TMI Blog2019 (8) TMI 1157X X X X Extracts X X X X X X X X Extracts X X X X ..... )(c) - HELD THAT:- As decided in REHAU POLYMERS PVT. LTD. AND VICE-VERSA [ 2017 (8) TMI 1294 - ITAT PUNE] undoubtedly, the said assessment was framed as draft assessment but in actual fact, the Assessing Officer had made the assessment in the hands of assessee by not only assessing the income but also determining the demand payable. In the case of draft assessment order, proposed additions are to be made and the assessee is show caused either to accept the same or file the objections before the DRP. However, in the present facts, there was not a proposal for making addition but final assessment order was passed. Undoubtedly, the AO said that he is passing draft assessment order and the assessee was also at liberty to file the objections before the DRP or accept the same, but in actual fact, the order passed by the AO was complete assessment order which is not envisaged under section 143(3) r.w.s. 144C. Accordingly, we hold that draft assessment order passed in the case is invalid in law. Thus, the Cross Objection No.2 raised by the assessee is allowed. - ITA No. 714/PUN/2011, CO.No.41/PUN/2011 (Arising out of ITA No. 714/PUN/2011), ITA No. 546/PUN/2014 - - - Dated:- 2-7-2019 - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld. DR did not raise any objections with regard to the submissions made by the Ld. AR of the assessee. 5. That coming to the facts of the case on record regarding issue of Capacity Utilization Adjustment , the assessee has submitted that its capacity utilization during financial year 2004-05 was only 49.53% as compared to the average 69.41% capacity utilization of its comparables. Due to the under-utilization of the capacity, the fixed cost of the assessee have been absorbed by less number of units, thus lowering the net profit by ₹ 299,357,652/- (i.e. 28.65% of the total fixed cost of ₹ 1,044,878,367/-). The assessee thereafter, proposed an adjustment to be made to the operating profit for the amount of under absorption of fixed costs. 6. With respect to the observation made by the ACIT-TP, the assessee submitted that underutilization of capacity directly impacts profitability of the assessee in open market conditions. Towards this, the assessee referred to the CRISIL Automobile Industry report which is on record. Further, the Ld. AR of the assessee before the Ld. Commissioner of Income Tax (Appeals) on the issue submitted as follows: 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lower rate of depreciation. This objection in our opinion is without any substance. The depreciation is required to be worked out under the Indian Companies Act and as provided in the Schedule thereto. Depreciation cannot be computed as per American rules applicable to the parent company. Therefore, Mr. Ostwal was correct in adjusting margin of profit of the taxpayer. Thus, the Hon‟ble ITAT, Pune has also allowed adjustments made by the appellant to its profitability to account for difference and ensure comparability of the entities being compared. 10.6 The appellant has contended that capacity utilization has been a significant contributor to lower margins for the year, this was substantiated by placing before me the comparative analysis vis a vis subsequent years which demonstrated that with increase in the capacity utilization in FY 2004-05, the profits in FY 2004-05 increased and similarly with further increase in capacity utilization in FY 2005-06, the profitability has further improved in FY 2005-06. This substantiated the Appellant‟s claim that there is a direct correlation between profitability and the capacity utilization. 7. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Hon‟ble Bombay High Court in CIT Vs. Petro Araldite (P) Ltd. (supra) had held that while computing the Arm‟s Length Price wherein adjustments need to be made in the hands of the comparables and where there was difference in level of capacity utilization of assessee and level of capacity utilization of the comparables, the adjustment would be required to be made to provide margins of the comparables in terms of Rule 10B(1)(e)(iii) of the Income Tax Rules. Similar is the proposition laid down by the Pune Bench of the Tribunal in Tasty Bite Eatables Ltd. Vs. ACIT (supra.) and Vishay Components Pvt. Ltd. Vs. ACIT (supra.) 21. The Delhi Bench of the Tribunal in DCIT Vs. Class India Pvt. Ltd. has laid down the procedure for computing capacity utilization adjustment under the TNM method. Hence, we hold that the said procedure be applied by the Assessing Officer/ Transfer Pricing Officer to work out the adjustment on account of capacity utilization. We direct accordingly. The Grounds of appeal No.5 and 6 by the Revenue are thus dismissed . Respectfully, following the decision of the Co-ordinate Bench of the Tribunal as referred herein above, we set aside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at issue is set aside to the file of Assessing Officer/ TPO. In view of the matter, we upheld the TPO s observation in excluding three comparables i.e. Force Motors Limited, Hindustan Motors Limited and Kerala Automobiles Limited and accepting only Mahindra Mahindra Limited and Tata Motors Limited. 