TPO orders issued after the u/s 92CA(3) time limit have been blocked by restriction

Fact and issue of the case

The aforesaid cross appeals have been filed by the assessee as well as the department against final assessment order dated 26/02/20 16 passed u/s. 143(3) r.w.s. 144C(13) in pursuance of direction given by the ld. DRP vide order dated 29/12/2015.

Before us, the ld. Counsel for the assessee submitted that assessee has raised additional ground vide ground No.48 & 49 that:

> firstly, order dated 30/01/2015, passed by ld. TPO is bad in law, time barred by limitation and the same was passed beyond time limit prescribed u/s.92CA(13); and

> secondly, the assessment order dated 26/02/2016 passed by ld. AO u/s. 143(3) r.w.s. 144C is void-ab-initio being barred by limitation.

In support of the said additional ground, assessee has also filed chronology of events as well as relied heavily upon the judgment of Hon’ble Madras High Court in the case of M/s. Pfizer Healthcare India Pvt. Ltd. vs. JCIT (2021) 433 ITR 28 and the decision of the Co-ordinate Bench of Mumbai Tribunal in the case of Atos India Pvt. Ltd., in ITA No.1795/Mum/2017. Apart from that, Ld Counsel also submitted that in assessee’s own case for A.Y.2009-10, this Tribunal vide order dated 14/11/2022 on similar grounds and facts have not only quashed the transfer pricing adjustment but also the assessment order being barred by limitation.

The facts in brief qua the legal issue raised are that the assessee company is engaged in business of marketing motor spirit (petrol) and high-speed diesel through retail outlets, providing shared services to its group companies worldwide. Trading and Manufacturing and selling of Modified Bitumen. Emulsion (Bitumen Business). Lubricants and Coolants (Lube Business), cost recharge to its group companies and providing IT Enabled Services in relation to Scientific and Technical consultancy. It had electronically filed its Return of Income on 29/11/2011 declaring loss of Rs. 105,77,29,782. The case was selected for scrutiny and notice u/s 143(2) vide notice dated 3 1/07/2012.

Thereafter, the ld. AO made a reference to the Transfer Pricing Officer (TPO) u 92CA(1) for determination of arm’s length price (ALP) in relation to the international transaction for A 2011-12 vide letter dated 01/07/2013. The ld. TPO thereafter, passed the Transfer Pricing Order dated 30/01/2015 proposing adjustment of Rs. 231, 97,25,209. Subsequently the ld. AO passed Draft Assessment Order dated 02/03/2015 u/s 143(3) w.s 144C(1) of the Act.

The assessee thereafter filled its objections before the same Dispute Resolution Panel (DRP). The ld. DRP disposed the objections raised by the assessee vide its directions dated 29/12/2015.

After considering the directions given by the ld. DRP, the ld. AO made adjustments/ disallowance in the Final Assessment Order (FAO) dated 26/02/2016 passed u/s 143(3) rws 144C(13) of the Act and determined the assessed income as INR 95,11,65,902 The assessed income is Rs. Nil, after the same is adjusted against unabsorbed business loss. Assessed Long Term Capital Loss to be carried forward is Rs.38,62,584/-.

Against the Final Assessment Order (FAC) dated 26/02/2016, the assessee and the Revenue department filed the captioned appeals

Observation of the court

In the present case, the assessee is an Indian company and, thus, a resident in India under section 6 of the Act. Thus, the second condition under section 1 44C (1 5)(b)(ii) of the Act for qualifying as an „eligible assessee‟ is not applicable. As regards the first condition under section 1 44C(1 5)(b)(i) of the Act, the same applies where there is a transfer pricing variation arising as a consequence of the order of the Ld. TPO under section 92CA(3) of the Act. In the instant case, it will be apparent that there is no transfer pricing variation arising as a consequence of the order of the Ld. TPO once the said transfer pricing order is held to be time-barred, non-est and void-ab-inito from the very date of its existence and inception. The entire premise to adopt the special procedure under section 1 44C of the Act and treat the appellant an „eligible assessee‟ rests on the fact that the order passed under section 92CA(3) of the Act has resulted in transfer pricing variations prejudicial to the interest of the appellant. However, once the transfer pricing order under section 92CA(3) of the Act, per-se, becomes a nullity, there remains no transfer pricing variation arising/ resulting or remaining as a consequence thereto. The effect of passing a null and void transfer pricing order here is that it has to be considered as nonest, meaning thereby, that it entails all the consequences of not having been passed at all and is ignored for all practical Thus, in absence of any transfer pricing order being passed at all and any variations arising there from, the entailing consequence in instant case is that the appellant cannot be said to be an „eligible assessee‟ under section 144C(15)(b)(ii) of the Act.

