TAVANT TECHNOLOGIES INDIA PRIVATE LIMITED,BANGALORE V. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-7(1)(1), BANGALORE

ITTPA 1582/BANG/2024

AI Insights

The case involves Tavant Technologies India Private Limited appealing against the final assessment order for the assessment year 2020-21, which was not in conformity with the DRP's directions. The DRP had earlier provided relief by adjusting the Transfer Pricing (TP) adjustments proposed by the Transfer Pricing Officer (TPO). However, the AO in the final assessment order did not incorporate these adjustments, leading to the appeal. The Tribunal found that the AO's actions were in violation of the statutory requirements under Section 144C of the Income Tax Act, which mandates that the final assessment order must be in conformity with the DRP's directions.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 471041 (ITAT-BANGALORE)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 05-03-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2020-2021
• Other Referred Cases: Flextronics Technologies (India) Pvt. Ltd. Vs. ACIT, Software Paradigms Infotech (P.) Ltd., M/s Xchnging Solutions Limited, Toyota Tsusho India Private Limited
• Laws Referred To: Income Tax Act
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N SENTHIL KUMAR
• Assessee Lawyers: DARPAN KIRPALANI
• Keywords: Set aside; Business income; Transfer pricing; International transaction
• Section: 143(3); 143(2); 92CA; 144C

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH: BANGALORE BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SHRI PRAKASH CHAND YADAV, JUDICIAL MEMBER IT(TP)A No.1582/Bang/2024 Assessment Years: 2020-21 Tavant Technologies India Private Limited, #32, CSRIE, Grape Garden, 17th H Main Road, 6th Block, Koramangala, Bengaluru – 560 095 PAN – AABCT 3261 E Vs. The Dy. Commissioner of Income Tax, Circle – 7(1)(1), Bengaluru. The NFAC, New Delhi. APPELLANT RESPONDENT Assessee by : Shri Darpan Kirpalani, CA Revenue by : Shri N Senthil Kumar, CIT Date of hearing : 11.12.2024 Date of Pronouncement : 05.03.2025 O R D E R PER WASEE M AHMED, ACCOUNTANT MEMBER: This is an appeal filed by the assessee against the assessment order dated 27/06/2024 vide DIN No. ITBA/AST/S/143(3)/2024- 25/1066161775(1) for the assessment year 2020-21. 2. The assessee in ground No. 1.1 has challenged the validity of the assessment framed u/s 143(3) r.w. sec. 144C(13)/144B of the Act on the ground that the same was not passed in conformity with the direction of the ld. DRP. IT(TP)A No.1582/Bang/2024 Page 2 of 10 . 3. Before we dwell upon the issue, it is necessary for better appreciation of the facts of the case, to refer certain dates which are pertinent, detailed as below: 1) Date of return filing on 18/01/2021 2) Notice issued u/s 143(2) of the Act 29/06/2021 3) Referred to TPO u/s 92CA of the Act========== 4) Date of TPO order u/s 92CA(3) of the Act dated 31/03/2023 5) Draft Assessment Order dated 22/09/2023 6) Objections raised before the DRP dated 20/10/2023 7) DRP order dated 25/06/2024 8) Order giving effect by the TPO dated 08/07/2024 9) Final Assessment order dated 27/06/2024 4. In the draft assessment order, the AO made adjustments to the tune of Rs. 36,07,57,661/- whereas the TPO adjustment were restricted by the DRP in the order giving effect to the tune of Rs.34,71,20,569/- only. Thus, it is transpired that some relief was given by the ld. DRP in his order dated 25/06/2024. The relief given by the ld. DRP can be observed from the details given below: “12.1.10 Threeslxty Logica Testing Services Pvt. Ltd. • Fails the RPT filter of the TPO • Functionally Dissimilar • Presence of Intangibles • Lack of segmental Information Having pursued the annual report, it is noted that this entity ails the related party revenue to total revenue filter as applied by the TPO. computation of RPT data as per the annual report is as under : IT(TP)A No.1582/Bang/2024 Page 3 of 10 . Hence, it fails the RPT filter as applied by the TPO. In view of the above, the TPO is directed to exclude this company from the final set of comparables for the SWD segment Ground allowed. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX 13.1.2 Orangescape Technologies Limited: Having considered the submissions, it is seen that the company has been found principally to undertake software development. This is clearly mentioned while giving background information of the company as part of Notes to accounts in its annual report for the F.Y. 2019-20 In the Director's report, it is stated that company has been engaged in the development of software and there is no change in the nature of the business during the financial year. As per the principal activity of the company mentioned in the annual report in Form No. MGT-9 the company is engaged in designing and developing of systems and application software and earns 100% revenue from this principal activity only. In view of the above, this evident that the company is into software development and is functionally similar to that of the assessee. Therefore, the TPO is directed to include the comparable in the software development segment if the company satisfies all the filters adopted by the TPO.” 5. However, we find that admittedly the relief was granted by the ld. DRP which is also