11. Therefore, the appeal of the Revenue in ITA No.714/PUN/2011 is partly allowed for statistical purposes and cross objection No.41/PUN/2011 of the assessee therefore becomes academic in nature. ITA No.546/PUN/2014 (By Assessee) A.Y.2009-10 12. In ITA No.546/PUN/2014, the assessee has preferred additional grounds of appeal which are as follows: 1. The appellant company submits that on the facts and circumstances of the case and in law, the assessment order dated 12th March, 2013 issued by the learned Assessing Officer is bad in law and void ab initio as the same has been passed in violation of Section 144C of the Income Tax Act, 1961 (hereinafter referred to as the Act‟). 2. The appellant company submits that the learned Assessing Officer erred in issuing the notice of demand u/s.156 and penalty notice u/s.274 r.w.s 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e return of income declaring total income of ₹ 1,77,77,012/-. The case of assessee was selected for scrutiny. The first issue which arises in the present appeal is against notice issued under section 143(2) of the Act. However, without going into the merits of the said issue, we find that the Assessing Officer had made reference under section 92CA(1) of the Act to the Transfer Pricing Officer (TPO) to determine the arm's length price of international transactions undertaken by the assessee. The TPO vide order passed under section 92CA(3) of the Act dated 24.01.2014 applied CUP method and determined the arm's length price of international transactions of payment of service fees at Nil as against ₹ 3,45,55,434/- determined by the assessee. The Assessing Officer passed the draft assessment order under section 143(3) r.w.s. 144C(1) of the Act dated 22.03.2014 and assessed the income at ₹ 9,65,31,058/- on account of adjustment made as per order under section 92CA(3) of the Act and various other additions. The Assessing Officer vide para 11 observed that the income was assessed under section 143(3) r.w.s. 144C(1) of the Act at ₹ 9.65 crores. He also direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to issue draft assessment order proposing to make the addition. However, the Assessing Officer called the said order to be draft assessment order but assessed income in the hands of assessee and further issued demand notice along ITNS-150, after charging interest under sections 234A, 234B 234C, etc. He also initiated penalty proceedings under section 271(1)(c) of the Act. Undoubtedly, the assessee on understanding that the same was draft assessment order, made objections to the DRP, who gave certain directions and thereafter, the Assessing Officer passed an order under section 143(3) r.w.s. 144C(13) of the Act. However, in order to adjudicate the issue raised, we need to make reference to the provisions of section 144C of the Act. 11. We find that similar issue of assessment to be framed under section 143(3) r.w.s. 144C of the Act arose before the Pune Bench of Tribunal in Soktas India (P) Ltd. Vs. ACIT (supra). 12. The Tribunal after noting the facts that the Assessing Officer had passed the order under section 143(3) r.w.s 92CA(3) and 144C of the Act and had also issued demand notice under section 156 of the Act and had also issued notice under section 274 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at since the assessment order passed by the Assessing Officer was final assessment order, it did not have any jurisdiction to issue any directions on such final assessment order. After receiving the DRP‟s order, the assessee filed an application before the Assessing Officer for necessary action. The Assessing Officer in reply, vide letter dated 30.01.2015 stated that the DRP had clearly mentioned that the order passed on 28.02.2014 was final order and not draft order, so the Assessing Officer does not have any jurisdiction over the case. 7. In order to adjudicate the issue, reference needs to be made to the provisions of section 144C of the Act. Under the provisions of section 144C of the Act, it is provided that where the Assessing Officer proposes to make, on or after 01.10.2009, any variation in the income or loss returned, which is prejudicial to the interest of assessee, then the Assessing Officer shall in the first instance forward the draft of the proposed order of assessment to the eligible assessee. Under sub-section (2) of section 144C of the Act on receipt of the draft order, the eligible assessee shall within 30 days of the receipt, file his acceptance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h is prejudicial to the interests of assessee. Only after complying with the conditions laid down in section 144C of the Act, the Assessing Officer is empowered to pass the order under section 143(3) r.w.s. 144C of the Act completing the assessment on such enhanced income or variation in the loss returned by the assessee. 