MICROSOFT RESEARCH LAB INDIA PRIVATE LIMITED,BENGALURU V. DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE 4(1)(1), BENGALURU

ITA 1842/BANG/2024

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The case involves Microsoft Research Lab India Private Ltd., the appellant, contesting the Final Assessment Order for the Assessment Year 2017-2018, which included Transfer Pricing adjustments. The appellant challenged the validity of the Final Assessment Order, claiming it was passed without the necessary procedural steps, specifically the issuance and objection period for a Draft Assessment Order as mandated by Section 144C of the Income Tax Act, 1961. The Tribunal examined the procedural compliance in the assessment process and found that the Final Assessment Order was indeed passed prematurely, without adhering to the statutory requirements, leading to the quashing of the order and deletion of the related tax demand.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 789005 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-11-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: misc
• Appeal Filed On: 20-09-2024
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DIVYA K.J
• Assessee Lawyers: NAGESHWAR RAO; SECTION C
• Keywords: Set aside; Transfer pricing; Rectification of order
• Section: 143(3); 154

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “B’’BENCH: BANGALORE BEFORE MS. PADMAVATHY S., ACCOUNTANT MEMBER AND SHRI RAHUL CHAUDHARY, JUDICIAL MEMBER IT(TP)A 1842/Bang/2024 (Assessment year 2017-18) M/s. Microsoft Research Lab India Private Ltd. No.9, Vigyan Lavelle Road Bangalore 560 001 ………. Appellant [PAN: AAECM2252R] Deputy Commissioner of Income Tax, Circle 4(1)(1), BMTC Building, Koramangala, Bangalore 560 095 ……….. Respondent Appearance For the Appellant/Assessee : Sri Nageshwar Rao For the Respondent/Department : Dr. Divya K.J. Date Conclusion of hearing : 26.11.2025 Pronouncement of order : 28.11.2025 O R D E R Per Rahul Chaudhary, Judicial Member: 1. The present appeal preferred by the Assessee is directed against the Order, dated 24/07/2024, passed by the National Faceless Appeal Centre (NFAC), New Delhi [hereinafter referred to as ‘the CIT(A)’] under Section 250 of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’] whereby the Ld. CIT(A) had disposed off the appeal against the Final Assessment Order, dated 23/04/2021, passed under Section 143(3) read with Section 144B of the Act for the Assessment Year 2017-2018. 2. By way of Ground No. 5 raised in the present appeal, the Assessee had challenged the validity of the Final Assessment Order, dated Printed from counselvise.com IT(TP)A No.1842/Bang/2024 Assessment Year 2017-2018 Page 2 of 7 30/03/2015. Ground No. 5 raised by the Assessee reads as under: “Impugned order failed in not holding the Assessment order dated 23.4.2021 as invalid, null and void. Further impugned order erred in not deleting the Transfer pricing adjustment made to returned income.” 3. We have heard both the sides in relation to the above ground and have perused the material on record. 4. We note that Section 144C of the Act reads as under: “144C. (1) The Assessing Officer shall, notwithstanding anything to the contrary contained in this Act, in the first instance, forward a draft of the proposed order of assessment (hereafter in this section referred to as the draft order) to the eligible assessee if he proposes to make, on or after the 1st day of October, 2009, any variation which is prejudicial to the interest of such assessee. (2) On receipt of the draft order, the eligible assessee shall, within thirty days of the receipt by him of the draft order: (a) file his acceptance of the variations to the Assessing Officer; or (b) file his objections, if any, to such variation with,- (i) the Dispute Resolution Panel; and (ii) the Assessing Officer. (3) The Assessing Officer shall complete the assessment on the basis of the draft order, if (a) the assessee intimates to the Assessing Officer the acceptance of the variation; or (b) no objections are received within the period specified in sub-section (2) (4) The Assessing Officer shall, notwithstanding anything contained in section 153 or section 153B, pass the assessment order under sub-section (3) within one month from the end of the month in which,- Printed from counselvise.com IT(TP)A No.1842/Bang/2024 Assessment Year 2017-2018 Page 3 of 7 (a) the acceptance is received; or (b) the period of filing of objections under sub-section (2) expires.” 5. Bare perusal of the above shows that under Section 144C(2) of the Act assessee is required to either file objections against the Draft Assessment Order or give acceptance within 30 days from the receipt of the draft order. Section 144C(3) & (4) of the Act provides that in case no objections are filed by the assessee within the aforesaid period of 30 day or if communication accepting the Draft Assessment Order is accepted, the assessing officer would be required to pass the Final Assessment Order within one month from the end of the month in which the 30 day period expires or acceptance is received, as the case may be. 6. In the present case, it was contended on behalf of the Assessee that no Draft Assessment Order has been received by the Assessee and that the Final Assessment Order has been passed without passing the Draft Assessment Order. Therefore, vide order dated 06/11/2024 report was called for from the Assessing Officer. The Learned Departmental Representative had placed on record copy of the report/letter dated 06/11/2024, which is accompanied by copy of draft assessment order and screenshot of entire case history. On perusal of the same it emerges that the draft assessment order was prepared on 15/04/2021. It is an admitted position that Final Assessment Order was generated on 23/04/2021. We find following are the entries reported between 15/04/2021 and 23/04/2021: Date Action/description