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Income Tax Appellate Tribunal, MUMBAI BENCH “I” BENCH
Before: SHRI VIKAS AWASTHY & SHRI GAGAN GOYALvk-vk-la- 1830@eaqcbZ@2021 ¼fu-oa- 2010&11½
vihykFkhZ }kjk@Appellant by : Shri Paras Savla & Shri Pratik Poddar izfroknh }kjk@Respondent by : Shri Soumendu Kumar Dash lquokbZ dh frfFk@Date of hearing : 24/11/2022 ?kks”k.kk dh frfFk@Date of pronouncement : 20/02/2023 vkns’k/ ORDER
PER VIKAS AWASTHY, JM:
This appeal by the assessee is directed against the order of Commissioner of Income Tax Appeals-57, Mumbai [hereinafter referred to as the “CIT(A)”] dated 12/08/2021, for assessment year 2010-11.
P a g e | (A.Y.2010-11) MARRIOTT INTERNATIONAL INC.
The assessee in appeal has raised an additional ground challenging validity of assessment order. The additional ground raised by the assessee reads as under: “On the facts and circumstances of the case and in law, the assessment order dated December 29, 2016 passed by the Assessing Officer without passing draft assessment order, is bad in law and void ab initio as the same has been passed in violation of section 144C of the Income Tax Act, 1961.”
Shri Paras Savla appearing on behalf of the assessee submits that the additional ground raised
by the assessee goes to the root of validity of assessment proceedings and is purely legal. The ground challenging the validity of jurisdiction can be filed at any stage. No fresh evidence is required to be filed for adjudication of additional ground of appeal. In supports of admission of additional ground, the learned Authorised Representative (AR) placed reliance on the decision of Hon’ble Supreme Court of India in the case of National Thermal Power Co. ltd Vs. CIT 229 ITR 383. The learned AR submits that in case the asssessee succeeds on additional ground, the grounds raised in appeal on merits of the addition would become academic.
4. Shri Soumendu Kumar Dash representing the Department vehemently opposed the admission of additional ground at this stage.
5. We have heard the submissions made by rival sides on the admission of additional ground. The assessee in additional ground of appeal has assailed the validity of assessment proceedings. The contention of the assesee is, assessment order dated 29/12/2016 has been passed by the Assessing Officer (AO) without passing draft assessment order in proceedings u/s 144C of the Income Tax Act, 1961 (hereinafter referred to as “the Act”). Passing of draft assessment order is mandatory requirements in terms of section 144C (1) of the Act. The additional ground raised by assessee is legal and hits the validity of assessment order. We find merit in the submissions of the assessee. No fresh document is required to be adduced for adjudication of additional ground raised by the assessee. The additional ground is thus, admitted for adjudication on merits.
P a g e | (A.Y.2010-11) MARRIOTT INTERNATIONAL INC.
The learned AR of the assessee submits that the assessee is a non-resident. The assessee company was incorporated in Netherlands. Assessee is engaged in the business of operating hotels worldwide under the brands “Marriott”, “Renaissance” and “Courtyard”. The assessee permits the use of its brand names worldwide on certain terms and conditions under licence and royalty agreements. This is second round of litigation before the Tribunal for the assessment year 2010-11. In the first round, the assessment order was passed on 17/05/2013, treating receipts from International Sales and Marketing as royalty/fee for technical services. In first appeal, the CIT(A) vide order dated 30/11/2015 followed the Tribunal order in assessee’s own case for AY 2006-07 to 2009-10 wherein, the aforesaid receipts were held to be in the nature of royalty and directed the AO to follow the directions of the Tribunal for assessment year 2006-07 to 2009-10. The assessee carried the issue in appeal before the Tribunal in ITA No.2217/MUM/2016. The assessee raised an additional plea based on the principles of mutuality. The Tribunal vide order dated 09/03/2018 restored the matter to the AO with a specific directions inter alia to consider assessee’s plea of mutuality. Thereafter, the AO directly passed the final assessment order dated 29/12/2016 without passing the draft assessment order. Passing of the final Assessment Order directly is in violation of the provision of section 144C of the Act. Further, the AO passed the final assessment order ignoring the specific directions of the Tribunal and again taxed the receipts in the hands of the assessee as royalty. Aggrieved by the assessment order dated 29/12/2016, the assessee filed an appeal before the CIT(A). The First Appellate Authority vide impugned order upheld the assessment order passed in the second round, hence, the present appeal. The learned AR submits that the provisions of section 144C mandates the AO to pass the draft assessment order before passing the final assessment order u/s 144C (13) of the Act. In the instant case, the AO has passed the final assessment order dated 29/12/2016 u/s 143(3) r.w.s. 254 r.w.s. 144C (6) of the Act. The final assessment order without
P a g e | (A.Y.2010-11) MARRIOTT INTERNATIONAL INC. draft assessment order is null and void. Hence, the said assessment order is liable to be quashed.
