SABIC INDIA PRIVATE LIMITED  Vs UNION OF INDIA & ORS.

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$~18
* IN THE HIGH COURT OF DELHI AT NEW DELHI

Date of Decision: 29.01.2021
+ W.P.(C) 965/2021

SABIC INDIA PRIVATE LIMITED ….. Petitioner
Through: Mr. Ajay Vohra, Senior Advocate with Mr.
Mahesh Agarwal, Mr. Rishi Agrawala, Mr. Karan Luthra,
Mr. Ankit Banati and Ms. Sayaree Basu Malik, Advocates.
versus
UNION OF INDIA & ORS. ….. Respondents
Through: Mr. Dev P. Bhardwaj, CGSC for UOI/R- 1.
Mr. Sunil Aggarwal, Senior Standing Counsel with Mr. Tushar Gupta, Advocate for R- 2 to R -4.

CORAM:
HON’BLE MR. JUSTICE RAJIV SAHAI ENDLAW
HON’BLE MR. JUSTICE SANJEEV NARULA

JUDGMENT

[VIA VIDEO CONFERENCING]
SANJEEV NARULA, J. (Oral)
CM APPL. No. 2612/2021 & 2613/2021 (for exemption)
1. Exemption allowed, subject to just exceptions.
2. The applications stand disposed of.

3. The present petition filed under Article 226 of the Constitution of India,
1950 inter alia seeks to challenge the directions dated 2nd February, 2020 pas sed by W.P.(C) 965/2021 & CM APPL. No. 2611/2021 (for interim relief)
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Respondent No. 2 on the ground that the same are arbitrary, against the principles
of natural justice, ultra vires the provisions of the Income Tax Act, 1961
(hereinafter referred to as ‘the Act’) and in breach of Articles 14, 19(1)(g) and 265
of the Constitution of India.
4. The Petitioner, a private limited company incorporated under the Companies
Act, 1956, is a wholly -owned subsidiary of SABIC Global Limited, UK (51%
shareholding) and SABIC Asia Pacific Pte Limited, Singapore (49% shareholding) . It is engaged in providing marketing support services in India to the
Saudi Basic Industries Corporation, Saudi Arabia, and SABIC Singapore [jointly referred to as “Associated Enterprises” or “AEs”] for the sale of the products
owned by SABIC, Saudi Arab ia. As the Petitioner was undertaking international
transactions with its AEs, the international transactions entered into by it were referred to the Transfer Pricing Officer (hereinafter referred to as the ‘TPO’) for
determining the Arm’s Length Price ( hereinafter referred to as ‘ALP’), as per the
provisions of Section 92CA of the Act.
5. For the relevant year (A.Y. 2016- 17), vide order dated 29
th October, 2019,
the TPO rejected the transfer pricing methodology adopted by the Petitioner. These findings of the TPO culminated into a draft assessment order dated 28
th November,
2019, passed by the Assistant Commissioner of Income Tax, Circle 22(2). Objections were raised before the DRP -1 vide objection No. 17, dated 23
rd
December, 2019, on several grounds. The Petitioner was granted hearing on 1st
December, 2020, and upon finding no merit in the objections, the impugned
directions dated 2nd December, 20 20 were issued, rejecting the same.

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6. Aggrieved with the aforesaid negative response, the Petitioner has filed the
present petition, inter alia contending that the DRP has failed to appropriately
consider and deal with the objections of the Petitioner.

7. Mr. Ajay Vohra, learned Senior Counsel for the Petitioner contends that as
the TPO exercises judicial functions and acts as a quasi -judicial authority, it is
obligated to comply with and adhere to the principles of natural justice. He states
that the TP O is required to follow the mandate of Section 144C and the impugned
directions have been passed in breach thereof and are thus ultra vires the provisions
of the Act.