Accordingly, once the assessee becomes an „ineligible assessee‟, the very foundation for proceeding to pass the draft assessment order does not survive, meaning thereby, that the draft assessment order passed in the instant case becomes legally invalid and hence, all consequential proceedings on the basis of the said order fail. In the instant case, a reference was made by the Ld. AO to the Ld. TPO as per the provisions of section 92CA(1) of the Act and accordingly the timelines prescribed u/s 153 of the Act remain extended by a year in view of the 3rd proviso of section 153 of the Act. Accordingly, the time limit to complete assessment proceedings u/s 143(3) of the Act in the instant case expired on 31 March 2016. As on the date of passing draft assessment order u/s 1 44C(1) of the Act i. e. on 29 March 2016, the Ld. AO had already received the order passed by the Ld. TPO dated 31 January 2016, which as discussed above, is time barred, illegal and void ab initio, thereby making the Appellant not an eligible assessee u/s 144C(15) of the Act. In view of the same, the Ld. AO was ostensibly required to pass the final assessment order u/s 143(3) of the Act on that day. Having said that, the draft assessment order passed by the Ld. AO under the provisions of law is also illegal and void ab initio which deserves to be quashed.

It is a well-settled proposition now that a draft order passed in case of an „ineligible assessee‟ vitiates the entire exercise of assessment and all subsequent proceedings are liable to be quashed has been held in the following cases:

(i) Honda Cars India Ltd. v. Dy. CIT [2016] 67 taxmann.com 29/240 Taxman 70 7/382 ITR 88 (Delhi);

(ii) Pankaj Extrusion Ltd. v. Asstt. CIT [2011] 10 com1 7/198 Taxman 6 (Guj.)

(iii) FedEx Express Transportation and Supply Chain Services (India) (P.) Ltd. v. DCIT [2019] 108 taxmann.com 542 (Mumbai – Trib.) In case of FedEx Express, the relevant portion of which has been reproduced in the foregoing paras, wherein the Tribunal has expressed the provision and finally deleted the corporate grounds also. We accordingly follow the same reasoning here in this case also.

Similarly, in a reverse case scenario, i.e., where a draft assessment order was required to be passed on an ‘eligible assessee’ as per section 1 44C(1) of the Act but the same was not so passed, in the following decisions as well, the entire assessment proceedings have been held to be invalid and liable to be quashed:

(i) Vijay Television (P.) Ltd. v. DRP [2014J 46 taxmann.com 100/225 Taxman 35/369 ITR 113 (Madras) affirmed by the Division Bench of the Hon‟ble Madras HC in [2018] 95 taxmann.com 101 (Madras);

(ii) International Air Transport Association v. Dy. CIT [201 6J 68 taxmann.com 246 (Bombay);

(iii) Zuari Cements Ltd. v. ACIT [Writ Petition No. 5557 of 2012, dated 21-2- 2013J (Andhra Pradesh)- Revenue‟s SLP dismissed by the Hon‟ble Apex Court in CC No. 16694/2013 on 27th September 2013 38. What culminates from the aforesaid two sets of parallel decisions is that the provisions of section 1 44C of the Act are specific and provides for a special code which must be strictly followed since it impacts the rights of an assessee substantively, i.e., the ability to accept or object a draft order proposition, file objections before the Dispute Resolution Panel and ensure a speedy disposal thereof. Any lapse in treating an assessee as „eligible assessee‟ where it is otherwise not one and vice-versa results in fatality, since it becomes a jurisdictional defect and goes on to the roots in deciding the validity of the entire assessment proceedings against the revenue. In this context, on the issue of passing a correct assessment order in first instance (either a draft or a final one), the findings of the Hon’ble Madras High Court in case of ACIT v. Vijay Television (P.) Ltd [2018J 95 taxmann.com 101 (Madras) are extremely critical which reads as follows: “

The necessity for the Parliament to incorporate Section 144-C is not only to safeguard the Revenue, but also the assessee and any mistake committed by any one of them, the said party is supposed to face the consequences and cannot put the hands of the clock back and start afresh.”

Further, in case of Zuari Cements Ltd. v. ACIT [Writ Petition No. 5557 of 2012, dated 21-2-2013J (Andhra Pradesh), the Division Bench (DB) of the Andhra Pradesh High Court categorically held that the failure to pass a draft assessment order under Section 144C (1) of the Act would result in rendering the final assessment order “without jurisdiction, null and void and unenforceable.” In that case, the consequent demand notice was also set aside. The decision of the Andhra Pradesh High Court was affirmed by the Supreme Court by the dismissal of the Revenue’s SLP (C) [CC 16694/2013] on 27th September, 2013.

