RENAULT INDIA PRIVATE LIMITED, CHENNAI V. ACIT, CIRCLE-1, CHENNAI

ITTPA 10/CHNY/2023

• Counselvise Citation: [2024] 130 COUNSELVISE.COM (IT) 5285 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 20 day(s)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 12-03-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 11-03-2024
• Assessment Year: 2017-2018
• Appeal Filed On: 22-02-2023
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANN MARRY BABY
• Assessee Lawyers: SRIRAM SESHADRI
• Keywords: Transfer pricing; International transaction; Principle of natural justice; TDS
• Section: 143(3); 195; 201; 192

Judgement Text

आयकर अपीलीय अिधकरण, ’डी’ ᭠यायपीठ, चे᳖ई। IN THE INCOME TAX APPELLATE TRIBUNAL ‘D’ BENCH: CHENNAI ŵी वी. दुगाŊ राव, माननीय Ɋाियक सद˟ एवं ŵी मंजूनाथा.जी, माननीय लेखा सद˟ के समƗ BEFORE SHRI V. DURGA RAO, HON’BLE JUDICIAL MEMBER AND SHRI MANJUNATHA. G, HON’BLE ACCOUNTANT MEMBER IT (TP) A Nos.10 & 11/Chny/2023 िनधाᭅरण वषᭅ/Assessment Years: 2017-18 & 2018-19 M/s.Renault India Pvt. Ltd., Plot No.8, Willow Square, 9 & 10, Thiru Vi Ka Industrial Estate, Guindy, Chennai-600 032. [PAN: AADCR 2042 M] v. The Asst. Commissioner of – Income Tax, Circle-I, LTU, Chennai. (अपीलाथᱮ/Appellant) (ᮧ᭜यथᱮ/Respondent) अपीलाथᱮ कᳱ ओर से/ Appellant by : Shri Sriram Seshadri, CA ᮧ᭜यथᱮ कᳱ ओर से /Respondent by : Ms. Ann Marry Baby, CIT सुनवाईकᳱतारीख/Date of Hearing : 12.03.2024 घोषणाकᳱतारीख /Date of Pronouncement : 13.03.2024 आदेश / O R D E R PER MANJUNATHA.G, AM: These two appeals filed by the assessee are directed against final Assessment Order passed by the AO u/s.143(3) r.w.s.144C(13) of the Income Tax Act, 1961 (in short “the Act“) dated 02.01.2023 & 30.12.2022 in pursuant to directions of the Dispute Resolution Panel-2, Bengaluru, u/s.144C(5) of the Act, dated 30.05.2022 & 20.06.2022 and pertains to assessment years 2017-18 & 2018-19. Since, facts are IT (TP) A Nos.10 & 11/Chny/2023 :: 2 :: identical and issues are common, for the sake of convenience, these appeals were heard together and are being disposed off, by this consolidated order. 2. The assessee has, more or less, raised common grounds of appeal for both the assessment years. Therefore, for the sake of brevity, grounds of appeal filed for AY 2017-18 in IT (TP) A No.10/Chny/2023, are re-produced as under: I. GENERAL GROUND I.1. The lower authorities erred in passing orders which suffer from legal defects such as being passed in violation of principles of natural justice and the provisions of the Income Tax Act, 1961 ("the Act") and is devoid of merits and are contrary to facts on record and applicable law and has been completed without adequate inquiries and as such is liable to be quashed. II. JURISDICTIONAL GROUNDS 2. Validity of directions issued by the Ld. Dispute Resolution Panel 2.1. The directions issued by the Ld. Dispute Resolution Panel under section i44C(5) of the Act, is invalid and void-ab-initio on account of not containing the mandatory system-generated Document Identification Number ("DIN") on the body the said directions, in contravention to Circular No.19 of 2019 issued by the Central Board of Direct Taxes, and is therefore liable to be quashed and held as never to have been issued. 3. Validity of the final assessment order 3.1. The final assessment order dated January 02, 2023 ("Impugned Order"), passed pursuant to the invalid directions issued under section 144C(5) of the Act, is illegal, bad in law, null and void, and liable to be quashed as such. 3.2. The Impugned Order passed under section 143(3) read with section 144C(13) of the Act dated January 02, 2023, is barred by limitation since the same is passed beyond the time limit prescribed under section 144C(13) of the Act and therefore liable to be quashed. 