JOINT COMMISSIONER OF INCOME-TAX, (OSD) , CIRCLE -3,, PUNE vs. M/S. BOBST INDIA PVT.LTD,, PUNE

ORDER

PER D. KARUNAKARA RAO, AM:

C.O. No.42/PUN/2019 2. In this appeal, there is an issue relating to the non-issuance of the “draft assessment order” to the assessee. Appreciating the existing law, the CIT(A) granted relief to the assessee. Therefore, the Revenue is aggrieved with the decision of the CIT(A) and filed an appeal before the Tribunal with the following grounds :- “

1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(Appeal) was justified in not considering that the issue restore back to TPO was merely to re-compute the PLI after giving an opportunity of being heard and not to decide the entire TP adjustment issue afresh on a de novo basis?

2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(Appeal) has erred in not considering the merits of the case and holding that when the proceedings were restored back to TPO merely to re- compute the PLI whether a draft assessment order was required to be issued?

3. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(Appeal) was justified in holding that the final assessment order stands vitiated for failure at adhere to the mandatory requirements of first passing draft assessment order in terms of section 144C(1) of the Act is no longer res integra?”

3. Supporting the decision of the CIT(A) on this issue both on legal and merits, the assessee filed the Cross Objection and raised the following cross objections :- “On the facts and in the circumstances of the case the Id. AO has 1. erred in objecting to the learned CIT(A)’s order, without appreciating the fact that the learned CIT(A), has quashed the assessment order dated 8 December 2017 passed by the learned AO under section 143 read with section 254 of the Income-tax Act, 1961, in absence of issuance of draft assessment order to the Assessee. On the facts and in the circumstances of the case the Hon’ble CIT(A) has: 2. erred in not appreciating the fact that the ld. TPO has modified the unadjusted operating margin of one of the comparable companies viz. International Combustion (India) Limited to 21.64% from 13.95% which was taken in the original transfer pricing order dated 17 October 2011, without appreciating the fact that the Hon’ble ITAT has not given any such direction to modify the operating margin of the said comparable; 3. erred in not appreciating the fact that the ld. TPO enhanced the transfer pricing adjustment by Rs.2,10,842 (i.e difference between adjustment made by ld. TPO in first round of Rs. 1,52,38,300 and revised adjustment of Rs. 1,54,49,142 made pursuant to remand back by ITAT) thereby indirectly making C.O. No.42/PUN/2019 an enhancement while giving effect to the Hon’ble ITAT order which is not permissible; 4. erred by granting TDS credit (as a part of pre-paid taxes) of Rs. 9,40,447 as against an amount of Rs. 9,73,815 claimed by the Assessee in its return of income. The Assessee craves, to consider each of the above cross-objections without prejudice to each other and craves leave to add, alter, delete or modify all or any of the above cross-objections.”

4. From the above, it is evident that the ground no.3 raised by the Revenue and cross objection no.1 raised by the assessee, revolve around the issue of non-issuance of the draft assessment order to the assessee.

5. Before us, at the outset, ld. Counsels for the assessee and the Revenue submitted that the legal issue relating to the non-issuance of draft assessment order to the assessee is the core issue for adjudication and the same is required to be decided in priority before going to the merits of the additions/adjustments. Therefore, to start with, we proceed to discuss the relevant facts on this issue of non-issuance of draft assessment order to the assessee.

6. Briefly stated the relevant facts include that the assessee is a domestic company and filed return of income declaring total income of Rs.2,52,17,110/-. In the return of income, the assessee shown international transactions with its AEs to the extent of Rs.36,97,43,284/-. The Assessing Officer made reference to the TPO. The TPO proposed an upward adjustment of Rs.10,37,82,300/- in respect of the international transaction to arrive at ALP. Accordingly, the Assessing Officer proposed a draft order making an upward adjustment of Rs.10,37,82,300/- to the assessee’s total income on account of adjustment made to ALP of the international transactions with the AEs. Incorporating the same, the assessee approached the DRP. The DRP C.O. No.42/PUN/2019 vide its directions u/s 144C(5) of the Act 29.08.2012 confirmed the proposed addition of Rs.10,37,82,300/-. Incorporating the same, the Assessing Officer passed “final assessment order” u/s 143(3) r.w.s. 144C(13) of the Act. Further, aggrieved with the said order of the Assessing Officer, the assessee filed an appeal before the Tribunal. The Tribunal vide its order dated 03.02.2017 allowed the appeal of the assessee, but on certain issues remitted back to the file of the Assessing Officer with certain directions. As per the directions of the Tribunal, the TPO vide order u/s 92CA(3) r.w.s. 254 of the Act proposed an adjustment of Rs.1,54,59,142/- made to international transactions. As a consequent to this adjustment, the income of the assessee got increased by Rs.1,54,59,142/-. The order u/s 143(3)/254 of the Act was passed by the Assessing Officer on 08.12.2017 without issuance of the “Draft Assessment Order”.

7. Aggrieved with the above, enhancement of income/adjustments, the assessee filed the appeal before the CIT(A). During the proceedings before the CIT(A), the assessee raised an additional ground (ground no.7), which is extracted in para 6 of the order of the CIT(A). This ground relates to the validity of the assessment order made by the Assessing Officer in the second round of proceedings without issuing/forwarding a draft assessment order to the assessee in violation of the procedure or proceedings laid down in section 144(C) of the Act. In this regard, assessee relied on various decisions in support of admitting and allowing of the said additional legal ground. It is an argument of the assessee before the CIT(A) that, in the second round of the proceedings also, the Assessing Officer under statutory obligation to issue draft assessment order to the assessee before final assessment order is made. The contents of para 7 to 7.3 of the order of the CIT(A) are relevant in this regard. The CIT(A) allowed the appeal of the assessee on the legal issue.

C.O. No.42/PUN/2019 8. Aggrieved with the above decision of the CIT(A) on the legal issue, the Revenue is in appeal before the Tribunal with the grounds mentioned above. Supporting the said order of the CIT(A), the assessee is filed the present Cross Objection with the cross-objections mentioned above. Proceedings before the Tribunal 9. Before us, ld. Counsel for the assessee brought our attention to the cross objection no.1 and explained the above narrated facts and developments on this issue. Supporting the order of the CIT(A), the ld. Counsel for the assessee brought our attention to the provisions of the Act as well as the judgement of the Hon’ble Bombay High Court in the case of Pr.CIT vs. M/s Andrew Telecommunications P. Ltd. vide Tax Appeal No.144 of 2017 dated 16th July, 2018 and submitted that the Jurisdictional High Court already considered such an issue in an identical case where the Assessing Officer failed to issue draft assessment order to the assessee before passing the final assessment order. Referring to para 18 and 19 of the said judgement (supra), the ld. Counsel for the assessee submitted that passing of draft assessment order in any case is not an empty formality. When such order is passed, copy is provided to the assessee, the assessee gets chance to raise objection, if any, before the DRP and the CIT(A), as the case may be. In this regard, he read out the facts of that case and submitted that it was also a case where the Tribunal remanded the issue to the file of the TPO with certain directions. In that case also the Tribunal allowed the issue in favour of the assessee and the Revenue was in appeal before the Hon’ble High Court.