) OF THE ACT ON 29.10.2009 . THE ASSESSEE CONTESTED THE VALIDITY OF NOTICE ISSUED BY THE ASSESSING OFFICER UNDER SECTION 143(2) OF THE ACT VIDE LETTER DATED 11.11.2009, AFTER WHICH THE ASSESSING OFFICER HAD PASSE D DRAFT ASSESSMENT ORDER UNDER SECTION 144C OF THE ACT ON 27.11.2009. THE ASSESSEE FILED OBJECTIONS BEFORE THE DISPUTE RESOLUTION PANEL (IN SHORT THE DRP) ON 24.12.2009, WHO IN TURN, ISSUED DIRECTIONS AND UPHELD THE ORDER OF ASSESSING OFFICER WITH RESPE CT TO TRANSFER PRICING ADDITIONS UNDER SECTION 143(3) R.W.S. 92CA(4) OF THE ACT AND SECTION 144C OF THE ACT. HOWEVER, THE DRP DIRECTED THE ASSESSING OFFICER TO ASCERTAIN THE DATE OF SERVICE OF NOTICE UNDER SECTION 143(2) OF THE ACT TO DECIDE ABOUT THE VAL IDITY OF ASSESSMENT PROCEEDINGS, VIDE ORDER DATED 30.08.2010 . P URSUANT THERETO, THE ASSESSING OFFICER VIDE ORDER DATED 28.09.2010 DROPPED THE ASSESSMENT PROCEEDINGS AS PER ORDER PLACED AT PAGE 264 OF THE PAPER BOOK. THEREAFTER, THE ASSESSING OFFICER RECO RDED REASONS FOR REOPENING THE ASSESSMENT UNDER SECTION 147 OF THE ACT AND ISSUED NOTICE UNDER SECTION 148 OF THE ACT ON 13.01.2011 . THE REASONS RECORDED FOR REOPENING THE ASSESSMENT AND ISSUE OF NOTICE UNDER SECTION 148 OF THE ACT ARE REPRODUCED IN THE A SSESSMENT ORDER UNDER PARA 2 AT PAGE 1 OF THE ASSESSMENT ORDER. THE PERUSAL OF REASONS REFLECTS THAT THE REFERENCE IS MADE TO THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE WITH ITS ASSOCIATE 20 ITA NO. 810 /PN/20 1 3 CO NO S . 03 & 04 /PN/201 5 ITA NOS.1850 & 1927/PN/2013 SAS RESEARCH & DEVELOPMENT (I) PVT. LTD. ENTERPRISES AND THE ADJUSTMENTS SOUGHT TO BE MADE BY THE TPO AT RS.2.60 CRORES AND IN VIEW THEREOF, THE ASSESSING OFFICER WAS OF THE VIEW THAT THE INCOME OF ASSESSEE TO THE TUNE OF RS.2.60 CRORES HAD ESCAPED ASSESSMENT ON ACCOUNT OF ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS AND NOTICE UNDER SECTION 148 OF THE ACT WAS ISSUED. CONSEQUENT THERETO, THE ASSESSEE FILED LATTER STATING THAT THE ORIGINAL RETURN OF INCOME FILED BY IT SHOULD BE TREATED AS FILED UNDER SECTION 148 OF THE ACT. THE LETTER IS DATED 02.02.2011, WHICH IS PLACED AT PAGES 266 TO 269 OF THE PAPER BOOK. THE ASSESSEE THEREAFTER, SOUGHT THE REASONS FOR REOPENING THE ASSESSMENT AND ALSO CHALLENGED THE VALIDITY OF ASSESSMENT PROCEEDINGS INITIATED UNDER SECTION 147 OF THE ACT VIDE LETTER DATED 02.02.2011 PLACED AT PAGE 267 OF THE PAPER BOOK . THE ASSESSING OFFICER IN RETURN, FURNISHED REASONS ON 07.02.2011, COPY OF WHICH IS PLACED AT PAGES 270 AND 271 OF THE PAPER BOOK. THE ASSESSEE CHALLENGED THE VALIDITY OF PROCEEDINGS INITIATED UNDER SECTION 147 OF THE ACT AND ALSO OBJECTED TO THE REASON S FURNISHED BY THE ASSESSING OFFICER FOR INITIATING RE - ASSESSMENT PROCEEDINGS VIDE LETTER DATED 11.03.2011, WHICH ARE PLACED AT PAGES 272 TO 278 OF THE PAPER BOOK. HOWEVER, THE ASSESSING OFFICER REJECTED THE SAME AND PASSED AN ORDER DATED 23.12.2011 , WHIC H IS PLACED AT PAGES 280 TO 291 OF THE PAPER BOOK. THE ASSESSEE THEREAFTER, FILED ANOTHER SUBMISSION IN RESPONSE TO THE ORDER DISPOSING OF OBJECTION S VIDE LETTER DATED 29.12.2011, WHICH IS PLACED AT PAGES 292 TO 298 OF THE PAPER BOOK. THEREAFTER, THE ASS ESSING OFFICER COMPLETED THE RE - ASSESSMENT PROCEEDINGS AND PASSED THE ORDER UNDER SECTION 143(3) R.W.S. 147 OF THE ACT DATED 28.12.2011, AGAINST WHICH THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A), WHO IN TURN, UPHELD THE RE - ASSESSMENT ORDER PASSED. 21 ITA NO. 810 /PN/20 1 3 CO NO S . 03 & 04 /PN/201 5 ITA NOS.1850 & 1927/PN/2013 SAS RESEARCH & DEVELOPMENT (I) PVT. LTD. 2 2 . THE ASSESSEE IS IN APPEAL AGAINST THE RE - ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER WHICH HAS BEEN UPHELD BY THE CIT(A) . 2 3 . THE PLEA OF THE ASSESSEE BEFORE US WAS THAT WHEN ORIGINALLY THE CASE OF THE ASSESSEE WAS SELECTED FOR ASSESSMENT, UNDER WHI CH REFERENCE WAS MADE TO THE TPO FOR DETERMINING THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS, NO VALID PROCEEDINGS WERE PENDING BEFORE THE ASSESSING OFFICER. THE ASSESSING OFFICER HIMSELF HAS ADMITTED THAT NO NOTICE WAS ISSUED UNDER SECTION 143(2 ) OF THE ACT TO INITIATE ASSESSMENT PROCEEDINGS AND CONSEQUENTLY, REFERENCE MADE TO THE TPO WAS INVALID AND SUCH ORDER PASSED BY THE TPO UNDER SECTION 92CA(3) OF THE ACT COULD NOT BE THE BASIS FOR INITIATING RE - ASSESSMENT PROCEEDINGS. THE ASSESSEE FURTHER POINTED OUT THAT WHILE INITIATING RE - ASSESSMENT PROCEEDINGS, THERE WAS NO REASON TO BELIEVE THAT INCOME HAD ESCAPED ASSESSMENT . SINCE THE ASSESSING OFFICER WAS MERELY MAKING REFERENCE TO THE ORDER OF TPO, THERE WAS NO INDEPENDENT APPLICATION OF MIND BY T HE ASSESSING OFFICER. IN THE ABSENCE OF ANY INDEPENDENT APPLICATION OF MIND ON THE PART OF ASSESSING OFFICER, I T IS ALLEGED THAT RE - ASSESSMENT PROCEEDINGS INITIATED IN THE CASE WERE IN - VALID. WITH REGARD TO THE ORDER OF CIT(A), IT IS POINTED OUT THAT THE RELIANCE PLACED UPON BY THE CIT(A) ON THE ORDER OF HONBLE HIGH COURT OF PUNJAB & HARYANA IN COCO COLA INDIA INC VS. ACIT (2009) 309 ITR 194 (P&H) TO CONCLUDE THAT THE ORDER PASSED BY THE TPO CAN FORM THE MATERIAL OR BASIS FOR REOPENING THE ASSESSMENT, WA S NOT CORRECT RELIANCE IN THE FACTS OF THE PRESENT CASE. 2 4 . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT THE ISSUE ARISING IN THE PRESENT APPEAL FILED BY THE ASSESSEE IS SQUARELY COVERED BY THE ORDER OF CO - ORDINATE BENCH OF PUN E TRIBUNAL IN THE CASE OF MAXIMIZE LEARNING (P.) LTD. VS. ACIT IN ITA NO.2234/PN/2012, RELATING TO ASSESSMENT 22 ITA NO. 810 /PN/20 1 3 CO NO S . 03 & 04 /PN/201 5 ITA NOS.1850 & 1927/PN/2013 SAS RESEARCH & DEVELOPMENT (I) PVT. LTD. YEAR 2007 - 08, ORDER DATED 02.02.2015 AND THE FACTS AND ISSUE WERE POINTED OUT TO BE IDENTICAL. THE ASSESSEE IN THIS REGARD HAS FILED A COMPARATIV E CHART BETWEEN THE FACTS AND ISSUE ARISING IN THE CASE OF MAXIMIZE LEARNING PVT. LTD. (SUPRA) AND IN THE PRESENT CASE AND HAS STRESSED THAT SINCE THE RE - ASSESSMENT PROCEEDINGS HAVE BEEN QUASHED IN THE CASE OF MAXIMIZE LEARNING PVT. LTD. (SUPRA), THE SAME NEEDS TO BE QUASHED IN THE FACTS OF THE ASSESSEE ALSO. HE POINTED OUT THAT THE ASSESSEE HAS CHALLENGED THE REOPENING PERSE WHERE THE ORIGINAL ASSESSMENT PROCEEDINGS WERE DROPPED EVEN THOUGH THE REPORT WAS RECEIVED FROM THE TPO UNDER SECTION 92CA ( 3 ) OF THE ACT SINCE NO NOTICE UNDER SECTION 143(2) OF THE ACT WAS SERVED UPON THE ASSESSEE IN TIME. AS NO ASSESSMENT ORDER WAS PASSED AFTER REFERENCE TO THE TPO, THEN THE SAME ORDER OF TPO COULD NOT BE THE BASIS FOR REOPENING THE ASSESSMENT UNDER SECTION 147/148 O F THE ACT AND THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER IN THIS REGARD WAS A NULLITY AND WAS NOT CURABLE DEFECT. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE PLACED RELIANCE ON THE ORDER OF HONBLE HIGH COURT OF MADRAS IN VIJAY TELEVI SION (P) LTD. VS. DRP & ORS. (2014) 369 ITR 113 (MAD). HE FURTHER POINTED OUT THAT ONCE THE RE - ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER IS SAID TO BE NULLITY, THEN NO ADDITION IS WARRANTED IN THE HANDS OF ASSESSEE AND HENCE, NO MERIT IN THE APPEAL FILED BY THE REVENUE. 2 5 . THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ON THE OTHER HAND, PLACED RELIANCE ON THE ORDERS OF AUTHORITIES BELOW. 2 6 . WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ISSUE WHICH ARISES IN THE PRESE NT APPEAL IS AGAINST THE VALIDITY OF RE - ASSESSMENT PROCEEDINGS INITIATED UNDER SECTION 147/148 OF THE ACT. THE ISSUE ARISING IN THE PRESENT APPEAL IS SIMILAR TO THE ISSUE BEFORE THE TRIBUNAL IN MAXIMIZE LEARNING 23 ITA NO. 810 /PN/20 1 3 CO NO S . 03 & 04 /PN/201 5 ITA NOS.1850 & 1927/PN/2013 SAS RESEARCH & DEVELOPMENT (I) PVT. LTD. PVT. LTD. VS. ACIT (SUPRA) . IT WAS POINTED OUT BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE THAT RE - ASSESSMENT PROCEEDINGS UNDER SECTION 147/148 OF THE ACT WERE INITIATED IN BOTH THE CASES, WHEREIN THE ORIGINAL RETURN OF INCOME WAS FILED IN TIME, HOWEVER, THE ASSESSMENT PROCEEDINGS IN THE CASE OF ASSESSEE BEFORE US RELATE TO ASSESSMENT YEAR 2006 - 07 AND IN THE CASE OF MAXIMIZE LEARNING PVT. LTD. (SUPRA) RELATE TO ASSESSMENT YEAR 2007 - 08 . ADMITTEDLY, IN BOTH THE CASES, TIME LIMIT FOR SERVICE OF NOTICE UNDER SECTION 143(2) OF THE ACT HAD EXPIRED AND THE SAID NOTICE WAS ISSUED BEYOND TIME. THE NOTICE UNDER SECTION 143(2) OF THE ACT IN THE CASE OF ASSESSEE WAS ISSUED ON 31.12.2007 , WHEREAS IT HAD TO BE SERVED UPON THE ASSESSEE ON OR BEFORE 30.11.2007 I.E. THE END OF 12 MONTHS FROM THE END OF MONTH IN WHICH RETURN OF INCOME WAS FURNISHED. IN THE CASE OF MAXIMIZE LEARNING PVT. LTD. (SUPRA), THE SAID NOTICE UNDER SECTION 143(2) OF THE ACT WAS ALSO SERVED LATE. IN BOTH THE CASES, IN SUCH ASSESSMENT PROCEEDINGS, REFERENCE WAS MADE TO THE TPO F OR DETERMINING THE ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS AND THE TPO HAD PASSED THE ORDER UNDER SECTION 92CA(3) OF THE ACT. HOWEVER, IN BOTH THE CASES, THE ASSESSEE FILED OBJECTIONS TO THE DRAFT ASSESSMENT ORDER AND THE DRP DIRECTED THE ASSESSI NG OFFICER TO EXAMINE THE PLEA OF ASSESSEE VIS - - VIS VALIDITY OF ASSESSMENT PROCEEDINGS. THEREAFTER, THE ASSESSMENT PROCEEDINGS UNDER SECTION 143(3) OF THE ACT WERE DROPPED BY THE ASSESSING OFFICER IN THE CASE OF ASSESSEE ON 28.09.2010 AND SIMILARLY IN TH E CASE OF MAXIMIZE LEARNING PVT. LTD. (SUPRA). THEREAFTER, IN BOTH THE CASES NOTICE UNDER SECTION 148 OF THE ACT WAS ISSUED BY THE ASSESSING OFFICER AND THE ISSUE WHICH ARISES BEFORE US IS AGAINST THE VALIDITY OF SUCH RE - ASSESSMENT PROCEEDINGS. I N BOTH T HE CASES, THE REASONS FOR REOPENING THE ASSESSMENT WAS THE TPOS ORDER PASSED UNDER SECTION 92CA(3) OF THE ACT DURING THE PENDENCY OF ORIGINAL ASSESSMENT PROCEEDINGS, WHICH WERE HELD TO BE INVALID. THE QUESTION WHICH ARISES IS THE VALIDITY OF RE - 24 ITA NO. 810 /PN/20 1 3 CO NO S . 03 & 04 /PN/201 5 ITA NOS.1850 & 1927/PN/2013 SAS RESEARCH & DEVELOPMENT (I) PVT. LTD. ASSESSMEN T PROCEEDINGS ON THE SURMISE THAT AN ADJUSTMENT HAS TO BE MADE ON ACCOUNT OF ARM'S LENGTH PRICE OF INTERNATIONAL TRANSACTIONS IN THE HANDS OF ASSESSEE ON THE BASIS OF SUCH REFERENCE, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, WHICH WERE HELD TO BE INVALI D. AFTER GOING THROUGH THE FACTUAL AND LEGAL ASPECTS OF THE CASE, THE TRIBUNAL VIDE ORDER DATED 02.02.2015 (SUPRA) HAD FIRSTLY HELD THAT THE ASSESSING OFFICER WAS PRECLUDED FOR MAKING A REFERENCE TO THE TPO UNDER SECTION 92CA(1) OF THE ACT FOR THE PURPOSE OF COMPUTING ARM'S LENGTH PRICE IN RELATION TO THE INTERNATIONAL TRANSACTION, WHEN NO ASSESSMENT PROCEEDINGS WERE PENDING IN RELATION TO THE RELEVANT ASSESSMENT YEAR. THE RELEVANT OBSERVATIONS OF THE TRIBUNAL (SUPRA) ARE IN PARAS 10 TO 23, WHICH READ AS UNDER : - 10. THE CRUX OF THE CONTROVERSY REVOLVES AROUND THE PROVISIONS OF SECTION 147/148 OF THE ACT WHICH EMPOWER AN ASSESSING OFFICER TO ASSESS OR RE - ASSESS SUCH INCOME WHICH HAS ESCAPED ASSESSMENT. SECTION 147 OF THE ACT POSTULATES THAT IF THE ASSES SING OFFICER HAS REASON TO BELIEVE THAT ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR ANY ASSESSMENT YEAR, HE MAY SUBJECT TO THE TO TAX HAS ESCAPED ASSESSMENT FOR ANY ASSESSMENT YEAR, HE MAY SUBJECT TO THE PROVISIONS OF SECTIONS 148 TO 153 OF THE ACT, ASSESS OR RE - ASSESS SUCH INCOME AND ALSO ANY OTHER INCOME CHARGEABLE TO TAX WHICH HAS ESCAPED ASSESSMENT AND WHICH COMES TO HIS NOTICE SUBSEQUENTLY IN THE COURSE OF PROCEEDINGS UNDER THIS SECTION. A SIGNIFICANT EXPRESSION CONTAINED IN SECTION 147 OF THE ACT IS REASON TO BELIEVE. IT IS JUDICIALLY WELL - SETTLED THAT SUCH BEL IEF OF THE ASSESSING OFFICER MUST BE BASED ON SOME MATERIAL ON RECORD. IN OTHER WORDS, THERE MUST BE SOME MATERIAL ON RECORD TO ENABLE THE ASSESSING OFFICER TO ENTERTAIN A BELIEF THAT CERTAIN INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR THE RELEVAN T ASSESSMENT YEAR. 11. IN THE PRESENT CASE, THE PERTINENT POINT SETUP BY THE ASSESSEE IS THAT THE ASSESSING OFFICER HAS ENTERTAINED THE BELIEF FOR ESCAPEMENT OF INCOME BASED ON AN ORDER OF THE TPO DATED 29.10.2010 U/S 92CA(3) OF THE ACT WHICH IS NONEST AND VOID AB INITIO. THE FUNDAMENTAL POINT CANVASSED BY THE APPELLANT IS THAT THE REFERENCE U/S 92CA MADE BY THE ASSESSING OFFICER TO THE TPO FOR COMPUTING THE ARM'S LENGTH PRICE WAS INVALID BECAUSE WHEN THE REFERENCE WAS MADE ON 14.09.2009, NO ASSESSMENT PRO CEEDINGS WERE PENDING IN RELATION TO THE INSTANT ASSESSMENT YEAR. 12. AT THIS STAGE, IT WOULD BE APPROPRIATE TO CONSIDER WHETHER THE REFERENCE MADE BY THE ASSESSING OFFICER TO THE TPO ON 14.09.2009 FOR DETERMINATION OF ARM'S LENGTH PRICE IS VALID OR NOT ? FOR THE SAID PURPOSE, WE MAY BRIEFLY TOUCH - UPON THE RELEVANT PROVISIONS RELATING TO THE TRANSFER PRICING ASSESSMENT WHICH ARE CONTAINED IN SECTIONS 92 TO 92F OF THE ACT UNDER CHAPTER X RELATING TO THE SPECIAL PROVISIONS RELATING TO AVOIDANCE OF TAX . SECTIONS 92 TO 92F OF THE ACT WERE INTRODUCED BY THE FINANCE ACT, 2001 AND ARE EFFECTIVE FROM THE ASSESSMENT YEAR 2002 - 03. SECTION 92(1) OF THE ACT PROVIDES THAT ANY INCOME ARISING FROM AN INTERNATIONAL TRANSACTION BETWEEN ASSOCIATED ENTERPRISES SHALL BE COMPUTED HAVING REGARD TO THE ARMS LENGTH PRICE. SECTIONS 92A AND 92B OF THE 25 ITA NO. 810 /PN/20 1 3 CO NO S . 