TMI Blog2019 (3) TMI 1783X X X X Extracts X X X X X X X X Extracts X X X X ..... alidity of the Draft Assessment Order: 2.For that the Learned Dispute Resolution Panel erred in holding the Draft Assessment Order passed by the Learned Assessing officer as valid, in-spite of such order being passed in violation of the procedure laid down u/s 144C of the Act. 3.For that the Learned Dispute Resolution Panel erred in holding the Draft Assessment Order passed by the Learned Assessing officer as valid without considering the fact that the AO has issued a demand notice u/s 156 and a notice u/s 271 (1)(c) of the Act along with such 'Draft Assessment Order'. Validity of the Final Assessment Order: 4.For that the Final Assessment Order dated 20-09-2018 passed by the Learned Assessing Officer served on the assessee on 10-11-2018 is time-barred as per section 144C(13) and hence the same is not valid . Since the above grounds questions the very validity of the assessment, these are considered first. 3. Ld. Counsel for the assessee submitted that assessee had received an order dated 29.12.2017 which was captioned as draft assessment order. However, as per the ld. Authorised Representative, in reality, this was the final assessment order since ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n around and say that the final assessment order was invalid due to a mistake in the draft assessment order, which was curable under Section 292B of the Act. 5. We have considered the rival contentions and perused the orders of the authorities below. There is no dispute that the order dated 29.12.2017 passed by the ld. Assessing Officer was captioned as a draft assessment order. Paras 2 to 8 of the said order is reproduced hereunder:- In this case, the assessee entered into specified domestic transactions with associated enterprises of value of H30,59,92,082/-. One of the reasons for selections of the assessee s case for scrutiny was large domestic transactions. Since the scrutiny of assessee s case was covered under transfer pricing risk parameters in respect of specified domestic transactions, this case was referred to Transfer Pricing Officer with prior approval of the Principal Commissioner of Income Tax, Chennai-9, Chennai as per Boards Direction. Subsequently, the Transfer Pricing Officer has passed an order u/s.92CA of the Income Tax Act, 1961 dated 31.10.2017, vide F.No.C-116/TPO-1(1)/A.Y. 2014-15, in which the Transfer Pricing Officer has stated the following:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ods and accordingly, we are currently not in a position to present the suppliers for confirmation and for your personal verification. The goods are supplied on credit and later on payments are made. The closing balances of these suppliers are as follows:- Suppliers Closing Balance (Amount in H M/s. Sambhav Distributors 10,995,585.00 M/s.Siddarth Industrial Suppliers, 9,847,198.00 M/s. Rishab Enterprises 4,005,720.00 M/s. Kuber Enterprises 65,766,323.98 However, we wish to state that the balances as stated above are not correct balances and are subject to adjustments and reconciliations. At the instances of those suppliers and on instructions of their agents, goods were supplied by our concern to various parties on credit. The ex-accountant who is not currently with the concern has erroneously debited the various parties to whom the sales were made for the goods supplied. Payments from many of these debtors are still pending as on date for the reason that the said debate would have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re might not be TDS deduction for those charges. 7. It is seen from the records that the assessee has claimed traveling expenses of H1,29,750/-. The assessee was asked to furnish the relevant details in this regard and the assessee has submitted copy of travels bills. On going the travel bills, it is seen that the following bills are not related to the assessee. Sl.No. Invoice/ Date Bill raised in the name of Bill Amount Remarks 1 0927/11.07.13 Manoj Lalith 16,200 Not related to the assessee 2 0940/16.07.13 Manoj Lalith 14,600 --do-- 3 1585/19.09.13 Lalit/Pinky 16,100 --do-- 4 2014/05.11.13 Ankita Kumari 5,500 Bill for 11,000/raised both in the name of the assessee and Ankita Kumari. Hence, 50% disallowed. 5 2126/16.11.13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 144C(1) of the Act has to be followed. Not following the said mandate in our opinion cannot be considered as a curable mistake. Section 292B of the Act which has been relied upon by the ld. Departmental Representative is reproduced hereunder:- Return of income etc, not to be invalid on certain grounds:- No return of income, assessment, notice, summons or other proceeding furnished or made or issued or taken or purported to have been furnished or made or issued or taken in pursuance of any of the provisions of this Act shall be invalid or shall be deemed to be invalid merely by reason of any mistake, defect or omission in such return of income, assessment, notice, summons or other proceeding if such return of income, assessment, notice, summons or other proceeding is in substance and effect in conformity with or according to the intent and purpose of this Act . Having issued a demand notice, computed the income and initiated penal proceedings, we cannot say that order captioned as draft assessment order was in substance and effect only a draft assessment order. It was in substance and effect the final assessment order. Thus the mandatory requirements under Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s unsustainable. 7. Ld. DR for the Revenue on the other hand relied on the orders of the lower authorities below on this legal issue and stated that there is no merit in the plea of Ld. AR for the assessee. 