DEPUTY COMMISSIONER OF INCOME TAX, CHENNAI. vs. YOUNSHIN AUTOMOTIVE INDIA PRIVATE LIMITED, SRIPERUMBUDUR

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ITA 14/CHNY/2026Status: DisposedITAT Chennai05 June 2026AY 2021-2210 pages
AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that the CIT(A)'s decision was correct and confirmed it, stating that the Revenue's arguments did not override the relied-upon precedents. The Tribunal dismissed the Revenue's appeal.

What were the facts?

The assessee company filed a return declaring a loss, which was assessed at a lower loss. The CIT(A) allowed the assessee's appeal on technical grounds, quashing the assessment order. The Revenue appealed this decision.

What were the issues?

Whether the CIT(A) was correct in allowing the appeal on technical grounds without adjudicating on merits, and whether the Revenue's reliance on a Supreme Court decision was appropriate given the facts.

Which sections of the Income-tax Act were involved?

Section 139,Section 143,Section 144B,Section 148,Section 151,Section 270A,Section 92C,Section 92D

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘D’ BENCH: CHENNAI

Before: HONOURABLE SHRI GAGAN GOYAL & MANU KUMAR GIRI

For Respondent: Ms. M. Subashri, JCIT, Ld. DR
Hearing: 03.06.2026Pronounced: 05.06.2026

Heard together (2 matters)

ITA No. 14/Chny/2026
CO No. 8/Chny/2026

Read from the judgment's own cause title. This page is filed under one of them.

आदेश / O R D E R PER GAGAN GOYAL, AM:

GROUNDS OF APPEAL:

1.

The order of the Ld. CIT (A) is contrary to the facts and circumstances of the case.

2.

Whether on the facts and in the circumstances of the case, the Ld. CIT (A) is right in allowing the appeal filed by the assessee without appreciating the fact that the relied upon decision by the Ld. CIT (A) has not attained finality and is pending for adjudication before the Hon'ble Apex Court?

3.

Whether on the facts and in the circumstances of the case, the Ld. CIT (A) is right to allow the appeal relying upon decision which is subjudice before the Hon'ble Supreme Court and hence is not binding precedent making the order of the Ld. CIT (A) unsustainable in law?

4.

Whether on the facts and in the circumstances of the case, the Ld. CIT (A) is right in allowing the appeal filed by the assessee without awaiting the Supreme Court's decision on identical issue pending in the cited SLP?

5.

Whether in the facts and in the circumstances of the case, the Ld. CIT (A) is right in allowing the appeal of the assessee without appreciating the fact that the issue relates to a curable procedural lapse and for the such curable lapse the issue could have been set aside to the file of the Assessing Officer as was done by the Hon'ble Supreme Court in the case of Pr.CIT-4, Mumbai Vs S.G. Asia Holdings (India) P. Ltd. (Civil Appeal No. 6144 of 2019 dated 13.08.2018)?

GROUNDS OF APPEAL IN CROSS OBJECTIONS

1.

Without prejudice to the relief granted by the Learned Commissioner of Income-Tax (Appeals) ["Ld. CIT (A)"] on technical ground, the Respondent submits that the Ld. CIT (A)

erred in not adjudicating the appeal on merits, i.e. on the Grounds raised against the Transfer Pricing adjustment, made by the Ld. Transfer Pricing Officer ('Ld. TPO).

2.

That on the facts and circumstances of the case and in law, Ld. TPO erred in making a transfer pricing adjustment of INR 22,559,361/- and the Learned Assessing Officer ("Ld. AO") erred in incorporating the same in the assessment order, thereby unjustifiably enhancing the total income of the Appellant.

3.

That the Ld. TPO/Ld. AO erred in law in making an adjustment to the Appellant's international transactions without satisfying the mandatory conditions prescribed under section 92C(3) of the Income-tax Act, 1961.

4 That the Ld. TPO erred in law in rejecting the transfer pricing study conducted by the Appellant, despite the Appellant having maintained contemporaneous information and documentation in accordance with section 92D of the Act read with Rule 10D of the Income- tax Rules, 1962.

5.

That the Ld. TPO erred in law and on facts in disregarding the commercial reasons for the lower margins earned by the Appellant, which primarily arose due to manufacture of new products during AY 2021-22 and significant additions to fixed assets during the year.

6.

That the Ld. TPO erred in law and on facts in partially rejecting appropriate economic adjustments for material differences on account of idle capacity of the Appellant vis-à-vis the comparable companies, while determining the arm's length net profit margin.

7.

That the Ld. TPO erred in law and on facts in erroneously recomputing the operating margins of the Appellant by treating sale of scrap and foreign exchange gain as non- operating items and CSR expenditure as operating in the order passed under section 92CA(3), without providing any cogent reasons.

