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TMI Blog2024 (1) TMI 1314X X X X Extracts X X X X X X X X Extracts X X X X ..... 2/Del/2015), CO No. 396/Del/2015 (in ITA No. 4653/Del/2015), ITA No. 5396/Del/2015, CO No. 388/Del/2015 (in ITA No. 5396/Del/2015) SH. SAKTIJIT DEY, VICE PRESIDENT AND DR. B. R. R. KUMAR, ACCOUNTANT MEMBER For the Assessees : Sh. Amit Goel, CA, Pranav Yadav, Adv., Sh. Nippun Mittal, CA & Ms. Anjali Jain, Adv. For the Revenue : Sh. Vizay B. Vasanta, CIT-DR & Sh. Sanjay Kumar, Sr. DR ORDER PER BENCH: The present appeals by the Revenue and the Cross Objections by the assessee have been filed against the orders of ld. CIT(A)-XXVII, New Delhi. 2. The common grounds raised in ITA Nos. 3128, 3131 to 3133, 3356 & 3357, 3349 to 3352, 4650 to 4653 & 5396/Del/2015. In ITA No. 3349/Del/2015, following grounds have been raised by the Revenue: "1. The Ld. Commissioner of Income Tax (Appeals) has erred in law as well as on facts in holding that there is substantial force in the submission made by the appellant on the issue of initiating proceedings u/s 153C of Income Tax Act. 2. The Ld. Commissioner of Income Tax (Appeals) has erred in law as well as on facts in holding that assessee company is not resident in terms of provisions under section 6(3)(ii) of the I.T. Act for the purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 3.(ii) That without prejudice to the above and in the alternative, the learned A.O. has erred in initiating proceeding under section 153C of the Act for the assessment year under consideration as the proceedings initiated and the consequent assessment is barred by limitation. 4. On the facts and circumstances of the case, the learned A.O. has erred, both on facts and in law in passing the assessment order straightaway while ignoring the statutory provisions of Section 144C of the Act, in terms of which, the learned A.O. ought to have passed a draft assessment order in the case of an eligible company, i.e. a foreign company. 5. That the assessment framed without issuance of statutory notice under Section 143(2) of the Act after filing of the return is bad in law and therefore, liable to be quashed." 4. Heard the arguments of both the parties and perused the material available on record. 5. The COs pertaining to A.Y. 2008-09, A.Y. 2009-10, A.Y. 2010-11, and A.Y. 2011-12 are being dealt together. 6. At the outset, the ld. AR preferred to argue ground No. 4 of the CO which reads as under: "4. On the facts and circumstances of the case, the learned A.O. has erred, both on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ariation which is prejudicial to the interest of such assessee. The said provisions of Section 144C(1) of the Income Tax Act, 1961 are as under: "144C(1) The Assessing Officer shall, notwithstanding anything to the contrary contained in this Act, in the first instance, forward a draft of the proposed order of assessment (hereafter in this section referred to as the draft order) to the eligible assessee if he proposes to make, on or after the 1st day of October, 2009, any variation in the income or loss returned which is prejudicial to the interest of such assessee." 12. It was brought to our notice that instead of following the mandatory procedure laid down u/s 144C(1) of the Income Tax Act, 1961, the Assessing Officer has completed the assessment u/s 153C without forwarding any draft of the proposed order of assessment to the assessee, which is in divergence to the procedure laid down in the Act. In this case, the Assessment Order has been passed on 28.03.2014, which is after the amendment brought to the statute by Finance (No. 2) Act, 2009. This fact is not in dispute. 13. Having gone through the record before us wherein the Assessment Order has been passed on 28.03.2014 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ub-section (5),- (a) make such further enquiry, as it thinks fit; or (b) cause any further enquiry to be made by any income-tax authority and report the result of the same to it. (8) The Dispute Resolution Panel may confirm, reduce or enhance the variations proposed in the draft order so, however, that it shall not set aside any proposed variation or issue any direction under sub-section (5) for further enquiry and passing of the assessment order. (9) If the members of the Dispute Resolution Panel differ in opinion on any point, the point shall be decided according to the opinion of the majority of the members. (10) Every direction issued by the Dispute Resolution Panel shall be binding on the Assessing Officer. (11) No direction under sub-section (5) shall be issued unless an opportunity of being heard is given to the assessee and the Assessing Officer on such directions which are prejudicial to the interest of the assessee or the interest of the revenue, respectively. (12) No direction under sub-section (5) shall be issued after nine months from the end of the month in which the draft order is forwarded to the eligible assessee. (13) Upon receipt of the directions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anies and to provide mechanism for speedy disposal of their cases so as to attain finality, a new section 144C is inserted in the Income-tax Act to facilitate expeditious resolution of disputes. 45.2 The salient features of the alternate dispute resolution mechanism are as under:- (1) The Assessing Officer shall, forward a draft of the proposed order of assessment (hereinafter referred to as the draft order) to the eligible assessee if he proposes to make on or after the 1st day of October, 2009, any variation in the income or loss returned which is prejudicial to the interest of such assessee. (2) On receipt of the draft order, the eligible assessee shall, within thirty days of the receipt by him of the draft order,- (a) file his acceptance of the variations to the Assessing Officer; or (b) file his objections, if any, to such variation with - (i) the Dispute Resolution Panel; and (ii) the Assessing Officer. (3) The Assessing Officer shall complete the assessment on the basis of the draft order, if - (a) the assessee intimates to the Assessing Officer the acceptance of the variation; or (b) no objections are received within the period specified in sub-section ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... giving any further opportunity of being heard, within one month from the end of the month in which the direction is received notwithstanding anything to the contrary contained in section 153. (14) The Board may make rules for the efficient functioning of the Dispute Resolution Panel with a view to expeditiously dispose of the objections filed, under sub-section(2), by the eligible assessee. (15) For the purposes of this section, - (a) "Dispute Resolution Panel" means a collegium comprising of three commissioners of Income-tax constituted by the Board for this purpose; (b) "eligible assessee" means,- (i) any person in whose case the variation referred to in sub-section (1) arises as a consequence of the order of the Transfer Pricing Officer passed under sub-section (3) of section 92CA; and (j) any foreign company. 