TMI Blog2019 (5) TMI 532X X X X Extracts X X X X X X X X Extracts X X X X ..... .03.2016 is the regular / final order of assessment for Assessment Year 2012-13, in form and substance and shall be treated as such. In regard to the question of what is the impact of an assessment order being directly issued in a situation in which the assessee is an eligible assessee who ought to have been issued / served with a draft order of assessment, as per the requirements of the provisions of section 144C(1) r.w.s. 144C(15)(b), we find that this issue has been considered and decided in several judicial pronouncements cited by the assessee. Where there is an omission on the part of the AO to follow the mandatory procedures laid down and prescribed by the Act, such an omission cannot be termed as a mere procedural irregularity and is not curable. The principles enunciated in the above judicial pronouncements have been followed by Tribunals in decisions cited by the assessee. We are also of the considered view that the above principles apply squarely to the facts of the case on hand. In the case on hand, the assessee was entitled to receive a draft order of assessment, but it is absolutely clear from the unimpeachable facts on record that the AO did not follow the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt Year 2012-13 under section 143(3) r.w.s. 92CA of the Act dated 24.03.2016 wherein the assessee s income was determined at ₹ 6,36,02,040/-; which included the transfer pricing adjustment of ₹ 6,31,12,225/-. The AO also determined the tax payable by the assessee at ₹ 2,95,37,104/-. This order of the AO was titled as Draft Assessment Order . This order dated 24.03.2016 was sent to the assessee by registered post, with an acknowledgment slip (copy placed on record), which also mentioned draft order under section 143(3) r.w.s. 92CA with DN 271(1)(c) . The order dated 24.03.2016 was received by the assessee on 31.03.2016. Along with the order dated 24.03.2016, notice of demand under section 156 of the Act was received by the assessee raising demand of ₹ 2,95,37,104/- as was stated in the order and also notice under section 274 r.w.s. 271 of the Act for initiating penalty proceedings under section 271(1)(c) of the Act. The assessee vide letter dated 15.04.2016 (copy placed at pages 165 to 178 of paper book) put forth its reply to the AO in respect of the notice under section 274 r.w.s. 271 of the Act dated 24.03.2016 issued for initiation of penalty proceeding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b. The learned AO has erred in not complying with the provisions of Section 144C of the Act wherein it is stated that The Assessing Officer shall, notwithstanding anything to the contrary contained in this Act, in the first instance, forward a draft of the proposed order of assessment (hereafter in this section referred to as the draft order) to the eligible assessee if he proposes to make, any variation in the income or loss returned which is prejudicial to the interest of such assessee . c. The learned AO has erred in passing order under Section 143(3) of the Act along with notice of demand under section 156 of the Act and penalty notice under Section 274 read with Section 271(1)(c) of the Act without invoking the provisions of the Section 144C of the Act. d. Learned AO/CIT(A) ought to have appreciated that: The above mentioned assessment order issued by the learned AO without invoking the provisions of section 144C is null and void in the eyes of law; The assessee has been deprived of its statutory right to approach the Dispute Resolution Panel (hereinafter referred to as DRP) and get directions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed while applying TNMM as the MAM to eliminate the material difference between the Assesse and the comparable companies. II. Not appreciating that the foreign exchange gain of the Company should be treated as an operating income for the purpose of the transfer pricing analysis. III. Carrying out erroneous working capital adjustment while undertaking the transfer pricing analysis. IV. Erroneously considering the segmental results of AE and Non AE operations while proposing the transfer pricing adjustment. V. Erroneously considering the service revenue from AE while proposing the transfer pricing adjustment. VI. Not applying multiple year/prior year data for comparable companies while determining arm's length price. VII. Applying a threshold of 75% for the export earning filter against a more rationale threshold of 25% VIII. Considering 25 percent as the threshold limit for the Related Party Transactions ( RPT ) filter as this number is an arbitrary number. Without prejudice to the other arguments of the Company, the learned AO/learned TPO err ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o; particularly when; not only the notice of demand under section 156 of the Act raising tax demand of ₹ 2,95,37,100/- consequent to the passing of regular order of assessment is issued to the assessee; penalty proceedings under section 271(1)(C) of the Act have been initiated by simultaneously issue of notice under section 274 r.w.s. 271(1)(C) of the Act dated 24.03.2016, but also when the order of assessment so issued is in form and substance a regular assessment order. Therefore, the issue which is to be decided by us is whether the order of assessment for Assessment Year 2012-13 passed on 24.03.2016 in the case on hand is only a draft assessment order or a final / regular order of assessment. 