Intrado EC India Private Ltd Vs DCIT (ITAT Bangalore)
ITAT Bangalore held that orders passed u/s 92CA of the Income Tax Act without mentioning of Document Identification Number (DIN) is invalid and deemed to have been never issued. Hence, TP adjustments made through the order is also invalid.
Facts- The assessee is engaged in the business of providing reselling, conferences and collaboration services, web casting and other related support services. The assessee filed the ROI for the AY 2016-17 on 30.11.2016 declaring a total income of Rs.4,40,18,810. The case was selected for scrutiny under CASS. The assessee had certain international transactions with its AE and therefore a reference to the TPO was made for determination of ALP of the assessee’s international transaction. The TPO made a TP adjustment towards receipt of management services by the assessee from its AE which resulted in an adjustment of Rs.22,03,14,210. The AO passed a draft assessment order incorporating the TP adjustment. The AO also made a disallowance u/s. 40(a)(i) for non-deduction of tax at source on the same payments made by the assessee for receipt of management services by holding that the payments are in the nature of Fees for Technical services [FTS].
Aggrieved the assessee filed its objections before the DRP, who confirmed the additions/disallowances. Aggrieved by the final order of assessment passed pursuant to the directions of the DRP, the assessee is in appeal before the Tribunal.
Assessee mainly contended that two assessment orders passed by TPO. However, the order dated 31.10.2019 is a manual order without containing a Documentation Identification Number (DIN) and the order dated 1.11.2019 is an order with a DIN.
Conclusion- From the plain reading of the circular it is clear that the effective 1st October 2019, no communication shall be issued without mentioning of DIN. Accordingly, the manual communication should mention the fact that the communication is issued manually without a DIN and the date of obtaining of the written approval of the Chief Commissioner/ Director General of Income-tax for issue of manual communication in a specific format. As per the circular, the communication issued manually without DIN shall be treated as invalid and shall be deemed to have never been issued.
Accordingly, held that orders passed u/s 92CA dated 31.10.2019 is invalid and shall be deemed to have never been issued. Accordingly, adjustment made through an invalid order is also rendered invalid and deleted.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
This appeal is against the final order of assessment passed by the Assessing Officer, National e-assessment Centre, Delhi, dated 16.4.2021 u/s. 143(3) r.w.s. 144C(13) of the Income-tax Act, 1961 [the Act] for the assessment year 2016-17.
2. The assessee is engaged in the business of providing reselling, conferences and collaboration services, web casting and other related support services. The assessee filed the return of income for the AY 2016-17 on 30.11.2016 declaring a total income of Rs.4,40,18,810. The case was selected for scrutiny under CASS. The assessee had certain international transactions with its AE and therefore a reference to the TPO was made for determination of ALP of the assessee’s international transaction. The TPO made a TP adjustment towards receipt of management services by the assessee from its AE which resulted in an adjustment of Rs.22,03,14,210. The AO passed a draft assessment order incorporating the TP adjustment. The AO also made a disallowance u/s. 40(a)(i) for non-deduction of tax at source on the same payments made by the assessee for receipt of management services by holding that the payments are in the nature of Fees for Technical services [FTS].
3. Aggrieved the assessee filed its objections before the DRP, who confirmed the additions/disallowances. Aggrieved by the final order of assessment passed pursuant to the directions of the DRP, the assessee is in appeal before the Tribunal.
4. The assessee raised 14 grounds with regard to TP adjustment. During the course of hearing, the ld. AR presented arguments with regard to ground No.3 which is extracted below and submitted that if this ground is adjudicated, the rest of the grounds with regard to TP adjustment would become academic.
“The Hon’ble DRP/Ld. AO erred in law in upholding the transfer pricing adjustments proposed in the invalid order dated 31 October 2020 and time barred order dated 1 November 2020 issued under section 92CA of the Act by the ld. TPO.”
5. The ld. AR submitted that the TPO passed two assessment orders dated 31.10.2019 and 1.11.2019. The order dated 31.10.2019 is a manual order without containing a Documentation Identification Number (DIN) and the order dated 1.11.2019 is an order with a DIN. The ld AR submitted that the order u/s.92CA is in violation of the CBDT Circular No.19 of 2019 dated 14.8.2019 and the draft assessment order was passed pursuant to the TP order dated 31.10.2019 which is bad in law. The ld AR also submitted that in terms of clause 4 of the said circular, any communication which is not in conformity with the above shall be treated as invalid and shall be deemed to have never been issued. The ld AR placed reliance on the decision of the Kolkata Bench of the Tribunal in the case of Tata Medical Centre Trust v. CIT(E) [2022] 140 com 431.
