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Income Tax Appellate Tribunal, JAIPUR BENCH ‘A’ JAIPUR
Before: SHRI SANDEEP GOSAIN, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA No. 169/JP/2019
आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCH ‘A’ JAIPUR Jh lanhi xkslkbZ] U;kf;d lnL; ,oa Jh foØe flag ;kno] ys[kk lnL; ds le{k BEFORE: SHRI SANDEEP GOSAIN, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA No. 169/JP/2019 fu/kZkj.k o"kZ@Assessment Year :2014-15 cuke M/s Century Infra Power P. Ltd., The DCIT, Vs. S-23, Alankar Plaza, Central Spine, Circle-02, Jaipur Vidhyadhar Nagar, Jaipur LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AADCC5109J vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Shri Manish Agarwal (CA) jktLo dh vksj ls@ Revenue by : Sh. Bhanwar Singh (JCIT) lquokbZ dh rkjh[k@ Date of Hearing : 25/09/2019 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 03/10/2019 vkns'k@ ORDER
PER: VIKRAM SINGH YADAV, A.M. This is an appeal filed by the assessee against the order of ld. CIT(A)-1, Jaipur dated 14.12.2018 wherein the assessee has taken the following grounds of appeal:- “1. On the facts and in the circumstances of the case, ld.CIT has grossly erred in confirming the action of ld.AO in passing the impugned order u/s 143 r.w.s.144C of the Income Tax Act, 1961 directly without passing a draft proposed order of assessment by ignoring the provision of clause (1) to sec 144C. Appellant prays that the assessment order so passed without making a draft order and without affording opportunity to the assessee to file objections if any, is in violation of specific provisions of law, deserves to be held bad in law and is liable to be quashed.
ITA No. 169/JP/2019 M/s Century Infra Power P. Ltd., Jaipur Vs. DCIT, Jaipur Without prejudice to above and in the alternate;
2 On the facts and in the circumstances of the case and in law, ld. CIT(A) has grossly erred in confirming the disallowance of interest paid of Rs. 1,31,425/- made by 1d.A0 without considering the submissions/ explanations filed in respect of Associates Enterprises, merely on the basis of the order of TPO passed u/s 92C(3) of the Act.
2.2 That the Id. CIT(A) has further erred in not considering the fact that the assessee had paid interest @ 13% on funds borrowed from banks, and thus a payment of interest @15%, which is 2% plus bank- rate, was an acceptable parameter to establish arm's-length rate being considered by the assessee, for paying interest on funds borrowed from Associated enterprises, thus the addition of Rs. 1,31,425/- deserves to be deleted.
On the facts and in the circumstances of the case and in law, ld. CIT(A) has grossly erred in confirming disallowance of Rs.2,00,000/- out of lump sum disallowance of Rs. 5,00,000/- made by ld.AO out of various expenses like general, office, travelling etc. claimed by assessee by ignoring that complete details in respect of the expenses claimed by assessee were submitted before the Ld. AO. Thus, the disallowance of Rs. 2,00,000/-sustained by ld.CIT(A) deserves to be deleted.
On the facts and in the circumstances of the case and in law, ld.CIT(A) has grossly erred in confirming the disallowance of Rs. 8,42,792/- made by ld.AO out of depreciation claimed by the assessee, by alleging that special benefit of additional depreciation u/s 32(1) of the Act is to be allowed only in the year of purchase of specified asset, and the same cannot be carried forward to the next year.
ITA No. 169/JP/2019 M/s Century Infra Power P. Ltd., Jaipur Vs. DCIT, Jaipur 4.1 That the Id. CIT(A) has further erred in confirming the disallowance of depreciation made by ld.AO without considering the submission of assessee that the insertion of third proviso to sec 32(1)(ii) by the Finance Act 2015, that allows carry forward of balance additional depreciation on the specified asset, which was purchased/ used for less than 180 days in the year of purchase, is merely clarificatory in nature. The disallowance thus made deserves to be deleted.”
Briefly stated, the facts of the case are that the assessee is engaged in the business of manufacturing, erection, repair and sale of Power Transformers and parts thereof. It filed its return of income on 19.11.2014 declaring total income of Rs. 3,74,92,000/-. Subsequently, the matter was selected for scrutiny by issuance of notice u/s 143(2) of the Act and reference was made to the Transfer Pricing Officer u/s 92CA(3) for determination of Arms Length Price in respect of domestic transactions with Associated Enterprises during the Financial Year 2013-14 relevant to impugned assessment year 2014-15.