evident from the giving effect order of the TPO dated 08/07/2024 yet in the final assessment order dated 27/06/2024 AO has not given any relief to the assessee. As such, the AO in the final assessment order has upheld the adjustment made by the TPO in the IT(TP)A No.1582/Bang/2024 Page 4 of 10 . order dated 31/03/2023. This fact can also be captured from the final assessment order, which is reproduced as under: “5.4 Addition on account of adjustment proposed by T.P Unit Large Value international transactions in services including transactions u/s 92B(2) in comparison to revenue from sale of services shown inlTR and low profitability(T.P Risk Parameter). Decision of Transfer Pricing- The Transfer Pricing order passed u/s 92CA(3) of the I.T.Act. 1961 dated 31.03.2023 in which an adjustment in the case has been proposed by the T.P unit amounting to Rs. 36,07,57,661/- on account of software development segment of the taxpayer international transactions. Inference of A.O - The A.O vide draft order u/s 144C(1) of the Act was passed on 22.09.2023 agreed with the adjustment proposed by the T.P unit and keeping in view the additions proposed in the T.P order dated 31.03.2023 an addition amounting to Rs. 36,07,57,661/- was proposed in the case on account of adjustment u/s 92CA of the Act. Thereafter, the assessee vide response dated 20.10.2023 has communicated the Faceless unit that the assessee has raised objections against the draft assessment order and has preferred appeal before the Hon'ble Dispute resolution and submitted form 35A. Thereafter, the Dispute Resolution Panel vide is order dated 25.06.2024 has communicated its directions u/s 144C(5) of the Act, 1961. The DRP vide its order dated 25.06.2023 has stated that the assessee has raised the objections against the specific issue involved w.r.t the draft assessment order passed on 22.09.2023. Further, the Hon'ble DRP vide its order dated 25.06.2024 has rejected all the grounds of objections raised by the assessee. The DRP w.r.t the major addition proposed in the draft assessment order on account of addition proposed by the TP unit has dismissed the plea of the assessee As discussed in the foregone paragraphs, the TPO has rightly applied the 'different financial year ending' fitter and adopted only those companies which have financial year ending 31st March. However, in case of this entity, we note that it has financial year ending 31st December and hence, it is rightly rejected by the TPO. Grounds rejected. (Addition: Rs. 36,07,57,661/-)” 6. On conjoiner reading of the all facts, it is revealed that the final assessment order has not been passed in conformity with the direction IT(TP)A No.1582/Bang/2024 Page 5 of 10 . issued by the ld. DRP, which is in contravention to the provisions of sub section 10/13 of section 144C of the Act. 7. In view of the above, the ld. AR before us contended that the final assessment order framed by the AO is contravention to the direction of the ld. DRP and, therefore, the same is void-ab-initio. 8. On the contrary, the ld. DR could not advance any argument contrary to the argument advanced by the ld. AR for the assessee. 9. Now, the controversy before us arises whether the final assessment order framed by the AO is sustainable in the given facts and circumstances. This question has been answered by the order of this Tribunal in the case of M/s Xchnging Solutions Limited in IT(TP)A No.2664/Bang/2017 dated 21.12.2020 in favor of the assessee, the relevant extract of the order is reproduced as under: “5. We have heard both the parties and perused the material on record. Similar issue came up for consideration in the case of Flextronics Technologies (India) Pvt. Ltd. Vs. ACIT in IT(TP)A No.832/Bang/2017 dt.31.12.2018 has held in paras 9 to 12 asunder: \" 9. We have considered the rival submissions. We find that on identical facts, this Tribunal in the case of Software Paradigms Infotech (P.) Ltd. (supra) has quashed the final order of assessment observing as follows:- \"3.3.1 We have heard the rival contention of both parties in the matter and perused and carefully considered the material on record. The undisputed facts on record, as brought out by the discussions above, is that the A0, as per law, was required to pass the final order of assessment dated 17/1/2014 for asst. year 2009-10 u/s 143(3) r.w.s 144C of the Act in conformity with the directions issued by the DRP u/s 144C(5) of the Act, which are binding on him as per section 144C(10) thereof and within the time prescribed u/s 144C(13) of the Act. We find that instead of passing the final order of assessment as required by law, the AO passed the impugned final order of assessment dated 17/1/2014 u/s 143(3) r.w.s 92CA of the Act; which, as contended by the id AR, is identical to the draft order of assessment passed on 14/3/2013 by only incorporating this TPO's proposals and , thereby evidently giving the IT(TP)A No.1582/Bang/2024 Page 6 of 10 . DRP's mandatory directions issued u/s 144C(5) of the Act a complete go- by. In our view, it is factually established that the AO in the final order of assessment dated 17/1/2014 has not given effect to or carried out the binding directions of the DRP as required u/s 144C(10) within the time specified u/s 144C(13) of the Act; which is a clear violation of the binding provisions of sec. 144C(10) and (13) of the Act. Therefore, in our considered opinion, the conduct of the AO/TPO in passing the impugned final order of assessment dated 17/1/2014 is a clear case of defiance and disregard to the binding directions of the higher authorities, i.e, the DRP in the case on hand. In fact, in the impugned order dated 17/1/2014 there is not even a single reference to the DRP's directions issued us/ 144C(5) of the Act vide order dated 30/12/2013. 3.3.2 In the factual and legal matrix of the case on hand, as discussed above, we are of the considered view that the impugned final order of assessment for asst. year 2008-09 passed u/s 143(3) r.w.s 92CA of the Act by the AO, in violation of the express mandatory provisions of sec. 144C(10) and (13) of the Act by not passing the impugned order in pursuance of and in conformity with the binding directions of the DRP issued u/s 144C(5) of the Act, within the time specified for this purpose, has rendered the said impugned final order of assessment unsustainable in law. We, therefore, quash the impugned final order of assessment for asst. year 2009-10 passed by the AO u/s 143(3) r.w.s 92CA of the Act dated 17/1/2014 in the case on hand. W hold and direct accordingly. Consequently, ground No. 17 of assessee's appeal is allowed.\" 10. Respectfully following the aforesaid view of the Tribunal, we quash the impugned order of assessment. Since the impugned order of assessment is quashed on the ground that the same is not in conformity with the provisions of section 144C of the Act and further on the ground that the time for passing the final order of assessment is barred by time, we are of the view that the other issues raised by the assessee in its grounds of appeal and the grounds raised by the revenue in its appeal does not require any consideration. As far as the decision cited by the learned DR in the case of H & M Hennes & Mauritz India (P) Ltd. (supra) is concerned, we find that in the s aid decision, the counsel for the Assessee as in p o the said order prayed for setting as the final order of assessment of AO to pass orders in accordance with the directions of the DRP. Thus, it is a case of concession by the Assessee and not on the basis of arguments advanced by the parties.) The law is well settled that a decision on concession of the counsel cannot be regarded as a precedent. Therefore, the decision cited by the learned DR does not support the case of the revenue. 11. In view of the conclusion that the assessment order is null and void, the other grounds of appeal raised by the assessee on merits of the addition made do not require any adjudication. 12. In the result, the appeal of the assessee is allowed.\" IT(TP)A No.1582/Bang/2024 Page 7 of 10 . In the present case also, as pointed out by the AR, the DRP included Evoke Technologies Limited in the list of comparables and similarly the DRP excluded ICRA Techno Analytics Limited from the list of comparables. The ALP adjustment made by the TPO has been changed on account of these two directions of DRP, however, the Assessing Officer retained the original Transfer Pricing Adjustment at Rs.8,67,23,600 in the final assessment order as made in the draft assessment order. Being so, we are not in a position to uphold the order of the Assessing Officer on this count. As provided in the Section 144C(13) of the Act, the final order of the Assessing Officer should be in conformity with the directions given by the DRP. In the present case, while working out the ALP adjustment, he has not followed the direction of the DRP, consequently, the assessment order is bad in law as held by co-ordinate Bench in the case cited above. Accordingly, the assessment framed in this case is quashed and set aside. However we make it clear that, this order would not, in any way, stop the revenue from taking such steps as are available to it in law and the assessee also from contesting the action of the revenue in accordance with the law, if it so desires.” 10. In holding so, we also draw support and guidance from the judgment of Karnataka High Court in the case of M/s Flextronics Technologies (India) Pvt. Ltd., in ITA No.332 of 2019 dated 09/01/2023, wherein the question framed stands as under: 2. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in holding that final assessment order as bad on the ground at assessing authority has not passed order as per directions of Dispute Resolution Panel? 3. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in not following the decision of Hon'ble Punjab and Haryana High Court in the case of Des Kul Bhushan (reported in 47 Taxmann 79 (P&H) wherein it is observed that when an assessment order is set aside the limitation gets extended under Section 153(3) of the Act?” 11. The above question was answered by the Hon’ble High Court as detailed below: IT(TP)A No.1582/Bang/2024 Page 8 of 10 . “6. Shri Suryanarayana is right in his submission that under Section 144C of the IT Act, the Assessing Officer is bound by the directions issued by the DRP and required to pass the assessment order in conformity with the directions issued within one month from the end of month in which such directions are issued. 