3.3. The Impugned Order passed under section 143(3) read with section 144C(13) of the Act, by the DCIT, Circle-1, LTU, Chennai, being the Jurisdictional Assessing Officer, is in violation of the mandatory provisions of section 1446 of the Act and is not authenticated in the prescribed IT (TP) A Nos.10 & 11/Chny/2023 :: 3 :: manner. The order is therefore invalid, without jurisdiction, illegal, contrary to the provisions of the Act and is therefore liable to be quashed. III. GROUNDS ON MERITS-TRANSFERPRICING 4. Upward adjustment towards AMP expenses for brand-building 4.1. The lower authorities have, in the facts and circumstances of the case and in law, erred in not following the order of the Jurisdictional bench of this Hon'ble Tribunal, in the Appellant's own case on this issue for AY 2012-13, which is binding on such authorities. Further, the lower authorities erred in misapplying the decisions of the jurisdictional bench of this Hon'ble Tribunal based on their erroneous understanding and without appreciating the facts of the case. 4.2. The lower authorities erred in making an upward TP adjustment of INR 263.52 Crores, towards alleged brand building activities undertaken by the Appellant for its AEs, holding that the said alleged expenditure is to be recovered along with a mark-up. 4.3. The lower authorities erred in alleging that, the expenditure incurred by the Appellant towards advertising and sales promotion for its own business with domestic unrelated parties, constitutes an international transaction undertaken to increase the brand value of its AE, based purely on conjectures and surmises, without any tangible evidence, and in violation to the provisions of the Act. 4.4. The lower authorities erred in alleging that the Appellant rendered brand-building services to its AE, without establishing that such services were actually rendered or that the Appellant incurred AMP expenditure for the benefit of its AEs pursuant to an underlying agreement/arrangement with its AE. 4.5. The lower authorities erred in the facts and circumstances of the case and in law, in not considering the detailed submissions on break-up of advertisement, marketing and sales promotion expenses and having adopted an arbitrary approach of treating an ad-hoc amount of INR 483.24 Crores towards promotion of the AE's brand. Further, the Ld. TPO erred in arbitrarily concluding that 50% of the advantage of the alleged brand building ensued to the Appellant's AE and that the same is to be recovered with a mark-up. IV. GROUNDS ON MERITS - CORPORATE TAX 5. Disallowance of payments in relation to expatriates 5.1. The lower authorities erred on the facts and circumstances of the case and in law, in disallowing the payments made by the Appellant, to Renault Nissan Global Management S.A. ("RNGM") ("impugned payment"), amounting to INR 7.50 Crores under section 4o(a)(i)of the Act. 5.2. The lower authorities failed to appreciate that disallowance under section 4o(a)(i) of the Act is not sustainable in relation to the portion of the impugned payment pertaining to management fee, on which taxes IT (TP) A Nos.10 & 11/Chny/2023 :: 4 :: were duly withheld by the Appellant under section 195 of the Act, which was also accepted by the Ld. AO in the remand report. Therefore, the disallowance under section 4o(a)(i) of the Act is bad in law. 5.3. The lower authorities failed to appreciate that the part of the impugned payment is in the nature of reimbursement of social security benefits ("SSB") incurred in respect of expatriates, which does not constitute income in the hands of RNGM and thereby withholding is not warranted under section 195 of the Act. 5.4. The lower authorities erred in concluding that the impugned payment partakes the nature of fees for technical services ("FTS"), in consideration of the managerial services rendered by the expatriates at the behest of Renault SA.S. 5.5. The lower authorities erred in not appreciating that the portion of impugned payment pertaining to reimbursement of SSB is outside the purview of FTS as defined under the Act, since it is of the nature of income chargeable under the head "salaries" in the hands of expatriates, on which the Appellant duly deducted taxes under section 192 of the Act. 5.6. The lower authorities erred in holding that there is no employer- employee relationship between the Appellant and expatriates and consequently the Appellant is not liable to pay salary to the expatriates. 