Case Law Details
M/s. Cognizant Technology Solutions India Private Limited (as successor-ininterest of M/s. KBACE Technologies Private Limited) Vs ACIT (ITAT Chennai)
The assessee appealed against the assessment order dated 18.05.2023 passed under Sections 143(3) read with Sections 144C, 92CA and 254 of the Income-tax Act, challenging a transfer pricing adjustment of ₹83,07,240. The assessee primarily contended that the assessment order was barred by limitation and therefore liable to be quashed.
The assessee explained that KBACE Technologies Private Ltd., a wholly owned subsidiary of KBACE US engaged in Oracle consulting and ERP reporting, had merged with Cognizant Technology Solutions India Pvt. Ltd. with effect from 01.04.2018. Pursuant to an earlier order of the Tribunal dated 20.09.2019, the Assessing Officer (AO)/Transfer Pricing Officer (TPO) proposed an upward transfer pricing adjustment by rejecting certain comparable companies and adopting a single comparable. The Dispute Resolution Panel (DRP) upheld the AO/TPO’s approach.
The assessee argued that the DRP had issued its directions under Section 144C(5) on 01.12.2022. Under Section 144C(13), the AO was required to pass the final assessment order within one month from the end of the month in which the DRP’s directions were received. According to the assessee, the final order should have been passed on or before 31.01.2023. Instead, the AO issued a draft order on 27.02.2023 and passed the final assessment order only on 18.05.2023. The assessee relied on several judicial precedents, including the Delhi Tribunal’s decision in Adobe Systems India Pvt. Ltd., to contend that the assessment order was time-barred. Alternatively, the assessee argued that the order was also barred by the limitation prescribed under Section 153(3). The assessee additionally challenged the transfer pricing adjustment on merits and claimed credit for taxes already paid.
The Revenue contended that the assessment was a set-aside proceeding under Section 254 and therefore the timeline prescribed under Section 144C(13) was not applicable.
The Tribunal rejected the Revenue’s contention. It observed that the DRP had issued its directions on 01.12.2022 and that, under Section 144C(13), the AO was mandatorily required to pass the final assessment order on or before 31.01.2023. The Revenue did not produce any evidence to dispute the relevant dates or establish a different date of receipt of the DRP’s directions. The Tribunal held that Section 144C(13) clearly requires the AO to pass the assessment order by the end of the month following the month in which the DRP’s directions are received. It further held that the statutory provision does not carve out any separate limitation period for set-aside assessments under Section 254. Accordingly, the Tribunal found the Revenue’s argument inconsistent with the statutory scheme. Relying on the decision in Adobe Systems India Pvt. Ltd., the Tribunal held that the assessment order dated 18.05.2023 was barred by limitation and quashed it.
Since the appeal succeeded on the limitation issue, the Tribunal held that the alternative ground relating to limitation under Section 153(3) had become infructuous. It also observed that the grounds challenging the transfer pricing adjustment on merits were not argued and therefore did not require adjudication. However, regarding the assessee’s claim for credit of taxes amounting to ₹35,48,580 paid on regular assessment, the Tribunal restored the matter to the AO with a direction to grant appropriate credit in accordance with law. The appeal was accordingly allowed.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
This appeal is arising out of order u/s 143(3) r.w.s 144C r.w.s 92CA r.w.s 254 of the Income Tax Act dated 18.05.2023. The AO has made an addition of Rs.83,07,240/- which is being contested by the assesse.
1. Aggrieved by the above order dated 18.05.2023, the assesse has raised grounds of appeal 1 to 3. All the ground of appeal are adjudicated hereunder.
2. Explaining the brief factual matrix of the case, the assesse has submitted that M/s. KBACE Technologies Private Ltd. India, was incorporated on 28.04.2004. It is a wholly owned subsidiary of KBACE US. The KBACE US provides services such as strategic services, implementation and development, operational insight, manage support and education. KBACE US is engaged in the business of providing Oracle consulting and ERP reporting. KBACE India is merged with M/s.Cognizant Technologies Solutions India Pvt. Ltd since 01.04.2018.