The various judgments which have been cited before us that 144C(1) will not apply and there is no variation in the return of income which cannot be disputed. Thus in our view, Ld. AO to acquire a legal and valid jurisdiction for the purpose of forwarding a draft assessment order at the first instance under section 1 44C(1) of the Act, it is necessary that the assessee must be an ‘eligible assessee’ within the restrictive and strict four corners of how the said expression has been defined under section 1 44C(1 5)(b) of the Act. Here, once it is held that there is no legal or valid transfer pricing order under section 92CA(3) of the Act, there remains no variation arising as a consequence thereto and the case of the assessee, being an Indian company, falls outside the definition of „eligible assessee‟ as defined under section 1 44C(1 5)(b) of the Act. Thus, the Ld. AO cannot be said to acquire a „legal or a valid‟ jurisdiction under section 144C(1) r.w.s. 144C(15)(b) of the Act to pass or forward a draft assessment order to the appellant who is otherwise an „ineligible assessee‟. The action of the Ld. AO in passing the impugned draft assessment order in instant case results in noncompliance of section 1 44C of the Act which vitiates the entire assessment exercise.

The issue being fairly settled and the intent of legislature in strictly interpreting the provision of section 1 44C of the Act being repeatedly held so, the act of the Ld. AO in proceeding to pass a draft assessment order on the basis of an order by the Ld. TPO which is barred by limitation and thus bad in law/ non-est, results in an incurable illegality which is liable to be held as null and void, and thus, consequentially holding the final assessment order to be bad in law as well.

Thus, despite the fact that the reference made to the Ld. TPO is valid, in absence of a legally valid transfer pricing order and a valid draft assessment order, the Ld. AO cannot assume jurisdiction to proceed with the assessment under Section 144C of the Act and pass the consequential final assessment order. The decisions of the Hon’ble jurisdictional High Court in case of International Air Transport Association (supra) and Dimension Data Asia Pacific PTE Ltd. (supra) forties appellant’s contentions and the irresistible conclusion that the draft assessment order imbibes a jurisdictional power in terms of Sec. 1 44C(1) of the Act and creates/ envisages special rights upon the „eligible assessee‟. If such an order is passed on an assessee who is not an ‘eligible assessee’ as defined in section 144C(1 5)(b)(i) of the Act, then it would render the entire proceedings pursuant to such order null and void.

We find that section 153(1) of the Act, as it stood applicable for the AY 2012-1 3, provided a time limit of 3 years from the end of AY 2012-1 3 for completion of assessment under section 143(3) of the Act, i.e., on or before 31 March 2016.

In such a case if the Ld. AO invokes the provisions of section 1 44C of the Act and passes the final assessment order after 31 January 2016 e. beyond the period of limitation as stated above, such final assessment order u/s 143(3) r. w. s 1 44C of the Act is liable to be quashed as being barred by limitation.

In a recent decision of the Hon’ble Madras High Court in case of Virtusa Consulting Services Put. Ltd [TS-474-HC2022(MAD)] dated 9 June 2022, it has been held in context of period of limitation under section 153 of the Act as under: “

Further, it is to be noted that the different timelines to be adhered by the TPO, Assessing Officer to pass a draft order, assessee to file their objections, DRP to issue directions and the assessing officer to pass final order, would commence only on a reference to the TPO and not otherwise. At this juncture, it is not to be forgotten that the period of 33 months is to pass the final order of assessment after the directions from the DRP. In this case, we find from the undisputed dates and events that not only was the reference to the TPO made after the period of expiry of the period of limitation to pass assessment orders, but also that the assessing officer has failed to pass final assessment orders in time. The time to pass the original assessment would end on 31.12.2008 being 21 months from the end of the assessment year 2006-07 i.e., 31.03.2007. Then the last date for the assessing officer to pass the final assessment order would end on 31.12.2009, even considering the extension by twelve months. In the present case, the order of the DRP itself is only 24.09.2010 much beyond the permissible period.”

Thus taking into the provisions of law and the judgment referred to above, we hold that the final assessment order passed on 31 January 2017 is beyond the prescribed period of limitation under section 153 of the Act expiring on 31 March 2016, thus, barred by limitation and is hereby quashed.

We also find that this Tribunal in assessee’s own case for a.Y.2009-10 in ITA No.1576/Mum/2015 and ITA No.2340/Mum/2015 had also quashed the assessment after observing and holding as under:-

A perusal of the above additional grounds of appeal reveal that the assessee has challenged validity of the assessment order passed u/s 143(3) r. w. s. 144(13) of the Act and the validity of the order passed by TPO u/s. 92CA(3) of the Act. The issue raised by the assessee in the aforesaid additional grounds goes to the root of validity of assessment. It is no more resintegra that the assessee can raise legal ground at any stage, even during the appellate proceedings, if the facts are already on record. No fresh documentary evidence is required to be adduced for adjudicating aforementioned additional grounds. Hence, the additional ground No.40 & 41 are admitted for adjudication on merits.