DCIT, CIRCLE- I, INTERNATIONAL TAXATION, DEHRADUN vs. EXPRESS DRILLING SYSTEMS LLC, DEHRADUN

आदेश /O R D E R PER C.N. PRASAD, J.M.

The appeal and cross objection were filed by the Revenue and

assessee respectively for the AY 2009-10 against the order of the Ld.

Commissioner of Income Tax (Appeals)-2, Noida dated 26.07.2017.

The Revenue in its appeal raised the following grounds: -

(i) “Whether on the facts and in the circumstances of the case and in law, the CIT(A) has erred in holding that amendment to Section 40(a)(ia) and 201(1) w.e.f. 1st July, 2012 is curative in nature and applies retrospectively to the case of the assessee. (ii) Whether the CIT(A) has erred in directing the Assessing Officer to not levy interest u/s 234B of the Income Tax Act, 1961 when the decision of the Delhi High Court in GE Packaged Power Inc. has not attained finality as the Department has filed review application in the Hon’ble Supreme Court.” The assessee in its cross objection raised the following grounds: -

Ground No.1 “On the facts and circumstances of the case the Ld.CIT(A) erred in confirming the action of the Assessing Officer in issuing the final assessment order which is in clear contravention of Section 144C of the Income Tax Act, 1961 and the judgment of Hon’ble Supreme Court of India in the case of Zuari Cement Limited Vs. ACIT. The final assessment order is bad in law to the extent that the Ld. Assessing Officer in terms of Section 144C of the Income Tax Act, 1961 should have issued a draft assessment order instead. Ground No. 2 On the facts and circumstances of the case the Ld.CIT(A)/Assessing Officer erred in disallowing standby

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charges totaling to Rs.54,600,000/- on the ground of business exigency and business prudence not proved by the appellant.” 2. In the cross objection filed by the assessee, the assessee

challenged the validity of the final assessment order passed by the

Assessing Officer u/s 143(3)/144C r.w.s. 254 of the Income Tax Act,

1961 on the ground that the final assessment order is bad in law as

the Assessing Officer in terms of Section 144C of the I.T. Act should

have passed/issued draft assessment order instead of passing final

assessment order.

on identical facts the Tribunal in assessee’s own case for the AY

2008-09 in ITA No.6628/Del/2016 by order dated 06.05.2021

quashed the final assessment order passed u/s 143(3)/144C r.w.s.

254 of the Act following the decision of the Hon’ble Delhi High Court

in the case of PCIT Vs. Headstrong Services India Pvt. Ltd. (124

Taxmann.com 262) (Del.) as the AO passed final assessment order

incomplete contravention u/s 144C and without passing a draft

assessment order and without giving the assessee an opportunity to

raise objection before the DRP.

3.1 The Ld. Counsel further submits that the similar view has been

taken by the Hon’ble Delhi High Court in the case of Nokia India (P).

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Ltd. Vs. Addl. CIT (98 Taxmann.com 373) and the SLP filed by the

Revenue was also dismissed by the Hon’ble Supreme Court in Addl.

CIT Vs. Nokia India Pvt. Ltd. (98 Taxmann.com 374).

below and the decisions relied on. We observe that identical issues

came up before the Tribunal in assessee’s own case for the AY 2008-

09 in ITA No.6628/Del/2016 dated 06.05.2021 and the Tribunal

quashed the final assessment order passed u/s 144C of the Act

following the decision of the Hon’ble Delhi High Court in the case of

PCIT Vs. Headstrong Services Pvt. Ltd. (supra) since the AO without

passing draft assessment order and providing an opportunity to file

objections before the DRP by the assessee passed final assessment

order u/s 144C of the Act. The Tribunal while quashing the

assessment order held as under: -

“7. Before us, Ground No, 1 is with respect to the argument of the assessee that the assessment order passed by the Id. Assessing Officer in pursuance of ITAT setting aside the whole issue to the file of the Id Assessing Officer is bad in law for the reason that the Ld. Assessing Officer should have passed a draft assessment order, instead he passed final order u/s 143 (3) r.w.s. 144C r.w.s. 254 of the act on 15/3/2015. In absence of any such draft assessment order passed by the Assessing Officer and instead of that passing the final assessment order straight-away is not correct. The Id. AR, therefore, submitted that any consequent order passed by the Id. Assessing Officer is bad in law. The Id. AR relied on the decision of the Hon’ble Delhi High Court 4