The TPO passed the order u/s 92CA(3) on 30.06.2017 wherein he has proposed an adjustment of Rs. 1,31,425/- to the income of the assessee being the excess interest paid to related parties above the arms length price. On receipt of the TPO’s order, the AO vide letter 20.07.2017 issued a show cause notice to the assessee as to why adjustment so proposed by the TPO should not be made. However, no reply was furnished by the assessee company in this regard. The AO accordingly made an addition of Rs. 1,31,425/- to the returned income as proposed by the TOP in his order u/s 92CA(3) of the Act. Further, the AO disallowed certain expenses amounting to Rs. 5 lacs and also disallowed the additional depreciation claimed by the assessee amounting to Rs. 8,42,792/- and therefore, as against the returned income of Rs. 3,89,66,220/-, the assessed income was determined at Rs 3,89,66,220/- by passing an order 3
ITA No. 169/JP/2019 M/s Century Infra Power P. Ltd., Jaipur Vs. DCIT, Jaipur u/s 143(3) read with section 144C of the Act dated 15.12.2017. Along with the assessment order, a notice of demand was issued u/s 156 raising a demand of Rs. 7,76,010. Separately, penalty proceedings u/s 271(1)(c) were also initiated for furnishing of inaccurate particulars of income.
Being aggrieved, the assessee carried the matter in appeal before the ld. CIT(A) and one of the ground raised was relating to passing the impugned order u/s 143(3)/143C directly without passing the draft proposed order ignoring the provisions of section 144C of the Act and submissions were made. However, the ld. CIT(A) did not accept the contentions so advanced by the assessee and the relevant findings of the ld CIT(A) are contained at para 3.1.2(iii) of his order which reads as under:- “(iii) Thus, as per the above section, draft order is to be forwarded to the appellant before making any additions on account of transfer pricing adjustment. The appellant relied on a number of judgments in support of its claim. However, it is seen that the procedure lapse has not caused any prejudice to the appellant. The AO gave the opportunity to the appellant by issuing show cause notice dated 20.07.2017 before making such additions. However, the appellant failed to reply to the show cause which leads to the presumption that the appellant had no objection for the above addition. The case laws relied by the appellant are distinguishable on facts as it is not coming from the submission made by the appellant that whether opportunity was given by the AO before making additions on the basis of transfer pricing adjustments. Coming to the merit of the case, it is seen that the Ld. TPO made the adjustments on account of interest paid/ payable on unsecured loans from related parties. The TPO observed that the appellant has paid interest @ 15% to the related parties. The TPO adopted ALP of the interest @ 12.83% (PLR of SBI @ 9.83% + 300 basis points). The appellant contended that the 4
ITA No. 169/JP/2019 M/s Century Infra Power P. Ltd., Jaipur Vs. DCIT, Jaipur bank rates were varying from 13.15% to 14.75% and interest payment @ 15% to the related parties which is just above the normal rate by 0.85% to 0.25% should be regarded as unreasonable. However, there is no force in the contention made by the appellant. The TPO has adopted the ALP rate based on prime lending rate of the SBI which appears to be reasonable and justified. No interference is called for in the assessment order on this account and the addition made by the AO is sustained.”
Against the aforesaid findings of the ld. CIT(A), the assessee is in appeal and in ground No. 1 has challenged the legality of the assessment order passed by the AO without providing the draft of the proposed order of an assessment in terms of section 144C of the Act.
In this regard, the ld. AR submitted that since the assessee had transactions with Associated Enterprise ("AE") within the meaning of section 92A of the Act during the year, a reference was made by ld. AO to ld. TPO for determination of Arm's Length Price of such transactions. Order of ld. TPO was received by the ld.AO, wherein interest payable by the assessee to its AE's was determined at Rs.7,77,043/- as against Rs. 9,08,468/- claimed in the profit and loss account. However, ld. AO did not pass the draft assessment order incorporating the adjustments made in the income as per the order u/s 92CA of the TPO as required u/s 144C. The AO during the assessment proceedings issued a show cause notice to explain the difference in the interest so claimed and then directly passed the final order u/s 144C of the Act by making addition of the amount of adjustment made by the ld. TPO in the order passed u/s 92CA of the Act.
It was submitted by the ld AR that the order so passed is absolutely bad in law as the same was not made in accordance with provisions of
ITA No. 169/JP/2019 M/s Century Infra Power P. Ltd., Jaipur Vs. DCIT, Jaipur clause (1) of sec 144C, which requires that AO should pass a draft assessment order, proposing the adjustments (if any) sought to be made to the returned income of the assessee to give effect the adjustment made by the Id. TPO as per its order. It was submitted that section 144C, providing for reference to Dispute Resolution Panel (DRP), was inserted in the Income- tax Act, 1961 by Finance (No.2) Act, 2009. Subsection (1) of 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."
In view of above provisions, before a final order, prejudicial to the interest of the assessee is sought to be passed, a draft order is to be made mandatorily, against which the assessee if he may so choose, can file objections before the ld. AO and only after disposing the objections if any so raised, can a final assessment order be passed u/s 143 r.w.s. 144C. In the case of the assessee, no such draft order was ever issued and handed over to the assessee and the addition was made to the returned income, based merely on the TPO's order without affording opportunity to the assessee as required under the law to file the objections, if any, before the DRP. Thus such order passed by ld. AO is indeed in violation to principles of natural justice, and the provisions of section 144C of the Act, and deserves to be quashed.
It was further submitted by the ld AR that the law requires ld. AO to pass a draft order and communicate the same to the assessee to enable it to file the objections within a specified time period before the DRP. And if the assessee 6
ITA No. 169/JP/2019 M/s Century Infra Power P. Ltd., Jaipur Vs. DCIT, Jaipur has not filed any objections within the specified time before the DRP, the AO can pass the final order. Whereas in the case of the assessee, ld.AO made the additions towards the adjustments suggested by ld.TPO merely by stating that the assessee did not filed any reply to the show cause notice issued which view is further concurred by Ld. CIT(A) while holding the assessment order as valid.
It was further submitted by ld AR that passing a draft order is not merely a procedural requirement, which is curable u/s 292BB of the Act, the statute requires the AO to pass a draft order, as the requirement is mandatory and give substantive rights to the assessee to object to any adjustments made by TPO before they are incorporated in the final order. Further the Assessing officer is expected to pass the order of assessment in terms of such directions issued by the DRP (Dispute Resolution Panel) without giving any further hearing to the assessee. Thus at the level of Assessing Officer, the directions of the DRP would bind even the assessee. Such opportunity cannot be taken away by treating it as purely procedural in nature. This contention of the assessee derives support from the following:
• Zuari Cement Limited vs. Assistant Commissioner of Income Tax’ –WP(C) No. 5537/2012, DB of AP High Court. • Vijay Television Private Limited vs. DRP-2014 (6) TMI 540-Madras High Court • Turner International India Private Limited vs. Deputy Commissioner of Income Tax’-2017 (5) TMI 991- Delhi High Court • Capsugel Healthcare Ltd vs. ACIT ([2014] 50 taxmann.com 324 (Delhi- Trib.) • CIT vs. C-Sam (India) Private Limited-2017 (8) TMI 291- Gujarat High Court
ITA No. 169/JP/2019 M/s Century Infra Power P. Ltd., Jaipur Vs. DCIT, Jaipur 11. It was finally submitted that the assessment order passed u/s 143 r.w.s. 144C, without affording opportunity to the assessee to object to the additions referred by ld. TPO, by passing a draft order in accordance with provisions of sec 144C(1) of the Act, is against principles of natural justice, un-enforceable, void ab-initio and deserves to be annulled and the assessee prays accordingly.
The ld. DR is heard who has relied on the findings of the lower authorities and submitted that adequate opportunity has been provided to assessee to submit objections against the ALP adjustments by the TPO as well as by the Assessing Officer. Accordingly, it is not a case where the rights of the assessee have been prejudiced in any manner by not passing a draft order and against the assessment order so passed by the Assessing officer, the assessee had a right to file an appeal before the ld CIT(A) and such right has been exercised by the assessee in the instant case. It was accordingly submitted that there is no prejudice caused to the assessee and principle of natural justice has been duly complied with.
We have heard the rival contentions and perused the materials available on record. The Co-ordinate Bench in case of DCIT vs. M/s Jaipur Rugs Company (P) Ltd., Jaipur (ITA No. 1084/JP/16 & 46/JP/17 dated 24.04.2018) has dealt with a similar issue and the Co-ordinate Bench (speaking through one of us) has examined the matter at length including the authorities cited by the ld AR and the relevant findings read as under:-
“15. The scheme of section 144C is unambiguous and sub-section (1) of section 144C clearly provides for issuance of a draft order which is a sine qua non before the Assessing Officer can pass a regular assessment order u/s 143(3) of the Act. It is not in dispute that in the instant case, the AO has made an addition based on the ALP adjustment proposed by
ITA No. 169/JP/2019 M/s Century Infra Power P. Ltd., Jaipur Vs. DCIT, Jaipur the TPO and has thus made a variation in the income returned which is prejudicial to the interest of such assessee.
During the course of hearing, in order to determine whether draft assessment order was prepared and furnished to the assessee by the AO or not, the assessment records were called for. Thereafter, at the hearing scheduled on 12.04.2018, the assessment records were produced by the ld DR and on perusal of the same, it is noted that there is nothing on record in terms of draft assessment order which was prepared and furnished to the assessee and further, there is no entry which has been recorded in the order sheet to this effect that draft assessment order was prepared and furnished to the assessee. Therefore, it is a undisputed fact that in the instant case, there was no draft assessment order which was prepared and furnished to the assessee as contemplated under section 144C(1) of the Act.
We have also carefully perused the assessment order passed under section 143(3) of the Act dated 18.02.2015. It is a regular assessment order in form and in substance. Along with assessment order, a notice of demand u/s 156 vide entry in D&CR No. 104/20 dated 18.02.2015 was raised wherein an amount of Rs. 38,98,400/- was determined as payable by the assessee. Separately, the penalty proceedings u/s 271(1)(c) were also initiated for furnishing of inaccurate particulars of income and a notice u/s 274 read with section 271 dated 18.02.2015 was issued to the assessee company. It is therefore a case where not only that income has been finally determined by the AO computed, the tax payable thereon has also been computed and demand entries are made on the basis of this order in the D&CR register and even penalty proceedings are initiated. Such an exercise could not have 9
ITA No. 169/JP/2019 M/s Century Infra Power P. Ltd., Jaipur Vs. DCIT, Jaipur been done if the assessment order was indeed a draft assessment order. Undoubtedly, if draft of assessment order is wrongly titled an assessment order, section 292B should have come to the rescue of the Assessing Officer. However given the fact that resultant tax demand and penalty proceedings have been initiated, it is a final assessment order which has been passed by the Assessing Officer in substance and in effect.
Now, coming to the contention of the ld DR that adequate opportunity has been provided to assessee to submit objections against the ALP adjustments by the TPO as well as by the Assessing Officer. Accordingly, it is not a case where the rights of the assessee have been prejudiced in any manner. In other words, the contentions of the ld DR is that where show-cause notice towards proposed ALP adjustment has been issued to the assessee, the same is a sufficient compliance and in such a scenario, there is no necessity to furnish the draft assessment order. We are however unable to accede to the said contentions raised by the ld DR as the same is not what has been contemplated by the legislature under section 144C(1) of the Act. And if we were to accept the said contentions of the ld DR, it will make the provisions of section 144C redundant and will take away the assessee’s right of approaching the Dispute Resolution Panel as basis such show-cause notice, the assessee could not have approached the Dispute Resolution Panel and thus, the same cannot be accepted. As we have noted above, the scheme of section 144C is unambiguous and sub-section (1) of section 144C clearly provides for issuance of a draft order which is a sine qua non before the Assessing Officer can pass a regular assessment order u/s 143(3) of the Act.
ITA No. 169/JP/2019 M/s Century Infra Power P. Ltd., Jaipur Vs. DCIT, Jaipur 19. In this regard, we refer to the decision of the Co-ordinate Bench in the case of Capsugel Healthcare Ltd vs. ACIT (supra) wherein the facts of the case are identical and ratio thereof equally applies in the instant case. In that case, certain transfer pricing adjustment under section 92CA(1) was made to the income of the assessee. However, the Assessing Officer did not furnish to the assessee a draft assessment order, before passing a final assessment order. On appeal before the ld CIT(A), the assessee raised its grievance of not being furnished a draft assessment order. The ld CIT(A) rejected this grievance and observed that in the instant case, after receipt of the order passed by TPO, the Assessing Officer issued a show cause notice proposing to make additions as per the adjustments made by the TPO. In response to this, the assessee instead of filing objections, if any, with the DRP and the Assessing Officer had simply filed a brief note before the Assessing Officer giving a gist of the basis of adjustments made by the TPO with the remark that the explanation may be put on record for further reference. The show cause notice issued by the Assessing Officer was nothing but a draft assessment order as no other additions had been made by the Assessing Officer apart from the adjustments made by the TPO. If the assessee had any objections on the proposed additions by the Assessing Officer, it should have filed such objections within 30 days before the DRP and the Assessing Officer. However, since the assessee had not filed any objections before the DRP and the Assessing Officer his contentions in this regard were not tenable. On appeal, the Coordinate Bench held as under:
“7. We find that the issue is covered is now covered in favour in of the assessee by judgment of Hon'ble Madras High Court, in the
ITA No. 169/JP/2019 M/s Century Infra Power P. Ltd., Jaipur Vs. DCIT, Jaipur case of Vijay Television (P.) Ltd v. Dispute Resolution Panel, wherein Hon'ble High Court has, inter alia, observed as follows:
Under Section 144 (C) of the Act, it is evident that the assessing officer is required to pass only a draft assessment order on the basis of the recommendations made by the TPO after giving an opportunity to the assessee to file their objections and then the assessing officer shall pass a final order. According to the learned senior counsel for the petitioners, this procedure has not been followed by the second respondent inasmuch as a final order has been straightaway passed without passing a draft assessment order.
As rightly pointed out by the learned senior counsel for the petitioners, in the order passed on 26.03.2013, the second respondent even raised a demand as also imposed penalty. Such demand has to be raised only after a final order has been passed determining the tax liability. The very fact that the taxable amount has been determined itself would show that it was passed as a final order. In fact, a notice for demand under Section 156 of the Act was issued pursuant to such order dated 26.03.2013 of the second respondent. Both the order dated 26.03.2013 and the notice for demand thereof have been served simultaneously on the petitioner. Therefore, not only the assessment is complete, but also a notice dated 28.03.2013 was issued thereon calling upon the petitioner to pay the tax amount as also penalty under Section 271 of the Act. Thereafter, the petitioner was given an opportunity of hearing on 12.04.2013. Subsequently, the second respondent realised the mistake in passing a final order instead of a draft 12
ITA No. 169/JP/2019 M/s Century Infra Power P. Ltd., Jaipur Vs. DCIT, Jaipur assessment order which resulted in issuing a corrigendum on 15.04.2013. In the corrigendum it was only stated that the order passed on 26.03.2013 under Section 143C of the Act has to be read and treated as a draft assessment order as per Section 143C read with Section 93CA (4) read with Section 143 (3) of the Act. In and by the order dated 15.04.2013, the second respondent granted thirty days time to enable the assessee to file their objections. On receipt of the corrigendum dated 15.04.2013, the petitioner company approached the first respondent, but the first respondent declined to issue any direction to the assessment officer on the ground that the first respondent has got jurisdiction only to entertain such an appeal if the order passed by the second respondent is a pre-assessment order. Therefore, it is evident that the first respondent declined to entertain the objections raised by the petitioner company on the ground that the order passed by the second respondent is not a draft assessment order, rather it is a final order. Thus, the first respondent had treated the order dated 26.03.2013 of the second respondent as a final order and therefore it refused to entertain the objections filed on behalf of the petitioner company.
As mentioned supra, as per Section 144C (1) of the Act, the second respondent-assessing officer has no right to pass a final order pursuant to the recommendations made by the TPO. In fact, the second respondent-assessing officer himself has admitted by virtue of the corrigendum dated 15.04.2013, that the order dated 26.03.2013 is only a final order and it was directed to be treated as a draft assessment order. In this context, it is worthwhile to refer to the decision of the Honourable Supreme Court in the 13
ITA No. 169/JP/2019 M/s Century Infra Power P. Ltd., Jaipur Vs. DCIT, Jaipur decision Deepak Agro Foods (supra) wherein in Para No.10, the Honourable Supreme Court discussed as to when an order could be construed as a final order:— "10. Shri Rajiv Dutta, learned senior counsel appearing on behalf of the appellant, submitted that in the light of its afore-extracted observations and a clear finding that the assessment order for the assessment year 1995-96 had been anti-dated, the order was null and void. It was urged that assessment proceedings after the expiry of the period of limitation being a nullity in law, the High Court should have annulled the assessment and there was no question of a fresh assessment. Thus, the nub of the grievance of the appellant is that in remanding the matter back to the Assessing Officer, the High Court has not only extended the statutory period prescribed for completion of assessment, it has also conferred jurisdiction upon the Assessing Officer, which he otherwise lacked on the expiry of the said period."
It is evident from the above decision of the Honourable Supreme Court that if an order is passed beyond the statutory period prescribed, such order is a nullity and has no force of law. In that case before the Honourable Supreme Court, the period for assessment proceedings expired and thereafter, fresh assessment orders have been issued by anti-dating it. In those circumstances, it was held that the High Court ought not to have remanded the matter back to the assessment officer and by doing so, the statutory period prescribed for completion of assessment has been extended by conferring jurisdiction upon the Assessing Officer, which he otherwise lacked on the expiry of the said period. In that case, the Honourable Supreme Court also held that there is a 14
ITA No. 169/JP/2019 M/s Century Infra Power P. Ltd., Jaipur Vs. DCIT, Jaipur distinction between an order which is a nullity and an order which is irregular and illegal. Where an authority making order lacks inherent jurisdiction, such an order will be null and void ab initio, as the defect of jurisdiction goes to the root of the matter and strikes at his very authority to pass any order and such a defect cannot be cured even by consent of the parties.