From To Document 15/04/2021 Draft order u/s 143(3) of Income Tax Act, 1961 submitted AO – Assessment Unit MICROSOFT RESEARCH LAB INDIA PRIVATE LIMITED AAECM2252R Order u/s 143(3)_15042021.pdf Notings/Remarks: Signature: Printed from counselvise.com IT(TP)A No.1842/Bang/2024 Assessment Year 2017-2018 Page 4 of 7 15/04/2021 Draft Issued computation sheet AO- Assessment Unit MICROSOFT RESEARCH LAB INDIA PRIVATE LIMITED AAECM2252R_Computation sheet_15042021.pdf Notings/Remarks: Signature: 15/04/2021 For Review report AO- Assessment Unit National Faceless Assessment Centre Notings/Remarks:For Review report Signature: 15/04/2021 Data sent to Review Unit National Faceless Assessment Centre AO-Review Unit Notings/Remarks: Kindly provide review report for the case Signature: 20/04/2021 For approval of Review report AO – Review Unit Range – Review Unit Notings/Remarks: DAO is accepted and submitted for further approval. Signature: 21/04/2021 Added additional remarks Range – Review unit - NotingsRemarks: AO’s report concurring with DAO is approved. Signature: 21/04/2021 Approved draft review report Range – Review unit AO -Review unit Notings/Remarks : AOs report concurring with DAO is approved Signature: 22/04/2021 Added additional remarks AO – Review unit National Faceless Assessment Centre Notings/Remarks : Pending for signing by Faceless Unit for Service through NaFAC Signature: 22/04/2021 Issued Review report National Faceless Assessment Centre AO -Regional e- assessment unit AAECM2252R_Review report_1032594788(1)_ 22042021.pdf Notings/Remarks: Review report forwarded to AU Signature: 22/04/2021 Approve Assessment order AO- Assessment unit Range – Assessment unit Printed from counselvise.com IT(TP)A No.1842/Bang/2024 Assessment Year 2017-2018 Page 5 of 7 Notings/Remarks: Submitted for approval of assessment order after clearance from risk and review unit Signature: 22/04/2021 Approved for order generation Range – Assessment unit AO – Assessment unit Notings/Remarks : Approved Signature: 23/04/2021 Order generated u/s 143(3) of Income Tax Act, 1961 National Faceless Assessment Centre MICROSOFT RESEARCH LAB INDIA PRIVATE LIMITED AAECM2252R_Order u/s 143(3)_10323637493(1)_ 23042021.pdf Notings/Remarks: Signature: 23/04/2021 Action taken AO – Assessment unit Notings/Remarks: Ok Signature: 23/04/2021 Demand notice generated u/s 156 of Income Tax Act, 1961 National Faceless Assessment centre MICROSOFT RESEARCH LAB INDIA PRIVATE LIMITED AAECM2252R_Demand notice u/s 156_1032637529(1)_ 23042021.pdf Notings/Remarks: Signature: 23/04/2021 Issued computation sheet National Faceless Assessment Centre MICROSOFT RESEARCH LAB INDIA PRIVATE LIMITED AAECM2252R_Computation sheet_1032637540(1)_ 23042021.pdf 7. Thus, even if arguendo the above entries are accepted to be correct, the Final Assessment Order has been passed in violation of the provisions contained in Section 144C(3)/(4) of the Act. It is not the case of the Revenue that the Assessee has accepted the Draft Order. Therefore, the Assessing Officer could not have passed the Final Assessment Order before the expiry of the 30 days granted by Section 144C(2) of the Act to the Assessee to file objections. In the present case, the Final Assessment Order has been passed before the expiry of 30 days granted to the Assessee by Section 144C(2) of the Act to file objections. Thus, frustrating the right of the Printed from counselvise.com IT(TP)A No.1842/Bang/2024 Assessment Year 2017-2018 Page 6 of 7 Assessee to file objections against the Draft Assessment Order. 8. We note that while disposing off the appeal preferred by the Assessee, the Learned CIT(A) has recorded as under: “6.3 As per the provisions of section 92CA, when a reference is made to the TPO, the ALP determined, the Transfer Pricing Oder goes to the assessing officer, the assessing officer shall pass the 143(3) order incorporating the Transfer Pricing Order. The assessing officer has not discussed any thing about the transfer pricing adjustments made by the TPO and has accepted the transfer pricing adjustments in toto. Considering these facts no discussion of the grounds of appeal is made here. The TPO’s order is to be considered as the order appealed against. The rectification order passed on 1.6.2021 u/s 154 r.w.s. 143(3) reduced the tax demand from section 115BBE at the rate of sixty percent to normal computation rates. The assessment is set aside for the limited purpose of redoing the 143(3) order appealed against by incorporating the TP adjustments. 6.4 In the result, the appeal is set aside for doing it denovo.” 9. On perusal of above it appears that the Learned CIT(A) has, in a sense, accepted the contention of the Assessee and has concluded that the appeal is in effect appeal against the order passed by the Transfer Pricing Officer. 10. Given the above facts and circumstances we are of the view that the Final Assessment Order, dated 23.4.2021, was passed without following the mandate of the provisions contained in Section 144C of the Act and therefore, the same cannot be sustained. Printed from counselvise.com IT(TP)A No.1842/Bang/2024 Assessment Year 2017-2018 Page 7 of 7 Accordingly, we quash the Final Assessment Order, dated 23/04/2021, passed under Section 144C of the Act. Consequently, the additions/disallowances and the corresponding demand raised upon the Assessee stands deleted. Ground No. 5 raised by the Assessee is allowed while all the other grounds raised by the Assessee are dismissed as having been rendered infructuous. In terms of the aforesaid, the appeal preferred by the Assessee is partly allowed. 11. Order pronounced in the open court on 28th Nov, 2025 Sd/- (Padmavathy S.) Accountant Member Sd/- (Rahul Chaudhary) Judicial Member Bangalore, Dated 28th Nov, 2025. VG/SPS Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The DR, ITAT, Bangalore. 5 Guard file By order Asst. Registrar, ITAT, Bangalore. Printed from counselvise.com "