5.1.2 The legal position in respect of the passing of a draft order of assessment is covered / laid out in section 144C of the Act. Section 144C(1) of the Act reads as under: The Assessing Officer shall, notwithstanding anything to the contrary contained in this Act, in the first instance, forward a draft of the proposed order of assessment (hereinafter in this section referred to as the draft order) to the eligible assessee if he proposes to make, on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he demand on the assessee by issue of notice of demand under section 156 of the Act, requiring the assessee to pay the demand raised and make entries to this effect in the website / records of the Department (copy placed at page 205 of Paper Book). Therefore, in our view, Revenue s plea that the order dated 24.03.2006 is a Draft Assessment Order , as mentioned therein, and the issuance of the Notice of Demand under section 156 of the Act is a curable mistake cannot be accepted. Further, it is seen from the order dated 24.03.2016 that notice initiating penalty proceedings under section 271(1)(c) of the Act was also issued to the assessee, which ought not to be issued if the said order was a draft order of assessment. It has also been pointed out by the learned AR for the assessee that, if the impugned order dated 24.03.2016 was intended to be a draft order of assessment, the AO would have forwarded the same to the assessee with a covering letter informing the assessee of the same and requiring the assessee to file its objections thereto, if any, before the DRP; as was done in the assessee s own case for the subsequent Assessment Year 2013-14 (copy of the Draft order of assessment f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich the assessee is an eligible assessee who ought to have been issued / served with a draft order of assessment, as per the requirements of the provisions of section 144C(1) r.w.s. 144C(15)(b) of the Act, we find that this issue has been considered and decided in several judicial pronouncements cited by the assessee. We find that in an identical case, the Division Bench of the Hon ble Andhra Pradesh High Court, in the case of Zuari Cement Ltd., Vs. ACIT in W.P. No.5517 of 2012 dated 21.02.2013, has explained the scope of the validity of the demand notice issued by the AO, as under:- We have noted the contentions of the respective parties. S.144C of the Act was introduced by the Finance (No.2) Act, 2009 and sub-sections (1) to (8) thereof states: 144C. Reference to Dispute Resolution Pane. - (1) The Assessing Officer shall, notwithstanding anything to the contrary contained in this Act, in the first instance, forwarded a draft of the proposed order of assessment (hereafter in this section referred to as the draft order) to the eligible assessee if he proposes to make, on or after the day of October, 2009, any variation i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns proposed in the draft order so, however, that it shall not set aside any proposed variation or issue any direction under subsection (5) for further enquiry and passing of the assessment order. A reading of the above section shows that if the Assessing Officer proposes to make, on or after 01.10.2009, any variation in the income or loss returned by an assessee, then, notwithstanding anything to the contrary contained in the Act, he shall first pass a draft assessment order, forward it to the assessee and after the assessee files his objections, if any, the Assessing Officer shall complete assessment within one month. The assessee is also given an option to file objections-before the Dispute-Resolution Panel in which event the latter can issue directions for the guidance of the Assessing Officer to enable him to complete the assessment. In the case of the petitioner, admittedly the TPO suggested an adjustment of ₹ 52.14 crores u/s.92CA of the Act on 20.09.2011 and forwarded it to the Assessing Officer and to the assessee under sub-section (3) thereof. The Assessing Officer accepted the variation submitted by the TPO without giving the petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the CBDT (Ratan Melting and Wire Industries Case (1 supra), Indra Industries (2 supra). The Revenue has not been able to persuade us to take a contra view by citing any authority. In this view of the matter, we are of the view that the impugned order of assessment dt.23.12.2011 passed by the respondent is contrary to the mandatory provisions of S.144C of the Act and is passed in violation thereof. Therefore, it is declared as one without jurisdiction, null and void and unenforceable. Consequently, the demand notice dated 23.12.2011 issued by the respondent is set aside. Revenue s Special Leave Petition (SLP), filed against the aforesaid order of the Hon ble Andhra Pradesh High Court in the case of Zuari Cements Ltd., (supra), before the Hon ble Apex Court was dismissed vide order CC 16694/2013 dated 27.09.2013. 