03 & 04 /PN/201 5 ITA NOS.1850 & 1927/PN/2013 SAS RESEARCH & DEVELOPMENT (I) PVT. LTD. ACT CONTAIN PROVISIONS RELATING TO THE MEANING OF THE EXPRESSIONS ASSOCIATED ENTERPRISE AND INTERNATIONAL TRANSACTION RESPECTIVELY. SECTION 92C OF THE ACT CONTAINS THE POWE RS OF THE ASSESSING OFFICER AND THE MANNER OF DETERMINATION OF ARM'S LENGTH PRICE IN RELATION TO AN INTERNATIONAL TRANSACTION. SECTION 92CA OF THE ACT PROVIDES THAT WHERE THE ASSESSING OFFICER CONSIDERS IT NECESSARY OR EXPEDIENT TO DO SO, HE MAY REFER TO THE TRANSFER PRICING OFFICER THE DETERMINATION OF THE ARMS LENGTH PRICE. SECTION 92CB OF THE ACT RELATES TO THE POWER OF THE BOARD TO MAKE SAFE HARBOUR RULES. SECTION 92D OF THE ACT RELATES TO MAINTENANCE AND KEEPING OF INFORMATION AND DOCUMENT BY PERSO NS ENTERING INTO AN INTERNATIONAL TRANSACTION. SECTION 92E OF THE ACT PRESCRIBES THAT THE PERSON ENTERING INTO INTERNATIONAL TRANSACTION SHALL FURNISH A REPORT FROM A CHARTERED ACCOUNTANT IN FORM NO.3CEB. SECTION 92F OF THE ACT CONTAINS DEFINITIONS OF CE RTAIN TERMS WHICH ARE RELEVANT TO COMPUTE ARM'S LENGTH PRICE, ETC. IN TERMS OF SECTIONS 92 TO 92F OF THE ACT. 13. NOTABLY, THE ENTIRE SCHEME AND MECHANISM TO COMPUTE ANY INCOME ARISING FROM AN INTERNATIONAL TRANSACTION ENTERED BETWEEN ASSOCIATED ENTERPRISE S IS CONTAINED IN SECTIONS 92 TO 92F OF THE ACT. NOW, WE MAY DEAL IN SLIGHT DETAIL THE PROVISIONS OF TRANSFER PRICING ASSESSMENT WHICH ARE RELEVANT IN THE CONTEXT OF CONTROVERSY BEFORE US. SECTION 92(1) OF THE ACT MANDATES THAT ANY INCOME ARISING FROM AN INTERNATIONAL TRANSACTION SHALL BE COMPUTED HAVING REGARD TO THE ARM'S LENGTH PRICE. SECTION 92C, INTER - ALIA, PRESCRIBES THE METHODS FOR COMPUTATION OF ARM'S LENGTH PRICE IN RELATION TO AN INTERNATIONAL TRANSACTION. SUB - SECTION (3) OF SECTION 92C OF THE ACT EMPOWERS THE ASSESSING OFFICER TO DETERMINE THE ARM'S LENGTH PRICE IN RELATION TO AN INTERNATIONAL TRANSACTION IN ACCORDANCE WITH THE METHODS PRESCRIBED IN SUB - SECTION (1), ON THE BASIS OF MATERIAL OR INFORMATION OR DOCUMENTS AVAILABLE WITH HIM, AFTER ALLOWING THE ASSESSEE AN OPPORTUNITY IN THIS REGARD; AND, SUB - SECTION (4) OF SECTION 92C PROVIDES THAT WHERE THE ASSESSING OFFICER SO DETERMINES THE ARM'S LENGTH PRICE, HE MAY COMPUTE THE TOTAL INCOME OF THE ASSESSEE HAVING REGARD TO THE ARM'S LENGTH PRIC E SO DETERMINED. HOWEVER, SECTION 92CA OF THE ACT PROVIDES THAT LENGTH PRIC E SO DETERMINED. HOWEVER, SECTION 92CA OF THE ACT PROVIDES THAT WHERE THE ASSESSING OFFICER CONSIDERS IT NECESSARY OR EXPEDIENT SO TO DO, HE MAY REFER THE COMPUTATION OF ARM'S LENGTH PRICE IN RELATION TO AN INTERNATIONAL TRANSACTION TO THE TPO. IN SUCH A SITUATION, THE TPO, AFTER TAKING INTO ACCOUNT THE MATERIAL BEFORE HIM, PASS AN ORDER IN WRITING U/S 92CA(3) OF THE ACT DETERMINING THE ARM'S LENGTH PRICE IN RELATION TO AN INTERNATIONAL TRANSACTION. ON RECEIPT OF THIS ORDER, SUB - SECTION (4) OF SECTION 92 CA OF THE ACT REQUIRES THE ASSESSING OFFICER TO COMPUTE THE TOTAL INCOME OF THE ASSESSEE IN CONFORMITY WITH THE ARM'S LENGTH PRICE SO DETERMINED BY THE TPO. IN OTHER WORDS, THE DETERMINATION OF THE ARM'S LENGTH PRICE, WHEREVER A REFERENCE IS MADE TO HIM, IS DONE BY THE TPO UNDER SUB - SECTION (3) OF SECTION 92CA BUT THE COMPUTATION OF TOTAL INCOME HAVING REGARD TO THE ARM'S LENGTH PRICE SO DETERMINED BY THE TPO IS REQUIRED TO BE DONE BY THE ASSESSING OFFICER UNDER SUB - SECTION (4) OF SECTION 92C, READ WITH SU B - SECTION (4) OF SECTION 92CA. 14. IN SUM AND SUBSTANCE, THE SCHEME OF THE ACT POSTULATES THAT ARM'S LENGTH PRICE IN RELATION TO AN INTERNATIONAL TRANSACTION IS DETERMINED EITHER BY THE ASSESSING OFFICER AS PROVIDED IN SUB - SECTION (3) OF SECTION 92C OR BY THE TPO U/S 92CA(3) OF THE ACT WHERE A REFERENCE IS MADE TO HIM BY THE ASSESSING OFFICER. IN BOTH SITUATIONS, THE ASSESSING OFFICER IS REQUIRED TO COMPUTE THE TOTAL INCOME OF THE ASSESSEE HAVING REGARD TO THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSA CTION SO DETERMINED, EITHER IN TERMS OF SUB - SECTION (4) OF SECTION 92C OR SUB - SECTION (4) OF SECTION 92CA. NOTABLY, SUB - SECTION (4) OF SECTION 92C COMES INTO PLAY WHERE AN ARM'S LENGTH PRICE IN RELATION TO THE INTERNATIONAL TRANSACTION IS DETERMINED BY TH E ASSESSING OFFICER AND SUB - SECTION (4) OF SECTION 92CA COMES INTO PLAY WHERE THE ARM'S LENGTH PRICE IN RELATION TO AN INTERNATIONAL TRANSACTION IS DETERMINED BY THE TPO, ON A REFERENCE BY THE ASSESSING OFFICER. IN THE CASE BEFORE US, THE TOTAL INCOME OF THE ASSESSEE HAS BEEN COMPUTED HAVING REGARD TO THE ARM'S LENGTH PRICE DETERMINED BY THE TPO 26 ITA NO. 810 /PN/20 1 3 CO NO S . 03 & 04 /PN/201 5 ITA NOS.1850 & 1927/PN/2013 SAS RESEARCH & DEVELOPMENT (I) PVT. LTD. UNDER SECTION 92CA(3) OF THE ACT AND THEREFORE THE ASSESSING OFFICER HAS TAKEN RECOURSE TO SECTION 92CA(4) OF THE ACT. 15. IT IS QUITE CLEAR THAT THE PROCESS OF DETERMINATION OF ARM'S LENGTH PRICE IS TO BE CARRIED OUT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, MAY IT BE, UNDER SUB - SECTION (3) OF SECTION 92C WHERE THE ASSESSING OFFICER DETERMINES THE ARM'S LENGTH PRICE OR UNDER SUB - SECTIONS (1) TO (3) OF SECTION 92CA, WHERE THE ASSESSING OFFICER REFERS THE DETERMINATION OF ARM'S LENGTH PRICE TO THE TPO. WE MAY ALSO REFER TO THE PROVISIONS OF SECTION 143(3) OF THE ACT DEALING WITH ASSESSMENT OF INCOME. IN TERMS OF CLAUSE (II) OF SUB - SECTION (3) OF SECTION 143, IT IS PRESCRIBED THAT THE ASSESSING OFFICER SHALL, BY AN ORDER IN WRITING, MAKE AN ASSESSMENT OF THE TOTAL INCOME OR LOSS OF THE ASSESSEE, AND DETERMINE THE SUM PAYABLE BY HIM OR REFUND ON ANY AMOUNT DUE TO HIM ON THE BASIS OF SUCH ASSESSMENT. IT IS ONLY IN THE COURSE OF SUCH ASSESSMENT OF TOTAL INCOME, THAT THE ASSESSING OFFICER IS OBLIGATED TO COMPUTE ANY INCOME ARISING FROM AN INTERNATIONAL TRANSACTION OF AN ASSESSEE WITH ASSOCIATED ENTERPRISES, HAVING REGARD TO THE ARM'S LENGTH PRICE. IN THIS BACKGROUND , IS IT NOT APPROPRIATE TO INFER THAT THE PROVISIONS OF SECTION 92 TO 92F OF THE ACT GET TRIGGERED ONLY DURING THE PENDENCY OF THE PROCESS OF ASSESSMENT OF TOTAL INCOME BEFORE THE ASSESSING OFFICER, WHICH CULMINATES IN AN ORDER UNDER SECTION 143(3) OR SECT ION 144 OF THE ACT, AS THE CASE MAY BE ? 