TNS India Private Limited [TS-595-HC-2023(TEL)-TP]

• Telangana HC allows TNS India Private Limited (“assessee”) writ petitions, quashes final assessment order passed beyond limitation period for AY 2006-07.

• Pursuant to Tribunal’s remand order passed on 27.06.2014, AO passed a resultant assessment order on 20.04.2018, against which, assessee as to resist whether the consequential order could have been passed by AO beyond prescribed period u/s.153 (2A).

• Assessee argued whether, after a remand is made by Tribunal, while partly allowing an appeal, the consequential order that needs to be passed would be one u/s.153(2A) or u/s.153(3).

• HC refers to Sec.153 which establishes that the said Section has been accomplish by framers of law so as to prescribe time limit for completion of assessment, reassessment and refigure it out.

• HC Noted that the sub Sections (1), (1A), (1B) and 2 of the Act start with a specific prohibitive command highlighting the fact that beyond a particular period of time prescribed under the various subsections referred to above, the Assessing Officer is denuded of his powers to pass an assessment order.

• HC noted that “The aforesaid provisions did not envisage a situation where there is an order of remand by the Appellate Tribunal or an Appellate Authority. It is precisely for this reason that subsection (2A) stood enacted in respect of a situation where there is an order of remand with a direction to the Assessing Officer to pass a fresh assessment order”.

• Also, noted that “The very purpose of enacting sub-section (2A) goes to show that it has been enacted to meet with a situation where the original assessment order has been set aside/cancelled by the Appellate Tribunal or the Appellate Authority under Section 250 or under Section 254 or under Section 263 or under Section 264”.

Telangana HC held:

• W.r.t sub-section 3 of Sec.153, before amendment in 2016, HC stated that the reading of the said provision of law would also give a clear indication that there shall be no time limit for completion of the assessment, reassessment and refigure towards compliance of any direction contained in an order under Section 250, 254, 260, 262, 263 or Section 264 subject to the provisions of sub-section (2A) and in a proceeding otherwise than by way of an appeal or reference under this Act.

• Additionally, HC held that vide amendment to sub-section 3 of Sec.153 w.e.f 01.04.2016 “legislature has brought a time limit for adjudication of a proceeding under sub-section 3 as well which till the amendment was made was not stipulated”.

• Referring to various cases including Hon’ble Delhi HC ruling in Nokia India (P.) Ltd, Hon’ble Madras HC ruling in Virtusa Consulting Services (P.) Ltd, HC stated that “the proceedings drawn, admittedly being beyond a period that is prescribed under sub-section (2A) of Section 153 and the consequential orders passed are all beyond the period of limitation prescribed under sub-section (2A) of Section 153”, thus quashes the impugned order.

Computer Sciences Corporation India Private Limited [TS-592-ITAT-2023(Ind)-TP]

• Computer Sciences Corporation India engaged in the business of providing offshore software development and service centre to its AEs and third parties.

• Indore ITAT accepted benchmarking of transactions by assessee adopting TNMM at entity level and not unit level. It rejected internal benchmarking of Mumbai unit and excludes functionally dissimilar equivalent for AY 2007-08.

• ITAT observed that assessee and Revenue were in sync with TNMM as MAM and OP/OC as PLI to benchmark transactions pertaining to export of SWD and support services and reimbursement of travel, communication expenses, etc.

• Further, observed that, as against assessee’s entity level benchmarking, TPO adopted unit-level approach by comparing PLI of each unit with external comparables as assessee had 5 different units at different locations.

• W.r.t assessee’s claim for entity level benchmarking, refers to Delhi HC’s Sony Ericsson Mobile Communications India Pvt Ltd and Delhi ITAT’s Birla Soft India Ltd with identical issues and facts that had accepted TNMM on entity level basis since assessee had no significant functional differences in the services provided from all units.

• In the present case, ITAT observed that assessee entered into a single agreement with AEs for rendering identical services on continuous basis from any of the 5 units, depending upon its capacity/availability to perform, at a unvarying rate.

