Deloitte Consulting India Private Limited Vs Assessment Unit (Telangana High Court)
The Telangana High Court examined the validity of reassessment proceedings initiated against the assessee for the Assessment Year (AY) 2018–19 under Sections 147 and 144B of the Income Tax Act, 1961. The challenge was directed against the reassessment order dated 16 January 2024.
Background and Procedural History
The assessee filed its original return of income on 30 November 2018 declaring total income of ₹720.43 crore. While processing the return under Section 143(1), an intimation dated 24 February 2020 made an addition of ₹7.89 crore under Section 43B read with Section 36(1)(va) on account of belated remittance of employees’ provident fund contributions. The assessee’s appeal against this addition was dismissed on 31 July 2023 following the Supreme Court’s decision in Checkmate Services (P) Ltd., after which the assessee accepted the disallowance and paid the additional tax.
Subsequently, scrutiny assessment under Section 143(3) was completed on 25 February 2022, accepting the returned income without further additions. Thereafter, a notice under Section 148A(b) dated 23 March 2022 was issued proposing reopening on two grounds: (i) belated payment of employees’ provident fund contribution amounting to ₹7.89 crore, and (ii) alleged disallowance of CSR expenditure of ₹4.90 crore claimed under Section 80G. Despite the assessee’s reply, the objections were rejected, and an order under Section 148A(d) and notice under Section 148 were issued on 7 April 2022.
While reassessment proceedings were pending, the assessee entered into a unilateral Advance Pricing Agreement (APA) with the CBDT on 15 February 2023, covering AY 2018–19. In accordance with Section 92CD, the assessee filed a modified return on 28 March 2023 and submitted Form 3CEF within the prescribed time. No adverse compliance audit report was issued by the Transfer Pricing Officer (TPO).
Nevertheless, the Assessment Unit issued multiple show cause notices and ultimately passed the impugned reassessment order dated 16 January 2024. The order accepted the assessee’s claim regarding CSR deduction but again added ₹7.89 crore towards employees’ provident fund contribution and, additionally, made an arm’s length price (ALP) adjustment of ₹106.47 crore relating to international transactions covered under the APA. Penalty proceedings were also initiated.
Issues Considered by the Court
The High Court examined several propositions raised by the assessee, focusing primarily on jurisdictional validity.
I. Jurisdiction to Disregard Modified Return Filed Pursuant to APA
The Court analysed the statutory framework governing Advance Pricing Agreements under Sections 92CC and 92CD, along with Rules 10O, 10P, and 10R of the Income Tax Rules, 1962. It held that once an APA is entered into and a modified return is filed in accordance with Section 92CD, the Assessing Officer is statutorily bound to complete assessment or reassessment strictly in accordance with the APA.
The Court emphasized that compliance audit of an APA lies exclusively within the jurisdiction of the Transfer Pricing Officer. In the present case, the assessee had timely filed the Annual Compliance Report, and no adverse findings were recorded by the TPO or communicated by the CBDT. In the absence of any compliance failure or cancellation of the APA under Rule 10R, the Assessing Officer had no authority to independently examine or reinterpret the arm’s length price determined under the APA.
The Court rejected the Assessment Unit’s interpretation that Section 92CD(2) permitted independent scrutiny of the ALP or required addition of other income in the modified return. It clarified that a modified return under Section 92CD must be “in accordance with and limited to” the APA. Accordingly, the addition of ₹106.47 crore was held to be beyond jurisdiction.
II. Invalid Sanction Under Section 151 for Reopening
The Court next examined whether the mandatory sanction for reopening was obtained from the correct authority. Since the reassessment notice and order under Section 148A(d) were issued on 7 April 2022 for AY 2018–19, more than three years had elapsed from the end of the relevant assessment year. Under Section 151, as applicable at the relevant time, sanction was required from the Principal Chief Commissioner or equivalent authority.
However, approval had been obtained only from the Principal Commissioner of Income Tax, which was insufficient. The Revenue’s reliance on the proviso to Section 151 inserted by the Finance Act, 2023 to exclude the period granted for reply under Section 148A(b) was rejected. The Court held that the proviso, effective from 1 April 2023, could not be applied retrospectively to notices issued in April 2022.
Relying on a judgment of the Bombay High Court dealing with identical dates and assessment year, the Court concluded that the reopening suffered from a fatal jurisdictional defect due to invalid sanction, rendering the reassessment order void.
III. Lack of Jurisdiction of Jurisdictional Assessing Officer
The Court further held that the reopening was invalid as it was initiated by the Jurisdictional Assessing Officer instead of the Faceless Assessing Officer, contrary to the e-Assessment of Income Escaping Assessment Scheme, 2022 notified under Section 151A. The notice under Section 148 was issued by the Jurisdictional Assessing Officer, which was impermissible.
The Court relied on its earlier judgment holding that such notices issued by the Jurisdictional Assessing Officer were without jurisdiction. It noted that although the Revenue had carried the matter to the Supreme Court, there was no stay on the High Court’s decision. Consequently, the notice under Section 148 was held to be invalid.
IV. Reassessment on Issues Beyond Recorded Reasons
The assessee argued that reassessment could not be sustained when the issues mentioned in the recorded reasons either stood accepted or had already attained finality. The Court noted that in the reassessment order, the Assessing Officer accepted the assessee’s explanation on CSR deduction and made no addition on that count. The provident fund disallowance had already been processed under Section 143(1), affirmed by the CIT(A), accepted by the assessee, and tax paid accordingly.
The Court observed that the addition of the same amount again and initiation of penalty proceedings raised concerns of duplication. However, in view of its findings on jurisdictional defects in reopening itself, the Court did not adjudicate this issue conclusively and left it open for consideration in an appropriate case.
V. Alleged Erroneous Computation of ALP
The Court declined to examine the correctness of ALP computation, holding that once the Assessing Officer lacked jurisdiction to examine APA-covered transactions, the question of erroneous computation did not arise.
Final Decision
The Court held that the reassessment proceedings and the order dated 16 January 2024 suffered from multiple jurisdictional infirmities, including lack of authority to override the APA, invalid sanction under Section 151, and initiation of proceedings by an incompetent authority. Accordingly, the reassessment order was quashed, the writ petition was allowed, and no costs were awarded.
FULL TEXT OF THE JUDGMENT/ORDER OF TELANGANA HIGH COURT