8.

That the Ld. TPO erred in law and on facts in not allowing suitable economic adjustments for material differences arising on account of customs duty paid by the Appellant while computing the profit level indicator, despite the issue being squarely covered in favour of the Appellant by the Hon'ble Income-tax Appellate Tribunal in the Appellant's own case for AY 2012-13.

9.

That the Ld. TPO erred in law and on facts in not allowing appropriate economic adjustment for extraordinary depreciation expense incurred by the Appellant while computing its profit level indicator.

10.

That the Ld. TPO erred in law and on facts in not considering the alternate Profit Level Indicator of Cash Profit Method proposed by the Appellant, which was necessitated due to material differences in depreciation between the Appellant and the comparable companies.

11.

That the Ld. TPO erred in law and on facts in not granting working capital adjustment to account for material differences between the Appellant and the comparable companies while determining the arm's length price.

12 That the Ld. TPO erred in law and on facts in conducting a fresh benchmarking analysis based on conjectures and surmises, by applying arbitrary filters, using non- contemporaneous data and substituting the Appellant's benchmarking analysis without demonstrating any intent on the part of the Appellant to shift profits outside India, which is a sine qua non for invoking the provisions of Chapter X of the Act.

13.

That the Ld. TPO erred in law and on facts in rejecting JMT Auto Ltd. and Showa India Pvt. Ltd. as comparables on the ground of being loss-making at PBIT level, without appreciating that the said companies were not persistent loss-making entities and had earned operating profits.

14.

That the Ld. TPO erred in law and on facts in rejecting the functionally comparable company, Toyoda Gosei Minda India Pvt. Ltd., solely on the ground of alleged failure of related party transaction filter.

15.

That the Ld. TPO erred in law and on facts in selecting the following companies as comparables despite their functional dissimilarity with the Appellant and without adequately dealing with the detailed objections raised by the Appellant:

i) Sar Auto Products Ltd. ii) Kwangsung Brake India Pvt. Ltd. iii) Bharath Gears Ltd iv) Musashi Auto Parts India Pvt. Ltd. Page 4 of 10 v) Miter & Miter Engineering Pvt. Ltd. vi) Komos Automotive India Pvt. Ltd. vii) ZF Steering Gear (India) Ltd. viii) RACL Geartech Ltd. ix) Chandok Automotive Manufacturers Ltd. x) Sona BLW Precision Forgings Ltd. 16. That the Ld. TPO erred in law and on facts in not adopting correct margin computation from the published annual reports of the comparable companies and further failed to provide the detailed computation and reconciliation of margins relied upon in the transfer pricing order.

17.

That the Ld. AO erred in law and on facts in initiating penalty proceedings under section 270A of the Act without recording any satisfaction or reasons for invoking the said provision.1.

2.

The brief facts of the case are that the assessee company has filed its return of income u/s. 139 of the Act declaring a loss of Rs. (-) 4, 03, 84,614/-. Ultimately, the return of the assessee was assessed at a loss of Rs. (-) 1, 78, 25,250/-. The assessee being aggrieved with this order preferred an appeal before the Ld. CIT (A) who allowed the appeal of the assessee on legal / technical grounds i.e. without discussing the merits of the case and quashed the assessment order passed. Now, the AO being aggrieved preferred the present appeal before us and the assessee filed Cross Objection.

3.

We have gone through the order of the AO, order of the Ld. CIT (A) and written submissions / arguments advanced by both the sides. It is observed that the assessee has entered certain transactions with its AE. Hence, matter of the assessee was referred to the Transfer Pricing Officer(TPO), who ultimately passed the order vide dated 28.10.2023 applying transactional net margin method (TNMM) as the most appropriate method (MAM).

4.

It is observed that the order passed by the AO after making adjustments as suggested by the TPO was without issuance of a draft assessment order u/s. 144C of the Act and the assessee under consideration is an eligible assessee for the purpose of section 144C (15) of the Act. Here it is pertinent to mention that in case of eligible assessee as prescribed u/s. 144C (15) of the Act, where there is a proposal to make a variation which is prejudicial to the interest of the assessee, the AO is under obligation to issue draft order. So that if the assessee requires to file its objections with Dispute Resolution Panel (DRP) u/s. 144B of the Act. In this case, this mandatory requirement has not been fulfilled and violates the scheme of assessment.

5.