5.7. The lower authorities erred in recharacterizing the impugned payment to RNGM, despite the same being examined and accepted by the Ld. TPO to be in the nature of reimbursement of SSB. 5.8. The lower authorities erred in adopting an inconsistent approach of disallowing the said payment, without appreciating that during the course of proceedings under section 201 of the Act for the AY 2016-17, the Appellant's submission that there is no TDS liability on the reimbursement of SSB was accepted by the International Wing of the Income tax department. The Appellant prays that directions be given to grant all such relief arising from the grounds of appeal mentioned supra and all consequential relief thereto. The grounds of appeal raised by the Appellant herein are without prejudice to each other. The Appellant craves leave to add to and/or to alter, amend, rescind, modify the grounds herein above or produce further documents before or at the time of hearing of this Appeal. 3. The brief facts of the case are that the assessee, M/s.Renault India Pvt. Ltd., is a part of Renault Group, France, is engaged in the business of trading of passenger cars in domestic market as an Entrepreneurial Distributor. The assessee has filed its return of income for AY 2017-18 on IT (TP) A Nos.10 & 11/Chny/2023 :: 5 :: 30.11.2017 admitting total income of Rs.NIL. The assessee had also filed return of income for AY 2018-19 on 28.11.2018 admitting total income of Rs.NIL. The assessments for both assessment years, have been taken up for scrutiny and during the course of assessment proceedings, the AO noticed that the assessee had entered into international transactions with its Associated Enterprises (in short “AEs“) for both assessment years towards purchase of traded goods, sale of traded goods, purchase of capital goods, interest on ECB loan, etc. Therefore, a reference u/s.92CA(1) of the Act, was made to the Transfer Pricing Officer (in short “TPO“) to determine ‘Arms Length Price’ of the international transactions with its AEs for both assessment years. The TPO vide their order dated 28.01.2021 for AY 2017-18 and vide their order dated 29.07.2021 for AY 2018-19 has made an upward adjustment to the Revenue of the assessee company for both assessment years. The TPO for the reasons stated in their orders dated 28.01.2021 & 29.07.2021, has made an adjustment of Rs.263.52 Crs. for AY 2017-18 and further sum of Rs.284.25 Crs. for AY 2018-19. In pursuant to order of the TPO u/s. 92CA(1) of the Act, the AO has passed draft assessment order u/s.143(3) r.w.s.144C(1) of the Act for AY 2017-18 on 20.08.2021 & for AY 2018-19 on 28.09.2021. The assessee has filed objections before the Dispute Resolution Panel (in short “DRP“), Panel-2, Bengaluru, against draft assessment order passed by the AO for both assessment years. The DRP vide their directions dated 30.05.2022 issued u/s.144C(5) of the Act for AY 2017-18 and vide their IT (TP) A Nos.10 & 11/Chny/2023 :: 6 :: directions dated 20.06.2022 issued for AY 2018-19, upheld TP adjustment made by the TPO for both assessment years. 4. The directions issued by the DRP dated 30.05.2022 for AY 2017-18 was communicated to the TPO on 31.05.2022 and further, the same has been received by the AO on 03.06.2022. Similarly, the directions issued by the DRP dated 20.06.2022 for AY 2018-19 was communicated to the TPO on 29.06.2022 and further, the same has been received by the AO on 30.06.2022. The AO passed final assessment order u/s.143(3) r.w.s.144C(13) of the Act, on 02.01.2023 for AY 2017-18, and 30.12.2022 for AY 2018-19. Aggrieved by the final assessment orders, the assessee is in appeals before us. 5. The Ld.Counsel for the assessee, Shri Sriram Seshadri, CA, referring to Ground No.3 of the assessee’s appeal for both assessment years submitted that the final assessment orders passed by the AO u/s.143(3) r.w.s.144C(13) of the Act, dated 02.01.2023 & 30.12.2022, for both assessment years is barred by limitation, since the order passed by the AO is beyond prescribed time limit u/s.144C(13) of the Act, and therefore, liable to be quashed. The Ld.Counsel for the assessee referring to dates and events in respect of various orders passed by the TPO, draft assessment order passed by the AO, directions issued by the DRP, and final assessment order passed by