8. Mr. Vohra states that he is conscious that within the scheme provided under
the Act, the Petitioner has its statutory remedies against the assessment order that
would be passed pursuant to the aforesaid directions. He submits that, nevertheless, considering the fact that directions given by the DRP are wholly without application of mind and are binding on the Assessing Officer, this Court should
interfere in the matter, failing which the Petitioner would have to be relegated to
take its remedy of filing an appeal against the assessment order. That would entail making a pre -deposit of 20 percent of the disputed amount, which will be onerous
for the petitioner. Mr. Vohra acknowledges that in such matters, the Courts are
reluctant to interfere with the directio ns given by the DRP, having regard to the
statutory scheme provided under the Act, but, he submits, in exceptional
circumstances, the Courts have intervened. The present case clearly falls in the said exception and fulfils the criteria laid down by this Co urt in P.D.R. Solutions FZC
v. Dispute Resolution Panel- 2, New Delhi and Ors. , [2019] 418 ITR 277 (Delhi),
and therefore the present petition is maintainable.

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9. On merits, Mr. Vohra submits that before the DRP, the Petitioner had filed
detailed written submissions setting out its objections and also furnished evidence
in support thereof. In spite of that, the same have been rejected without any
application of mind, in a perfunctory manner. He submits that one significant
objection filed by the Petitioner pertains to the ‘rule of consistency’ and the persuasive effect of the directions of the DRP dated 17
th July, 2019 for AY
2015 -16. In the said directions, Respondent No. 2 had held that the appropriate
basis for the determination of the ALP was the compara ble uncontrolled price
(CUP) method. The comparable(s) sought to be relied upon by the TPO were held to be irrelevant or unacceptable for detailed reasons set out in the said directions. On a consideration of the facts and evidence, the DRP held that an in dependent
arm’s length transaction, entered into by the Petitioner’s parent company with an independent entity in Algeria, was the acceptable comparable. Applying this acceptable comparable, the commission payable fell in the acceptable range of 0.5% to 1% , and was found proper and legal and did not require any adjustment.

10. Mr. Vohra submits that the agreement which was found acceptable by the
DRP as the appropriate comparable for A.Y. 2015- 16 was also in effect for A.Y.
2016 -17. There has been no chan ge in facts in relation to the said agreement.
Following the rule of consistency, the DRP ought to have followed the same basis that it had adopted for the year 2015- 16. Since the DRP had held the CUP method
adopted by the TPO for A.Y. 2015 -16 to be appropriate, for A.Y. 2016- 17 too, the
TPO was obliged in law to follow the same, and has erred in law by adopting “other
methods” for which there is no justification.