16. IN - FACT, THE OCCASION WHICH REQUIRES THE ASSESSING OFFICER TO COMPUTE INCOME FROM AN INTERNATIONAL TRANSACTION ARISES ONLY DURING THE ASSESSMENT PROCEEDINGS, WHEREIN HE IS DETERMINING THE TOTAL INCOME OF THE A SSESSEE. THE APPELLANT HAS CANVASSED THE AFORESAID POSITION BEFORE US AND IN THIS CONTEXT REFERENCE HAS ALSO BEEN MADE TO THE CBDT INSTRUCTION NO.3 DATED 20 TH MAY, 2003 THE RELEVANT PORTION OF WHICH READ AS UNDER : - ..........THE CENTRAL BOARD OF DIRECT TAXES, THEREFORE, HAVE DECIDED THAT WHEREVER THE AGGREGATE VALUE OF INTERNATIONAL TRANSACTION EXCEEDS RS.5 CRORES, THE CASE SHOULD BE PICKED UP FOR SCRUTINY AND REFERENCE UNDER CRORES, THE CASE SHOULD BE PICKED UP FOR SCRUTINY AND REFERENCE UNDER SECTION 92CA BE MADE TO THE TPO. IF THERE ARE MORE THAN ONE TRANSACTION WITH AN ASSOCIATED ENTERPRISE OR THERE ARE TRANSACTIONS WITH MORE THAN ONE ASSOCIATED ENTERPRISES THE AGGREGATE VALUE OF WHICH EXCEEDS RS.5 CRORES, THE TRANSACTIONS SHOULD BE REFERRED TO THE TPO. BEFORE MAKING REFERENCE TO THE TPO, THE ASSESSING OFFICER HAS TO SEEK APPROVAL OF THE COMMISSIONER/DIRECTOR AS CONTEMPLATED UNDER THE ACT. UNDER THE PROVISIONS OF SECTION 92CA REFERENCE IS IN RELATION TO THE INTERNATIONAL TRANSACTION. HENCE ALL TRANSACTIONS HAVE TO BE EXPLICITLY MENTIONED IN THE LETTER OF REFERENCE. SINCE THE CASE WILL BE SELECTED FOR SCRUTINY BEFORE MAKING REFERENCE TO THE TPO, THE ASSESSING OFFICER MAY PROCEED TO EXAMINE OTHER ASPECTS OF THE CASE DURING PENDENCY OF ASSESSMENT PROCEEDINGS BUT AWAIT THE REPORT OF THE TPO ON THE VALUE OF INTERNATIONAL TRANSACTION BEFORE MAKING FINAL ASSESSMENT. [UNDERLINED FOR EMPHASIS BY US] 17. IT IS EMPHASIZED ON THE BASIS OF THE CBDT INSTRUCTION (SUPRA) THAT EVEN AS PER THE UNDERSTANDING OF THE CBDT, A CASE IS TO BE SELECTED FOR SCRUTINY ASSESSMENT BEFORE THE ASS ESSING OFFICER MAY REFER THE COMPUTATION OF ARM'S LENGTH PRICE IN RELATION TO AN INTERNATIONAL TRANSACTION TO THE TPO U/S 92CA OF THE ACT. THEREFORE, WE ARE INCLINED TO UPHOLD THE POSITION SOUGHT TO BE CANVASSED BY THE ASSESSEE THAT AN ASSESSING OFFICER C AN MAKE REFERENCE TO THE TPO U/S 92CA OF THE ACT ONLY AFTER SELECTING THE CASE FOR SCRUTINY ASSESSMENT. IN - FACT, THE AFORESAID UNDERLINED OBSERVATIONS OF THE CBDT INSTRUCTION (SUPRA) IS A POINTER TO THE LEGISLATIVE IMPORT THAT THE REFERENCE TO THE TPO FOR DETERMINING THE ARM'S LENGTH PRICE IN RELATION TO AN INTERNATIONAL TRANSACTION IS ENVISAGED ONLY IN THE COURSE OF THE ASSESSMENT PROCEEDINGS, WHICH IS THE ONLY PROCESS KNOWN TO THE ACT, WHEREBY THE ASSESSMENT OF TOTAL INCOME IS DONE. AS PER THE CBDT (SUP RA), THE ASSESSING OFFICER MAY PROCEED TO EXAMINE OTHER ASPECTS OF THE 27 ITA NO. 810 /PN/20 1 3 CO NO S . 03 & 04 /PN/201 5 ITA NOS.1850 & 1927/PN/2013 SAS RESEARCH & DEVELOPMENT (I) PVT. LTD. CASE DURING PENDENCY OF ASSESSMENT PROCEEDINGS BUT AWAIT THE REPORT OF THE TPO ON THE VALUE OF THE INTERNATIONAL TRANSACTIONS BEFORE MAKING ASSESSMENT SINCE THE CASE WOULD BE SELECTED F OR SCRUTINY BEFORE MAKING REFERENCE TO THE TPO. 18. IN THE CONTEXT OF THE AFORESAID CONTROVERSY, WE MAY REFER TO THE ARGUMENTS RAISED BY THE LD. CIT - DR WHEREBY IT IS CONTENDED THAT IT WAS OPEN FOR THE ASSESSING OFFICER TO MAKE A REFERENCE TO THE TPO FOR DE TERMINATION OF ARM'S LENGTH PRICE WITHOUT ISSUING NOTICE U/S 143(2) OF THE ACT; IN OTHER WORDS, AS PER THE REVENUE, REFERENCE TO THE TPO U/S 92CA OF THE ACT CAN BE MADE EVEN IF NO ASSESSMENT PROCEEDING IS PENDING BEFORE THE ASSESSING OFFICER. IN THIS CONT EXT, IT IS SUBMITTED THAT THE ANNUAL NORMS FOR SELECTION OF CASES FOR SCRUTINY PRESCRIBED BY THE CBDT FOR ASSESSMENT YEAR 2007 - 08, INTER - ALIA, PRESCRIBED COMPULSORY SCRUTINY IN ALL CASES WHERE THE TOTAL VALUE OF INTERNATIONAL TRANSACTIONS AS DEFINED IN SEC TION 92B EXCEEDED RS.15 CRORES. ACCORDING TO HER, IN SUCH A CASE, THE ASSESSING OFFICER CAN VERY WELL ISSUE THE NOTICE U/S 143(2) OF THE ACT AND THEN MAKE A REFERENCE TO THE TPO. HOWEVER, IT IS SUBMITTED THAT THE CBDT NORMS ALSO PROVIDE THAT A CASE WHICH IS NOT DIRECTLY COVERED UNDER THE AFORESAID COMPULSORY SCRUTINY NORM, CAN ALSO BE SELECTED FOR SCRUTINY IF THE ASSESSING OFFICER RECORDS A SATISFACTION AND SEEKS THE APPROVAL OF THE CCIT/DGIT (INTERNATIONAL TAXATION)/DGIT (EXEMPTION). THE AFORESAID NORM HAS BEEN POINTED OUT TO SAY THAT IN ORDER TO PICK - UP A CASE FOR SCRUTINY, SOME SATISFACTION IS REQUIRED TO BE RECORDED BEFORE THE NOTICE U/S 143(2) OF THE ACT IS TO BE ISSUED. THIS EXERCISE, ACCORDING TO THE LD. CIT - DR, COULD VERY WELL BE THE REFERENCE OF THE MATTER OF THE TPO, THEREFORE, THE STIPULATED PERIOD LAID DOWN BY THE CBDT DOES NOT PRE - SUPPOSE THAT THE ISSUE OF NOTICE U/S 143(2) OF THE ACT HAS TO BE NECESSARILY AND WITHOUT FAIL PRECEDE THE REFERENCE TO TPO. 19. WE HAVE CAREFULLY CONSIDERED THE PLE A OF THE LD. CIT - DR, THAT IT IS OPEN TO THE DEPARTMENT TO MAKE A REFERENCE TO THE TPO WITHOUT ISSUING NOTICE U/S 143(2) OF THE ACT, BUT IN OUR VIEW, IT IS NOT SUPPORTED BY A SCHEMATIC READING OF 143(2) OF THE ACT, BUT IN OUR VIEW, IT IS NOT SUPPORTED BY A SCHEMATIC READING OF THE RELEVANT PROVISIONS RELATING TO THE TRANSFER PRICING ASSE SSMENT CONTAINED IN SECTIONS 92 TO 92F. THE ENTIRE PURPOSE OF COMPUTATION OF ARM'S LENGTH PRICE IN RELATION TO AN INTERNATIONAL TRANSACTION IS FOUND IN SUB - SECTION (1) OF SECTION 92 OF THE ACT. SECTION 92(1) MANDATES THAT ANY INCOME ARISING FROM AN INTER NATIONAL TRANSACTION SHALL BE COMPUTED HAVING REGARD TO THE ARM'S LENGTH PRICE. THEREFORE, THE SOLE AIM OF COMPUTING THE ARM'S LENGTH PRICE IN RELATION TO ANY INTERNATIONAL TRANSACTION IS TO COMPUTE THE INCOME ARISING THEREFROM. THUS, THE COMPUTATION OF INCOME AND THE DETERMINATION OF ARM'S LENGTH PRICE IN RELATION TO THE INTERNATIONAL TRANSACTION HAVE TO GO HAND - IN - HAND AND WITHOUT THERE BEING AN OCCASION TO COMPUTE INCOME ARISING FROM AN INTERNATIONAL TRANSACTION, IT IS DIFFICULT TO COMPREHEND THE PROCE SS FOR COMPUTATION OF ARM'S LENGTH PRICE IN RELATION TO THE RELEVANT INTERNATIONAL TRANSACTION. THEREFORE, IT WOULD NOT BE OPEN FOR THE DEPARTMENT TO SAY THAT THE PROCESS OF COMPUTING ARM'S LENGTH PRICE OF AN INTERNATIONAL TRANSACTION OR A REFERENCE TO TH E TPO TO DETERMINE ARM'S LENGTH PRICE CAN BE INITIATED IN THE ABSENCE OF ANY PROCEEDING FOR COMPUTING TOTAL INCOME OF THE ASSESSEE. 20. FURTHER, IN OUR VIEW, THE LD. CIT - DR HAS RELIED ON ONE OF THE NORMS PRESCRIBED FOR PICKING A RETURN FOR SCRUTINY ASSESSM ENT TO SAY THAT CERTAIN EXERCISE IS REQUIRED TO BE DONE ON THE PART OF THE ASSESSING OFFICER TO RECORD HIS SATISFACTION BEFORE THE MATTER IS PUT - UP TO THE CCIT/DGIT WHO SHALL APPROVE THE SELECTION OF CASE FOR SCRUTINY. ACCORDING TO HER, THE RECORDING OF S UCH SATISFACTION CONTEMPLATED IN THE CBDT INSTRUCTION, WOULD, INTER - ALIA, ENVISAGE A REFERENCE TO THE TPO ALSO. IN OUR CONSIDERED OPINION, THE RELIANCE PLACED BY THE LD. CIT - DR ON THE AFORESAID CBDT PROCEDURE FOR SELECTION OF CASES FOR SCRUTINY, CANNOT DI STRACT FROM THE RELEVANT STATUTORY PROVISIONS RELATING TO THE CONTROVERSY BEFORE US. IN - FACT, THE SCHEME OF THE ACT WHICH WE HAVE DEALT EARLIER, ESTABLISHES THAT THE WORK OF COMPUTING THE ARM'S LENGTH PRICE IN RELATION TO INTERNATIONAL TRANSACTION ARISES ONLY AND ONLY WHEN THE INCOME FROM SUCH 28 ITA NO. 810 /PN/20 1 3 CO NO S . 