7. The ITAT has recorded that impugned order is not in conformity with the provisions of Section 144C of the IT Act and barred by time. 8. Shri Dilip's contention is, the Assessing Officer has rightly passed the order within time. But it is relevant to note that the said order is not in conformity with Section 144C of the IT Act. Hence, no exception can be taken to the impugned order passed by the ITAT.” 12. In view of the above we hold that the final assessment framed by the AO in contravention to the direction of the ld. DRP is not sustainable. 13. Before parting, it is also pertinent to note that the ld. DRP has given direction dated 25/06/2024 and the AO has framed the final assessment order dated 27/06/2024, whereas the TPO has passed order giving effect to the direction of the ld. DRP dated 08/07/2024. Thus, it is transpired that the final assessment order has been framed by the AO without awaiting for the order to be passed by the TPO in pursuance to the direction of the ld. DRP. Accordingly, a question stroke to our mind whether there was second assessment order passed by the AO after passing of the order giving effect by the TPO dated 08/07/2024. But nothing has been brought to our notice at the time of hearing. This question has been answered against the revenue by this Tribunal in the case of Toyota Tsusho India Private Limited in ITA No.175/Bang/2022 the relevant extract is reproduced as under: “7. During the course of hearing the id. AR drew our attention to the following directions of the DRP:- \"5.1.1 M/s. Archroma India Pvt Ltd: The argument of the assessee is that this company is involved in manufacture of speciality chemicals and fails the trading sales / total sales filter of 75% applied by the learned TPO and it should be rejected as comparable. In this regard, we direct IT(TP)A No.1582/Bang/2024 Page 9 of 10 . the TPO to examine whether trading sales / total sales filter is passed by this company. In case if this filter fails then this company should be excluded as comparable. 5.1.2 M/s. Tarak Chemicals Limited: Having considered the submission of the assessee, we note that as per assessee this company is not a comparable as it is functionally dissimilar and fails trading sales / total sales filter of 75%. From the perusal of the annual report, we note that the company is into manufacture of oil field chemicals which indicate that the company is involved primarily in manufacturing activities. In this regard, we direct the TPO to examine whether trading sales / total sales filter is passed by this company. In case if this filter fails then this company should be excluded as comparable. 5.1.4 M/s. Sirea India Private Ltd: Having considered the submission of the assessee, we note that as per assessee this company is not a comparable as it is functionally dissimilar and from the perusal of the annual report, we note that the company is into business of trading of paints and varnish. We find that this company is functionally dissimilar and is directed to be excluded.\" XXXXXXXXXXXXXXXXXX 12. We have considered the rival submissions and perused the material on record. We notice that the DRP in para 5.1.1 to 5.1.4 as ex extracted above has given clear directions to the TPO to re-examine the inclusion of M/s. Archroma India Pvt Ltd and M/s. Tarak Chemicals Limited and has also directed for the exclusion of M/s. Sirea India Private Ltd. This would mean that the TP adjustment should be recomputed and thus should undergo change. This is supported by the fact that the jurisdictional AO in the OGE to the directions of the DRP dated 28.2.2022 has revised the TP adjustment to Rs.31,38,49,565. However, in the final assessment order passed by NFAC on 11.02.2011 which is passed prior to TPO's order dated 15.2.2022 revising the TP adjustment, the AO has retained the same TP adjustment amount as in the draft assessment order by observing that the DRP has confirmed the addition made by the TPO. From these facts, it becomes clear that the final assessment order passed by the NFAC to the extent of TP adjustment is not in accordance with the directions of the DRP and to thus extent, the TP adjustment is quashed.” 14. In view of the above, we hold that even assuming the AO has made subsequent final assessment order after passing the order giving effect by the TPO then also the impugned order will have no locus standi, therefore, we hold that the final assessment order framed by the IT(TP)A No.1582/Bang/2024 Page 10 of 10 . AO in the given facts and circumstances is void-ab-initio and accordingly, we quash the same. We would like to clarify further that if any subsequent order has been passed by the AO, after passing of order of TPO, would be legal or not have to be examined in those proceedings in accordance with law. 15. As we have quashed the assessment on technical grounds, we do not find any reason to go into merit of the case. Accordingly, the grounds raised by the assessee on merit are dismissed as infructuous. Hence, ground of appeal of the assessee is hereby partly allowed. 16. In the result, the appeal of the assessee is partly allowed. Order pronounced in court on 5th day of March, 2025 Sd/- Sd/- (PRAKASH CHAND YADAV) (WASEEM AHMED) Judicial Member Accountant Member Bangalore Dated, 5th March, 2025 / vms / Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order Asst. Registrar, ITAT, Bangalore "