45.3 Further, consequential amendments have been made - (i) in sub-section (1) of section 131 so as to provide that the "Dispute Resolution Panel" shall have the same powers as are vested in a Court under the Code of Civil Procedure, 1908 (5 of 1908); (ii) in clause (a) of sub-section (1) of section 246A so as to exclude the order of assessment passed under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 144C reads as under: "The Assessing Officer shall, notwithstanding anything to the contrary contained in this Act, in the first instance, forward a draft of the proposed order of assessment (hereinafter in this section referred to as the draft order) to the eligible assessee if he proposes to make, on or after the 1st day of October, 2009, any variation in the income or loss returned which is prejudicial to the interest of such assessee." 2. Explanatory Circular for Finance (No.2) Act, 2009 i.e. Circular No. 5 of 2010 dated 03.06.2010, in para 45 has explained the said new section 144C and the consequential amendments made in other sections of Income-tax Act. Para 45.5 of the Circular No. 5/2010 dated 03.06.2010 reads as under: "45.5 Applicability: These amendments have been made applicable with effect from 1st October, 2009 and will accordingly apply in relation to assessment year 2010-11 and subsequent assessment years. The Dispute Resolution Panel Rules have been notified by S.O. No. 2958 (E) dated 20th November, 2009." In the above extracted Para 45.5 there has been an inadvertent error in stating the applicability of the provisions of section 144C inserted vid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nable him to complete the assessment. Sub-section (10) of Section 1440 makes such directions binding on the Assessing Officer. As per sub-section (13) of Section 144C, the Assessing Officer is required to pass the order of assessment in terms of such directions without any further hearing being granted to the assessee. 7. The procedure laid down under Section 144C of the Act is thus of great importance. When an Assessing Officer proposes to make variations to the returned income declared by an eligible assessee he has to first pass a draft order, provide a copy thereof to the assessee and only thereupon the assessee could exercise his valuable night to raise objections before the DRP on any of the proposed variations in addition to giving such opportunity to an assessee, decision of the DRP a made binding on the Assessing Officer. It is therefore not possible to uphold the Revenue's contention that such requirement is merely procedural The requirement is mandatory and gives substantive rights to the assessee to object to any additions before they are made and such objections have to be considered not by the Assessing Officer but by the DRP Interestingly, once the DRP gives direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question of law arises. Tax appeal is therefore dismissed." 15. As has been observed by Hon'ble Gujarat High Court, the provision contained under Section 144C (1) of the Act is very much clear and permits no ambiguity. Therefore, the Circulars issued by the Board, in any case, cannot override the clear statutory provision as contained under Section 144C(1) of the Act. It is noteworthy, in case of DCIT vs. Control Risk India (P) Ltd. (supra), the Hon'ble Supreme Court has upheld the decision of Hon'ble jurisdictional High Court, laying down the ratio that consequent upon an order of the TPO under Section 92CA(3) of the Act, it would be incumbent upon the Assessing Officer to pass a draft assessment order under Section 144C(1) of the Act." Judgment of Hon'ble Jurisdictional High Court: 21. Similarly, the Hon'ble Delhi High Court in the case of Turner International India Pvt. Ltd. vs. DCIT held as under: "10. The short ground on which the aforementioned final assessment orders and the consequent demand notices have been challenged is that there was non-compliance with the mandatory provision contained in Section 144C(1) of the Act requiring the AO to first frame draft assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a curable defect. According to him the matter must be restored to the AO to pass a draft assessment order and for the Petitioner, thereafter, to pursue the matter before the DRP. 16. The Court is unable to accept the above submission. The legal position as explained in the above decisions in unambiguous. The failure by the AO to adhere to the mandatory requirement of Section 144C (1) of the Act and first pass a draft assessment order would result in invalidation of the final assessment order and the consequent demand notices and penalty proceedings. 17. For the aforementioned reasons, the final assessment orders dated 31st March, 2015 passed by the AO for AYs 2007-08 and 2008-09, the consequential demand notices issued by the AO and the initiation of penalty proceedings are hereby set aside. 18. The petitions are allowed in the above terms. No order as to costs." Conclusion: 22. Thus, on going through the provisions of Section 144C(1) of the Income Tax Act, 1961 mandating forwarding of a draft Assessment Order, Explanatory notes to the Finance (2) Act, 2009, Circular No. 05/2010 and Circular No. 09/2013 of the CBDT, judgments of Hon'ble High Court of Gujarat and the Hon'b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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