6. The ld AR also submitted that after passing above order dated 31.10.2019, the TPO passed an order dated 01.11.2019 by affixing a DIN and that this order is barred by limitation. It is submitted that in terms of section 2CA(3A), the TPO ought to pass the order 60 days prior to the date on which the period of limitation prescribed u/s.153 of the Act expires and in the given case for AY 2016-17 it expires on 31.10.2019. Therefore the ld AR contended that the second order dated 01.11.2019 of the TPO is barred by limitation and hence not valid. Reliance in this regard is placed on the decision of the coordinate bench of the Tribunal in the case of Sap Lab India Pvt Ltd vs DCIT (order dated 28.07.2022 in IT(TP)A No.561/Bang/2015). The ld AR summarized by submitting that both the orders of the TPO are not valid and hence the TP adjustment is liable to be deleted.
7. We have heard the rival submissions and perused the material on record. Before proceeding further we will look at the contents of the CBDT circular No.19/2019 dated 14.08.2019 which is reproduced below –
“CIRCULAR NO. 19/ 2019
Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes
New Delhi, dated the 14th August, 2019.
Subject: Generation/Allotment/Quoting of Document Identification Number in Notice/Order/Summons/letter/ correspondence issued by the Income Tax Department – reg.
With the launch of various e-governance initiatives, Income-tax Department is moving toward total computerization of its work. This has led to a significant improvement in delivery of services and has also brought greater transparency in the functioning of the tax-administration. Presently, almost all notices and orders are being generated electronically on the Income Tax Business Application (ITBA) platform. However, it has been brought to the notice of the Central Board of Direct Taxes (the Board) that there have been some instances in which the notice, order, summons, letter and any correspondence (hereinafter referred to as “communication”) were found to have been issued manually, without maintaining a proper audit trail of such communication.
2. In order to prevent such instances and to maintain proper audit trail of all communication, the Board in exercise of power under section 119 of the Income-tax Act, 1961 (hereinafter referred to as “the Act”), has decided that no communication shall be issued by any income-tax authority relating to assessment, appeals, orders, statutory or otherwise, exemptions, enquiry, investigation, verification of information, penalty, prosecution, rectification, approval etc. to the assessee or any other person, on or after the 1st day of October, 2019 unless a computer-generated Document Identification Number (DIN) has been allotted and is duly quoted in the body of such communication.
3. In exceptional circumstances such as, —
(i) when there are technical difficulties in generating / allotting / quoting the DIN and issuance of communication electronically; or
(ii) when communication regarding enquiry, verification etc. is required to be issued by an income-tax authority, who is outside the office, for discharging his official duties: or
(iii) when due to delay in PAN migration. PAN is lying with non-jurisdictional Assessing Officer; or
(iv) when PAN of assessee is not available and where a proceeding under the Act (other than verification under section 131 or section 133 of the Act) is sought to be initiated; or
(v) When the functionality to issue communication is not available in the system,
the communication may be issued manually but only after recording reasons in writing in the file and with prior written approval of the Chief Commissioner/Director General of income-tax. In cases where manual communication is required to be issued due to delay in PAN migration, the proposal seeking approval for issuance of manual communication shall include the reason for delay in PAN migration. The communication issued under aforesaid circumstances shall state the fact that the communication is issued manually without a DIN and the date of obtaining of the written approval of the Chief Commissioner/ Director General of Income-tax for issue of manual communication in the following format-
” .. This communication issues manually without a DIN on account of reason/reasons given in para 3(i) / 3(ii) /3(iii) / 3(iv) / 3(v) of the CBDT Circular No …dated (strike off those which are not applicable) and with the approval of the Chief Commissioner/Director General of Income Tax vide number …. dated ….
4. Any communication which is not in conformity with Para-2 and Para-3 above, shall be treated as invalid and shall be deemed to have never been issued.
5. The communication issued manually in the three situations specified in para 3- (i), (ii) or (iii) above shall have to be regularised within 15 working days of its issuance, by —
i. uploading the manual communication on the System.
ii. compulsorily generating the DIN on the System;
iii. communicating the DIN so generated to the assessee/any other person as per electronically generated pro-forma available on the System.
6. An intimation of issuance of manual communication for the reasons mentioned in para 3(v) shall be sent to the Principal Director General of Income-tax (Systems) within seven days from the date of its issuance.
7. Further, in all pending assessment proceedings, where notices were issued manually, prior to issuance of this Circular, the Income-tax authorities shall identify such cases and shall upload the notices in these cases on the Systems by 31th October, 2019.”
Sd/-
(Sarita Kumari)
Director (ITA.II)CBDT.”