3. Post receipt of an order passed by the Hon’ble ITAT in IT (TP) A No.233/Bang/2018 dated 20.09.2019 in the first round of proceedings, the Ld.AO/TPO had proposed an upward TP adjustment amounting of INR 83,07,240/- in the giving effect proceedings by rejecting functionally comparable companies and adopting single comparable for arriving at the ALP. The Hon’ble DRP upheld the view subscribed by the Ld.AO/TPO.
4. It is the case of the assesse that the order passed by the AO dated 18.05.2023 is barred by limitation is non est and hence deserves to be quashed. The assesse has invited attention to section 144C(13) of the Act which postulates that an AO is required to pass an order, complying to the directions of the DRP, within one month from the end of the month in which such directions have been received. The assesse also submitted that without prejudice to the provisions of section 144C(13), the AO was required to follow the timelines prescribed in section 153(3) of the Act mandating passing of an order of fresh assessment u/s.254 within 9 months from the end of the financial year in which such order has been received by the Principle CCIT or the PCIT.
5. The assesse has argued that the Hon’ble DRP, Bangalore had passed its directions u/s 144C(5) on 01.12.2022. Consequently, the AO was required to pass an order on or before 31.01.2023. The Ld.AO first passed a draft order on 27.02.2023 and thereafter a final assessment order on 18.05.2023. The assesse argued that the order dated 18.05.2023 is beyond the mandatory timeline of 31.01.2023 and hence barred by limitation and therefore non est. In support of its contentions, the Appellant has invited attention to a plethora of judicial pronouncement including the decision of Hon’ble ITAT Delhi in the case of M/s. Adobe Systems India Pvt. Ltd vide ITA No.928/Del/2022 and SA No.121/Del/2022 in ITA No.928/Del/2022. Relevant part of the said order are reproduced hereunder:-
“….6. The submission of the ssesse’s counsel is that the assessment order passed u/s 143(3) r.w.s. 144C(13) read with section 144B of the Act is barred by limitation since the same was passed beyond the maximum time limit u/s 144C(13) of the Act, hence it is liable to be quashed as time barred. Ld. Counsel of the assesse through the paper book submitted before us stated that the assesse has obtained information regarding passing of order by the DRP and its dispatch to the AO. The DRP decision in this case is dated 10.01.2022. Vide paper book page nos.230 & 231, ld. Counsel submitted that assesse has obtained information that the said DRP order was dispatched to all the concerned persons including the AO on 24.01.2022. Thereafter, vide paper book page nos.232 to 235, ld. Counsel of the assesse has submitted that track consignment report as per the Postal Department and according to the said track consignment, the deliver was confirmed on 27.01.2022. In this background, it is the submission of the ld. Counsel that AO has received the order on 27.01.2022 and as per mandate of section 144C(13), the AO was required to pass the final order within one month from the end of the month in which such action was received. Hence, as per ld. Counsel of the assesse, since the AO has received the DRP’s directions on 27.01.2022, it was incumbent upon him to pass the assessment order by 28.02.2022. Since the assessment order has been passed on 06.04.2022 the same is time barred. 7. Per contra, ld. DR for the Revenue submitted that pursuant to the directions of the DRP, TPO was to give some effect and TPO has given effect on 18.02.2022, hence it cannot be said that there is an issue of assessment order being time barred.
10. From the reading of above, it is amply clear from section 144C(7) that DRP before issue of any direction referred to in sub-section(5) may make such further enquiry or calls any further enquiry and get the result reported to it. Hence there is no provision in the Act that DRP’s direction as contained in section 144C(5) may be subject to any further verification by any Income-tax authority other than giving effect by the AO. Hence the plea that since the TPO gave effect to the DRP’s direction subsequent to the DRP’s direction cannot in any manner be considered to expand the time limit as prescribed in the Act. Even from this date of TPO’s giving effect, the final assessment order is time barred in any case. As already noted by us, ld. DR’s plea that TPO’s giving effect to the DRP’s direction on 18.02.2022 can be considered as sufficient compliance to the time barring provision contained in section 144C(13) is not legally sustainable.