• The ITAT confirmed that unvarying rate agreed with AEs was a rate at entity level given that assessee’s management and finance functions were common and these individual units were only concerned with providing services.

• Noted that TPO did not accept the billing rate at arm’s length of 2 loss-making units out of 5 without considering that they had high expenses compared to 3 profit making units. Hence, detects fault in TPO making unit-wise comparison of assessee with entity-level comparison of external comparables without collecting unit-wise comparable external data.

• It was noted that TPO had accepted entity-level approach in assessee’s own cases for AY 2008-09 and 2009-10, follows principle of consistency in light of Apex Court’s ruling in Radhasoami Satsang and directs AO to apply ‘entity-level’ approach as claimed by assessee.

ITAT India held:

• With regard to the assessee’s claim of internal benchmarking with Mumbai unit- It was noted that DRP opined that internal TNMM cannot be applied after observing that assessee did not produce complete details regarding the functional comparability of Mumbai unit vis-à-vis other units.

• The ITAT examined Rule 10B in light of juridical precedents mentioned above that allowed internal comparison, however, upheld DRP’s categorical reason in rejecting the claim stating the same ‘cannot be allowed merely because the law permits or merely on the basis of mathematical analysis the assessee has to prove the functional and economic comparability’.

• W.r.t selection of comparables accepts assessee’s plea and excludes 9 comparables viz. Avani Cincom Technologies, Celestial Bio-Labs Ltd, Infosys Ltd, etc. on account of functional dissimilarity.

- Holds Liability written back, and Doubtful debt written back as part of the operating income - Tetra Pak India Pvt Ltd [TS-573-HC-2023(BOM)-TP]

Following substantial questions of law were proposed for admission by Revenue before Hon’ble High Court:

1. “ Whether on the facts and in the circumstances of the case and in law, the Hon’ble ITAT was justified in including Liability written back and Doubtful debt written back as part of the operating income without even adjudicating the ground of the department that the assessee company was not justified in its stand as the assessee company itself has treated them as nonoperating in later Ays i.e A.Y 2010-11 and A. Y 2011-12?

2. Whether on the facts and in the circumstances of the case and in law, the Hon’ble ITAT erred n including Liability written back and Doubtful debt written back as part of the operating income without appreciating the fact that both these items represents provisions made in earlier years which have been reversed in AY 2002-03 and do not constitute income from the operations of the assessee for the relevant financial year?”

Holding that no substantial questions of law arise, Hon’ble High Court noted as under:

• The details of the liabilities written back were made available to CIT(A) as well as Tribunal. Both, on facts, and having considered those details, have come to conclusion accepting the Assessee’s contention that those liabilities belong to earlier years and are directly relatable to the regular business operations of the Assessee and since these liabilities were no longer payable to business creditors should be allowed to be written back in the Assessment Year under consideration. Therefore, on facts it was accepted that these liabilities written back were arising out of normal business operations and hence form part of operating income of the Assessee.

• As regards the writing back of doubtful debts, accepted that those doubtful debts were inextricably linked with the business operations and hence should be considered as operating income.

- Upholds AO’s action of passing assessment order when no intimation of DRP objections received by his office. Rules Section 144(2)(b) mandates filing objections before both (DRP, AO) within 30 days - Kandla Energy and Chemicals Ltd [TS-589-ITAT-2023(Rjt)-TP]

Facts

• Draft assessment order under Section 144C(1) of the Act was passed by the Assessing Officer on 15.11.2017 and duly served on the Assessee on 16.11.2017.

• The Assessee chosen to file his objections against the draft assessment order, which ought to have been filed on 16.12.2017 being a (Saturday) and next working day being 18.12.2017 (Monday) as per Section 4 of the Limitation Act.

• The Assessee has filed his objection before the DRP on 18.12.2017. However, filed the copy of the objection before the Assessing Officer on 21.12.2017 which is beyond the period of limitation as prescribed under sub-section (2) of section 144C of the Act.