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in the case of Nokia India Pvt. Ltd. Vs, AC1T in WPC No. 3629 (Del) of 2017 of Hon’ble Delhi High Court which has been affirmed by Hon’ble Supreme Court in ACIT Vs. Nokia India Pvt. Ltd. (2018) 259 taxmann.com 91 (SC). In view of this the Id. AR submitted that the order passed on 31.03.2015 is final order along with the direction to issue demand and challan initiating penalty proceedings is intuition of any merit and is liable to be quashed. 8. The Id. DR stated that this issue has been considered by the Id. CIT (Appeals) in para 5.3 of his order. He further relied on para 5.5 stating that assessee has already availed an opportunity of filing objections against the order before the D.RP. He further relied on the finding of the Id. CIT (Appeals) wherein he has held that in the present case the order is passed under Section 143(3) read with Section 144C( 13) read with Section 254 of the Act where the Assessing Officer has given effect to the direction of the ITAT and, therefore, there was no requirement of passing a draft assessment order again. 9. We have heard the parties and also perused the relevant orders placed before us. It is apparent that in the original proceedings the appeal of the assessee before ITAT in I. T. Appeal No. 5559 (Del) of 2011 the ITAT vide order dated 17.05.2013, where In ITAT has set aside all the issues back to the file of the Assessing Consequent to that the Id. Assessing Officer passed a final assessment order under section 143(3) read with Section 144C(13) read with Section 254 of the Act on 31.03.2015. According to the provision of Section 144C of the Act it is mandatory for the Assessing Officer pass a draft assessment order, but instead Assessing Officer passed a final order on 31.03.2015 along with demand notice and show cause notice for penalty proceedings. Honorable Delhi High Court has recently considered the identical issue in Principal Commissioner of Income Tax-4 v.Headstrong Services India (P.) Ltd.* [2021] 125 taxmann.com 262 (Delhi) where the facts before the Honourble Delhi High Court shows that assessee, a wholly owned subsidiary of Headstrong Services LLC, USA, had filed its return of income declaring income of 5

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Rs. 30,64,480/- for the relevant assessment year. Thereafter, revised return of income was filed on 30th January, 2009 that was processed under section 143(1) of the Income-tax Act, 1961 (for short 'the Act') and subsequently, case of the respondent-assessee was selected for scrutiny assessment and notice under section 143(2) of the Act was issued. During scrutiny assessment, the Assessing Officer made a reference to the office of Transfer Pricing Officer (TPO) in relation to the international transaction between the respondent- assessee and its Associated Enterprise (AE). Draft assessment order under section 1440(1) of the Act was passed on 31st December, 2010 and the respondent- assessee filed objections before the Dispute Resolution Panel (DRP). Thereafter, assessment under section I43(3)/144C of the Act was completed in pursuance to directions issued by the DRP, wherein addition was made on account of excess claim of deduction under section 10A of the Act and transfer pricing adjustment made by the TPO. Being aggrieved, the respondent-assessee filed an appeal before the ITAT, where, the additions on account transfer pricing and deduction under section 10A of the Act were set aside and the Assessing Officer was directed to frame the assessment afresh. The matter was restored to the Assessing Officer vide para 4.2.1 of ITAT order dated 17th July, 2012, which reads as under: "4.2.1 As a view has already been taken by the Tribunal in the aforesaid case and in the case of Ameriprise India Pvt. Ltd. in ITA No, 5694/De 1/201.1 for assessment year 2007-08 dt26-3-2012, we are bound the follow the view. Therefore, it is held that it was incumbent on the AO to supply the information to the assessee, obtain its objections, if any, and pass order after taking into account the information and the objections of the assessee. This has not been done in respect of 20 comparables.” Therefore, the matter of transfer pricing adjustment is restored to the file of the AO for following proper procedure as mentioned above and decide the matter de novo. "Pursuant to the aforesaid remand, the Assessing 6

