M/S.regen Powertech Private Limited v. The Dispute Resolution Panel

CORAM THE HON'BLE MR. JUSTICE K.RAVICHANDRABAABUW.P.No.27334 of 2017and W.M.P.No.29226 of 2017 M/s.Regen Powertech Private Limitedrepresented by its Managing DirectorMr.Madhusudan KhemkaNo.2, KRM Plaza, 8[th] Floor,Harrington Road, Chepet,Chennai – 600 031. ... Petitionervs. 1.The Dispute Resolution Panel-2, Bangalore, 7[th] Floor, Income Tax Office, BMTC Building, 80 Feet Road, Koramangala, Bangalore – 560 095. 2.Deputy Commissioner of Income Tax, Corporate Circle 5(1) Chennai, Aayakar Bhawan, MG Road, Nungambakkam, Chennai – 600 034. ... Respondents Writ Petition filed under Article 226 of the Constitutionof India to issue a Writ of Certiorarified Mandamus to call forthe records on the file of the First respondent and quash theimpugned order under Rule 13 of the IT (DRP) Rule, 2009 readwith section 144C of the Act in PAN No. dated12.10.2017 for the Assessment year 2013-14 and consequentlydirect the first respondent to consider the submissions of thepetitioner and pass a fresh order following the principles laiddown by the Income Tax Appellate Tribunal in the petitioner'sown case for the preceding assessment year 2011-12. For Petitioner : Mr.R.SivaramanFor Respondent : Mrs.Hema Muralikrishnan Senior Standing Counsel(Income Tax) https://hcservices.ecourts.gov.in/hcservices/ O R D E R The petitioner is aggrieved against the order of thefirst respondent dated 12.10.2017 passed in respect of theassessment year 2013-2014. Consequently, the petitioner seeksfor a direction to the first respondent to consider thesubmissions of the petitioner and pass a fresh order followingthe principles laid down by the Income Tax Appellate Tribunal inthe petitioner's own case for the preceding assessment year2011-2012. 2. The case of the petitioner in short is as follows: (i) The petitioner is engaged in the business ofmanufacturing and supply of wind turbine generators. In respectof the assessment year 2013-2014, they filed the return ofincome. The case was subsequently taken up for scrutiny by thesecond respondent and notice under section 143(2) of the IncomeTax Act was issued to the petitioner on 02.09.2014. Due to thepresence of international transactions, the second respondentmade a reference under section 92CA to the Transfer PricingOfficer to consider the issue relating to royalty payment by thepetitioner to Regen, Cyprus. The Transfer Pricing Officer,without considering the terms of the agreement between thepetitioner and the other company, passed an order on 31.10.2016.Based on the said order, the second respondent passed a draftassessment order on 30.12.2016 and proposed to make a downwardadjustment on royalty payment to the tune of Rs.6,10,91,950/-.Being aggrieved against the said draft assessment order, thepetitioner filed their objection before the first respondentunder section 144(C) of the said Act. The primary objectionsraised by the petitioner before the first respondent are asfollows: Ground 1: The Learned AO and TPO erred in making adownward adjustment on royalty payment to RegenRenewable Energy generation Global Ltd, Cypruswithout appreciating the fact that the royaltyexpenditure is at arm's length.Ground 2: The Learned AO and TPO ought to haveappreciated that no profits have effectively beenretained by Regen Cyprus and therefore such transferpricing adjustment is not warranted tin the firstplace.Ground 3: The Learned AO and TPO have erred intreating the royalty payable by Regen Cyprus toVensys AG at arm's length price which is not inaccordance with the principles of res-judicata. (ii) The first respondent passed an order on 25.09.2017rejecting the objection raised by the petitioner on the reasonthat identical issue was considered by the first respondent forthe assessment year 2011-2012 and 2012-2013 and that there was https://hcservices.ecourts.gov.in/hcservices/ (ii) The first respondent passed an order on 25.09.2017rejecting the objection raised by the petitioner on the reasonthat identical issue was considered by the first respondent forthe assessment year 2011-2012 and 2012-2013 and that there was https://hcservices.ecourts.gov.in/hcservices/ no reason to differ with such decision for the immediatepreceding year. iii) However, with regard to the assessment year 2011-12 onthe same set of facts and circumstances, an appeal was filedbefore the Income Tax Appellate Tribunal, which in turn, by itsorder dated 17.08.2016 held that the issue to be re-looked asthe percentage computed by the Transfer Pricing Officer is 1.14%in comparison with the Arm's Length Price margin being 4.60%.Thus, the Tribunal remitted the issue back for recalculation, tothe file of the Transfer Pricing Officer, to consider theroyalty payments on brought out component based on technicalspecification. Pursuant to the said order of the Tribunal, theTransfer Pricing Officer through the order dated 28.03.2017 hadgiven effect to the order of the Tribunal re-calculating theroyalty payment and revising downward adjustment atRs.42,00,000/-. Consequently, the second respondent passed theirfinal assessment order under section 143(3) on 30.03.2017,thereby accepting the claim of the petitioner with regard to thedownward adjustment of royalty payment. Subsequently, theTransfer Pricing Officer through an order dated 12.09.2017further reduced the