Sec. 144C of Income Tax Act, 1961—DRP - Transfer Pricing- It is binding on AO to follow the directions of the DRP.

Facts: AO passed the draft Assessment Order after making Transfer Pricing adjustment and other corporate tax. Aggrieved by the draft assessment assessee filed objections before DRP. DRP granted relief in respect of addition u/s 92CA and AO passed final assessment order in absence of revised TPO Order in respect of DRP directions to the TPO and assessed the income without following the directions given by the DRP on TP adjustment and assessed the total income. Subsequently, TPO passed an order giving effect to DRP directions and deleted the Transfer Pricing adjustment as well as corporate tax additions/disallowance. Being aggrieved, assessee filed appeal before tribunal. Subsequently, rectification order u/s 154/143(3)/144C was passed thereby deleting the entire Transfer Pricing adjustment and retaining the corporate tax addition.

Held, that Section 154 regarding the rectification of mistake and AO on 15.07.2014 has rectified the order thereby giving the final effect of the DRP directions. At the same time, AO was suppose to complete the assessment under Section 143(3) read with Section 144C on the basis of the draft assessment order if the assessee intimates to the AO the acceptance of the variation or no objection are received within the period specified in sub section (2) of Section 144C. In the present case, the assessee filed objections before DRP after passing the draft assessment order. The DRP issued certain directions to TPO. AO was very well aware that DRP has given certain directions to TPO and it is binding on AO to follow every direction issued by DRP as per as per Section 144C(10). Subsequently, when TPO passed the order giving effect to DRP’s directions vide order dated 21.02.2014, AO on suo moto basis has rectified the assessment order u/s 154 thereby giving effect to directions of the DRP. As per Section 143(3), AO has to pass the assessment order within the prescribed period otherwise the assessment becomes time barred. AO has followed the statutory provisions of Section 143(3) thereby passing assessment order. But as per the binding section i.e. Section 144C(10), the mandatory provision was not followed by AO, thereby it is binding on AO to follow the directions of the DRP. Therefore, the assessment becomes null and void. As regards rectification, there is no mistake committed on part of AO, in fact AO was very well aware that the DRP has given certain directions so it could not be termed that there is a mistake apparent on record. When AO has deliberately chosen not to follow a binding provisions u/s 144C while passing the final assessment order, the Assessment Order, itself becomes null and void. The submissions of the Ld. DR that after passing assessment order, the Transfer Pricing Officer has given final effect to the DRP direction and thereafter AO u/s 154 has rectified the original assessment order well within time thereby deleting the entire Transfer Pricing adjustment, does not hold the test of legal sanctity as per the provisions of Section 144C(10). Thus, assessment order itself is quashed. In result, appeal of the assessee is allowed. - GLOBAL ONE INDIA (P.) LTD. V/s DY. CIT - [2020] 182 ITD 355 (ITAT-DELHI)