5.3.2 We also find that this issue has been decided in the case of Vijay Television (Pvt.) Ltd., Vs. Dispute Resolution Panel, Chennai (2014) 369 ITR 113 (Mad), wherein the Hon ble Madras High Court has, inter alia, at paras 20 to 24 thereof has held / observed as under: 20. Under Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. Therefore, it is evident that the first respondent declined to entertain the Objections raised by the petitioner company on the ground that the order passed by the second respondent is not a draft assessment order, rather it is a final order. Thus, the first respondent had treated the order dated 26.03.2013 of the second respondent as a final order and therefore it refused to entertain the objections filed on behalf of the petitioner company. 22. As mentioned supra, as per Section 144C (1) of the Act, the second respondent-assessing officer has no right to pass a final order pursuant to the recommendations made by the TPO. In fact, the second respondentassessing officer himself has admitted by virtue of the corrigendum dated 15.04.2013, the order dated 26.03.2013 is only a final order and it was directed to be treated as a draft assessment order. In this context, it is worthwhile to refer to the decision of the Honourable Supreme Court in decision Deepak Agro Foods (supra) wherein in Para No.10, the Honourable Supreme Court discussed as to when an order could be construed as a final order:- 10. Shri Rajiv Dut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on ble Madras High Court, following the decision of the Hon ble Andhra Pradesh High Court in the case of Zuari Cements Ld., (supra), held as under: 31. In identical case as that of the case on hand, the Division Bench of the Andhra Pradesh High Court. in an unreported decision, had an occasion to consider the scope of the validity of the demand notice issued by the assessing officer in the case of Zuari Cement Ltd. (supra), wherein it was held as under:- A reading of the above section shows that if the assessing officer proposes to make, on or after 01.10.2009, any variation in the income or loss returned by an assessee, then, notwithstanding anything to the contrary contained in the Act, he shall first pass a draft assessment order, forward it to the assessee and after the assessee files his objections, if any, the assessing officer shall complete assessment within one month. The assessee is also given an option to file objections before the Dispute Resolution Panel in which event the latter can issue directions for the guidance of the Assessing Officer to enable him to complete the assessment. In the case of the petitioner, admi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly the understanding of the Board/Central Government of the statutory provisions, but it will not bind this Court or the Supreme Court. It cannot interfere with the jurisdiction and power of this Court to declare what the legislature says and take a view contrary to that declared in the circular of the CBDT (Ratan Melting and Wire Industries Case (1 Supra), Indra Industries (2 supra). The Revenue has not been able to persuade us to take a contra view by citing any authority. In this view of the matter, we are of the view that the impugned order of assessment dated 23.12.2011 passed by the respondent is contrary to the mandatory provisions of S.144C of the Act and is passed in violation thereof. Therefore, it is declared as one without jurisdiction, null and void and unenforceable. Consequently, the demand notice dated 23.12.2011 issued by the respondent is set aside. 32. As against this order of the Division Bench of the Andhra Pradesh High Court, the Revenue went on appeal before the Honourable Supreme Court. The record of proceedings of the Supreme Court indicate that he Special Leave Petition was dismissed on 27.09.2013. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atory procedures laid down and prescribed by the Act, such an omission cannot be termed as a mere procedural irregularity and is not curable. We find that the principles enunciated in the above judicial pronouncements have been followed by Tribunals in decisions cited by the assessee. We are also of the considered view that the above principles apply squarely to the facts of the case on hand. In the case on hand, as discussed above, the assessee was entitled to receive a draft order of assessment, but it is absolutely clear from the unimpeachable facts on record that the AO did not follow the procedure mandated in the Act, thereby rendering the impugned order dated 24.03.2016 for Assessment Year 2012-13 invalid. Issue of the subsequent order dated 24.05.2016 cannot cure the violation of the statutory mandate laid down in the Act in this regard. 5.4 Per contra, the learned DR submits that the aforesaid mistakes of the AO are at best procedural lapses and that the matter should, therefore, be restored to the file of the AO for adjudication de-novo. In this regard, the learned DR referred to the decision of the Hon ble Karnataka High Court in the case of Rinki Chakrabor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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