03 & 04 /PN/201 5 ITA NOS.1850 & 1927/PN/2013 SAS RESEARCH & DEVELOPMENT (I) PVT. LTD. INTERNATIONAL TRANSACTION IS BEING ASSESSED. CERTAINLY, THE REFERENCE TO THE TPO FOR THE COMPUTATION OF ARM'S LENGTH PRICE CANNOT PRECEDE THE INITIATION OF THE ASSESSMENT PROCEEDINGS BY THE ASSESSING OFFICER BY ISSU ANCE OF NOTICE U/S 143(2) OF THE ACT. 21. AS PER THE LD. CIT - DR, SECTION 92C(3) OR 92CA OF THE ACT DO NOT ENJOIN THE ASSESSING OFFICER TO HAVE ANY ASSESSMENT PROCEEDINGS PENDING BEFORE A REFERENCE TO THE TPO CAN BE MADE FOR COMPUTATION OF ARM'S LENGTH PR ICE IN RELATION TO AN INTERNATIONAL TRANSACTION. IN THIS CONTEXT, REFERENCE HAS BEEN MADE TO THE PHRASEOLOGY OF SECTION 92CA(1) OF THE ACT TO SAY THAT ONLY TWO CONDITIONS ARE PRESCRIBED THEREIN WHICH ARE TO BE FULFILLED BY THE ASSESSING OFFICER BEFORE REF ERRING THE MATTER TO THE TPO. FIRSTLY, ASSESSEE SHOULD HAVE ENTERED INTO INTERNATIONAL TRANSACTION; AND, THAT IF THE ASSESSING OFFICER CONSIDERS IT NECESSARY AND EXPEDIENT TO DO SO, HE MAY REFER THE MATTER TO THE TPO UNDER APPROVAL OF THE COMMISSIONER. I F BOTH THE CONDITIONS ARE SATISFIED THERE IS NO BAR OR REQUIREMENT OF ANY ASSESSMENT PROCEEDINGS BEING PENDING, BEFORE THE REFERENCE IS MADE TO THE TPO. 22. THE AFORESAID PLEA OF THE LD. CIT - DR ALSO, IN OUR VIEW, FAILS TO TAKE INTO CONSIDERATION THE ENTIRE SCHEME ENVISAGED FOR THE TRANSFER PRICING ASSESSMENT IN SECTIONS 92 TO 92F OF THE ACT. THE PROVISIONS OF SECTIONS 92 TO 92F OF THE RELATE TO COMPUTATION OF INCOME FROM THE INTERNATIONAL TRANSACTION HAVING REGARD TO THE ARM'S LENGTH PRICE, MEANING OF ASSO CIATED ENTERPRISES, MEANING OF INTERNATIONAL TRANSACTION, DETERMINATION OF ARM'S LENGTH PRICE, KEEPING AND MAINTAINING OF INFORMATION AND DOCUMENTS BY PERSONS ENTERING INTO INTERNATIONAL TRANSACTIONS, FURNISHING OF A REPORT FROM AN ACCOUNTANT BY PERSONS EN TERING INTO SUCH TRANSACTION AND THE DEFINITION OF CERTAIN EXPRESSIONS OCCURRING IN SUCH SECTIONS. THE AFORESAID PROVISIONS DO NOT OPERATE IN INDIVIDUAL SPHERES BUT THE SAME OPERATE WITH A SINGULAR PURPOSE OF COMPUTING INCOME ARISING FROM AN INTERNATIONAL TRANSACTION. THE PROCESS OF COMPUTATION OF INCOME IS NECESSARILY A PART AND PARCEL OF THE ASSESSMENT PROCEEDINGS ENVISAGED UNDER THE ACT. PART AND PARCEL OF THE ASSESSMENT PROCEEDINGS ENVISAGED UNDER THE ACT. SECTION 92CA OF THE ACT IS NOT AN INDEPENDENT PROVISION, BUT IT IS TRIGGERED ONLY WHEN THE OCCASION ARISES FOR APPL ICATION OF SECTION 92(1) OF THE ACT, WHEREBY INCOME FROM AN INTERNATIONAL TRANSACTION IS TO BE COMPUTED HAVING REGARD TO ITS ARM'S LENGTH PRICE; AND, THE OCCASION TO COMPUTE THE INCOME WOULD ARISE ONLY WHEN THERE IS AN ON - GOING ASSESSMENT PROCEEDING. THER EFORE, REFERENCE MADE BY THE LD. CIT - DR TO THE PHRASEOLOGY OF SECTION 92CA(1) WITHOUT CONSIDERING THE ENTIRE SCHEMATIC ARRANGEMENT OF SECTIONS 92 TO 92F WOULD BE INCORRECT. 23. THEREFORE, WE CONCLUDE THIS ASPECT BY HOLDING THAT THE ASSESSING OFFICER IS P RECLUDED FROM MAKING A REFERENCE TO THE TPO U/S 92CA(1) OF THE ACT FOR THE PURPOSES OF COMPUTING ARM'S LENGTH PRICE IN RELATION TO THE INTERNATIONAL TRANSACTION WHEN NO ASSESSMENT PROCEEDINGS ARE PENDING IN RELATION TO THE RELEVANT ASSESSMENT YEAR. 2 7 . T HE TRIBUNAL FURTHER HELD THAT WHEN REFERENCE WAS MADE TO THE TPO BY THE ASSESSING OFFICER FOR DETERMINATION OF ARM'S LENGTH PRICE IN RELATION TO THE INTERNATIONAL TRANSACTION, NO ASSESSMENT PROCEEDINGS WERE PENDING AND HENCE IT WAS AN INVALID REFERENCE. C ONSEQUENTLY, THE SUBSEQUENT ORDER PASSED BY THE TPO DETERMINING THE ADJUSTMENT TO THE INTERNATIONAL TRANSACTION WAS A NULLITY IN 29 ITA NO. 810 /PN/20 1 3 CO NO S . 03 & 04 /PN/201 5 ITA NOS.1850 & 1927/PN/2013 SAS RESEARCH & DEVELOPMENT (I) PVT. LTD. LAW AND VOID AB INITIO . THE RELEVANT FINDINGS OF THE TRIBUNAL VIDE PARAS 24 TO 27 READ AS UNDER : - 24. NOW, WE MAY COME BACK TO THE FACTS OF THE PRESENT CASE. IN THIS CASE, RETURN OF INCOME WAS FILED ON 05.11.2007, WHICH WAS PROCESSED U/S 143(1) OF THE ACT. ON 14.09.2009, THE ASSESSING OFFICER MADE A REFERENCE TO THE TPO FOR COMPUTATION OF ARM'S LENGTH PRICE IN RELATION TO AN INTERNATIONAL TRANSACTION ENTERED BY ASSESSEE WITH ITS ASSOCIATED ENTERPRISE. THE TPO, AFTER ALLOWING THE ASSESSEE OPPORTUNITY OF BEING HEARD AND AFTER TAKING INTO ACCOUNT THE MATERIAL AVAILABLE WITH HIM, PASSED AN ORDER DATED 29.10.2010 DETERMINING THE ARM'S LENGTH PRICE IN ACCORDANCE WITH SUB - SECTION (3) OF SECTION 92CA OF THE ACT. 25. IN THE BACKGROUND OF THE ABOVE FACTS, IT NEEDS TO BE ESTABLISHED AS TO WHETHER ON 14.09.2009 WHEN THE ASSESSING OFFICER MADE A REFERENCE TO THE TPO U/S 92CA(1) OF THE ACT, WAS THERE AN ASSESSMENT PROCEEDINGS U/S 143 OF THE ACT PENDING FOR THE YEAR UNDER CONSIDERATION. IN THE PRESENT CASE, WE ARE DEALING WITH ASSESSMENT YEAR 2007 - 08 AND ASSESSEE FILED ITS RETURN OF INCOME ON 05.11.2007. IN TERMS OF CLAUSE (II) TO SUB - S ECTION (2) OF SECTION 143 OF THE ACT, AS IT STOOD AT THE RELEVANT POINT OF TIME, NOTICE U/S 143(2) OF THE ACT IN ORDER TO SUBJECT THE RETURN OF INCOME TO SCRUTINY ASSESSMENT, SHOULD HAVE BEEN ISSUED WITHIN THIS SIX MONTHS FROM THE END OF THE RELEVANT ASSES SMENT YEAR I.E. UPTO 30.09.2008. THERE IS NO DISPUTE THAT NO SUCH NOTICE HAS BEEN ISSUED WITHIN THE ABOVE STIPULATED PERIOD. A CONSEQUENCE OF THE AFORESAID SITUATION IS THAT THE RETURN OF INCOME FILED BY THE ASSESSEE ON 05.11.2007 BECAME FINAL AS NO SCRU TINY PROCEEDINGS WERE STARTED WITHIN THE PERIOD STIPULATED IN LAW. THE AFORESAID POSITION IS ALSO REINFORCED BY THE CBDT CIRCULAR NO.549 DATED 31.10.1989. AS PER THE CBDT, IF, AFTER FURNISHING RETURN OF INCOME, AN ASSESSEE DOES NOT RECEIVE A NOTICE U/S 1 43(2) OF THE ACT FROM THE DEPARTMENT WITHIN DOES NOT RECEIVE A NOTICE U/S 1 43(2) OF THE ACT FROM THE DEPARTMENT WITHIN PERIOD STIPULATED IN THE PROVISO TO SECTION 143(2) OF THE ACT, IT FOLLOWS THAT THE RETURN FILED BY THE ASSESSEE HAS BECOME FINAL AND NO SCRUTINY PROCEEDINGS SHOULD BE STARTED IN RESPECT OF THAT RETURN. IN OTHER WORDS, IN THE PRESENT CASE, ASSESSMENT PROCEEDINGS U/S 143 OF THE ACT CAME TO END AND THE MATTER BECAME FINAL ON 30.09.2008 I.E. THE DATE WITHIN WHICH A NOTICE U/S 143(2) OF THE ACT WAS REQUIRED TO BE ISSUED, WHICH WAS NOT DONE. THE JUDGEMENT OF THE HONB LE PUNJAB & HARYANA HIGH COURT IN THE CASE OF VIPAN KHANNA VS. CIT AND OTHERS, 255 ITR 220 (P&H) IS ALSO TO THE SAME EFFECT. IN - FACT, AS PER THE HONBLE PUNJAB & HARYANA HIGH COURT, IN CASE WHERE A RETURN IS FILED AND IS PROCESSED AND NO NOTICE UNDER SUB - SECTION (2) OF SECTION 143 THEREAFTER IS SERVED ON THE ASSESSEE WITHIN THE STIPULATED PERIOD, THE ASSESSMENT PROCEEDINGS U/S 143 COME TO AN END AND MATTER BECOMES FINAL. AS PER THE HONBLE HIGH COURT, ALTHOUGH TECHNICALLY NO ASSESSMENT IS FRAMED IN SUCH A CASE, YET THE PROCEEDINGS FOR ASSESSMENT STAND TERMINATED. TO THE SIMILAR EFFECT IS THE RATIO OF THE JUDGEMENTS OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF (I) CIT VS. M. CHELLAPPAN AND ANOTHER, 281 ITR 444 (MADRAS); AND, (II) CIT VS. DEEP BARUAH, 32 9 ITR 362 (MADRAS). 