This decision squarely applies to the facts of this case. In this case, the order passed by the second respondent lacks jurisdiction especially when it is beyond the period of limitation prescribed by the statute. When there is a statutory violation in not following the procedures prescribed, such an order cannot be cured by merely issuing a corrigendum.
In the decision rendered by the Honourable Supreme Court of India in the case of (L. Hazari Mal Kuthiala (supra), which was relied on by the learned standing counsel for the respondents, it was held that the mistake or defect on the part of the Commissioner to consult the Central Board of Revenue did not render his order invalid since the provision about consultation in terms of Section 5 (3) of Patiala Act was merely directory and not mandatory. In the present case, the procedure that was required to be followed by the second respondent to pass a draft assessment order is mandatory and it is prescribed by the statute. Therefore, this decision relied on by the learned standing counsel for the respondents cannot be made applicable to this case.
The learned senior counsel for the petitioners relied on the decision of the Allahabad High Court in the case of Shital Prasad 15
ITA No. 169/JP/2019 M/s Century Infra Power P. Ltd., Jaipur Vs. DCIT, Jaipur Kharag Prasad (supra) wherein the Division Bench of the Allahabad High Court held that a notice contemplated under Section 148 of the Income Tax Act is a jurisdictional notice and it is not curable by issuing a notice under Section 292 B of the Act, if it was not served in accordance with the provisions of the Act.
Similarly, the Division Bench of this Court in the decision in the case of V. Ramaiah (supra) Madras held that when an order is passed under Section 158BC of the Act instead of Section 158BD, it is not valid since it is not a defect curable under Section 292B of the Act. It was also held that an order passed after the period of limitation laid down in Section 158BC is not a valid order. It was further held that when there is a prescribed procedure contemplated under the Act or in a particular section and it is violated, then it cannot be cured. In the present case, certain procedure has been contemplated under Section 144C of the Act and they have been violated by the second respondent by passing final order of assessment and therefore such order passed by the second respondent has got no jurisdiction or it can be cured by virtue of issuing a corrigendum.
By referring to the decision of the Division Bench of this Court dated 10.02.2014 passed in Tax Case (Appeal) No. 2412 of 2006, the learned standing counsel for the respondents sought to make a distinction with the decision of the Division Bench of this Court mentioned in the preceding paragraph. That is a case where the facts relating to the order covered in the decision of the Honourable Supreme Court, which the Division Bench relied on, could not be made applicable to the facts of that case and 16
ITA No. 169/JP/2019 M/s Century Infra Power P. Ltd., Jaipur Vs. DCIT, Jaipur therefore it was not discussed by the Division Bench in the order dated 10.02.2014. For more clarity, the relevant portion of the decision of the Division Bench of this Court in the case of V. Ramaiah (supra) is extracted hereunder:— "Certainly passing an order of assessment under Section 158BC instead of Section 158BD (inspite of clear terminology used in both the sections) would not amount to a mistake, a defect or an omission, much less a curable one. When different contingencies are dealt with under different sections of the Act, allowing an illegality to be perpetrated and then taking a plea by the Revenue that such an action adopted on their part would not nullify the proceedings, cannot be appreciated since by virtue of such actions, the Revenue has attempted to nullify the scheme of things of limitations legally propounded under the Act...."
