Late Corrigendum To Final Assessment Order Cannot Cure Failure To Follow DRP Directions: ITAT Delhi

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has quashed an assessment order passed against an Indian subsidiary of a foreign technology company.

The tribunal held that the Assessing Officer could not rectify the failure to give effect to the Dispute Resolution Panel's (DRP) directions by issuing a corrigendum after the statutory time limit had expired.

A bench of Judicial Member Raj Kumar Chauhan and Accountant Member S. Rifaur Rahman observed that the final assessment order, passed without incorporating the DRP's directions, was unsustainable.

"Accordingly, respectfully following the aforesaid order, we observed that non-following of the directions of ld. DRP is itself the 'FAO' is bad in law and subsequently passing the corrigendum will not make order good. The corrigendum so passed is beyond jurisdiction," the tribunal held.

The dispute related to the assessment year 2018-19. The DRP issued its directions on April 25, 2022, and the Transfer Pricing Officer passed an order giving effect to those directions on June 17, 2022.

The final assessment order was passed on June 30, 2022. It did not incorporate the DRP's directions despite the Transfer Pricing Officer having already given effect to them. Nearly a month later, on July 27, 2022, the Assessing Officer issued a corrigendum.

On examining the record, the tribunal found that the Transfer Pricing Officer had passed the order giving effect to the DRP's directions on June 17, 2022. The Assessing Officer had that order before the limitation period expired, yet the final assessment order was issued without incorporating those directions.

Despite this, the final assessment order did not incorporate the changes directed by the DRP. The tribunal observed that the subsequent corrigendum could not cure that defect.

"However, the Assessing Officer even though on receipt of OGE from TPO failed to pass the final assessment order incorporating the same. In the present case, the Assessing Officer had passed the 'FAO' within time, however, not followed the directions of ld. DRP. Subsequently, he passed the corrigendum to cover up the statutory functions as per the provisions of section 144C of the Act," the tribunal observed.

Relying on the Bombay High Court's ruling in Pr. CIT v. Lionbridge Technologies Pvt. Ltd. and a previous Mumbai Bench decision in I.A.R. System Aktiebolag, the tribunal quashed the assessment order. As the appeal succeeded on the legal issue, it left the company's remaining grounds open without examining them on the merits.

For Assessee: Advocate Ananya Kapoor and Utkarsa Kumar Gupta

For Revenue: Nikhil Kumar Govila, CIT-DR