It is also observed that in such cases the type of defect involved cannot be cured because once the time elapsed, nothing can be done by the AO by way of issuing corrigendum or providing fresh opportunity to the assessee, as the same is mandatory provision to protect the rights of the assessee applying the principle of Natural justice. In addition to above, we have gone through the grounds taken by the Revenue, they are still arguing on the legality of the order passed by the Ld. CIT (A) and the Ld. CIT (A) while passing the order respectively followed the order of Hon’ble Jurisdictional High Court in the case of Vijay Television (P) Ltd (2014) 46 taxmann.com 100(Madras). The Honorable Jurisdictional High Court held as under:-

“20. 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. 21. 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 Page 6 of 10 a final order instead of a draft 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.

22.

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 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. 23. 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 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. 24. 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. 25. 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. 26. The learned senior counsel for the petitioners relied on the decision of the Allahabad High Court in the case of Shital Prasad 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. 27. 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. 28. 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 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...." 29. 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 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.” 6. Moreover, nothing placed on record by the Ld. DR, which confirms her arguments or overrides the decision relied upon by the assessee and applied by the Ld. CIT (A), i.e. Vijay Television (P) Ltd (2014) 46 taxmann.com 100(Madras). On the other hand, the Ld. DR heavily relied on the decision of Hon’ble Supreme Court in the case of PCIT Vs. M/s. S. G. Asia Holdings (India) Pvt. Ltd. (Civil appeal No.6144 of 2019 dated 13.08.2018). Copy of the order placed on record and we have gone through the decision of the Hon’ble Court in the case of M/s. S. G. Asia Holdings (India) Pvt. Ltd. (supra) and respectfully observed that this decision cannot be applied on facts of the present case. In view of this, we do not find any error in the order of First Appellate Authority and the same is confirmed. 7. In addition to the above, law on this issue is further discussed and confirmed by the Hon’ble Apex Court in the case of [2023] 151 taxmann.com 479 (SC) Income-tax Officer v. Rinku R. Rai, wherein the Hon’ble Apex Court confirmed the view of Hon’ble Bombay High Court and held as under: “1. By this petition, petitioner is aggrieved by the Final Assessment Order dated 25th March 2022 passed by the respondent on the ground that the said Assessment Order has been passed in violation of the provisions of section 144B of the Income-tax Act (the "Act") in as much as the said Order has been passed without passing or issuing the draft Assessment Order as envisaged in section 144B (1) (xvi). Petitioner also seeks to challenge the legality and validity of the notice dated 31st March 2021 under section 148 of the Act issued by the respondent to the petitioner on the ground that the said notice is without jurisdiction, in as much as the necessary satisfaction under section 151 of the Act has not been obtained. 3. Learned counsel also submits that the final Assessment Order dated 25th March 2022 passed by the Assessing Officer, pursuant to the proceedings initiated by the Assessing Officer, is also without jurisdiction, in as much as, the same has been passed without serving upon the petitioner a draft Assessment Order as envisaged under section 144B(1)(xvi) of the Act. He submits that the issuance of draft Assessment Order is mandatory in terms of the Faceless Assessment Scheme as incorporated in Section 144B of the Act. That the non-issuance of the draft Assessment Order is a jurisdictional defect, and therefore, the said order deserves to be set aside. 6. Though it would therefore not be necessary for us to discuss the other issue, however, admittedly, there has been a breach of the provision of section 144B (1) (xvi) as no draft Assessment Order was issued to the petitioner. On this ground as well, the petition deserves to be allowed. The final Assessment Order dated 25th March 2022 is also quashed and set aside.

8.

In the result, respectfully considering the decision of the Hon’ble Jurisdictional High Court, further confirmed by the Hon’ble Apex Court in the case of Rinku R. Rai, appeal of the Revenue is dismissed. 9. As the appeal of the Revenue is dismissed, there is no requirement now to decide the CO filed by the assessee (on merits of the case). Hence, the same is also dismissed without any finding on the merits of the case. 10. In the result, the CO of the assessee is also dismissed for statistical purposes. Order pronounced on the 5th day of June, 2026, in Chennai.

Sd/- Sd/- (मनु कुमार गिरर) (गगन गोयल ) (MANU KUMAR GIRI) (GAGAN GOYAL) न्यायिक सदस्य/JUDICIAL MEMBER लेखा सदस्य/ACCOUNTANT MEMBER चेन्नई/Chennai, ददनाांक/Dated: 5th June, 2026. KB, Sr.PS आदेश की प्रततललपप अग्रेपषत/Copy to: 1. अपीलार्थी/Appellant 2. प्रत्यर्थी/Respondent 3. आयकर आयुक्त/CIT, Chennai /Madurai/Coimbatore/Salem 4. पवभागीय प्रतततनधि/DR K Digitally signed 5. गार्ड फाईल/GF by K BABU BABU Date: 2026.06.09 10:48:21 +05'30'

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