26. IN THIS BACKGROUND, IF ON THE DATE OF MAKING OF REFERENCE TO THE TPO, THE ASSESSMENT PROCEEDINGS U/S 143 OF THE ACT HAD COME TO AN END AND THE PROCEEDINGS FOR ASSESSMENT STOOD TERMINATED, THERE WAS NO OCCASION FOR THE ASSESSING OFFI CER TO HAVE MADE A REFERENCE TO THE TPO FOR DETERMINATION OF ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTIONS IN TERMS OF SECTION 92CA OF THE ACT. WE HAVE ALREADY INFERRED IN THE EARLIER PARAS THAT UNDER THE PROVISIONS OF SECTION 92CA OF THE ACT, A RE FERENCE TO THE TPO FOR COMPUTATION OF ARM'S LENGTH PRICE IN RELATION TO INTERNATIONAL TRANSACTIONS IS PERMISSIBLE ONLY IN THE COURSE OF THE ASSESSMENT PROCEEDINGS. 30 ITA NO. 810 /PN/20 1 3 CO NO S . 03 & 04 /PN/201 5 ITA NOS.1850 & 1927/PN/2013 SAS RESEARCH & DEVELOPMENT (I) PVT. LTD. 27. IN VIEW OF THE AFORESAID DISCUSSION, IT HAS TO BE INFERRED THAT WHEN THE ASSESSING OFFIC ER MADE REFERENCE TO THE TPO ON 14.09.2009 FOR DETERMINATION OF ARM'S LENGTH PRICE IN RELATION TO AN INTERNATIONAL TRANSACTION, THERE WAS NO ASSESSMENT PROCEEDINGS PENDING, AND THEREFORE IT WAS AN INVALID REFERENCE. CONSEQUENTLY, THE SUBSEQUENT ORDER PASS ED BY THE TPO ON 29.10.2010 (SUPRA) DETERMINING THE ADJUSTMENT OF RS.2,49,48,811/ - TO THE INTERNATIONAL TRANSACTION IS A NULLITY IN LAW AND VOID AB INITIO. 2 8 . ANOTHER ASPECT NOTED BY THE TRIBUNAL WAS WHETHER IN THE ABOVE SAID CIRCUMSTANCES THE ORDER OF THE TPO COULD BE VALID MATERIAL FOR THE ASSESSING OFFICER TO ENTERTAIN A BELIEF THAT CERTAIN INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT WITHIN THE MEANING OF SECTION 147 OF THE ACT. IT WAS HELD BY THE TRIBUNAL THAT THE REASONS RECORDED BY THE ASSESSI NG OFFICER IN THE PRESENT CASE DO NOT MEET THE REQUIREMENT OF SECTION 147 OF THE ACT AND THEREFORE THE ASSESSING OFFICER HAD NO JURISDICTION TO ISSUE NOTICE UNDER SECTION 148 OF THE ACT DATED 14.01.2011 AND AS A CONSEQUENCE, THE SUBSEQUENT ASSESSMENT ORDER PASSED UNDER SECTION 143(3) R.W.S. 147 AND 144C(3) OF THE ACT WAS LIABLE TO BE QUASHED. THE RELEVANT OBSERVATIONS OF THE TRIBUNAL (SUPRA) ARE IN PARAS 28 TO QUASHED. THE RELEVANT OBSERVATIONS OF THE TRIBUNAL (SUPRA) ARE IN PARAS 28 TO 35, WHICH ARE AS UNDER : - 28. THE NEXT ASPECT IS AS TO WHETHER, IN THE ABOVE CIRCUMSTANCES, THE ORDER OF THE TPO DATED 29.10.2010 (SUPRA) CAN BE A VALID MATERIAL FOR THE ASSESSING OFFICER TO ENTERTAIN A BELIEF THAT CERTAIN INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT WITHIN THE MEANING OF SECTION 147 OF THE ACT. 29. IN THIS CONTEXT, THE LD. CID - DR HAS VEHEMENTLY POINTED OUT THAT THE RETURN OF INCOME FILED BY THE ASSESSEE INCLUDED INTERNATIONAL TRANSACTIONS ENTERED WITH THE ASSOCIATED ENTERPRISE AND SUCH RETURN OF INCOME WAS REQUIRED TO BE TAKEN - UP FOR COMPULSORY SCRUTINY, AS PER THE NORMS OF THE CBDT RELATING TO ASSESSMENT YEAR 2007 - 08. THEREFORE, WHEN SUCH A RETURN OF INCOME WAS NOT PICKED UP FOR A SCRUTINY ASSESSMENT WITHIN THE STIPULATED PERIOD, THE ONLY COURSE FOR THE REVENUE WAS TO ISSUE NOTICE U/S 148 OF THE ACT ON THE GROUND THAT CERTAIN I NCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. SECONDLY, IT IS POINTED OUT THAT THE RETURN OF INCOME WAS FILED BY THE ASSESSEE ON 05.11.2007 WITH CIRCLE 11(2), PUNE WHEREAS FORM NO.3CEB FOR THE SAME ASSESSMENT YEAR WAS FILED IN CIRCLE 1(1), PUNE ON 31.10 .2007. IT IS ONLY ON 28.07.2009, FORM NO.3CE B WAS RECEIVED BY THE PRESENT ASSESSING OFFICER I.E. CIRCLE 1(1) WHEREIN IT WAS SEEN THAT ASSESSEE HAD ENTERED INTO INTERNATIONAL TRANSACTIONS WITH ASSOCIATED ENTERPRISES. FOR THIS REASON, THE CASE OF THE ASSE SSEE HAD ESCAPED FROM COMPULSORY SELECTION FOR SCRUTINY. ON THIS BASIS, IT IS SOUGHT TO BE POINTED OUT THAT THE RE - OPENING OF ASSESSMENT BY ISSUANCE OF NOTICE U/S 147/148 OF THE ACT IS JUSTIFIED. 30. APART FROM THE AFORESAID, IT WAS ALSO VEHEMENTLY ARGUE D THAT ANY ILLEGALITY OR IRREGULARITY IN MAKING OF A REFERENCE TO THE TPO U/S 92CA OF THE ACT 31 ITA NO. 810 /PN/20 1 3 CO NO S . 03 & 04 /PN/201 5 ITA NOS.1850 & 1927/PN/2013 SAS RESEARCH & DEVELOPMENT (I) PVT. LTD. CANNOT RENDER THE SUBSEQUENT ORDER PASSED BY THE TPO U/S 92CA(3) OF THE ACT AS A NULLITY QUA THE BELIEF ENTERTAINED BY THE ASSESSING OFFICER THAT CERTAIN INCOME C HARGEABLE TO TAX HAD ESCAPED ASSESSMENT ON ACCOUNT OF DETERMINATION OF ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTION WITH THE ASSOCIATED ENTERPRISE. THE LD. CIT - DR SUBMITTED THAT IN THE CASE OF THE POORAN MAL VS. DIT, (1974) 93 ITR 505 (SC), THE COU RT HAD REFUSED TO EXCLUDE FROM THE PURVIEW OF ASSESSMENT EVEN THE MATERIAL AND EVIDENCE WHICH WAS OBTAINED BY THE DEPARTMENT EVEN THROUGH A ILLEGAL SEARCH AND SEIZURE ACTION. DRAWING A SIMILAR ANALOGY TO THE FACTS OF THE PRESENT CASE, IT IS CONTENDED THAT AN ILLEGAL OR INCORRECT REFERENCE TO THE TPO WOULD NOT INVALIDATE THE ARM'S LENGTH PRICE DETERMINED BY HIM U/S 92CA(3) OF THE ACT, WHICH SHOWED THAT AN ADJUSTMENT OF RS.2,49,43,811/ - WAS REQUIRED TO BE MADE TO THE STATED VALUES OF THE INTERNATIONAL TRANSA CTION. THEREFORE, THE AFORESAID MATERIAL PROVIDED A GOOD GROUND FOR THE ASSESSING OFFICER TO FORMULATE A BELIEF THAT CERTAIN INCOME CHARGEABLE TO TAX HAD ESCAPED ASSESSMENT. 