• As the Assessing Officer was not intimated or filed the objection petition by the Assessee well before 18.12.2017. Therefore, the Assessing Officer passed final assessment order dated 19.12.2017 under Section 144C(3) of the Act and served the same on the Assessee.

• DRP rejected the objections filed by the Assessee as non-maintainable.

Hon’ble Tribunal

Hon’ble Tribunal noted as under:

• Sub-clauses namely 2(a) & 2(b) of Section 144C(2) of the Act are joined by the term ‘or’ which is disjunctive expression. Thus, the Assessee has to choose any one of the two options, namely either to file acceptance or to file his objection.

• If the Assessee chooses the second option given in sub-clause (b), then he has to comply with the two limbs namely “(i) & (ii)” of the above sub-clause. Here these two limbs are joined with the term, ‘and’ which is a conjunctive term.

• Hence, if the Assessee chooses to file his objection, such objections ought to have been filed both before the DRP as well as before the Assessing Officer within 30 days period.

• The powers of the DRP are exhaustively set out in Section 144C of the Act and it has no power to condone any delay in filing objections either before it or before the Assessing Officer. Hence, the DRP rightly rejected the objection filed by the Assessee as not maintainable.

• The Assessee has an option to challenge the final assessment order before the CIT(A) in accordance with law.

- Interprets “or” under Section 80IA(8) of the Act. Holds if the market value is discernable from the price for such goods would ordinarily fetch in the open market unless such price is not available, then there is an option for determining the market value as per the arm’s length price. Tata Chemicals Limited [TS-593-ITAT-2023(Mum)-TP]

Facts:

• The Assessee has reported Specified Domestic Transaction (SDT) with respect to sale of electricity from captive unit to the manufacturing unit at an average rate of INR 6.90 per unit. The average rate charged by Gujarat Electricity Board (‘GEB’) in similar transaction of sale of electricity to consumers and also to the Assessee’s manufacturing unit was INR 6.90 per unit, therefore, it was reported that price charged by eligible unit was at arm’s length price (ALP).

• The TPO noted that the transaction reported is a specific domestic transaction under Section 92BA and therefore, the market value of the electricity supply has to be determined in terms of transfer pricing provisions.

• The TPO has held that since the eligible unit is captive power generation unit and therefore, the price at which it has sold the electricity should be benchmarked with the comparable who are generating electricity and supplying it to the State Electricity Board.

• Accordingly, the TPO rejected the Assessee’s benchmarking and computed the TP adjustment.

• DRP largely upheld the order of the TPO.

Hon’ble Tribunal

Deleting the adjustment, Hon’ble Tribunal observed as under:

• It will be too myopic view to give an interpretation that all the transaction covered under Section 80IA(8) has to be compulsorily determined under transfer pricing provision. The statute has clearly provided two options or two manners in which market value of the goods and services can be determined. The phrase “or” does not give mean that the second mechanism provided in clause (ii) of Explanation alone can be applied after introduction of SDT from 01.04.2013.

• The use of the word “or” can be interpreted as, firstly, both manner are available with the Assessee to demonstrate that market value of the goods and services has to be either by showing that the price of such goods and services is in consonance with the price available in the open market; or if Assessee is not able to establish the price available in the open market, then the price of goods and services has to be established through arm’s length principle. Secondly, if the price of the transfer of goods and services is in consonance with the price available in the open market then the profits of the eligible business shown as per this price is eligible for deduction and in that case the second option may not be necessary.

• What is required to be seen under Section 80IA(8) of the Act is that, where any goods or services provided by the eligible business or transfer to any other business carried on by the Assessee, the same should correspond to market value of such goods and services. The market value has to be seen qua the price in which such goods or services would ordinarily be fetched in the open market, i.e., whether in the open market the price of such goods and services are available or not?

• Here the Assessee is a captive service provider for generating electricity and to supply and distribute to the manufacturing unit which otherwise would have bought from the open market. The price has to be seen what the manufacturing unit is paying in the open market.

• Accordingly, there is no infirmity in the contention of the Assessee that per unit electricity sold to the non-eligible unit at Rs.6.90 per unit is the market value.