TMI Blog2021 (11) TMI 415X X X X Extracts X X X X X X X X Extracts X X X X ..... 44C - As per DR mandatory element of Provisions to section 144C of the Act shall apply to eligible assessee only as contained therein but not in every case - DR submitted that on reference to TPO first examination has to be done based on parameters contained in the said provision whether, the assessee is an eligible assessee and only then the mandatory provisions of Section 144C of the Act would apply and not before that - HELD THAT:- It is in respect of each and every case which involves transfer pricing risk parameters and in respect of international transactions or specified domestic transaction or both, they have to be referred to the TPO by the Assessing Officer after obtaining approval of the jurisdictional PCIT or CIT. Therefore, if the reason of selection of case for scrutiny is transfer pricing risk parameters, then the case has to be mandatorily referred to the TPO by the Assessing Officer after obtaining such approval. Thus, the contention of the Ld. DR cannot be entertained since the Instruction No. 3/2016 (supra.) is clearly binding on the department and it is categorically mentioned therein that any case involving transfer pricing risk parameters in respect of either ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and therein additional grounds has been filed and that the Assessing Officer had erred in passing final assessment order u/s. 143(3) r.w.s. 147 of the Act dated 17.03.2016 without passing draft assessment order as per the mandate laid down u/s. 144C of the Act. 3. That at the First Appellate stage, the assessee had submitted that reopening of assessment was bad in law on two counts. Firstly, re-opening of assessment was done beyond the period of four years without establishing the assessee's failure to disclose fully and truly the material facts relating to the assessment. Secondly, the re-opening of assessment cannot be done without any new material on the basis of which the Assessing Officer shall form a belief of escapement of income chargeable to tax. The assessee had relied on several decisions before the Ld. CIT(Appeals) which are on record. 4. The Ld. CIT(Appeals) after considering the submissions of the assessee and the assessment order observed at Para 2.1.7 of his order that for reopening of the assessment for the year under consideration i.e. AY 2008-09, the Assessing Officer needs to establish the assessee's failure to disclose fully and truly material fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e original return was processed u/s. 143(1) of the Act and the assessment order was not passed u/s. 143(3) of the Act. 7. The Ld. CIT(Appeals) on this proposition relied on specific judicial precedents which are on record as per his order. Thereafter, the Ld. CIT(Appeals) held that first of all, the re-opening of assessment for assessment year 2008-09 had to be done within four years i.e. within 31.03.2013 whereas, in the instant case, re-opening was done by issuing notice u/s. 148 of the Act which was issued on 31.03.2015 i.e. beyond the limitation of four years. Similarly also it was held by the Ld. CIT(Appeals) that there was no fresh materials on record brought in by the Assessing Officer for forming 'reason to believe' that income chargeable to tax has escaped assessment. On these two counts, the Ld. CIT(Appeals) held re-assessment proceedings as invalid in law and had quashed the re-assessment order passed by the Assessing Officer accordingly. 8. The Revenue being aggrieved by this have filed the instant appeal before us. That before us, the Ld. DR could not refute the fact that the reassessment proceedings were done beyond the period of limitation of four years ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing 'reason to believe' that income has escaped assessment . Considering the totality of facts and circumstances, We are, therefore, of the considered view that the findings of the Ld. CIT(Appeals) needs no interference and the same is upheld. 12. Now we would examine the ground invoked by assessee under Rule 27 of the Income Tax (Appellate Tribunal) Rules, 1963 stating that since the mandate u/s. 144C of the Act was not complied by the Assessing Officer and for the fact that he has not passed a draft assessment order, therefore, the final assessment order u/s. 143(3) r.w.s. 147 of the Act was bad in law and on this count also, the reassessment order ought to have been quashed. 13. The Ld. Senior Counsel for the assessee before us submitted that in pursuance of Section 144C(1) read with section 143(3) of the Act, the Assessing Officer is necessarily required to forward a draft assessment order, in the first instance to the assessee, if he proposes to make any variation in the income or loss returned which is prejudicial to the interest of such eligible assessee as defined u/s. 144C(15)(b) of the Act. The Ld. Senior Counsel also submitted that on receipt of the dra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e provisions of Section 144C(1) of the Act held that provisions of section 144C are mandatory as the Assessing Officer u/s. 144C(1) of the Act is mandated to first pass a draft assessment order, communicate it to the assessee, hear his objections and then complete assessment. The relevant extract of the said decision are as follows: 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of Income Tax (supra.). 17. The Hon'ble Delhi High Court in the case of JCB India Limited Vs. Deputy Commissioner of Income Tax (2017) 85 taxmann.com 155 (Delhi) had also re-emphasizes that the Assessing Officer cannot straight away pass a final assessment order without issuing a draft assessment order under Section 144C of the Act, even in the case of remand of proceedings and that such an omission is not a mere irregularity, but an incurable illegality, which cannot be saved by resorting to Section 292B of the Act by Revenue. Thereafter, the Hon'ble Jurisdictional High Court in the case of SHL (India) Private Limited Vs. Deputy Commissioner of Income Tax Ors (supra.) has held and observed as follows: 25. In our view, the following principles emerge from the above discussion:- (i) that the procedure prescribed under Section 144C of the IT Act is a mandatory procedure and not directory. (ii) failure to follow the procedure under Section 144C(1) would be a jurisdictional error and not merely procedural error or irregularity. (iii) therefore, Section 292B of the IT Act cannot save an order passed in breach of the provisions of Section 144C(1), the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... furnish a draft Assessment Order in the first instance in such a case. The legislature, in our view, has intended to give an important opportunity to Petitioner, who is an eligible assessee, which in our view, has been taken away. In our view, failure to follow the procedure under Section 144C(1) would be a jurisdictional error and not merely procedural error or a mere irregularity. The Assessment Order has not been passed in accordance with the provisions of Section 144C of the IT Act. This is not an issue, which involves a mistake in the said order, but it involves the power of the Assessing Officer to pass the order. By not following the procedure laid down in Section 144C(1) to pass and furnish a draft Assessment Order to Petitioner and directly passing a final Assessment Order and without giving Petitioner an opportunity to raise objections before the DRP, there is a complete contravention of Section 144C, the Assessing Officer having wrongly assumed jurisdiction to straight away pass the final order. This is not a mere irregularity but an incurable illegality. Even the provisions of Section 292B of the IT Act would not protect such an order as Section 292B of the IT Act canno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reads as follows: 2. In terms of the provisions, any income arising from an international transaction or specified domestic transaction between two or more associated enterprises shall be computed having regard to the Arm's Length Price. Instruction No. 3 was issued on 20th May, 2003 to provide guidance to the Transfer pricing Officers (TPOs) and the Assessing Officers (AOs) to operationalize the transfer pricing provisions and to have procedural uniformity. Due to a number of legislative, procedural and structural changes carried out over the last few years, Instruction No. 3 of 2003 was replaced with Instruction No. 15/2015, dated 16th October, 2015. After the issuance of Instruction No. 15/2015, the Board has received some suggestions and queries, which have been examined in detail. Accordingly, this Instruction is being issued to replace Instruction No. 15 of 2015. This Instruction is applicable for both international transactions and specified domestic transactions between associated enterprises. The guidelines on various issues are as follows: Thereafter, from Para 3 states under what circumstances reference to TPO has to be done. In this connection, Para 3.2 i ..... 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