31. AT THE OUTSET, WE MAY NOTICE THAT THE VALIDITY OF THE NOTICE REOPENING THE AS SESSMENT U/S 148 OF THE ACT HAS TO BE DETERMINED ON THE BASIS OF THE REASONS WHICH ARE DISCLOSED TO THE ASSESSEE. THOSE REASONS CONSTITUTE THE FOUNDATION OF THE ACTION INITIATED BY THE ASSESSING OFFICER OF REOPENING THE ASSESSMENT. THE AVERMENTS MADE BY THE LD. CIT - DR REGARDING THE COMPULSORY SCRUTINY OF RETURNS WHICH INVOLVED INTERNATIONAL TRANSACTIONS AND/OR THAT THE FORM NO.3CEB WAS NOT FILED WITH THE ASSESSING OFFICER, ARE REASONS WHICH ARE NOT FINDING A PLACE IN THE REASONS RECORDED BY THE ASSESSING OFFICER FOR RE - ASSESSMENT. THE REASONS RECORDED BY THE ASSESSING OFFICER FOR RE - ASSESSMENT, HAVE ALREADY BEEN REPRODUCED BY US IN THE EARLIER PART OF THIS ORDER. ITS A TRITE LAW THAT THE REASONS RECORDED BY THE ASSESSING OFFICER ARE ALONE TO BE EXAMINED SO AS TO TEST THEIR VALIDITY. IN THIS CONTEXT, A REFERENCE CAN BE MADE TO THE JUDGEMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF NORTHERN EXIM (P) LTD. VS. DCIT, (2012) 20 TAXMANN.COM 466 (DELHI) WHEREIN IT HAS BEEN HELD THAT A COURT IS TO BE GUIDE D ONLY BY THE REASONS RECORDED FOR RE - ASSESSMENT AND NOT BY THE BE GUIDE D ONLY BY THE REASONS RECORDED FOR RE - ASSESSMENT AND NOT BY THE REASONS OR EXPLANATION GIVEN BY THE REVENUE AT A LATER STAGE IN RESPECT OF THE NOTICE OF RE - ASSESSMENT. THE HONBLE DELHI HIGH COURT AFTER MAKING A REFERENCE TO THE FOLLOWING JUDGEMENTS : - ( I ) JA MNA LAL KOBRA VS. ITO (1968) 69 ITR 461 (ALL.); ( II ) CIT VS. AGARWALLA BROS. (1991) 189 ITR 786 (PAT.); ( III ) G.M. RAJGHARIA VS. ITO, (1975) 98 ITR 486 (PAT.); ( IV ) ASA JOHN DEVINATHAN VS. ADDL. CIT, (1980) 126 ITR 270 (MAD.); ( V ) EAST COAST COMMERCIAL CO. LTD. VS. ITO, (1981 ) 128 ITR 326 (CAL.); ( VI ) EQUITABLE INVESTMENT CO. (P.) LTD. VS. ITO, (1988) 174 ITR 714 (CAL.); AND, ( VII ) S. SREERAMACHANDRA MURTHY VS. DCIT, (2000) 243 ITR 427 (AP). HELD AS UNDER : - THE RATIO LAID DOWN IN ALL THESE CASES IS THAT, HAVING REGARD TO THE ENTIRE SCH EME AND PURPOSE OF THE ACT, THE VALIDITY OF THE ASSUMPTION OF JURISDICTION UNDER SECTION 147 CAN BE TESTED ONLY BY REFERENCE TO THE REASONS RECORDED UNDER SECTION 148(2) OF THE ACT AND THE ASSESSING OFFICER IS NOT AUTHORIZED TO REFER TO ANY OTHER REASON EV EN IF IT CAN BE OTHERWISE INFERRED AND/OR GATHERED FROM THE RECORDS. HE IS CONFINED TO THE RECORDED REASONS TO SUPPORT THE ASSUMPTION OF JURISDICTION. HE CANNOT RECORD ONLY SOME OF THE REASONS AND KEEP THE OTHERS UP HIS 32 ITA NO. 810 /PN/20 1 3 CO NO S . 03 & 04 /PN/201 5 ITA NOS.1850 & 1927/PN/2013 SAS RESEARCH & DEVELOPMENT (I) PVT. LTD. SLEEVES TO BE DISCLOSED BEFORE THE COURT IF HIS ACTION IS EVER CHALLENGED IN A COURT OF LAW. 32. TO THE SIMILAR EFFECT IS THE JUDGEMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF 31 INFOTECH LTD. VS. ACIT, (2010) 329 ITR 257 (BOM.) WHEREIN IT HAS BEEN HELD THAT THE VALIDITY OF THE RE OPENING OF ASSESSMENT HAS TO BE DETERMINED WITH REFERENCE TO THE REASONS WHICH HAD WEIGHED WITH THE ASSESSING OFFICER AND THOSE CANNOT BE ADDED TO OR SUPPORTED ON A BASIS WHICH WAS NOT PRESENT TO THE MIND OF THE ASSESSING OFFICER WHEN HE ISSUED THE NOTICE TO REOPEN THE ASSESSMENT. AS A CONSEQUENCE OF OUR AFORESAID DISCUSSION, WE ARE UNABLE TO CONSIDER THE VALIDITY OF THE ISSUANCE OF NOTICE OF RE - ASSESSMENT BASED ON THE EXPLANATION/REASONS NOW SOUGHT TO BE SUPPLEMENTED BY THE LD. CIT - DR, WHICH OTHERWISE DO NOT FIND A PLACE IN THE REASONS RECORDED BY THE ASSESSING OFFICER. 33. WE HAVE ALSO CAREFULLY CONSIDERED THE OTHER PLEA RAISED BY THE LD. CIT - DR BASED ON THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF POORAN MAL (SUPRA). IT IS QUITE WELL - SETTLE D THAT ANY ILLEGALITY OR IRREGULARITY IN OBTAINING MATERIAL OR EVIDENCE WOULD NOT PRECLUDE THE REVENUE AUTHORITIES FROM UTILIZING THE SAME IN ASSESSMENT OF INCOME UNLESS THE GENUINENESS AND CORRECTNESS OF THE MATERIAL OR EVIDENCE IS IN DOUBT. SO HOWEVER, IN THE PRESENT CASE, WE ARE NOT DEALING WITH THE POWER OF THE ASSESSING OFFICER TO COMPUTE INCOME OF THE ASSESSEE ARISING FROM AN INTERNATIONAL TRANSACTION BASED ON THE ARM'S LENGTH PRICE DETERMINED BY THE TPO. INDEED, AS WE HAD SEEN EARLIER THE COMPUTATI ON OF TOTAL INCOME FROM AN INTERNATIONAL TRANSACTION HAS TO BE DONE BY THE ASSESSING OFFICER UNDER SUB - SECTION (4) OF SECTION 92C READ WITH SUB - SECTION (4) OF SECTION 92CA OF THE ACT HAVING REGARD TO THE ARM'S LENGTH PRICE DETERMINED BY THE TPO. THERE IS NO DISPUTE ON THE SAID ASPECT. IN THE PRESENT CASE, THE POINT MADE OUT BY THE ASSESSEE IS THAT A NONEST AND VOID AB INITIO ORDER PASSED BY THE TPO ON 29.10.2010 DETERMINING THE ARM'S LENGTH PRICE U/S 92CA(3) OF THE ACT CANNOT FORM A BASIS TO FORMULATE A B ELIEF THAT CERTAIN INCOME 92CA(3) OF THE ACT CANNOT FORM A BASIS TO FORMULATE A B ELIEF THAT CERTAIN INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT WITHIN THE MEANING OF SECTION 147 OF THE ACT. THE CONTROVERSY IN THE PRESENT CASE HAS TO BE ADJUDICATED IN THE LIGHT OF THE PARAMETERS OF SECTION 147/148 OF THE ACT. IN A SOMEWHAT SIMILAR SITUATION, THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF BRIG B. LAL VS. WTO, 127 ITR 308 (RAJ.) WAS DEALING WITH A SITUATION WHERE THE REOPENING OF ASSESSMENT WAS BASED ON A REPORT SUBMITTED BY THE VALUATION OFFICER IN AN INVALID REFERENCE. AS PER THE HONBLE HIGH COURT, A REPORT SUBMITTED BY THE VALUATION OFFICER IN AN INVALID REFERENCE MUST BE TREATED AS A NULLITY IN THE EYES OF LAW, NONEST AND VOID AB INITIO. ACCORDING TO THE HONBLE HIGH COURT, WHERE THE REOPENING OF ASSESSMENT WAS BASED ON SUCH I LLEGAL, NULL AND VOID REPORT, THE ENTIRE FABRIC FOR REOPENING OF THE ASSESSMENT PROCEEDINGS FALLS FLAT. IN OUR CONSIDERED OPINION, THE RATIO OF THE JUDGEMENT OF THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF BRIG B. LAL (SUPRA) IS SQUARELY APPLICABLE IN THE PRESENT CASE. THEREFORE, HAVING REGARD TO THE PECULIAR FACTS OF THE PRESENT CASE, THE PROPOSITION SOUGHT TO BE CANVASSED BY THE LD. CIT - DR BASED ON THE DECISION IN THE CASE OF POORAN MAL (SUPRA) DOES NOT VALIDATE THE ISSUANCE OF NOTICE U/S 148 OF THE ACT TO REOPEN THE ASSESSMENT IN THE PRESENT CASE. 34. THE LD. CIT - DR ALSO RELIED UPON THE JUDGEMENT OF THE PUNJAB & HARYANA HIGH COURT IN THE CASE OF M/S COCA COLA INDIA INC VS. ACIT, (2009) 177 TAXMANN.COM 103 TO SAY THAT AN ORDER PASSED BY THE TPO CAN BE A REASON FOR RE - ASSESSMENT OF INCOME U/S 147/148 OF THE ACT. THE ABOVE PROPOSITION CANVASSED BY THE LD. CIT - DR IS NOT AN ABSOLUTE PROPOSITION, AND THE JUDGEMENT OF THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF M/S COCA COLA INDIA INC (SUPRA) H AS TO BE APPRECIATED IN THE LIGHT OF THE FACT - SITUATION THEREIN. IN THE CASE OF M/S COCA COLA INDIA INC (SUPRA), THE STAND OF THE REVENUE WAS THAT ASSESSEE WAS SUPPRESSING ITS PROFIT IN ITS TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISES IN THE PERIOD PRIOR TO THE ASSESSMENT YEAR 2002 - 03. THE REVENUE 33 ITA NO. 810 /PN/20 1 3 CO NO S . 