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Officer passed the assessment order dated 31st March, 2014 and the same was challenged by the respondent- assessee before the CIT(A), Being aggrieved by the order passed by the CIT(A), respondent-assessee as well as Revenue filed appeals before the ITAT, being ITA No. 5409/DEL/2014 and ITA No, 6117/DEL/2014 respectively. In its appeal, respondent-assessee raised the ground with regard to validity of the remand assessment as the Assessing Officer had not followed the procedure contemplated under section 144C of the Act, while framing remand assessment. The ITAT vide order dated 30th September, 2015 allowed the appeal of the respondent-assessee on the said ground without going into the merits of the ease. Thus appeal before Hon’ble High Court which held that: “COURT'S REASONING ONCE THE ITAT DIRECTED THE ASSESSING' OFFICER TO DECIDE THE MATTER DE NOVO, IT MEANT THAT A NEW HEARING OF THE MATTER HAD TO BE CONDUCTED, AS IF THE ORIGINAL HEARING HAD NOT TAKEN PLACE, CONSEQUENTLY, THE ASSESSING OFFICER HAD TO DECIDE THE MATTER IN ACCORDANCE WITH THE ELABORATE PROCEDURE MENTIONED IN SECTION 144C AND NOT DE HORS IT 13. The ITAT while remanding the matter of transfer pricing adjustment to the Assessing Officer vide order dated 17th July, 2032 had not only 'restored' the matter "to the file of the Assessing Officer "for following proper procedure" but also to "decide the matter denovo". 14. This Court is of the view that once the ITAT directed the Assessing Officer to decide the matter de novo, it meant that a new hearing of the matter had to be conducted, as if the original hearing had not taken place (See: meaning of "De novo hearing" in Black's Law Dictionary). 15. Consequently, the Assessing Officer had to decide the matter in accordance with the elaborate procedure mentioned in section 144C and not de hors it.

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SECTION I44C ENVISAGES A CHANGE OF FORUM AND IT LEADS TO COMPLETE CESSATION OF THE JURISDICTION OF THE ASSESSING OFFICER ON PASSING OF THE DRAFT ORDER. THEREAFTER THE ASSESSING OFFICER IS TO GIVE EFFECT TO EITHER THE DIRECTION OF THE DISPUTE RESOLUTION PANEL OR PASS AN ORDER ON ACCEPTANCE BY THE ASSESSEE. 16. This Court is of the opinion that it is essential to analyze Section I44C. The said Section reads 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 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 hint 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

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(b) no objections are received within the period specified in sub-section (2). (4) The Assessing Officer shall, notwithstanding anything contained in section 153 or section I53B, pass the assessment order under sub-section (3) within one month from the end of the month in which, - (a) the acceptance is received; or (b) the period of filing of objections under sub-section (2) expires. (5) The Dispute Resolution Panel shall, in a case where any objection is received under sub-section (2), issue such directions, as it thinks fit, for the guidance of the Assessing Officer to enable him to complete the assessment. (6) The Dispute Resolution Panel shall issue the directions referred to in sub-section (5), after considering the following, namely:— (a) draft order: (b) objections filed by the assessee; (c) evidence furnished by the assessee; (d) report, if any, of the Assessing Officer, Valuation Officer or Transfer Pricing Officer or any other authority; (e) records relating to the draft order; (f) evidence collected by, or caused to be collected by, it; and (g) result of any enquiry made, by, or caused to be made by it. (7) The Dispute Resolution Panel may, before issuing any directions referred to in sub-section (5),— (a) make such further enquiry, as it thinks fit; or 9

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(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 Pane! 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. Explanation.—For the removal of doubts, it is hereby declared that the power of the Dispute Resolution Panel to enhance the variation shall include and shall be deemed always to have included the power to consider any matter arising out of the assessment proceedings relating to the draft order, notwithstanding that such matter was raised or not by the eligible assessee. (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 issued under sub-section (5), the Assessing Officer shall, in conformity with the directions, complete,