downward adjustment of royalty paid toRs.3,20,576/- for the assessment year 2011-2012. iv) Therefore, for the impugned assessment year 2013-14also, the first respondent ought to have followed the order ofthe Tribunal dated 17.08.2016 as the factual matrix wasidentical. On the other hand, the first respondent suo motufiled application under Rule 13 of the Income Tax (DisputeResolution Panel) Rules, 2009 to rectify the earlier order dated25.09.2017. According to the first respondent, the facts for theearlier years namely assessment years 2011-2012 and 2012-2013are different and therefore, the order passed on 25.09.2017 hasto be rectified. The petitioner also filed an application underRule 13 of the said Rules on 09.10.2017 to rectify the directionpassed by the first respondent on 25.09.2017. The petitionercontended in the said application that in view of the orderpassed by the Appellate Tribunal dated 17.08.2016 in respect ofthe assessment year 2011-2012 arising out of the same issue, thepresent order dated 25.09.2017 has to be rectified accordingly. v) However, the first respondent without disposing theapplication filed by the petitioner under Rule 13 has passed theimpugned order on 12.10.2017 merely by adjudicating upon its ownsuo motu rectification application. Hence, the present writpetition. 3. A counter affidavit is filed by the respondents, whereinit is stated as follows: The first respondent has passed the impugned order afterfollowing the principles of natural justice. If the petitioneris aggrieved against the same, they have to file only an appealand not a writ petition. The question whether the addition madeby the respondent is justifiable or not is an issue to be https://hcservices.ecourts.gov.in/hcservices/ 3. A counter affidavit is filed by the respondents, whereinit is stated as follows: The first respondent has passed the impugned order afterfollowing the principles of natural justice. If the petitioneris aggrieved against the same, they have to file only an appealand not a writ petition. The question whether the addition madeby the respondent is justifiable or not is an issue to be https://hcservices.ecourts.gov.in/hcservices/ agitated on merits after letting in evidence. Hence, the abovewrit petition is not maintainable. An error which had crept inthe order dated 25.09.2017 was sought to be rectified suo motuby the first respondent. The facts and circumstances existing inthe year 2013-2014 were different from those existing in theyears 2011-2012 and 2012-2013. The petitioner's objection to thesuo motu rectification notice was considered by the firstrespondent and thereafter, the impugned order was passed.Therefore, the petitioner cannot contend that the factual matrixwas not considered. The rectification proposed by the firstrespondent and the rectification application filed by theassessee are not identical. The petitioner cannot be heard tosay that the rectification petition filed by him on 11.10.2017ought to have been considered along with the suo motuapplication filed by the first respondent. 4. Heard both sides. 5. The facts and circumstances which warranted the filing ofthe present writ petition has been referred to in detail supra.Therefore, I am not reiterating the same once again hereunder. 6. The main grievance of the petitioner before this Court isthat the first respondent has chosen to pass the presentimpugned order only by considering its own suo moturectification application without considering the rectificationapplication filed by the petitioner also under Rule 13 of thesaid Rules and passing an order on such application as well. Itis seen that the dispute between the parties is with regard tothe royalty payment made by the petitioner to their foreigncontracting party, namely Regen at Cyprus. It is seen that theAssessing Officer referred the matter to the Transfer PricingOfficer to consider the issue relating to royalty payment, whoin turn, seems to have passed some adverse order against thepetitioner. Thereafter, the Assessing Officer, based on suchorder of the Transfer Pricing Officer, passed a draft assessmentorder. The petitioner filed their objection against the saiddraft assessment order before the first respondent by raisingseveral objections, out of which, three primary objections, asstated supra, were highlighted for the consideration of thefirst respondent. It is seen that in respect of assessment years2011-2012 and 2012-2013, the very same objections were raised bythe petitioner before the first respondent, which in turn,rejected those objections. Therefore, the first respondentoriginally by order dated 25.09.2017, rejected the objectionwith regard to the present assessment year 2013-2014 also onthe reason that on the similar factual matrix, the panel hasrejected the contentions raised by the petitioner in respect ofthe assessment year 2011-2012 and 2012-2013. However, the factremains that in respect of the assessment year 2011-2012, thematter went on Appeal before the Income Tax Appellate Tribunal, which in turn, by order dated 17.08.2016 remanded the matterback to the Transfer Pricing Officer to consider the issueregarding royalty payments. Consequently, the Transfer PricingOfficer, passed an order followed by the final order ofassessment passed by the 2[nd] respondent, accepting the claim ofthe petitioner with regard to the downward adjustment of royaltypayment. It is seen that, while the fact stood thus, the firstrespondent suo motu sought to rectify its order dated25.09.2017 by filing an application under Rule 13 of the saidRules. which in turn, by order dated 17.08.2016 remanded the matterback to the Transfer Pricing Officer to consider the issueregarding royalty payments. Consequently, the Transfer PricingOfficer, passed an order followed by the final order ofassessment passed by the 2[nd] respondent, accepting the claim ofthe petitioner with regard to the downward adjustment of royaltypayment. It is seen that, while the fact stood thus, the firstrespondent suo motu sought to rectify its order dated25.09.2017 by filing an application under Rule 13 of the saidRules. 