11. Mr. Vohra further contended that the proceedings before the DRP are not an
empty formality and it is required to comply and adhere with the statutory
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provisions and also take into consideration the materials furnished by the assessee.
In support of the aforesaid contentions, Mr. Vohra relied upon the decisions of this Court in LI and Fung Indi a Pvt. Ltd v. Commissioner of Income Tax, 2013 SCC
OnLine Del 5052; Magneti Marelli Power Train India Pvt. Ltd. v. Deputy Commissioner of Income Tax, 2016 SCC OnLine Del 5758, and the judgment of
the Karnataka High Court in GE Technology Centre (P.) Ltd. v . Dispute
Resolution Panel, Bangalore , 2011 SCC OnLine Kar 4018.
12. We have heard Mr. Vohra at length. There cannot be any doubt that
directions impugned in the present petition are binding on the Assessing Officer under the scheme of the Act. However, that in itself is not a sufficient ground for us
to exercise our jurisdiction under the Article 226 of the Constitution of India. We
have to be mindful of the statutory remedies provided under the Act against the orders passed under Section 144C of the Act. Under sub -section (5) to section
144C, DRP directions, on being given effect to, by the Assessing Officer, ripen into an assessment order. Against the assessment order, the Petitioner has a remedy of
filing an appeal before the Income Tax Appellate Tribu nal. Therefore, there is an
effective alternate remedy available with the Petitioner. In such circumstances,
since effective remedy is available, the settled position in law is that a writ petition is ordinarily not maintainable [Ref: CIT v. Chhabil Dass A ggarwal , (2014) 1 SCC
603].
13. Having said that, we are cognizant that the restrictions for not entertaining a
writ petition under Article 226 of the Constitution of India are largely self -imposed
and courts have carved out certain exceptions to the rule of alternative remedy.
There have been instances where the Courts have entertained a writ petition, even at the stage where the directions of the DRP have yet not culminated into an
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assessment order. Indeed, the judgment relied upon by the petitioner in t he case of
P.D.R. Solutions FZC (supra) is one such case. As also noted in the said decision,
it is only in exceptional circumstances, that a writ petition should be entertained.
Therefore, we only have to see if the present case fits into the category of
exceptions, recognized by the courts. The present petition is predominately premised on the ground of violation of principles of natural justice, which is contended to be apparent from non-consideration of the detailed written
submission set out in the obj ections filed before the DRP. We have given our
anxious consideration to this plea and to fully comprehend this contention, we have
perused the impugned directions. We note that Petitioner’s primary objection was founded on the rule of consistency i.e. DRP should follow its own directions issued
for A.Y. 2015-16. On this issue, the DRP observes as under:
“3.2. Grounds no 1.1 and 1.3 relate to non- following of this Panel’s
directions during AY 2015-16 even though the facts are identical for AY
2015 -16 and ap plication of the other method as MAM. It is submitted
that this Panel, while giving the directions for AY 2015-16 disapproved the approach followed by the TPO and also all the 3 comparables used
by him. It is also stated that even though the facts of AY 2016 -17 are
identical to that of AY 2015-16, the TPO completely disregarded the
directions given by this Panel for AY 2015- 16 and selected same/similar
comparables to determine the ALP and changed the MAM from CUP to Other Method (stating that Other Method does not require strict comparability). It is also stated that this Panel considered an internal
agreement provided by the assessee as a comparable uncontrolled price
(‘CUP’) to determine the ALP of the international transactions entered with the AEs and th at the said agreement is valid for current year also
and hence, the matter stands directly covered in our favour by earlier order. It is further submitted that the assessee has undertaken the above international transactions during various previous years i.e. from AY
2009 -10 to AY 2012 -13 also, whereby, it has followed the same
methodology i.e. TNMM and conducted similar transfer pricing analysis
to justify the arm’ length nature of the transaction which was duly accepted to be at arm’s length by the TPO/AO . There has not been any
change in the facts and circumstances in AY 2016 -17 and accordingly, in
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the absence of availability of CUP, TNMM may be accepted as the MAM
and benchmarking analysis as submitted in TP documentation should be accepted.

3.2.1 The P anel has considered the submission. It is noticed that this
Panel during AY 2015 -16 rejected the assessee’s objection to the ‘CUP’
method adopted by the TPO/AO and its request to accept TNMM as
MAM. Following the same, we uphold the TPO’s action of using t he
‘CUP’ approach and employing the other method and selecting the comparables after considering the functional profile. No argument has
been advanced regarding the defects in the other method employed by
the TPO and it is merely stated that the TPO has no t followed the
direction of the Panel on the principle of res judicata. The Panel, however, does not find the argument acceptable as every assessment year is an independent assessment year and the decisions may vary in view of the facts obtaining in that c ase. The TPO in para 9 of his order
has given sufficient reasons justifying the application of other method
using the database having comparables. The objection, therefore, is not
acceptable and is rejected accordingly.”