8. From the plain reading of the circular it is clear that the effective 1st October 2019, no communication shall be issued unless a DIN is allotted and is quoted in the body of the letter except under exceptional circumstances as mentioned in Para 3 which also lays down certain procedures to be followed for issue of manual order under certain circumstances. Accordingly the manual communication should mention the fact that the communication is issued manually without a DIN and the date of obtaining of the written approval of the Chief Commissioner/ Director General of Income-tax for issue of manual communication in a specific format. Para 4 of the circular states that the communication issued manually not in conformity with Para-2 and Para-3 of the circular, shall be treated as invalid and shall be deemed to have never been issued.
9. We also notice that the Calcutta Bench of the ITAT in the case of Tata Medical Centre Trust (supra) has considered a similar issue and held that –
“13. From the above submissions and arguments, we note that it is an undisputed fact that the impugned order u/s. 263 of the Act has been issued manually which does not bear the signature of the authority passing the order. Further, from the perusal of the entire order, in its body, there is no reference to the fact of this order issued manually without a DIN for which the written approval of Chief Commissioner/Director General of Income-tax was required to be obtained in the prescribed format in terms of the CBDT circular. We also note that in terms of para 4 of the CBDT circular, such a lapse renders this impugned order as invalid and deemed to have never been issued.
13.1 It is also important to note about the binding nature of CBDT circular on the Income-tax Authorities for which gainful guidance is taken from the decision of Hon’ble Supreme Court in the case of CIT v. Hero Cycles (P.) Ltd. [1997] 94 Taxman 271/228 ITR 463 wherein it was held that circulars bind the ITO but will not bind the appellate authority or the Tribunal or the Court or even the assessee.
13.2 In the case of UCO Bank v. CIT [1999] 104 Taxman 547/237 ITR 889 (SC), Hon’ble Supreme Court while dealing with the legal status of such circulars, observed thus (page 896):
“Such instructions may be by way of relaxation of any of the provisions of the sections specified there or otherwise. The Board thus has power, inter alia, to tone down the rigour of the law and ensure a fair enforcement of its provisions, by issuing circulars in exercise of its statutory powers under section 119 of the Income-tax Act, which are binding on the authorities in the administration of the Act. Under section 119(2)(a) , however, the circulars as contemplated therein cannot be adverse to the assessee. Thus, the authority which wields the power for its own advantage under the Act is given the right to forgo the advantage when required to wield it in a manner it considers just by relaxing the rigour of the law or in other permissible manners as laid down in section 119. The power is given for the purpose of just, proper and efficient management of the work of assessment and in public interest. It is a beneficial power given to the Board for proper administration of fiscal law so that undue hardship may not be caused to the assessee and the fiscal laws may be correctly applied. Hard cases which can be properly categorized as belonging to a class, can thus be given the benefit of relaxation of law by issuing circulars binding on the taxing authorities.”
13.3 In the matter of CIT v. Smt. Nayana P. Dedhia [2004] 141 Taxman 603/270 ITR 572 (AP), the Hon’ble Andhra Pradesh High Court held that the guidelines issued by the Board in exercise of powers in terms of section 119 of the Act relaxing the rigours of law are binding on all the officers responsible for implementation of the Act and, therefore, bound to follow and observe any such orders, instructions and directions of the Board.
13.4 In the decision of Dy. CIT v. Sunita Finlease Ltd. [2011] 11 taxmann.com 241/330 ITR 491 (Chattisgarh) it was held by the Hon’ble High Court of Chhattisgarh in para 16 that the administrative Instruction No. 9/2004 issued by the Central Board of Direct Taxes is binding on administrative officer in view of the statutory provision contained in section 143(2), which provides for limitation of 12 months for issuance of notice under section 143(2).
While giving its finding, the Hon’ble High Court of Chhattisgarh placed reliance on the decisions in the case of UCO Bank (supra) and Nayana P. Dedhia (supra).
13.5 Hon’ble jurisdictional High Court of Calcutta in the case of Amal Kumar Ghosh v. Asstt. CIT [2014] 45 taxmann.com 482/225 Taxman 229 (Mag.)/361 ITR 458 dealt with the issue relating to CBDT circular which according to the Department cannot defeat the provisions of law. While giving its observations and finding on the issue, the Hon’ble Court referred to the decision of Hon’ble Chhattisgarh High Court in the case of Sunita Finlease Ltd. (supra), which are as under:
7. We have considered the rival submissions advanced by the learned Advocates. Even assuming that the intention of CBDT was to restrict the time for selection of the cases for scrutiny within a period of three months, it cannot be said that the selection in this case was made within the aforesaid period. Admittedly, the return was filed on 29th October, 2004 and the case was selected for scrutiny on 6th July, 2005. It may be pointed out that Mrs. Gutgutia was, in fact, reiterating the views taken by the learned Tribunal which we also quoted above. By any process of reasoning, it was not open for the learned Tribunal to come to a finding that the department acted within the four corners of Circulars No. 9 and 10 issued by CBDT. The circulars were evidently violated. The circulars are binding upon the department under section 119 of the I.T. Act.