Per contra, the learned Departmental Representative (DR) vehemently supporting the assessment order submitted that the order is valid and there is no infirmity in the assessment order. The learned DR submits that the assessment order was passed by the AO to give effect to the directions given by the CIT(A) who had relied upon the order passed by the Tribunal in assessee’s own case for earlier assessment years. The AO while passing the assessment order has clearly mentioned the above facts. This was not a regular assessment order u/s 144C of the Act, but merely in the nature of giving effect to the directions of higher authorities. Therefore, no draft assessment order u/s 144C (1) was required to be passed by the AO.
Controverting the submissions made on behalf of the Department, the learned AR submits that even if the assessment order was passed to give effect to the order of Tribunal, the AO was required to pass the draft assessment order. In support of his submissions, the learned AR placed reliance on the following decisions: 1) Dimension Data Asia Pacific PTE Ltd. Vs. DCIT, 96 taxmann.com 182 (Bom); 2) Exxon Mobil Company (P.) Ltd. Vs. DCIT, 138 taxmann.com 539 (Bom); 3) Turner International India (P.) Ltd. Vs. DCIT, 398 ITR 177 (Delhi).
We have heard the submissions made by rival sides on the short legal issue raised by the assessee by way of additional ground of appeal
. From the submissions made by rival sides the fact emerges that in the second round, the AO passed final assessment order dated 29/12/2016 without passing the draft assessment order.
10. Provisions of section 144C of the Act lays down the procedure to be followed under special mechanism. The AO is first required to pass draft assessment order u/s 144C (1) of the Act. On receipt of the draft assessment order, the eligible assessee within 30 days either accepts the variations or may file objections, against such variations before the DRP. If no objections are filed against the draft assessment order, the AO shall pass the final assessment order. In case the objections are filed before
P a g e | (A.Y.2010-11) MARRIOTT INTERNATIONAL INC. the DRP, the DRP shall issue the directions and it is only after the directions of the DRP that the AO shall pass the final assessment order after giving effect to the directions of the DRP.
11. In the instant case, the Revenue has pointed that the assessment order dated 29/12/2016 was passed to give effect to the directions of the Tribunal, hence, there was no requirement to pass the draft assessment order. It is evident from the cause title of the assessment order dated 29/12/2016 that the assessment order is passed consequent to the directions of the Tribunal. The learned AR of the assessee has placed reliance on the decision of Hon’ble Bombay High Court in the case of Dimension Data Asia Pacific PTE Ltd. Vs. DCIT (supra). In the said case, the petitioner a foreign company challenged the validity of the assessment order as the final assessment order was passed without passing the draft assessment order. The said assessment order was also passed consequent to the directions of the Tribunal. The Department had raised similar objections as was raised by the DR in the present case. The Hon’ble High Court rejected the contentions of the Revenue and held that the draft assessment order has mandatorily to be passed u/s 144C of the Act, even in remand proceedings. The relevant findings of the Hon’ble Court are extracted herein below: “8. The contention of the Revenue that the requirement of passing a draft Assessment Order under Section 144C of the Act would only extend to the orders passed in the first round of proceedings or in respect of an order passed by the Assessing Officer in remand proceedings by the Tribunal which has entirely set aside the original assessment order. This distinction which is sought to be drawn by the Revenue is not borne out by Section 144C of the Act. Infact, the Delhi High Court in JCB (India) Ltd. (supra) held that, even in partial remand proceedings from the Tribunal, the Assessing Officer is obliged to pass a draft assessment order under Section 144C(1) of the Act. According to us, the Assessing Officer, is obliged to, in terms of Section 144C of the Act to pass a Draft Assessment Order in all cases where he proposes to assess the Foreign Company under the Act by making a variation in the returned income. In this case, the impugned order dated 31st January, 2018 has been passed in terms of Section 143(3) read with Section 144C read with Section 254 of the Act and it certainly makes a variation to the returned income filed by the petitioner. This even if, one proceeds on the basis that the returned income stands varied by the order of the Tribunal in the first round, to the extent the petitioner accepts it. Therefore, the Assessing Officer
P a g e | (A.Y.2010-11) MARRIOTT INTERNATIONAL INC. correctly invokes Section 144C of the Act in the impugned order. Once having invoked Section 144C of the Act, the Assessing Officer is obliged to comply with it in full and not partly. This impugned order was passed consequent to the order of the Tribunal dated 5th May, 2017 restoring some of the issues before it to the Assessing Officer for fresh adjudication.