the AO, submitted that as per provisions of Sec.144C(13) of the Act, the AO shall pass final assessment order within one month from the end of the month, in which, such IT (TP) A Nos.10 & 11/Chny/2023 :: 7 :: directions received by the AO. He further referring to reply received from the AO, in response to query raised by the assessee with regard to date of receipt of directions issued by the DRP, the AO has confirmed that the directions of the DRP was received by the AO as stated by the assessee and thus, the final assessment order passed by the AO for both assessment years are beyond the prescribed time limit and they are barred by limitation and liable to be quashed. 6. The ld. DR, Ms. Ann Mary Baby, CIT, on the other hand, supporting the order of the AO, submitted that there is no dispute with regard to dates and events referred to by the Ld. Counsel for the assessee in their submissions and further, it is also not in dispute that the final assessment orders passed by the AO is beyond the prescribed time limit provided u/s.144C(13) of the Act, and thus, the issue may be decided in accordance with law. 7. We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. The provisions of Sec.144C(13) of the Act, deals with time limit for passing final assessment order by the AO upon receipt of the directions issued by the DRP u/s.144C(5) of the Act. As per said provisions, upon receipt of the directions issued as per Sub-Section (5), the AO shall inconformity with the directions, complete, notwithstanding anything to the contrary contained in Sec.153 (or Sec.153B assessment) without providing any further opportunity being heard to the assessee, within one month from IT (TP) A Nos.10 & 11/Chny/2023 :: 8 :: the end of the month, in which, such directions are issued. The provisions of Sec.144C(13) of the Act is very clear and there is no ambiguity. From the above provisions, it is undisputedly clear that the AO shall pass final assessment order within one month from the end of the month, in which, such directions issued by the DRP, is received by the AO. In the present case, the directions issued by the DRP for AY 2017- 18, was received by the AO on 03.06.2022 and consequently, the AO should have passed final assessment order on or before 31.07.2022. But, the AO has passed final assessment order for AY 2017-18 u/s.143(3) r.w.s.144C(13) of the Act on 02.01.2023 and thus, in our considered view, the final assessment order passed by the AO on 02.01.2023 is barred by limitation, since, the same is passed beyond the time limit prescribed u/s.144C(13) of the Act. Similarly, the directions issued by the DRP for AY 2018-19 dated 20.06.2022 was received by the AO on 30.06.2022 and consequently, the AO shall pass final assessment order u/s.143(3) r.w.s.144C(13) of the Act on or before 31.07.2022. Since, the AO has passed final assessment order for AY 2018-19 on 30.12.2022, in our considered view, the order passed by the AO is barred by limitation and is liable to be quashed and thus, we quashed final assessment orders passed by the AO for AY 2017-18 dated 02.01.2023 and for AY 2018-19 dated 30.12.2022 since both are barred by limitation in terms of sec.144C(13) of the Act. IT (TP) A Nos.10 & 11/Chny/2023 :: 9 :: 8. The assessee has raised number of grounds challenging the additions made by the AO towards TP adjustment as suggested by the TPO and confirmed by the DRP for both assessment years. Since, we have allowed appeals filed by the assessee for both assessment years on limitation issue, in our considered view, various grounds taken by the assessee for both assessment years become academic in nature and do not require specific adjudication and thus, the same are dismissed as infructuous. 9. In the result, appeals filed by the assessee for both assessment years are allowed. Order pronounced on the 13 th day of March, 2024, in Chennai. Sd/- (वी. दुगाŊ राव) (V. DURGA RAO) ᭠याियक सद᭭य/JUDICIAL MEMBER Sd/- (मंजूनाथा.जी) (MANJUNATHA.G) लेखा सद᭭य/ACCOUNTANT MEMBER चे᳖ई/Chennai, ᳰदनांक/Dated: 13 th March, 2024. TLN आदेश कᳱ ᮧितिलिप अᮕेिषत/Copy to: 1. अपीलाथŎ/Appellant 2. ŮȑथŎ/Respondent 3. आयकरआयुƅ/CIT 4.िवभागीयŮितिनिध/DR 5. गाडŊफाईल/GF