8. Mrs. Gutgutia, learned Advocate submitted that the circulars are not meant for the purpose of permitting the unscrupulous assessees from evading tax. Even assuming, that to be so, it cannot be said that the department, which is State, can be permitted to selectively apply the standards set by themselves for their own conduct. If this type of deviation is permitted, the consequences will be that floodgate of corruption will be opened which it is not desirable to encourage. When the department has set down a standard for itself, the department is bound by that standard and cannot act with discrimination. In case, it does that, the act of the department is bound to be struck down under article 14 of the Constitution. In the facts of the case, it is not necessary for us to decide whether the intention of CBDT was to restrict the period of issuance of notice from the date of filing the return laid down under section 143(2) of the I.T. Act. [emphasis supplied by us by underline]
14. Considering the facts on record, perusal of the impugned order, submissions made by the Ld. Counsel and the department, CBDT circular and the judicial precedents including that of Hon’ble Supreme Court and the jurisdictional High Court of Calcutta, we are inclined to adjudicate on the additional ground in favour of the assessee by holding that the order passed by the Ld. CIT(E) is invalid and deemed to have never been issued as it fails to mention DIN in its body by adhering to the CBDT circular no. 19 of 2019. Accordingly, additional ground taken by the assessee is allowed. Having so held on the legal issue raised by the assessee in the additional ground, the grounds relating to the merits of the case requires no adjudication. Accordingly, the appeal of the assessee is allowed in terms of above observations and findings.”
10. We further notice that a similar view is being taken by the Delhi Bench of the ITAT in the case M/s. Brandix Mauritius Holdings Ltd., vs DCIT (ITA No.1542/Del/2020 dated 19.09.2022).
11. In assessee’s case there is no dispute about the fact that the order dated 31.10.2019 has been issued manually. The circular is very clear that generating the DIN by separate intimation is allowed to be done to regularise the manual order (Para 5 of the circular) provided the manual order is issued in accordance with the procedure as contained in Para 3. On perusal of the order u/s.92CA, it is noted that the order neither contains the DIN in the body of the order, nor contains the fact in the specific format as stated in Para 3 that the communication is issued manually without a DIN after obtaining the necessary approvals. Therefore we are of considered view that the order dated 31.10.2019 is not in conformity with Para 2 and Para 3 of the CBDT circular. In view of these discussions and respectfully following the decision of the Kolkata and Delhi Benches of the Tribunal, we hold that the orders passed u/s.92CA dated 31.10.2019 is invalid and shall be deemed to have never been issued as per Para 4 of the CBDT circular as the order is not conformity with Para 2 and Para 3. Accordingly the TP adjustment made through an invalid order is also rendered invalid and deleted.
12. We notice that the DRP has held that the order dated 31.10.2019 which was issued without DIN is made good by the order dated 01.11.2019 which is issued without DIN since the contents of both the orders are same. We are unable to appreciate this decision of the DRP, since there is no provision in the Act to issue two order u/s.92CA and the order issued subsequent cannot be taken to substitute the earlier order. If the order dated 1.11.2019 is taken as the valid order for subsequent proceedings since it is issued with a DIN, then the issue of the order being barred by limitation should be considered. In this regard we notice that the coordinate bench of the Tribunal in the case of Sap Labs (supra) has considered the issue of time limit for passing the order u/s.92CA and held that the order should be passed before sixty days prior to the date on which the period of limitation referred to in section 153 and in this regard the Hon’ble Tribunal had relied on the decision of the coordinate bench in the case of Swiss Re Global Business Solution India Pvt. Ltd. vs. DCIT in IT(TP)A Nos. 290 & 438/Bang/2015 vide order dated 30.12.202.
13. The relevant dates pertaining to the issue under consideration are tabulated below:-
I. Date of filing of return of income – 30.11.2016
II. 143(2) issued on – 02.08.2017
III. Time period within which 143(3) is to be passed as per sec.153(1) – 31.12.2019 (twenty-one months from the end of the assessment year in which the income was first assessable)
IV. Date by which order u/s. 92CA(3) was to be passed – 31.10.2019 (60 days prior to the date on which the period of limitation prescribed u/s.153 expires)
V. Date of passing the order u/s. 92CA(3) – 01.11.2019
14. Considering the facts of the case tabulated above and placing reliance on the coordinate bench, we hold that the order date 01.11.2019 is passed beyond the period of limitation and therefore the adjustment proposed by way of transfer pricing order u/s. 92CA(3), therefore needs to be quashed. It is ordered accordingly
Disallowance u/s. 40(a)(ia) – Ground No.15 & 16
15. During the year under consideration, the assessee made the following payments under the head ‘management fees’.
