DEPUTY COMMISSIONER OF INCOME-TAX, BENGALURU vs. M/S TOYOTA KIRLOSKAR MOTOR PVT. LTD., BENGALURU

IT(TP)A No.1295/Bangalore/2025 is filed by the The Deputy Commissioner of Income Tax, Circle – 2(1), Bangalore ( the learned AO) in the case of M/s. Toyota Kirloskar Motor Pvt. Ltd., (the Page 2 of 7 assessee/appellant) and IT(TP)A No.1266/Bangalore/2025 is filed by assessee. Both the appeals pertain to Assessment Year 2003 – 04.

The brief facts of the case show that learned CIT-(A), Bangalore – 12 [learned CIT(A)] for Assessment Year 2003 – 04, passed an appellate order on 25.03.2025 wherein the appeal filed by the assessee against the Assessment Order passed under section 143(3) r.w.s. 254 of the Income Tax Act, 1961 (The Act), dated 29/09/2014, by the DCIT, LTU, Bangalore, was partly allowed. Both the parties are aggrieved before us and therefore are in appeal before us.

The main ground of appeal raised by the assessee in ITA No.1266/Bang/2025 is that the learned AO has passed his Final Assessment Order without first passing the draft assessment order u/s 144C (1) as per the provisions of section 144C of the Act.

Briefly stated, the timeline show that assessee is engaged in manufacturing and trading of automobile, filed its return of income on 27.11.2003 at a total loss of Rs. 6,21,90,733/-. The return was picked up for scrutiny and a notice under section 143(2) of the Act was issued on 11.10.2004 which culminated into an Assessment Order based on the Order under section 92CA(3) of the Act by the learned TPO. The learned TPO purposed an adjustment of Rs. 196 Crores. After certain corporate disallowance, the total income of the assessee was computed at Rs. 1,89,96,53,095/- but on set off of Unabsorbed depreciation and brought forward losses, it was determined at Rs. Nil.

The assessee filed appeal before the learned CIT(A) and who passed an appellate Order on 31.03.2010 giving certain relief to the assessee.

The assessee challenged the same before the learned CIT(A). The learned CIT(A) further gave certain relief to the assessee and therefore the AO as well as assessee are in appeal before us.

The learned Authorized Representative (learned AR) Shri. Padam Chand Kincha, CA, submitted that in this case the whole issue does not survive for the reason that the learned AO has passed the Final Assessment Order pursuant to the direction of the ITAT incorporating therein the adjustment reworked out by the learned TPO. He submits that the Assessment Order passed by the learned AO without giving any opportunity of hearing to the assessee on 29.09.2014 is not valid. According to him, the learned AO should have passed the Draft Assessment Order and should have given assessee an opportunity to contest before the learned DRP by filing the objection.

He submitted that this issue is squarely covered in favour of the assessee by the decision of Hon’ble Karnataka High Court in the case of CIT Vs. Cisco Systems Services B.V (TS-145 HC-2023Kar-TP). He further submitted that the decision of the Hon’ble Karnataka High Court in the case of Alpha Elsec Defence and Aerospace Systems Pvt. Ltd., also covers Page 4 of 7 this issue. The Hon’ble High Court in those cases upheld the Order of the ITAT quashing such final Assessment Order passed without first passing the draft assessment order.

The learned CIT DR vehemently submitted that in this case the ld AO has passed only an order giving effect to the order of the ITAT . When the Tribunal have given a direction and the AO passes Assessment Order based on those directions, should not go once again to the learned DRP. It was submitted the DRP is merely an advisory authority to correct the errors of the AO. It is not within the purview of the DRP to go against the Order of the ITAT. It was further submitted that when the DRP is also duty bound to confirm whatever is stated by the Tribunal it is merely a futile exercise for the AO to pass Draft Assessment Order. It was therefore submitted that the AO has not passed Assessment Order but merely passed order giving effect to the order of the ITAT. She further submitted that draft assessment order is required to be passed only at the ' First instance' and not thereafter. She Further Referred to the provision of section 144C of the act and submitted that there is no such provision in the law to pass draft assessment order at every stage whenever the higher authorities direct the ld AO to do some adjustment or reexamination of facts, as ld Ao is directed at the instance of the ITAT or Higher appellate Forums such as Honourable High courts and ld. AO does not need to seek advice of ld DRP in such cases. She further submitted that it is not the adjustments / variation proposed by the ld AO but it is made by the ld AO at the direction of the court or Tribunal. She submitted that this mandatory procedure applies broadly, including to assessments under Section 153A/153C and even in remand proceedings where the entire assessment is set aside for fresh consideration. This is not the case here. Further draft assessment order is required to be issued only once and not Page 5 of 7 many times for a assessment year. She submitted that where a draft order was already issued and objections considered for a specific issue in the original assessment, and the remand is for a limited re-examination of that specific issue without fresh prejudicial variations, in which case a new draft order is not mandated by the law.. Thus, there is no infirmity in the order passed by the learned AO.