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2019 (10) TMI 394

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..... erein 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 assessment by ignoring the provision of clause (1) to sec 144C. Appellant prays that the assessment order so passed without making a draft order and without affording opportunity to the assessee to file objections if any, is in violation of specific provisions of law, deserves to be held bad in law and is liable to be quashed. Without prejudice to above and in the alternate; 2 On the facts and in the circumstances of the case and in law, ld. CIT(A) has grossly erred in confirming the disallowance of interest paid of ₹ 1,31,425/- made by 1d.A0 without considering the submissions/ explanations filed in respect of Associates Enterprises, merely on the basis of the order of TPO passed u/s 92C(3) of the Act. 2.2 That the Id. CIT(A) has further erred in not considering the fact that the assessee had paid interest @ 13% on funds borrowed from banks, and thus a payment of interest @15% .....

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..... e 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. The AO accordingly made an addition of ₹ 1,31,425/- to the returned income as proposed by the TOP in his order u/s 92CA(3) of the Act. Further, the AO disallowed certain expenses amounting to ₹ 5 lacs and also disallowed the additional depreciation claimed by the assessee amounting to ₹ 8,42,792/- and therefore, as against the returned income of ₹ 3,89,66,220/-, the assessed income was determined at ₹ 3,89,66,220/- by passing an order u/s 143(3) read with section 144C of the Act dated 15.12.2017. Along with the assessment order, a notice of demand was issued u/s 156 raising a demand of ₹ 7,76,010. Separately, penalty proceedings u/s 271(1)(c) were also initiated for furnishing of inaccurate particulars of income. 4. Being aggrieved, the assessee carried the matter in appeal before the ld. CIT(A) and one of the ground raised was relating to p .....

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..... s 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's was determined at ₹ 7,77,043/- as against ₹ 9,08,468/- claimed in the profit and loss account. However, ld. AO did not pass the draft assessment order incorporating the adjustments made in the income as per the order u/s 92CA of the TPO as required u/s 144C. The AO during the assessment proceedings issued a show cause notice to explain the difference in the interest so claimed and then directly passed the final order u/s 144C of the Act by making addition of the amount of adjustment made by the ld. TPO in the order passed u/s 92CA of the Act. 7. It was submitted by the ld AR that the order so passed is absolutely bad in law as the same was not made in accordance with provisions of clause (1) of sec 144C, which requires that AO should pass a draft assessment order, proposing the adjustments (if any) sought to be made to the returned income of the assessee to g .....

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..... d 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 hearing to the assessee. Thus at the level of Assessing Officer, the directions of the DRP would bind even the assessee. Such opportunity cannot be taken away by treating it as purely procedural in nature. This contention of the assessee derives support from the following: • Zuari Cement Limited vs. Assistant Commissioner of Income Tax -WP(C) No. 5537/2012, DB of AP High Court. • Vijay Television Private Limited vs. DRP-2014 (6) TMI 540-Madras High Court • Turner International India Private Limited vs. Deputy Commissioner of Income Tax -2017 (5) TMI 991- Delhi High Court • Capsugel Healthcare Ltd vs. ACIT ([2014] 50 taxmann.com 324 (Delhi- Trib.) • CIT vs. C-Sam (India) Private Limited-2017 (8) TMI 291- Gujarat High Court 11. It was finally submitted that the assessment order passed u/s 143 r.w.s. 144C, without affording opportunity to the assessee to objec .....

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..... 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 perused the assessment order passed under section 143(3) of the Act dated 18.02.2015. It is a regular assessment order in form and in substance. Along with assessment order, a notice of demand u/s 156 vide entry in D&CR No. 104/20 dated 18.02.2015 was raised wherein an amount of ₹ 38,98,400/- was determined as payable by the assessee. Separately, the penalty proceedings u/s 271(1)(c) were also initiated for furnishing of inaccurate particulars of income and a notice u/s 274 read with section 271 dated 18.02.2015 was issued to the assessee company. It is therefore a case where not only that income has been finally determined by the AO computed, the tax payable thereon has also been computed and demand entries are made on the basis of this order in the D&CR register and even penalty proceedings are initiated. Such an exercise could not have been done if the assessme .....

