Section 144C was inserted by the Finance Act, 2009 w.e.f. from 01 April 2009. Section 144C(1) provides that on or after 01 October 2009 the AO shall issue draft assessment order in case of eligible assessee. The taxpayer can file objections before the DRP against the proposed draft order. Under sub-s (5), the DRP can issue such directions, as it thinks fit, for the guidance of the AO to enable him to complete the assessment. Under sub-s (8), DRP may confirm, reduce or enhance the variations proposed in the draft order.
Section 144C(10) provides that every direction issued by DRP shall be binding on the AO. Section 144C(13) provides that the AO shall pass the final assessment order in conformity with the directions given by the DRP without giving any further opportunity to the taxpayer. The issue that came up before the Courts was whether the AO can make additions post the directions of the DRP.
Visteon Technical and Services Centre Pvt Ltd. v ACIT [2012] 24 taxmann.com 353 (Chennai)
Facts
The taxpayer was engaged in the business of developing and selling automotive embedded software to group companies and also providing business outsourcing support. The taxpayer was functioning as a 100 per cent Export Oriented Unit (EOU). The case was referred to the TPO, who held that international transactions are at ALP. While computing deduction under s 10B, the AO excluded a sum of Rs 7,05,40,982 from the export turnover on the ground that same is not realised by the taxpayer.
The taxpayer filed objections before the DRP. The taxpayer contended that it has realised the foreign exchange proceeds within the time allowed by the RBI. The DRP was of the opinion that there was merit in the grievance of the taxpayer and directed the AO to verify the details and evidence filed by the taxpayer in the paperbook and to give appropriate relief. On directions by the DRP, the AO took up the matter once again for verification. The AO not just excluded Rs 7,05,40,982 from the export turnover, but also additionally excluded Rs 2,05,86,262 from the export turnover on the ground that same is also not realised.
ITAT Decision
The ITAT held that the AO cannot make any further addition to the original proposal in the draft assessment order, once it was subject to a proceeding by the Dispute Resolution Panel, except for completing the assessment in confirmation with directions of the DRP. The ITAT held that the tax department cannot make any further addition in the final assessment order once it is subject to a proceeding by DRP, except for completing assessment in confirmation with directions of DRP. The ITAT also held that DRP has no powers to issue directions, which gives scope for ‘further enquiry’.
Apollo Health Street v DCIT TS-128-ITAT-2014(HYD) – the DRP gave a direction that TP adjustment shall not exceed the group profits. The AO did not comply with the direction in the final assessment order. The ITAT held that directions of DRP are binding and AO to pass order in compliance with the directions of the DRP. The matter was remanded back to the AO for passing Order in compliance with DRP directions.
DCIT v Lenovo India Pvt Ltd TS-259-ITAT-2017(BANG)-TP – The ITAT held that directions of the DRP are binding on the AO/TPO and only option is to file the appeal if Revenue does not accept the directions.
Editorial Note: Post 2012 amendment, Revenue cannot file appeal against the final assessment order of AO passed pursuant to DRP direction.
PCIT v WOCO Motherson Advanced Rubber Technologies Ltd 406 ITR 375 (Guj HC) – The AO proposed TP adjustment in respect of technical fee paid by assessee to its AE in draft assessment order. However, in the final assessment order, he not only made TP adjustment but also made disallowance under section 10AA. The ITAT deleted the additions. The HC held that additions not proposed in draft assessment order cannot be made by AO in the final order.
Nomura Research Institute Financial Technologies India (P.) Ltd. v DCIT [2020] 121 taxmann.com 217 (Kolkata – Trib.) – The ITAT held that directions of the DRP are binding of the AO u/s. 144(13) of the Act. The DRP had held that the re-opening of the assessment is bad in law. The ITAT held that the final assessment order dated 16-5-2019 should have incorporated the finding of the DRP. The ITAT observed that the AO has no other alternative but to drop the assessment proceedings on the ground that re-opening of assessment has been held as bad in law. Therefore, the ITAT quashed the final assessment order dated 16-5-2019 as bad in law.