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2019 (10) TMI 394

..... failed to follow the mandate of the provisions of section 144C whereby he was required to pass a draft assessment order which is mandatory and is prescribed by the statute, the final assessment order passed by the Assessing Officer u/s 143(3) r/w 144C is without jurisdiction. Further, the issuance of a show-cause notice cannot be equated and treated as a draft assessment order as the same would make the provisions of section 144C redundant. Accordingly, we quash and set aside the impugned assessment order. The ground no. 1 of assessee’s appeal is thus allowed. - ITA No. 169/JP/2019 - 3-10-2019 - Shri Sandeep Gosain, JM And Shri Vikram Singh Yadav, AM For the Assessee : Shri Manish Agarwal (CA) For the Revenue : Sh. Bhanwar Singh (JCIT) ORDER PER: VIKRAM SINGH YADAV, A.M. This is an appeal filed by the assessee against the order of ld. CIT(A)-1, Jaipur dated 14.12.2018 wherein the assessee has taken the following grounds of appeal:- 1. On the facts and in the circumstances of the case, ld.CIT has grossly erred in confirming the action of ld.AO in passing the impugned order u/s 143 r.w.s.144C of the Income Tax Act, 1961 directly without passing a draft proposed order of assessm .....

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..... han 180 days in the year of purchase, is merely clarificatory in nature. The disallowance thus made deserves to be deleted. 2. Briefly stated, the facts of the case are that the assessee is engaged in the business of manufacturing, erection, repair and sale of Power Transformers and parts thereof. It filed its return of income on 19.11.2014 declaring total income of ₹ 3,74,92,000/-. Subsequently, the matter was selected for scrutiny by issuance of notice u/s 143(2) of the Act and reference was made to the Transfer Pricing Officer u/s 92CA(3) for determination of Arms Length Price in respect of domestic transactions with Associated Enterprises during the Financial Year 2013-14 relevant to impugned assessment year 2014-15. 3. The TPO passed the order u/s 92CA(3) on 30.06.2017 wherein he has proposed an adjustment of ₹ 1,31,425/- to the income of the assessee being the excess interest paid to related parties above the arms length price. On receipt of the TPO s order, the AO vide letter 20.07.2017 issued a show cause notice to the assessee as to why adjustment so proposed by the TPO should not be made. However, no reply was furnished by the assessee company in this regard. .....

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..... 0 basis points). The appellant contended that the bank rates were varying from 13.15% to 14.75% and interest payment @ 15% to the related parties which is just above the normal rate by 0.85% to 0.25% should be regarded as unreasonable. However, there is no force in the contention made by the appellant. The TPO has adopted the ALP rate based on prime lending rate of the SBI which appears to be reasonable and justified. No interference is called for in the assessment order on this account and the addition made by the AO is sustained. 5. Against the aforesaid findings of the ld. CIT(A), the assessee is in appeal and in ground No. 1 has challenged the legality of the assessment order passed by the AO without providing the draft of the proposed order of an assessment in terms of section 144C of the Act. 6. In this regard, the ld. AR submitted that since the assessee had transactions with Associated Enterprise ("AE") within the meaning of section 92A of the Act during the year, a reference was made by ld. AO to ld. TPO for determination of Arm's Length Price of such transactions. Order of ld. TPO was received by the ld.AO, wherein interest payable by the assessee to its AE& .....

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..... t, and deserves to be quashed. 9. It was further submitted by the ld AR that the law requires ld. AO to pass a draft order and communicate the same to the assessee to enable it to file the objections within a specified time period before the DRP. And if the assessee has not filed any objections within the specified time before the DRP, the AO can pass the final order. Whereas in the case of the assessee, ld.AO made the additions towards the adjustments suggested by ld.TPO merely by stating that the assessee did not filed any reply to the show cause notice issued which view is further concurred by Ld. CIT(A) while holding the assessment order as valid. 10. It was further submitted by ld AR that passing a draft order is not merely a procedural requirement, which is curable u/s 292BB of the Act, the statute requires the AO to pass a draft order, as the requirement is mandatory and give substantive rights to the assessee to object to any adjustments made by TPO before they are incorporated in the final order. Further the Assessing officer is expected to pass the order of assessment in terms of such directions issued by the DRP (Dispute Resolution Panel) without giving any further heari .....

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..... issuance of a draft order which is a sine qua non before the Assessing Officer can pass a regular assessment order u/s 143(3) of the Act. It is not in dispute that in the instant case, the AO has made an addition based on the ALP adjustment proposed by the TPO and has thus made a variation in the income returned which is prejudicial to the interest of such assessee. 16. During the course of hearing, in order to determine whether draft assessment order was prepared and furnished to the assessee by the AO or not, the assessment records were called for. Thereafter, at the hearing scheduled on 12.04.2018, the assessment records were produced by the ld DR and on perusal of the same, it is noted that there is nothing on record in terms of draft assessment order which was prepared and furnished to the assessee and further, there is no entry which has been recorded in the order sheet to this effect that draft assessment order was prepared and furnished to the assessee. Therefore, it is a undisputed fact that in the instant case, there was no draft assessment order which was prepared and furnished to the assessee as contemplated under section 144C(1) of the Act. 17. We have also carefully p .....