In yet another decision of the Division Bench of this Court in the case of Smt. R.V. Sarojini Devi (supra), which was relied on by the learned senior counsel for the petitioners, it was held as follows:— "Under Section 158BC of the Act empowers the assessing officer to determine the undisclosed income of the block period in the manner laid down in Section 158BB and 'the provisions of Section 142, subsections (2) and (3) of Section 143, Section 144 and Section 145 shall, so far as may be apply. This indicates that this clause enables the Assessing Officer, after the return is filed, to complete the assessment under Section 143 (2) by following the procedure like issue of notice under Section 143 (2)/142. This does not provide accepting the return as provided under Section 143 (1) (a). The Officer has to complete the assessment order under 17
ITA No. 169/JP/2019 M/s Century Infra Power P. Ltd., Jaipur Vs. DCIT, Jaipur Section 143 (3) only. If an assessment is to be completed under Section 143 (3) read with Section 158BC, notice under Section 143 (2) should be issued within one year from the date of filing of the block return. Omission on the part of the assessing officer to issue notice under Section 143(2) cannot be a procedural irregularity and is not curable." 30. It is evident from the above decision of the Division Bench of this Court that where there is an omission on the part of the assessing officer to follow the mandatory procedures prescribed in the Act, such an omission cannot be termed as a mere procedural irregularity and it cannot be cured. 31. In identical case as that of the case on hand, the Division Bench of the Andhra Pradesh High Court, in an unreported decision, had an occasion to consider the scope of the validity of the demand notice issued by the assessing officer in the case of Zuari Cement Ltd. (supra), wherein it was held as under:— "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 Rs.52.14 crores u/s.92CA of the Act on 20.09.2011 and forwarded it to the Assessing Officer and to the assessee 18
ITA No. 169/JP/2019 M/s Century Infra Power P. Ltd., Jaipur Vs. DCIT, Jaipur under subsection (3) thereof. The assessing officer accepted the variation submitted by the TPO without giving the petitioner any opportunity to object to it and passed the impugned assessment order. As this has occurred after 01.10.2009, the cut off date prescribed in sub-section (1) of S.144C, the Assessing Officer is mandated to first pass a draft assessment order, communicate it to the assessee, hear his objections and then complete assessment. Admittedly, this has not been done and the respondent has passed a final assessment order dated 22.12.2011 straight away. Therefore, the impugned order of assessment is clearly contrary to S.144C of the Act and is without jurisdiction, null and void. The contention of the Revenue that the circular No.5/2010 of the CBDT has clarified that the provisions of S.144C shall not apply for the assessment year 2008-09 and would apply only from the assessment year 2010-2011 and later years is not tenable in as much as the language of Sub-section (1) of Section 144C referring to the cut off date of 01.10.2009 indicates an intention of the legislature to make it applicable, if there is a proposal by the Assessing Officer to make a variation in the income or loss returned by the assessee which is prejudicial to the assessee, after 01.10.2009. Therefore, this particular provision introduced by Finance (No.2) Act, 2009, would apply if the above condition is satisfied and other provisions, in which similar contrary intention is not indicated, which were introduced by the said enactment, would apply from 01.04.2009 i.e., from the assessment year 2010-2011. It is not disputed that the memorandum explaining the Finance Bill and the Notes and clauses accompanying the Finance Bill which preceded the Finance (No.2) Act, 2009 clearly indicated that the amendments relating to S.144C would take effect from 19
ITA No. 169/JP/2019 M/s Century Infra Power P. Ltd., Jaipur Vs. DCIT, Jaipur 01.10.2009. In our view, the circular No.5/2010 issued by the CBDT stating that S.144C(1) would apply only from the assessment year 2010-2011 and subsequent years and not for the assessment year 2008-09 is contrary to the express language in S.144C(1) and the said view of the Revenue is unacceptable. The circular may represent only the understanding of the Board/Central Government of the statutory provisions, but it will not bind this Court or the Supreme Court. It cannot interfere with the jurisdiction and power of this Court to declare what the legislature says and take a view contrary to that declared in the circular of the CBDT (Ratan Melting and Wire Industries Case (1 Supra), Indra Industries (2 supra). The Revenue has not been able to pursuade us to take a contra view by citing any authority. In this view of the matter, we are of the view that the impugned order of assessment dated 23.12.2011 passed by the respondent is contrary to the mandatory provisions of S.144C of the Act and is passed in violation thereof. Therefore, it is declared as one without jurisdiction, null and void and unenforceable. Consequently, the demand notice dated 23.12.2011 issued by the respondent is set aside." 32. As against this order of the Division Bench of the Andhra Pradesh High Court, the Revenue went on appeal before the Honourable Supreme Court. The record of proceedings of the Supreme Court indicate that the Special Leave Petition was dismissed on 27.09.2013. 33. The decision of the Division Bench of the Andhra Pradesh High Court deals with an identical issue as that of the present case. In this case, against the order passed by the second respondent on 26.03.2013, the petitioner filed objections before the DRP, the first respondent herein and the first 20
ITA No. 169/JP/2019 M/s Century Infra Power P. Ltd., Jaipur Vs. DCIT, Jaipur respondent refused to entertain it by stating that the order passed by the second respondent is a final order and it had jurisdiction to entertain objections only if it is a draft assessment order. While so, the order dated 26.03.2013 of the second respondent can only be termed as a final order and in such event it is contrary to Section 144C of the Act. As mentioned supra, in and by the order dated 26.03.2013, the second respondent determined the taxable amount and also imposed penalty payable by the petitioner. According to the learned senior counsel for the petitioners, even as on this date, the website of the department indicate the amount determined by the second respondent payable by the company inspite of issuance of the corrigendum on 15.04.2013 as a tax due amount. Thus, while issuing the corrigendum, the second respondent did not even withdraw the taxable amount determined by him or updated the status in the website. In any event, such an order dated 26.03.2013 passed by the second respondent can only be construed as a final order passed in violation of the statutory provisions of the Act. The corrigendum dated 15.04.2013 is also beyond the period prescribed for limitation. Such a defect or failure on the part of the second respondent to adhere to the statutory provisions is not a curable defect by virtue of the corrigendum dated 15.04.2013. By issuing the corrigendum, the respondents cannot be allowed to develop their own case. Therefore, following the order passed by the Division Bench of the Andhra Pradesh High Court, which was also affirmed by the Honourable Supreme Court by dismissing the Special Leave Petition filed thereof, on 27.09.2013, the orders, which are impugned in these writ petitions are liable to be set aside.’
