Danone Asia Pte Limited Vs ACIT (ITAT Delhi)
ITAT Delhi held that as per CBDT Instruction nos. 20/2015 and 5/2016 read with DGIT(Vigilance) letter dated 30th November, 2017 before venturing into other issues outside the scope of limited scrutiny, the Assessing Officer should have taken prior approval of PCIT/CIT. Failure of prior approval would render the assessment order bad in law.
Facts- In course of assessment proceedings, the assessing officer while verifying the audit report furnished by the assessee in Form 3CEB noticed that in the year under consideration, the assessee had entered into various international transactions with its associated enterprises in India
Accordingly, AO was of the view that the training charges of Rs. 16,20,992 received by the assessee, being in the nature of Fee for Technical Services (FTS) is taxable in India. While coming to such conclusion, the assessing officer observed that the fee for training services will also come within the ambit of FTS as defined under Article 12 of the India-Singapore Double Taxation Avoidance Agreement (DTAA).
Conclusion- Held that AO exceeding his jurisdiction has ventured into recheracterizing the nature and character of a particular item of income, which in our view, is beyond the scope of limited scrutiny. This is so because, in terms of CBDT Instruction nos. 20/20 15 and 5/2016 read with DGIT(Vigilance) letter dated 30th November, 2017 before venturing into other issues outside the scope of limited scrutiny, the Assessing Officer should have taken prior approval of PCIT/CIT.
Admittedly, in the facts of the present appeal, the assessing officer has not taken any such approval of the concerned authorities. Therefore, the assessment order passed is in violation of CBDT Instructions, referred to above. Therefore, the question which arises for consideration is, what will be the fate of such an order passed in violation of the extant CBDT Instructions/circulars.
Held that violation of norms of limited scrutiny in terms with the CBDT instructions and conversion to complete scrutiny without seeking prior approval would render the assessment order not only without jurisdiction but a nullity in the eyes of law. This is so because, as per section 119 of the Act CBDT instructions/circulars are binding on Assessing Officer. That being the legal position enunciated in the decisions cited before us, the impugned assessment order has to be declared as wholly without jurisdiction, hence, null and void.
FULL TEXT OF THE ORDER OF ITAT PUNE
Captioned appeal has been filed by the assessee against the order dated 04.02.202 1 of learned Commissioner of Income-Tax (Appeals)- 42, Delhi for the assessment year 20 16-17.
2. In addition to the grounds raised in the Memorandum of Appeal, vide letter dated 25.02.2022, assessee raised the following additional ground and sought admission of the said ground in terms of Rule 11 of Income-Tax(Appellate Tribunal) Rules, 1963:
“That under the facts and circumstances of the case, the Ld. A.O erred in examining on issue which was beyond the scope of limited scrutiny initiated vide notice dated 31.08.2017, rendering the assessment proceedings null, void and without jurisdiction.”
3. The learned Departmental Representative strongly objected to the admission of the additional grounds.
4. Having considered rival submissions on the issue of admission of additional ground, we are of the view that the issue raised in the additional ground is purely a legal and jurisdictional issue going to the root of the matter. Since, the additional ground raised will have a crucial bearing on the outcome of the appeal and can be decided without making fresh investigation into facts, in our considered opinion, the additional ground deserves to be admitted for adjudication. In this context, we refer to the following observations of the Hon’ble jurisdictional High Court in case of PCIT vs. Silver Lines (2016) 65 taxmann.com 137:
16. As regards the objection of the Revenue to the ITAT permitting the Assessee to raise the point concerning non-issuance of notice under Section 143(2) of the Act for the first time in the appeal before the ITAT, the Court is of the considered view that in view of the settled legal position that the requirement of issuance of such notice is a jurisdictional one, it does go to the root of the matter as far as the validity of the reassessment proceedings under Section 147/148 of the Act is concerned. It raises a question of law as far as the present cases are concerned since it is not in dispute that prior to finalization of the reassessment orders, notice under Section 143(2) of the Act was not issued by the AO to the Assessee. With there being no fresh evidence or disputed facts sought to be brought on record, and the issue being purely one of law, the ITAT was not in error in permitting the Assessee to raise such a point before it. This finds support in the decision of the Supreme Court in National Thermal Power Co. Ltd. (supra) and the decision of this Court in Gedore Tools (P) Ltd. (supra).”
5. As could be seen from the additional ground, the issue arising for consideration is whether the assessing officer could have enlarged the scope of limited scrutiny for which the assessment in assessee’s case was selected.
6. Briefly, the facts are that the assessee is a non-resident corporate entity incorporated in Singapore and is a tax resident of Singapore. As observed by the assessing officer, the assessee is engaged in the business of procurement of goods and services for various affiliates of Danone group, infant nutrition, medical nutrition etc. As observed by the assessing officer, assessee’s case for the impugned assessment was selected for limited scrutiny under CAAS parameters to evaluate/verify the following:
1. Whether value of international transactions in respect of mutual agreement or arrangement have been correctly shown in Form 3CEB.”
7. In course of assessment proceedings, the assessing officer while verifying the audit report furnished by the assessee in Form 3CEB noticed that in the year under consideration, the assessee had entered into various international transactions with its associated enterprises in India and received revenue’s as under:
