Jurisdictional Commissioner of assessee not to be nominated as member of DRP

IN THE ITAT MUMBAI BENCH ‘H’

Huntsman International (India) (P.) Ltd.

V/s.

Additional Commissioner of Income-tax

IT Appeal No. 7210 (Mum.) of 2011

[Assessment year 2007-08]

APRIL 13, 2012

ORDER

Dinesh Kumar Agarwal, Judicial Member 

This appeal preferred by the assessee is directed against the order dated 7.10.2011 passed by the AO u/s 143(3) read with section 144C(13) of the Income Tax Act, 1961 (the Act) for the assessment year 2007-08.

2. Briefly stated facts of the case are that that the assessee-company is engaged in the business of manufacturing and trading chemicals, filed return declaring total income of Rs. 19,46,00,340/-. Subsequently a revised return was filed on a total income of Rs. 14,77,25,342/-claiming “Brand Usage Rights” as revenue expenses. The Draft Assessment Order was passed on 27.12.2010 proposing an income of Rs. 37,61,28,215/-. The assessee filed objections before Dispute Resolution Panel-I (DRP). The DRP issued direction on 23.9.2011 partly allowing the assessee’s objections. The AO after considering the directions of the DRP has passed impugned assessment order determining the income at Rs. 37,39,30,275/- vide order dated 7.10.2011 passed u/s 143(3) read with section 144C(13) of the Act.

3. Being aggrieved by the order of the AO, the assessee is in appeal before us challenging in all the grounds the disallowance of depreciation on “intangible assets, Transfer of Pricing Adjustment u/s 92CA(4) of the Act, disallowance of depreciation on goodwill u/s 32 (1)(ii), disallowance of share issue expenditure and disallowance of expenditure u/s 43B of the Act.

4. At the time of hearing, the ld. Counsel for the assessee, at the outset, disputed validity of the order of DRP dated 23.9.2011 on the ground that Constitution of DRP is contrary to principle of natural justice as one of the members of DRP is the DIT(TP-I)/Jurisdictional Commissioner of the assessee. He also placed on record statement showing the Jurisdiction of CIT, DIT and DRP at various dates. The Ld. Counsel for the assessee also placed reliance on the decision of Hon’ble High Court of Uttarakhand in the case of Hyundai Heavy Industries Ltd. v. Union of India [2011] 12 taxmann.com 309/201 taxmann 237 and the order of the Co-ordinate Bench of the Tribunal in Lionbridge Technologies (P.) Ltd. v. Dy. CIT [2012] 51 SOT 40 (URO)/20 taxmann.com 185 (Mum.) for the proposition that on the similar facts and circumstances of the case, following the judgment in the case of Hyundai Heavy Industries Ltd. (supra), the Tribunal has set aside the matter to the authorities below to pass fresh assessment order in conformity with the provisions of the Act and also in view of the observations of the Hon’ble High Court of Uttarakhand (supra). He, therefore, submits that following the same view, the order passed by the AO be set aside to the file of the DRP to decide the same afresh.

5. On the other hand, the ld. DR while relying on the order of the DRP and AO further submits that in view of the paragraph 7 of his written submissions, the findings of the Hon’ble High Court of Uttarakhand are not binding on the ITAT, Mumbai and therefore, the case may be heard on merits and not to be set aside.

6. We have carefully considered the submissions of the rival parties and perused the material available on record. We find that in the case of Hyundai Heavy Industries Ltd. (supra), it has been observed by Their Lordships vide paragraph 37 of the judgement as under :

” ……Before parting, in order to ensure that no person should think that there is a real likelihood of bias on the part of the officer concerned, the Court directs the CBDT to ensure that a jurisdictional Commissioner is not nominated as a member of the DRP under Rule 3(2) of the Rules. By doing this, the principle that justice must not only be done but seen to be done would be ensured.”

7. In Lionbridge Technologies (P.) Ltd. (supra), the Tribunal following the above observations of the Hon’ble High Court of Uttarakhand has held vide paragraph 9 of its order as under :

“9. In view of above facts, we set aside the order of AO without going into the merits of additions disputed by assessee in this appeal and direct AO to pass fresh assessment order in conformity with provisions of the Act and also keeping in view observations of Hon’ble High Court of Uttarakhand (supra).”

8. Applying the above observations to the facts of the present case, we observe that the said DRP is consisting of members S/Shri P. Raghu, Commissioner of Income Tax-I, Mumbai, L.N. Pant, Director of Income Tax (Intl. Taxn), Mumbai and Ms. Anuradha Bhatia, Director of Income Tax Transfer Pricing-I, Mumbai. As per statement showing jurisdiction of CIT, DIT and DRP on various dates we observe that there is no dispute that Shri P. Raghu, Commissioner of Income Tax- I, Mumbai who is one of the Members of DRP was the DIT (TP- I)/ jurisdictional Commissioner of the assessee when the draft assessment order was passed. Therefore, we find merit in the submissions of the ld. Counsel for the assessee that the order passed by the DRP is liable to be set aside as the same is contrary to the observations of the Hon’ble High Court of Uttarakhand (supra).

9. In paragraphs 7 and 8 of the written submissions filed by the ld. DR it has been submitted as under :

“7. The findings of the Honourable High Court of Uttarakhand is clear and unambiguous. The writ petition of the assessee has been dismissed on the above issue. Having dismissed the writ, the Honourable High Court of Uttarakhand has proceeded to hold that the CBDT is to ensure that a jurisdictional Commissioner is not nominated on the DRP. This direction of the Honourable High Court is prospective in nature and this is clear from the fact that the writ of the assessee has been dismissed. So this finding cannot be used retrospectively to set aside the matters that have already been decided by the DRP. Further it is submitted with utmost respect that the findings of the Honourable High Court are in the nature of obiter. The matter is now fairly settled that the obiters of Honourable Supreme Court and the jurisdictional High Court carry a binding effect. Hence on this count also it is submitted that the findings of Uttarakhand High Court cannot be binding on the ITAT Mumbai. It is humbly prayed that the case may be heard on merits and not be set aside.”

10. In the absence of any contrary decision placed on record by the Revenue including the decision of the Hon’ble Jurisdictional High Court, we are of the view that the observations of the Hon’ble Uttarakhand High Court in Hyundai Heavy Industries Ltd. (supra) in paragraph 37 of the judgement (supra) as reproduced hereinabove are binding on the Tribunal. Besides this, the Co-ordinate Bench of the Tribunal in the case of Lionbridge Technologies (P.) Ltd. (supra) has also followed the same observations. Therefore, we do not find any merit in the plea of the ld. DR that the said observations are not binding on this Tribunal, are devoid of any merit and accordingly the same are rejected.

11. Respectfully following the above decisions and keeping in view the rule of consistency and also in the interests of justice we without going into merits of additions disputed by the assessee in this appeal consider it fair and reasonable that the matter should go back to the file of the DRP/AO and accordingly we set aside the orders passed by the Revenue authorities and send back the matter to the file of the DRP/AO to pass afresh assessment order in conformity with the provisions of the Act and keeping in view the observations made by the Hon’ble Uttarakhand High Court (supra) after providing reasonable opportunity of being heard to the assessee. The grounds taken by the assessee are, therefore, partly allowed for statistical purposes.

12. In the result, assessee’s appeal stands partly allowed for statistical purposes.