ITA No. 169/JP/2019 M/s Century Infra Power P. Ltd., Jaipur Vs. DCIT, Jaipur 8. Learned Departmental Representative, on the other hand, submits that this lapse on the part of the Assessing Officer is at best a procedural lapse and the matter should, therefore, be restored to the file of the Assessing Officer for adjudication de novo. 9. We are, however, unable to see any legally sustainable merits in the stand so taken by the learned Departmental Representative. Hon'ble High Court's esteemed views, as extracted above, bind us and we have to respectfully follow the same. Accordingly, in due deference to this binding judicial precedent, and other binding judicial precedents referred to therein, we quash the impugned assessment order. It is a legal nullity. As for the show cause notice issued by the Assessing Officer, before making the ALP adjustment, this cannot be treated as a draft assessment order nor the assessee could have approached the DRP against the same. Learned CIT(A) was thus clearly in error in equating the show cause notice with a draft assessment order against, and thus rationalizing the impugned assessment order. The stand of the CIT(A) cannot be upheld. In a case in which no draft assessment order is furnished to the assessee, to which assessee is entitled under section 144C (15), the assessment order passed by the AO is to be held is illegal and liable to be quashed on this ground alone. We do so.”
In light of above discussions, respectively following the decision of the Hon’ble High Courts and the Co-ordinate Bench referred supra, since the AO has failed to follow the mandate of the provisions of section 144C of the Act whereby he was required to pass a draft assessment order which is mandatory and is prescribed by the statute, the final assessment 22
ITA No. 169/JP/2019 M/s Century Infra Power P. Ltd., Jaipur Vs. DCIT, Jaipur order passed by the Assessing Officer u/s 143(3) is without jurisdiction. Further, the issuance of a show-cause notice cannot be equated and treated as a draft assessment order as the same would make the provisions of section 144C redundant. Accordingly, we quash and set aside the impugned assessment order. The ground of assessee’s appeal is thus allowed. 14. Following the aforesaid decision of the Coordinate Bench, in the instant case, since the AO has failed to follow the mandate of the provisions of section 144C of the Act whereby he was required to pass a draft assessment order which is mandatory and is prescribed by the statute, the final assessment order passed by the Assessing Officer u/s 143(3) r/w 144C is without jurisdiction. Further, the issuance of a show-cause notice cannot be equated and treated as a draft assessment order as the same would make the provisions of section 144C redundant. Accordingly, we quash and set aside the impugned assessment order. The ground no. 1 of assessee’s appeal is thus allowed.
Since we have quashed the assessment order, there is no necessity to address the other grounds raised by the assessee on merits. The same are rendered infructious and are dismissed.
In the result, appeal of the assessee is allowed.
Order pronounced in the Open Court on 03/10/2019.
Sd/- Sd/- ¼ lanhi xkslkbZ ½ ¼foØe flag ;kno½ (Sandeep Gosain) (Vikram Singh Yadav) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 03/10/2019 *Ganesh Kr. 23
ITA No. 169/JP/2019 M/s Century Infra Power P. Ltd., Jaipur Vs. DCIT, Jaipur आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. vihykFkhZ@The Appellant- M/s Century Infra Power P. Ltd., Jaipur 2. izR;FkhZ@ The Respondent- DCIT, Circle-02, Jaipur 3. vk;dj vk;qDr@ CIT 4. vk;dj vk;qDr@ CIT(A) 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत. 6. xkMZ QkbZy@ Guard File {ITA No. 169/JP/2019} vkns'kkuqlkj@ By order, सहायक पंजीकार@Aेेज. त्महपेजतंत