14. The aforesaid extract from the impugned directions discern that the DRP has
taken into account the fact that the panel, during A.Y. 2015- 16, rejected Assessee’s
objection to the CUP method adopted by the TPO/AO as well as its request to accept Transactional Net Margin Method (TNMM) as the Most Appropriate Method (MAM). Following the same, the DRP had upheld the TPO’s action of using the CUP approach and employing the “other method” and selecting the
comparable(s) after considering the functional profile. It was further observed that
no arguments were advanced regarding other methods employed by the TPO. In
these circumstances, the DRP observed that each assessment year is an independent assessment year, and the decisions may vary in view of the facts of the
case. We also notice that the DRP has also perused the reasons given by the TPO
and found the same to be sufficient to justify the application of “other method”
using the database having comparables.
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15. At this stage, we are not to scrutinize the direction of the DRP as an
Appellate Court. There are reasons given by the DRP for upholding the action of
the TPO and we cannot analyse the same, while exercising writ jurisdiction. The aforesaid reasoning would have to be tested before the appropriate forum. The factual background would ha ve to be necessarily evaluated by the AO while
framing the assessment order. Therefore, in the instant case, we cannot say that
directions are ‘non-speaking’ and there is a breach of principles of natural justice.
The objections and the material placed by the Petitioner have been examined, but for the reasons noted above, the DRP has taken a different view. Even if we were to assume for the sake arguments that this view is erroneous, we cannot hold it be
an error of jurisdiction. Every error of an authority is not open to judicial review
merely by terming it to be a ‘jurisdictional error’, although the same may, at a later stage, be set aside for being erroneous. Accepting the contention raised by Mr. Vohra would mean that we will have to venture into the fa ctual matrix of the case
and come to a conclusion on whether the findings of the DRP are proper, and
comment on the methodology behind the determination of the ALP. There cannot
be any denying the fact that each assessment year is an independent proceeding and
therefore the factual finding given by the DRP while agreeing with the TPO with regard to the method to be applied for determining the ALP will have to be
examined by the appropriate forum. Further, on the aspect of the Petitioner not
being afforded a n opportunity of hearing, we may only observe that it is not the
case of the Petitioner that a hearing was not held. In fact, the Petitioners have averred that on 1
st December, 2020, the final hearing in the matter was conducted
by Respondent No. 2. The Pe titioner had also filed its written submissions before
Respondent No. 2 on the subject matter, raising the plea of consistency. Besides, detailed submissions on merit, along with the relevant materials have also been
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filed in support thereof. Thus, we cann ot attribute any violation of breach of natural
justice to the DRP on the ground of not affording an opportunity of hearing.

16. With respect to the reliance placed on judgment of this Court in P.D.R.
Solutions FZC (supra), we find that the factual positi on in the instant case is
different. Here the objections of the Petitioner have been considered, however the
same have not found favour with the DRP and the reasons have been given.
Regarding the contention that the impugned directions are in breach of the rule of
consistency which is required to be followed by tax authorities, we can only say
that these aspects are not required to be examined at this stage. The contentions of the Petitioner relating to the factual aspect are certainly required to be considered,
but obviously not by a writ court. The decision of LI and Fung (supra) and
Magneti Marelli ( supra ) relied upon by Mr. Vohra, are judgments rendered by this
Court while deciding appeals under Section 260A of the Act. The principles laid
down therein a re well recognised, however, we are afraid that the said principles or
yardsticks cannot be applied by us while exercising judicial review under Article
226 of the Constitution of India over the directions issued by the DRP. The reliance
by the Petitioner on Karnataka High Court’s decision in GE Technology Centre
(supra ) is also misplaced, as the said case turned on its specific facts. Therein, the
directions issued by the DRP to the AO were struck down in writ appeal on accoun t
of being in excess of the proposal made in the proposed draft order. The same, being a question of excess of jurisdiction, was amenable to judicial review under Article 226, however it offers no assistance to the case sought to be advanced by the Petitio ner herein.
17. We hasten to add that we have not examined the merits of the grounds urged
by the Petitioner and the views expressed hereinabove are only for the purpose of
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deciding the present petition. It shall be open to the Petitioner to raise all ple as
relating to the merits of the case, including those raised herein, while exercising its
statutory remedy, as and when the directions under Section 144C(5) of the Act
ripen into an order or are given effect to, by the AO.

18. In view of the above, we find no merit in the present petition and accordingly
the same is dismissed. No costs.

SANJEEV NARULA, J

RAJIV SAHAI ENDLAW, J
JANUARY 29, 2021
nk
(corrected and released on 10th March, 2021 )
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