ITAT Delhi Sends Back Assessment Order for Failure to Incorporate DRP Directions — Hitachi Astemo Haryana Pvt. Ltd. vs. DCIT

Case Overview

Case Name: Hitachi Astemo Haryana Private Ltd. Vs DCIT (ITAT Delhi)
Appeal Number: ITA No. 1005/Del/2022
Date of Order: 23/11/2023
Assessment Year: 2018-19

Background of the Dispute

Hitachi Astemo Haryana Private Limited, formerly operating under the name Showa India Private Limited, filed an appeal before the Income Tax Appellate Tribunal (ITAT), Delhi, challenging the final assessment order dated 30.03.2022 passed by the Assessing Officer (AO) pursuant to directions issued by the Dispute Resolution Panel (DRP) for Assessment Year 2018-19.

The central issue before the Tribunal was whether a final assessment order passed without incorporating the binding directions of the DRP could be sustained in law, or whether such an order was fundamentally flawed and required to be set aside.

Sequence of Assessment Proceedings

The assessment proceedings for this case unfolded in the following sequence:

  1. The Transfer Pricing Officer (TPO) passed an order under Section 92CA(3) of the Income-tax Act, 1961 on 27.07.2021, recommending an upward adjustment to the Arm's Length Price (ALP) of the assessee's international transactions.
  2. Incorporating the TPO's recommendations, the AO passed a draft assessment order under Section 144C of the Income-tax Act, 1961 on 18.09.2021.
  3. The assessee filed objections before the DRP against the said draft assessment order.
  4. The DRP passed its order under Section 144C(5) on 23.02.2022, issuing specific directions relating to the transfer pricing adjustments proposed by the TPO.
  5. As mandated under Section 144C(13) of the Income-tax Act, 1961, the AO was required to pass the final assessment order within one month from the end of the month in which the DRP's directions were received — meaning by 31.03.2022.
  6. The AO passed the final assessment order on 30.03.2022.

The Core Problem: DRP Directions Left Out of the Final Order

Despite being passed within the statutory deadline, the final assessment order dated 30.03.2022 suffered from a critical deficiency — it did not incorporate the directions issued by the DRP.

The reason for this omission was procedural: the DRP's directions were required to be given effect by the TPO first, following which the AO was to incorporate the modified figures into the final assessment order. Although the TPO had also passed an order giving effect to the DRP directions on 30.03.2022, this order had not actually been received by the AO at the time of passing the final assessment order.

Faced with the statutory deadline under Section 144C(13), the AO chose to pass the final assessment order without waiting for the TPO's order, noting in the assessment order itself that:

  • The DRP directions had been communicated to the TPO for giving effect.
  • The TPO's modified order was yet to be received.
  • The necessary modifications relating to transfer pricing adjustments would be carried out subsequently through a rectification order upon receipt of the TPO's order.