8. The Hon‟ble Madras High Court in the case of Vijay Television Writ Petition Nos.1526 and 1527 of 2014 M.P. Nos.1 and 1 of 2014, it was held that non-passing of draft assessment order after adjustment made by the TPO renders proceedings null void by observing as under:- Under Section 144C(1) of the Act, with effect from 1st October 2009, the Assessing Officer has to mandatorily issue a draft assessment order if there is a proposed variation to the return which are prejudicial to the eligible assessee. The fact that the petitioner is an eligible assessee is not in dispute. While so, under section 144C(2) of the Act, the eligible assessee has the option, either to accept the variation or to file their objections before the DRP and such option has to be exercised within 30 days. On such objections filed by the assessee, the DRP shall i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... demand of ₹ 27,40,71,913/- without giving an opportunity to the assessee under section 144C of the Act, observed that where the Assessing Officer proposes to make on or after 01.10.2009, any variation in the income or loss returned by the assessee, then notwithstanding to the contrary contained in the Act, he shall first pass the draft assessment order, forward the same to the assessee and after assessee files his objections, if any, the Assessing Officer shall complete the assessment within one month, in view of the provisions of section 144C of the Act. It was further observed that the assessee is also given an option to file an objection before the DRP, in which the latter can issue directions for the guidance of Assessing Officer to enable him to complete assessment. Where the Assessing Officer accepted the variation submitted by the TPO without giving the petitioner any opportunity to object to it and pass the assessment order, it was held by the Hon‟ble High Court of A.P that the impugned order of assessment was clearly contrary to section 144C of the Act and was without jurisdiction, null and void. The objection of the Revenue that the Circular No.5/2010 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10. Further, the Hon‟ble Bombay High Court in International Air Transport Association Vs. DCIT (supra) have also down the similar proposition and held as under:- 4. The Petitioner had consequent to the assessment order dated 23rd March 2015 filed its objection in terms of Section 144C(2) of the Act to the Dispute Resolution Panel ( DRP ). By an order dated 7th October, 2015, the DRP refused to pass any direction on the objections because the objections had been filed in respect of a final order under Section 143(3) of the Act and not in respect of the draft assessment order passed under Section 144C(1) of the Act. The order dated 7th October, 2015 of the DRP holds that its jurisdiction is only to entertain objections with regard to draft assessment order passed under Section 144C(1) of the Act. 5. However, it is pertinent to note that the order dated 7th October, 2015 of the DRP in paragraph (3) thereof records that There is no dispute that the assessee is a foreign company . This position is undisputed even before us. Therefore, in view of Section 144C(15) of the Act which defines eligible assessee to whom Section 144C(1) of the Act applies to inter alia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llized the demand in the case of assessee. Whereas, as per the provisions of the Act where the Assessing Officer proposes to vary the income in the hands of assessee, there was requirement to issue show cause notice to the assessee to the said additions, by way of draft assessment order. The demand does not get crystallized in draft assessment order. Undoubtedly, the Assessing Officer had issued covering letter where it says that it is draft assessment order but in spirit, it had finalized the assessment, wherein the demand was crystallized and demand notice was issued to the assessee. The Assessing Officer has not followed the correct procedure as provided in the Statute and has passed final assessment order without passing draft assessment order which is against the provisions of the Act and hence, the same is invalid in law. Reliance is placed on the ratio laid down by the Hon‟ble Bombay High Court in International Air Transport Association Vs. DCIT (supra) and the Hon‟ble Madras High Court in Vijay Television Pvt. Ltd. Vs. DRP Others (supra) and the Hon‟ble High Court of Andhra Pradesh in M/s. Zuari Cements Ltd. Vs. ACIT (supra). We hold that the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