11. Undoubtedly, in this case, the assessment order has been passed beyond the time limit prescribed u/s 144C(13) being more than one month after the date of receipt of the directions of the DRP by the AO, as per the information provided in the paper book submitted by the assesse’s counsel. The factual veracity of these dates has not been disputed by the Revenue. In this view of the matter, we agree with the contention that the order passed by the AO is void ab initio and liable to be quashed as the final assessment order is time barred. We hold and direct accordingly.
12. In coming to the above conclusion, we draw support from the following case laws to the same effect submitted by the ld. Counsel of the ssesse:-
i. ITAT, Delhi Bench in Dentsply India (P.) Ltd. Vs. ITO (2019) 106 com 420 (Delhi-Trib.) order dated 24.05.2019;
ii. ITAT, Cochin Bench in M/s. Envestnet Asset Management (India) Pvt. Ltd. In IT (TP) A.No.244/Coch/2014 for AY 2009-10 order dated 12.12.2014; …..”
6. The assesse has alternatively argued that the Hon’ble Tribunal had passed its order in IT (TP) A No.233/Bang/2018 dated 20.09.2019 and therefore the AO, within the meanings of section 153(3) , was required to pass// the order on or before 31.12.2020. Thus, the impugned order dated 18/05/2023 again is barred by limitation and hence non est.
7. The assesse submitted that even on merits of the case the Ld. AO was precluded from making any additional on account of inappropriate application of filters and by making comparisons with incomparable entities, erroneous computation of operating margins as well as failure to make correct working capital and risk adjustments.
8. The assesse further submitted that the AO has failed to give it credit for taxes paid on regular assessment of Rs.35,48,580/-.
9. The CIT(DR) vehemently argued in support of the AO holding that it has not got time barred since it is a set aside case u/s.254 and therefore timeline prescribed in 144C(13) would not apply.
10. We have heard rival submissions in the light of facts of the case, evidence placed on record and judicial citations relied upon. Ground of appeal no.1 is general in nature and hence bereft of any meritorious adjudication. Coming to grounds of appeal Nos. 2 to 6 whereby the assesse has challenged procedural irregularities in giving effect proceedings and thus arguing that the AO dated 18.05.2023 is barred by limitations, we find considerable force in the arguments put forth by the assesse. Facts on records indicate that the DRP Bangalore had given its directions on 01.12.2022. Within the meanings of section 144C(13) it was incumbent on the AO to have passed his order on or before 31.01.2023. The DR could not controvert the said timeline by placing any evidence suggesting different service dates upon the AO. The Law prescribed u/s.144C(13) unequivocally postulates that pursuant to the receipt of directions in a calendar month , the AO is mandated to pass his final order before the end of following calendar month. Statutory stipulations prescribed in 144C(13) do not make any difference as to whether a set aside assessments would be given different timelines. The argument of CIT(DR) have accordingly been found to be not in consonance with statutory regulations governing the matter.
11. The case law relied upon by the assesse of 18/05/2023 Adobe system supra supports its case. Accordingly, the order u/s 143(3) r.w.s 144C r.w.s 92CA r.w.s 254 of the Income Tax Act dated 18.05.2023 is held to be barred by limitation and hence quashed . The grounds of appeal numbers 2-6 thus stands allowed.
12. Since the appeal was heard primarily on the grounds concerning the assessment order dated 18/05/2023 being barred by time limitation within meanings of section 144C(13) of the Act and the same stands allowed and decided in favour of assesse , the ground of appeal number 7 regarding non conformity to time lines u/s 153 (3) has become infructuous in nature. Similarly, the grounds of appeal numbers 8-13 on merits were never argued by the assesse .These grounds raised by the assesse are not adjudicated being consequently found academic in nature.
13. As regards the ground of appeal number 14 regarding failure of the AO to give assesse credit for taxes paid on regular assessment of Rs.35,48,580/-. , the matter is restored to the file of AO with directions to give the assesse credit of all taxes paid on regular assessment, as per law.
14. In the result the appeal is allowed.
Order pronounced on 29th May, 2024.
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