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..... ceipt 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 Assessing Officer giving a gist of the basis of adjustments made by the TPO with the remark that the explanation may be put on record for further reference. The show cause notice issued by the Assessing Officer was nothing but a draft assessment order as no other additions had been made by the Assessing Officer apart from the adjustments made by the TPO. If the assessee had any objections on the proposed additions by the Assessing Officer, it should have filed such objections within 30 days before the DRP and the Assessing Officer. However, since the assessee had not filed any objections before the DRP and the Assessing Officer his contentions in this regard were not tenable. On appeal, the Coordinate Bench held as under: 7. We find that the issue is covered is now covered in favour in of the assessee by judgment of Hon'ble Madras High Court, in the case of Vijay Television (P.) L .....

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..... ed 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 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 respondent-assessing officer himself has admitted by virtue of the corrigendum dated 15.04.2013, that 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 the 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 Dutta, .....

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..... 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) of Patiala Act was merely directory and not mandatory. In the present case, the procedure that was required to be followed by the second respondent to pass a draft assessment order is mandatory and it is prescribed by the statute. Therefore, this decision relied on by the learned standing counsel for the respondents cannot be made applicable to this case. 26. The learned senior counsel for the petitioners relied on the decision of the Allahabad High Court in the case of Shital Prasad Kharag Prasad (supra) wherein the Division Bench of the Allahabad High Court held that a notice contemplated under Section 148 of the Income Tax Act is a jurisdictional notice and it is not curable by issuing a notice under Section 292 B of the Act, if it was not served in accordance with the provisions of the Act. 27. Similarly, the Division Bench of this Court in the decision in the case of V. R .....

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..... C 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 enables the Assessing Officer, after the return is filed, to complete the assessment under Section 143 (2) by following the procedure like issue of notice under Section 143 (2)/142. This does not provide accepting the return as provided under Section 143 (1) (a). The Officer has to complete the assessment order under Section 143 (3) only. If an assessment is to be completed under Section 143 (3) read with Section 158BC, notice under Section 143 (2) should be issued within one year from the date of filing of the block return. Omission on the part of the assessing officer to issue notice under Section 143(2) cannot be a procedural irregularity and is not curable." 30. It is evident from the above decision of the Division Bench of this Court that where there is an omission on the part of the assessing officer to follow the mandatory procedures prescribed in the Act, such an .....

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..... 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 contrary intention is not indicated, which were introduced by the said enactment, would apply from 01.04.2009 i.e., from the assessment year 2010-2011. It is not disputed that the memorandum explaining the Finance Bill and the Notes and clauses accompanying the Finance Bill which preceded the Finance (No.2) Act, 2009 clearly indicated that the amendments relating to S.144C would take effect from 01.10.2009. In our view, the circular No.5/2010 issued by the CBDT stating that S.144C(1) would apply only from the assessment year 2010-2011 and subsequent years and not for the assessment year 2008-09 is contrary to the express language in S.144C(1) and the said view of the Revenue is unacceptable. The circular may represent only 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 .....

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..... 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 cannot be allowed to develop their own case. Therefore, following the order passed by the Division Bench of the Andhra Pradesh High Court, which was also affirmed by the Honourable Supreme Court by dismissing the Special Leave Petition filed thereof, on 27.09.2013, the orders, which are impugned in these writ petitions are liable to be set aside. 8. Learned Departmental Representative, on the other hand, submits that this lapse on the part of the Assessing Officer is at best a procedural lapse and the matter should, therefore, be restored to the file of the Assessing Officer for adjudication de novo. 9. We are, however, unable to see any legally sustainable merits in the stand so taken by the learned Departmental Representative. Hon'ble High Court's esteemed views, as extracted above, bind us and we have to respectfully follow the same. Accordingly, in due deference to this .....

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