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notwithstanding anything to the contrary contained in section 153 or section 153B. the assessment without providing any further opportunity of being heard to the assessee, within one month from the end of the month in which such direction is received. (14) The Board may make rules for the purposes of the efficient functioning of the Dispute Resolution Panel and expeditious disposal of the objections filed under sub-section (2) by the eligible assessee. (14A) The provisions of this section shall not apply to any assessment or reassessment order passed by the Assessing Officer with the prior approval of the Principal Commissioner or Commissioner as provided in sub-section (12) of section 144BA. (15) For the purposes of this section,— (a) "Dispute Resolution Panel" means a collegiums comprising of three Principal Commissioners or 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 (ii) any non-resident not being a company, or any foreign company," 17. In the opinion of this Court, Section I44C is a self contained provision which carves out a separate class of assesses i.e. 'eligible assessee' i.e. any person in whose case the variation arises as a consequence of the order of the Transfer Pricing Officer passed under sub-section (3) of Section 92CA. For this class of assessees, it prescribes a collegium of three commissioners, once objections are preferred. Dispute Resolution Panel's powers: are co-terminous with the CIT(A), including the power to confirm, 11

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reduce or enhance the variation proposed and to consider the issues not agitated by the Assessee in the objections. In fact, under section 144C, the Dispute Resolution Panel can issue directions as it thinks fit for the guidance of the Assessing Officer to enable him to complete the assessment and the Dispute Resolution Panel can confirm, reduce or enhance the variations proposed in the draft order. It is specifically stipulated in Section 144C that every direction issued by the Dispute Resolution Panel shall be binding on the Assessing Officer. This is akin to the Assessing Officer giving effect to an order passed by the Appellate Authority or the Courts. 18. Consequently, Section 144C envisages a change of forum and it leads to complete cessation of the jurisdiction of the Assessing Officer on passing of the draft order. Thereafter the Assessing officer is to give effect to either she direction of the Dispute Resolution Panel or pass an order on acceptance by the : Assessee. THE EXPRESSION IN THE FIRST INSTANCES HAS BEEN USED IN SECTION 144C TO SIGNIFY THE FIRST STEP TO BE TAKEN BY THE ASSESSING OFFICER IN A SERIES OF ACTS CONTEMPLATED BY THE SAID SECTION TO ACCEPT THE APPELLANT'S ARGUMENT WOULD BE TO PERMIT THE ASSESSING OFFICER TO DECIDE THE OBJECTIONS FILED BY THE ASSESSEE WHICH POWER HAS BEEN SPECIFICALLY DENIED BY THE STATUTE. 19. The expression ‘in the first instance’ has been used in Section 144C to signify the first step to be taken by the Assessing Officer in a series of acts contemplated by the said Section while dealing with the case of an eligible assessee. This Court is further of the view that if the Assessing Officer under section I44C can prepare a draft assessment order only, then by virtue of a remand order which directs the Assessing Officer to decide the matter de novo, the Assessing Officer cannot get the power to pass an assessment order, when there is an objection by the Assessee like in the present case, without reference

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of the Dispute Resolution Panel which comprises of three Principal Commissioners or Commissioners of Income-tax constituted by the Board. 20. Now to accept the appellant's argument would be to permit the Assessing Officer to decide the objections filed by the Assessee - which power has been specifically denied by the statute. IT IS SETTLED LAW THAT WHEN A POWER IS GIVEN TO DO CERTAIN THING IN A CERTAIN WAY, THE THING MUST BE DONE IN THAT WAY OR NOT AT ALL AND OTHER METHODS OF PERFORMANCE ARE FORBIDDEN 21. It is further settled law that when a power is given to do certain thing in a certain way, the thing must be done in that way or not at all and other methods of performance are forbidden. [See: Taylor vs. Taylor [1875] 1 Ch.D. 426; Nazir v. King Emperor AIR 1975 SC 985 and Babu Varghese v. Bar Council of Kerala [1999] 3 SCL 422. FAILURE TO ADHERE TO THE MANDATORY PROCEDURE PRESCRIBED UNDER SECTION 144C OF THE ACT WOULD VITIATE THE ENTIRE PROCEEDINGS AND THE SAME CANNOT BE TREATED AS AN IRREGULARITY/CURABLE DEFECT. 22. The appellant has also contended that the failure to follow the procedure under section 144C of the Act, at the highest, was a procedural irregularity and not an illegality. This issue is no longer res integra. It is now settled law that failure to adhere to the mandatory procedure prescribed under section 144C of the Act would vitiate the entire proceedings and the same cannot be treated as an irregularity/curable defect. 23. In ESPN Star Sports Maurities S.N.C. ET Compagine v. Union of India 120161 68 taxmann.com 377/241 Taxman 3.8/388 ITR 383 (Delhi) this Court, after discussing the judgments of the Andhra Pradesh High Court, High Court of Bombay as well as Madras High Court in Vijay Televisions (P.) Ltd. v. DRP [20141