8. We heard both the sides and perused the orders of the Revenue and the Tribunal order in the case of M/s. Eaton Industrial Systems Pvt. Ltd. (supra). On perusing the same, we find the facts in the case of sister concern of the assessee above are identical. The Tribunal discussed the issue elaborately relying on various decisions and allowed the appeal of the assessee. Contents of Para No.9 to 12 are relevant in this regard. We find the additional grounds raised by the assessee are covered by the said order of the Tribunal. For the sake of completeness, relevant findings of the Tribunal are extracted here as under : 9. We have heard the rival contentions and perused the record. The additional grounds of appeal raised by the assessee do not require any investigation of facts and hence, the same are admitted. The issue which is raised in the present appeal is whether the draft assessment order passed in the case along with issue of demand notice is correct start of proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 r.w.s. 271(1)(c) of the Act. However, the covering letter said that it was draft assessment order, against which the assessee was either to file objections before the DRP or accept the same. The assessee filed the objections before the DRP, who dismissed the same on the surmise that the order passed by the Assessing Officer was final assessment order, since the Assessing Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learly 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 the variation to the Assessing Officer or file his objections, if any, to such variation with the Dispute Resolution Panel and the Assessing Officer. Under sub-section (3) of section 144C of the Act, the Assessing Officer shall complete the assessment on the basis of draft order if the assessee intimates to the Assessing Officer the acceptance of the variation or no objections are received w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 issue appropriate direction for the guidance of the Assessing Officer under section 144C(5) of the Act. It is only thereafter, the AO is bound to pass a final order of assessment in compliance with the directions issued by the DRP under section 144C(3) of the Act. In the present case, without following the above mandatory procedure, the AO has passed the order of assessment on 26.03.2013 and subsequently issued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 CBDT which laid down that the provisions of section 144C of the Act shall not apply for the assessment year 2008-09 and would only apply from assessment year 2010-11 and later years was held to be not tenable where the language of sub-section (1) of section 144C of the Act referred to the cutoff date of 01.10.2009 indicates the intention of Legislature to make it applicable. The Hon ble High Court of A.P further held that the Circular No.5/2010 issued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 mean any foreign company. Therefore, a draft assessment order under Section 144C(1) of the Act is mandated before the Assessing Officer passes a final order under Section 143(3) of the Act in case of eligible assessee. An draft assessment order passed under 10 Section 144C(1) of the Act bestows certain rights upon an eligible assessee such as to approach the DRP with its objections to such a draft assessment order. This is for the reason that an eligible assessee s grievance can be addressed before a final assessment order is passed and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 order passed in the case is invalid and the same is set aside. Since we have decided the preliminary issue in favour of assessee, the other grounds of appeal against the additions made become academic and the same are dismissed. 13. The facts before us are similar to the facts before in Soktas India (P) Ltd. Vs. ACIT (supra). In the facts of present case also, the demand got crystallized on passing of the draft assessment order, wherein the Assessing Officer had issued demand notice in ITNS-150 and had also initiated penalty proceedings. Undoubtedly, the said assessment was framed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion whether the final assessment order stands vitiated for failure to adhere to the mandatory requirements of first passing draft assessment order in terms of Section 144C(1) of the Act is no longer res intregra. There is a long series of decisions to which reference would be made presently. 12. In Zuari Cement Ltd. v. ACIT (decision dated 21st February, 2013 in WP(C) No.5557/2012), the Division Bench (DB) of the Andhra Pradesh High Court categorically held that the failure to pass a draft assessment order under Section 144C (1) of the Act would result in rendering the final assessment order without jurisdiction, null and void and unenforceable. In that case, the consequent demand notice was also set aside. The decision of the Andhra Pradesh High Court was affirmed by the Supreme Court 12 by the dismissal of the Revenue's SLP (C) [CC No. 16694/2013] on 27th September, 2013. 13. In Vijay Television (P) Ltd. v. Dispute Resolution Panel [2014] 369 ITR 113 (Mad.), a similar question arose. There, the Revenue sought to rectify a mistake by issuing a corrigendum after the final assessment order was passed. Consequently, not only the final assessment order but also the corrig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come. On law, it is settled legal proposition at the level of High Courts that the assessment orders based on such draft assessment orders not following the mandatory provisions of section 144C of the Act is without jurisdiction and therefore, null and void and not enforceable in law. Further, the Hon ble Andhra Pradesh High Court in the case of M/s. Zuari Cements Ltd. Vs. ACIT in Writ Petition No.5557/2012, dated 21-022013 held that the impugned order dated 12-12-2011 passed by the respondent was contrary to the mandatory provisions of section 144C of the Act is declared as one without jurisdiction, null and void and unenforceable. (SLP filed against the judgment of AP High Court in the case of ACIT Vs. M/s. Zuari Cements Ltd. by the Revenue stands dismissed on this issue). Therefore, we hold that the assessment order passed by the AO in the instant case dated 15-01-2014 is without jurisdiction and null and void. Accordingly, the additional grounds raised by the assessee are allowed in his favour. 10. Consequent to allowing of additional grounds in favour of the assessee, we find adjudication of the issues raised in the original grounds on merits become an academic exercise. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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