03 & 04 /PN/201 5 ITA NOS.1850 & 1927/PN/2013 SAS RESEARCH & DEVELOPMENT (I) PVT. LTD. CONTENDED THE SUPPRESSION OF PROFITS ON THE GROUND OF AN ORDER PASSED BY THE TPO UNDER CHAPTER X AFTER 01.04.2002 IN RELATION TO AN ASSESSMENT YEAR AFTER 01.04.2002. SUCH ORDER OF THE TPO FORMED THE BASIS FOR T HE ASSESSING OFFICER TO FORMULATE A BELIEF THAT THERE WAS AN ESCAPEMENT OF INCOME WITHIN THE MEANING OF SECTION 147 OF THE ACT FOR THE PERIOD PRIOR TO ASSESSMENT YEAR 2002 - 03. PERTINENTLY, IN THE PERIOD PRIOR TO ASSESSMENT YEAR 2002 - 03, THE UN - AMENDED PRO VISIONS OF SECTION 92 OF THE ACT DID NOT PROVIDE FOR AN ORDER BY THE TPO DETERMINING ARM'S LENGTH PRICE. THE ASSESSEE ATTACKED THE INITIATION OF PROCEEDINGS U/S 147/148 OF THE ACT FOR A PERIOD PRIOR TO ASSESSMENT YEAR 2002 - 03 CONTENDING THAT THE ORDER OF THE TPO PASSED UNDER CHAPTER X SUBSEQUENT TO THE AMENDMENT MADE WITH EFFECT FROM 01.04.2002 IN RESPECT OF A SUBSEQUENT ASSESSMENT YEAR WAS IRRELEVANT. IN OTHER WORDS, ASSESSEE CANVASSED THAT THE ORDER OF THE TPO IN RESPECT OF A SUBSEQUENT ASSESSMENT YEAR COULD NOT BE A GROUND TO REOPEN THE ASSESSMENT OF A YEAR WHICH WAS PRIOR TO THE AMENDMENT OF SECTION 92 OF THE ACT WITH EFFECT FROM 01.04.2002. THE HONBLE HIGH COURT DISAGREED WITH THE ASSESSEES DEFENSE AND UPHELD THE ACTION OF THE ASSESSING OFFICER IN TAKING INTO ACCOUNT THE SUBSEQUENT ORDER OF THE TPO FOR FORMING A BELIEF THAT CERTAIN INCOME LIABLE TO TAX HAD ESCAPED ASSESSMENT EVEN IN RELATION TO AN ASSESSMENT YEAR PRIOR TO THE INSERTION OF 92CA OF THE ACT WITH EFFECT FROM 01.04.2002. AS PER THE HON BLE HIGH COURT, THE ORDER OF THE TPO COULD CERTAINLY HAVE NEXUS FOR REACHING A CONCLUSION THAT INCOME HAS BEEN INCORRECTLY ASSESSED OR HAS ESCAPED ASSESSMENT WITHIN THE MEANING OF SECTION 147 OF THE ACT. THE PROPOSITION LAID DOWN BY THE HONBLE HIGH COURT IS TO THE EFFECT THAT THE ORDER OF THE TPO PASSED U/S 92CA OF THE ACT AFTER 01.04.2002 I.E. UNDER THE AMENDED PROVISIONS, CAN BE ONE OF THE REASONS FOR RE - ASSESSMENT FOR A PERIOD PRIOR TO THE INTRODUCTION OF THE AMENDED CHAPTER X WITH EFFECT FROM 01.04.20 02. CLEARLY, THE DISPUTE IN THE CASE OF M/S COCA COLA INDIA INC (SUPRA) STOOD ON A DIFFERENT FOOTING THAN THE DISPUTE BEFORE US. IN THE CASE OF M/S COCA COLA INDIA INC (SUPRA), IT WAS NOBODYS CASE THAT THERE WAS ANY ILLEGALITY IN THE REFERENCE MADE TO T HE TPO OR THAT THE ORDER OF THE TPO WAS VOID AB INITIO WITH RESPECT TO MADE TO T HE TPO OR THAT THE ORDER OF THE TPO WAS VOID AB INITIO WITH RESPECT TO THE ASSESSMENT YEAR FOR WHICH THE TPO PASSED THE ORDER U/S 92CA(3) OF THE ACT. THE ONLY POINT WAS WHETHER ORDER OF THE TPO PASSED U/S 92CA(3) OF THE ACT FOR A SUBSEQUENT ASSESSMENT YEA R COULD FORM A BASIS FOR THE ASSESSING OFFICER TO FORMULATE A BELIEF ABOUT THE ESCAPEMENT OF INCOME IN A PRECEDING ASSESSMENT YEAR WHEN THE AMENDED REGIME OF CHAPTER X WAS NOT ON THE STATUTE. THE FACTS AND CIRCUMSTANCES IN THE PRESENT CASE ARE ENTIRELY DI FFERENT AND THEREFORE THE JUDGEMENT OF THE PUNJAB & HARYANA HIGH COURT IN THE CASE OF M/S COCA COLA INDIA INC (SUPRA) DOES NOT HELP THE CASE OF THE REVENUE. 35. AS A CONSEQUENCE, WE CONCLUDE BY HOLDING THAT THE REASONS RECORDED BY THE ASSESSING OFFICER IN THE PRESENT CASE DO NOT MEET WITH THE REQUIREMENTS OF SECTION 147 OF THE ACT AND THEREFORE THE ASSESSING OFFICER HAD NO JURISDICTION TO ISSUE NOTICE U/S 148 OF THE ACT DATED 14.01.2011. AS A CONSEQUENCE, THE SUBSEQUENT ASSESSMENT ORDER PASSED U/S 143( 3) R.W.S. 147 AND 144C(13) OF THE ACT IS LIABLE TO BE QUASHED. WE HOLD SO. 2 9 . AS REFERRED TO BY US IN THE PARAS HEREINABOVE THE FACTUAL ASPECTS OF THE PRESENT CASE BEFORE US ARE IDENTICAL TO THE FACTS BEFORE THE TRIBUNAL IN MAXIMIZE LEARNING (P.) LTD. VS. ACIT (SUPRA) AND HENCE THE RATIO LAID DOWN BY THE CO - ORDINATE BENCH OF THE TRIBUNAL IS SQUARELY APPLICABLE TO THE FACTS OF THE CASE. IN VIEW THEREOF, WE HOLD THAT WHEN NO ASSESSMENT PROCEEDINGS WERE PENDING IN RELATION TO THE RELEVANT ASSESSMENT YEAR, THE ASSESSING OFFICER WAS PRECLUDED 34 ITA NO. 810 /PN/20 1 3 CO NO S . 03 & 04 /PN/201 5 ITA NOS.1850 & 1927/PN/2013 SAS RESEARCH & DEVELOPMENT (I) PVT. LTD. FROM MAKING A REFERENCE TO THE TPO UNDER SECTION 92CA(1) OF THE ACT FOR THE PURPOSES OF COMPUTING THE ARM'S LENGTH PRICE IN RELATION TO THE INTERNATIONAL TRANSACTION. CONSEQUENTLY, ORDER PASSED BY THE TPO UNDER SECTION 92CA(3) PROPOSING AN ADJUSTMENT OF RS. 2 , 60 , 00 , 882 / - TO THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTION WAS A NULLITY IN LAW AND VOID AB INITIO . IN VIEW OF THE ABOVE - SAID FACTS AND CIRCUMSTANCES, SUCH AN ORDER PASSED BY THE TPO WAS NOT A VALID MAT ERIAL FOR THE ASSESSING OFFICER TO ENTERTAIN A BELIEF THAT CERTAIN INCOME CHARGEABLE TO TAX HAD ESCAPED ASSESSMENT WITHIN THE MEANING OF SECTION 147 OF THE ACT. CONSEQUENTLY, WE HOLD THAT THE REASONS RECORDED FOR REOPENING THE ASSESSMENT UNDER SECTION 147 OF THE ACT DO NOT MEET THE REQUIREMENTS OF THE SECTION AND HENCE THE ASSESSING OFFICER HAD NO JURISDICTION TO ISSUE NOTICE UNDER SECTION 148 OF THE ACT. CONSEQUENTLY, THE SUBSEQUENT ORDER PASSED BY THE ASSESSING OFFICER UNDER SECTION 143(3) R.W.S. 147 AN D 144C OF THE ACT IS LIABLE TO BE QUASHED. ACCORDINGLY, WE HOLD SO. THE GROUND OF THE APPEAL NO.1 RAISED BY THE ASSESSEE IS ALLOWED. 30. AS THE PRELIMINARY ISSUE RAISED BY THE ASSESSEE REGARDING THE ASSUMPTION OF JURISDICTION BY THE ASSESSING OFFICER HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE AND THE IMPUGNED ASSESSMENT HAS BEEN QUASHED, THE REMAINING GROUNDS OF APPEAL RAISED BY THE ASSESSEE REGARDING THE MERITS OF THE ADDITION BECOME ACADEMIC AND HENCE THE SAME ARE NOT ADJUDICATED FOR THE PRESENT. 31 . SINCE THE ASSESSMENT COMPLETED UNDER SECTION 143(3) R.W.S. 147 OF THE ACT HAS BEEN HELD TO BE INVALID, THERE IS NO MERIT IN GROUNDS OF APPEAL RAISED BY THE REVENUE, HENCE, THE APPEAL OF REVENUE IN ITA NO.1927/PN/2013 IS DISMISSED. THE GROUNDS OF APPEAL RAISED BY THE REVENUE ARE THUS, DISMISSED. 35 ITA NO. 810 /PN/20 1 3 CO NO S . 03 & 04 /PN/201 5 ITA NOS.1850 & 1927/PN/2013 SAS RESEARCH & DEVELOPMENT (I) PVT. LTD. 3 2 . IN THE RESULT, THE APPEAL OF REVENUE IN ITA NO.810/PN/2013 IS PARTLY ALLOWED, APPEAL OF ASSESSEE IN ITA NO.1850/PN/2013 IS ALLOWED, APPEAL OF REVENUE IN ITA NO.1927/PN/2013 IS DISMISSED AND CROSS OBJECTIONS OF ASSESSEE ARE DISMISSED . ORDER PRONOUNCED ON THIS 16 TH D AY OF SEPTEMBER , 2016 SD/ - SD/ - ( R.K. PANDA ) (SUSHMA CHOWLA) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 16 TH SEPTEMBER , 2016 GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. THE APPELLANT ; 1. / THE APPELLANT ; 2. / THE RES PONDENT; 3. ( ) / THE CIT(A) - I T/TP , PUNE; 4. / THE CIT I I I / DIT(TP/IT) , PUNE; 5. , , / DR A , ITAT, PUNE; 6. / GUARD FILE . / BY ORDER , //TRUE COPY// / SR. PRIVATE SECRETARY , / ITAT, PUNE