9. This "fresh adjudication" itself would imply that it would be an order which would decide the lis between the parties, may not be entire lis, but the dispute which has been restored to the Assessing Officer. According to us, the order dated 31st January, 2018 is not an order merely giving an effect to the order of the Tribunal, but it is an assessment order which has invoked Section 143(3) of the Act and also Section 144C of the Act. This invocation of Section 144C of the Act has taken place as the Assessing Officer is of the view that it applies, then the requirement of Section 144C(1) of the Act has to be complied with before he can pass the impugned order invoking Section 144C(13) of the Act. In fact, Section 144C(13) of the Act can only be invoked in cases where the assessee has approached the DRP in terms of sub-Section 144(C)(2)(b) of the Act and the DRP gives direction in terms of Section 144C(5) of the Act. In this case, the assessment order has invoked Section 144C(13) of the Act without having passed the necessary draft Assessment Order under Section 144C(1) of the Act, which alone would make an direction under Section 144C(5) of the Act by the DRP possible. Thus, the impugned order is completely without jurisdiction.
Moreover, so far as a Foreign Company is concerned, the Parliament has provided a special procedure for its assessment and appeal in cases where the Assessing Officer does not accept the returned income. In this case, in the working out of the order dated 5th May, 2017 of the Tribunal results in the returned income being varied, then the procedure of passing a draft assessment order under Section 144C(1) of the Act is mandatory and has to be complied with, which has not been done.
In the above view, the impugned order is without jurisdiction. Thus, the plea of alternate remedy advanced by the Revenue so as to not entertain this petition, does not merit acceptance in the present facts.” (Emphasized by us) 12. The Hon’ble Bombay High Court in the case of Exxon Mobil Company (P.) Ltd. Vs. DCIT in a recent decision reiterated the legal requirement of passing draft assessment order in proceeding u/s 144C of the Act arising out of remand from the Tribunal. The Hon’ble High Court held that where Tribunal remanded the matter to give effect to transfer pricing issue, assessee’s case would be eligible u/s 144C of the Act and the AO was required to pass draft assessment order before issuance of final assessment order.
P a g e | (A.Y.2010-11) MARRIOTT INTERNATIONAL INC.
Similar view was taken by the Hon’ble Delhi High Court in the case of Turner International India (P.) Ltd. Vs. DCIT (supra). The Hon’ble Delhi High Court held that failure of AO to adhere to mandatory requirement of section 144C (1) of the Act, where the final assessment order has been passed without draft assessment order, such final assessment order shall be invalid.
In the instant case, the Tribunal vide order dated 09/03/2018 restored the issue back to AO with following directions: “7. We have carefully considered the rival submissions. The action of the CIT(A) in directing the Assessing Officer to apply the order of the Tribunal dated 14.01.2015 (supra) is justified to the extent it deals with the nature of the payments received by the assessee from the two hotels stated aforesaid. So, however, the point which is sought to be raised is the non-consideration of the defence set-up by the assessee based on the principles of mutuality. The order of the Tribunal dated 14.01.2015 (supra) has not addressed that issue and so far as the instant year is concerned, the same was very much raised by the assessee before the lower authorities, which has also remained to be addressed. Considering the entirety of circumstances, we, therefore, deem it fit and proper to affirm the ultimate decision of the CIT(A) to remand the matter back to the file of Assessing Officer, but with directions that apart from considering the order of the Tribunal dated 14.01.2015 (supra), the Assessing Officer shall also address the issue raised by the assessee of mutuality or any other issue which the assessee may seek to raise in defence of its return of income. The Assessing Officer shall allow the assessee due opportunity of being heard and only thereafter pass an order afresh, as per law.
Thus, the AO was required to adjudicate the issue of amount received under International Sales and Marketing Agreement afresh in line with the directions of the Tribunal. It was incumbent upon the AO to follow the procedure laid down u/s 144C of the Act, i.e. to first pass the draft assessment order. In the facts of the case and the decisions referred above, we hold that assessment order dated 29/12/2016 passed by AO without passing draft assessment order is invalid and unsustainable, ergo, the same is liable to be quashed. We hold and direct accordingly.
In the result, assessee succeeds on additional ground of appeal.
P a g e | (A.Y.2010-11) MARRIOTT INTERNATIONAL INC. 15. Since, we have adjudicated legal issue raised as additional ground of appeal in favour of assessee, the grounds in appeal on merits have become academic and thus, are left open.
16. In the result, appeal of the assessee is allowed.
Order pronounced in the open court on Monday the 20th day of February 2023.