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46 taxmann.com 100/225 Taxman 35/369 ITR 113 has held that failure to pass a draft assessment order under section 144C(1) of the Act would render the final assessment order without jurisdiction, null and void and unenforceable. The said view was reiterated by this Court in Turner International India (P.) Ltd. v. Dy. CIT [2017] 82 taxmann.com 125/398 ITR 177 as well Nokia India (P.) Ltd. v. Addl. CIT [WP(C) No. 3629 of 2017]. The relevant portion of the- judgment in Turner International India Pvt. Ltd. (supra) is reproduced herein below:- "11. The question 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(.l) 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 “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 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 1TR 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 corrigendum issued thereafter was challenged. Following the decision of the Andhra Pradesh High Court in

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Zuari Cement Ltd. v. ACIT (supra) and a number of other decisions, the Madras High Court in Vijay Television (P.) Ltd. v. Dispute Resolution Panel (supra) quashed the final order of the AO and the demand notice. Interestingly, even as regards the corrigendum issued, the Madras High Court held that it was beyond the time permissible for issuance of such corrigendum and, therefore, it could not be sustained in law. 14. Recently, this Court in ESPN Star Sports Mauritius S.N.C. ET Compagnie v. Union of India (20161 388 1TR 383 (Delhi), following the decision of the Andhra Pradesh High Court in Zuari Cement Ltd. v. ACIT (supra), the Madras High Court in Vi jay Television (P.) Ltd. v. Dispute Resolution Panel, Chennai (supra) as well as the Bombay High Court in International Air Transport Association v. DCIT (20161 290 CTR (Bom.) 46, came to the same conclusion. 15. Mr. Dileep Shivpuri, learned counsel for the Revenue sought to contend that the failure to adhere to the mandatory requirement of issuing a draft assessment order under section 144C(1) of the Act would, at best, be 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 DRJP. 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. CONCLUSION

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Delhi High Court in the case of Nokia India Pvt. Ltd. Vs. Addl. CIT

(supra) and further the SLP filed by the Revenue was also dismissed

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by the Hon’ble Supreme Court which is reported in 98 Taxmann.com

374.

that the Tribunal vide its order dated 22.02.2015 in ITA

No.565/Del/2013 has restored the issue to the file of the AO for

denovo consideration following the order of the Tribunal in

assessee’s own case for the AY 2008-09 which was also restored back

by the Tribunal for re-adjudication. The Assessing Officer passed

final assessment order dated 31.03.2016 u/s 143(3)/144C r.w.s. 254

of the Act. As the AO passed the final assessment order without

passing draft assessment order the ratio of the decisions of the

Hon’ble Delhi High Court in the case of PCIT Vs. Headstrong Services

India Pvt. Ltd. (supra) and no Nokia India Pvt. Ltd. Vs. Addl. CIT

(supra) squarely applies to the facts of the assessee’s case. Thus,

respectfully following the above said decisions, we quash the final

assessment order passed by the AO dated 31.03.2016 u/s

143(3)/144C/254 of the Act for the AY 2009-10 also. Ground no.1 of

cross objection filed by the assessee is allowed.

AO the adjudication of other grounds on merits in the cross

objection would render academic. The appeal filed by the Revenue 17

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became infructuous as the final assessment order itself was quashed

by us.

allowed and the appeal of the Revenue is dismissed as infructuous.

Order pronounced in the open court on 26/09/2023

Sd/- Sd/- (M BALAGANESH) (C.N. PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 26/09/2023 *Kavita Arora, Sr. P.S. Copy of order sent to- Assessee/AO/Pr. CIT/ CIT (A)/ ITAT (DR)/Guard file of ITAT. By order

Assistant Registrar, ITAT: Delhi Benches-Delhi