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..... ection 144C is unambiguous and sub-section (1) of section 144C clearly provides for issuance of a draft order which is a sine qua non before the Assessing Officer can pass a regular assessment order u/s 143(3) of the Act. 19. In this regard, we refer to the decision of the Co-ordinate Bench in the case of Capsugel Healthcare Ltd vs. ACIT (supra) wherein the facts of the case are identical and ratio thereof equally applies in the instant case. In that case, certain transfer pricing adjustment under section 92CA(1) was made to the income of the assessee. However, the Assessing Officer did not furnish to the assessee a draft assessment order, before passing a final assessment order. On appeal before the ld CIT(A), the assessee raised its grievance of not being furnished a draft assessment order. The ld CIT(A) rejected this grievance and observed that in the instant case, after receipt of the order passed by TPO, the Assessing Officer issued a show cause notice proposing to make additions as per the adjustments made by the TPO. In response to this, the assessee instead of filing objections, if any, with the DRP and the Assessing Officer had simply filed a brief note before the Assessin .....

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..... n opportunity of hearing on 12.04.2013. Subsequently, the second respondent realised the mistake in passing a final order instead of a draft assessment order which resulted in issuing a corrigendum on 15.04.2013. In the corrigendum it was only stated that the order passed on 26.03.2013 under Section 143C of the Act has to be read and treated as a draft assessment order as per Section 143C read with Section 93CA (4) read with Section 143 (3) of the Act. In and by the order dated 15.04.2013, the second respondent granted thirty days time to enable the assessee to file their objections. On receipt of the corrigendum dated 15.04.2013, the petitioner company approached the first respondent, but the first respondent declined to issue any direction to the assessment officer on the ground that the first respondent has got jurisdiction only to entertain such an appeal if the order passed by the second respondent is a pre-assessment order. 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 fir .....

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..... se, the Honourable Supreme Court also held that there is a distinction between an order which is a nullity and an order which is irregular and illegal. Where an authority making order lacks inherent jurisdiction, such an order will be null and void ab initio, as the defect of jurisdiction goes to the root of the matter and strikes at his very authority to pass any order and such a defect cannot be cured even by consent of the parties. 24. This decision squarely applies to the facts of this case. In this case, the order passed by the second respondent lacks jurisdiction especially when it is beyond the period of limitation prescribed by the statute. When there is a statutory violation in not following the procedures prescribed, such an order cannot be cured by merely issuing a corrigendum. 25. In the decision rendered by the Honourable Supreme Court of India in the case of (L. Hazari Mal Kuthiala (supra), which was relied on by the learned standing counsel for the respondents, it was held that the mistake or defect on the part of the Commissioner to consult the Central Board of Revenue did not render his order invalid since the provision about consultation in terms of Section 5 (3) .....

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..... racted hereunder:- "Certainly passing an order of assessment under Section 158BC instead of Section 158BD (inspite of clear terminology used in both the sections) would not amount to a mistake, a defect or an omission, much less a curable one. When different contingencies are dealt with under different sections of the Act, allowing an illegality to be perpetrated and then taking a plea by the Revenue that such an action adopted on their part would not nullify the proceedings, cannot be appreciated since by virtue of such actions, the Revenue has attempted to nullify the scheme of things of limitations legally propounded under the Act...." 29. In yet another decision of the Division Bench of this Court in the case of Smt. R.V. Sarojini Devi (supra), which was relied on by the learned senior counsel for the petitioners, it was held as follows:- "Under Section 158BC of the Act empowers the assessing officer to determine the undisclosed income of the block period in the manner laid down in Section 158BB and 'the provisions of Section 142, subsections (2) and (3) of Section 143, Section 144 and Section 145 shall, so far as may be apply. This indicates that this clause .....

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..... ribed in sub-section (1) of S.144C, the Assessing Officer is mandated to first pass a draft assessment order, communicate it to the assessee, hear his objections and then complete assessment. Admittedly, this has not been done and the respondent has passed a final assessment order dated 22.12.2011 straight away. Therefore, the impugned order of assessment is clearly contrary to S.144C of the Act and is without jurisdiction, null and void. The contention of the Revenue that the circular No.5/2010 of the CBDT has clarified that the provisions of S.144C shall not apply for the assessment year 2008-09 and would apply only from the assessment year 2010-2011 and later years is not tenable in as much as the language of Sub-section (1) of Section 144C referring to the cut off date of 01.10.2009 indicates an intention of the legislature to make it applicable, if there is a proposal by the Assessing Officer to make a variation in the income or loss returned by the assessee which is prejudicial to the assessee, after 01.10.2009. Therefore, this particular provision introduced by Finance (No.2) Act, 2009, would apply if the above condition is satisfied and other provisions, in which similar co .....

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..... 26.03.2013 of the second respondent can only be termed as a final order and in such event it is contrary to Section 144C of the Act. As mentioned supra, in and by the order dated 26.03.2013, the second respondent determined the taxable amount and also imposed penalty payable by the petitioner. According to the learned senior counsel for the petitioners, even as on this date, the website of the department indicate the amount determined by the second respondent payable by the company inspite of issuance of the corrigendum on 15.04.2013 as a tax due amount. Thus, while issuing the corrigendum, the second respondent did not even withdraw the taxable amount determined by him or updated the status in the website. In any event, such an order dated 26.03.2013 passed by the second respondent can only be construed as a final order passed in violation of the statutory provisions of the Act. The corrigendum dated 15.04.2013 is also beyond the period prescribed for limitation. Such a defect or failure on the part of the second respondent to adhere to the statutory provisions is not a curable defect by virtue of the corrigendum dated 15.04.2013. By issuing the corrigendum, the respondents canno .....

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