7. The crux of the reasons for such rectification sought tobe made by the first respondent was that the facts in theearlier orders, namely, the assessment years 2011-2012 and 2012-2013 are not similar to the facts in the present assessment year2013-2014. Therefore, the first respondent sought to rectifythe order already passed. On the other hand, the petitioner alsofiled an application under Rule 13 seeking for rectification ofthe very same order on 25.09.2017 by placing reliance on theorder passed by the Income Tax Appellate Tribunal dated17.08.2016. Thus, according to the petitioner, as per the saidorder of the Appellate Tribunal, the first respondent has topass an order in respect of the present assessment year aswell in favour of the petitioner. 8. There is no dispute to the fact that the saidapplication filed by the petitioner under Rule 13 is pendingand not yet disposed of. It is also not in dispute that beforepassing the present impugned order, the petitioner has alreadyfiled such application on 09.10.2017. When such application wasalready filed by the petitioner and the same was taken onrecord, in all fairness, the first respondent ought to haveconsidered the petitioner's application also along with its ownsuo motu application for rectification. In this case, it has notbeen done so. Needless to state that whether the facts andcircumstances of the assessment years 2011-2012 and 2012-2013 onthe one hand, and of the assessment year 2013-2014 on the otherhand, are similar or not is the question which has to benecessarily considered and decided by the first respondent byhearing both the applications. Equally, it is also for thefirst respondent to consider as to whether the order passed bythe Income Tax Appellate Tribunal dated 17.08.2010 in respect ofassessment year 2011-2012 is applicable to the presentassessment year as well, by considering the facts andcircumstances of both assessment years. All these things can bedone only by hearing the suo motu application and thepetitioner's application dated 09.10.2017, both filed underRule 13 of the said Rules, together. 9. Learned counsel for the respondents admitted to theposition that the application filed by the petitioner has not been disposed of so far. Needless to state that when the partieshave filed the rectification petition to rectify the same order,it is not proper to pass an order on the application filed byone party alone leaving the other application either unheard ornot disposed of. Therefore, without expressing any view on themerits of the contentions raised by both parties, this Court isof the view that the present impugned order has to be set asideonly for the purpose of remitting the matter back to the firstrespondent for considering both the applications filed underRule 13 and pass a fresh order on merits and in accordance withlaw. 9. Learned counsel for the respondents admitted to theposition that the application filed by the petitioner has not been disposed of so far. Needless to state that when the partieshave filed the rectification petition to rectify the same order,it is not proper to pass an order on the application filed byone party alone leaving the other application either unheard ornot disposed of. Therefore, without expressing any view on themerits of the contentions raised by both parties, this Court isof the view that the present impugned order has to be set asideonly for the purpose of remitting the matter back to the firstrespondent for considering both the applications filed underRule 13 and pass a fresh order on merits and in accordance withlaw. 10. Accordingly, the writ petition is allowed and theimpugned order is set aside. Consequently, the matter isremitted back to the first respondent to hear afresh the suomotu application under Section 13 by the first respondent alongwith the application filed by the petitioner for rectificationdated 11.10.2017 and pass orders on both the applications onmerits and in accordance with law. Such exercise shall be doneby the first respondent within a period of eight weeks form thedate of receipt of a copy of this order. No costs.Consequently, connected miscellaneous petition is closed. Sd/- Assistant Registrar(CS VI) vsiTo //True Copy// Sub Assistant Registrar 1.The Dispute Resolution Panel-2, Bangalore, 7[th] Floor, Income Tax Office, BMTC Building, 80 Feet Road, Koramangala, Bangalore – 560 095. 2.Deputy Commissioner of Income Tax, Corporate Circle 5(1) Chennai, Aayakar Bhawan, MG Road, Nungambakkam, Chennai – 600 034. +1cc to Mr.R.Sivaraman, Advocate, S.R.No.65783 RK(CO) W.P.No.27334 of 2017 rrs 04/10/2018