THE PRINCIPAL COMMISSTIONER OF INCOME TAX vs. APPOLLO TYRES LTD

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR.JUSTICE VIJU ABRAHAM THURSDAY, THE 23RD DAY OF SEPTEMBER 2021 / 1ST ASWINA, 1943 ITA NO. 248 OF 2019 AGAINST THE ORDER IN ITA 336/Coch/2018 & CO No.57/Coch/2018 DATED 21.3.2019 OF I.T.A.TRIBUNAL,COCHIN BENCH, ERNAKULAM APPELLANT/Respondent: THE PRINCIPAL COMMISSIONER OF INCOME TAX KOCHI-I BY ADVS. SRI.P.K.RAVINDRANATHA MENON (SR.) JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/Appellant: M/s APPOLLO TYRES LTD 3RD FLOOR, AREEKAL MANSION, NEAR MANORAMA JUNCTION, PANAMPILLY NAGAR, KOCHI-682 036 BY ADVS. SRI.JOSEPH MARKOSE (SR.) SRI.V.ABRAHAM MARKOS SRI.ABRAHAM JOSEPH MARKOS SRI.ISAAC THOMAS SRI.P.G.CHANDAPILLAI ABRAHAM SHRI.VIPIN ANTO H.M. SHRI.ALEXANDER JOSEPH MARKOS SHRI.SHARAD JOSEPH KODANTHARA THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 23.09.2021, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

ITA No.248 of 2019 2 ITA No.248 of 2019 JUDGMENT S.V.Bhatti, J. The Principle Commissioner of Income Tax, Kochi/Revenue is the appellant. M/s Apollo Tyres Ltd. Kochi is the respondent. The revenue being aggrieved by the order dated 21.3.2019 in ITA No.336/Coch/2018 and C.O.No.57/Coch/2018 filed the subject appeal under Section 260A of the Income Tax Act (for short 'the Act'). 2. The issue arises under Sections 143(3) read with Section 144C of the Act. The Department raises the following substantial questions of law. "1. Whether, on the facts and in the circumstances of the case and in the initial assessment order being preceded by draft assessment order is not the final assessment order without a prior draft assessment order legal and with jurisdiction? 2. Whether, on the facts and in the circumstances of the case and also in the light of the principle laid down by the Supreme Court in Pooranmmai (96 ITR

ITA No.248 of 2019 3 394) followed by this Hon'ble Court in 404 ITR 288 is not cancellation of the final assessmetn order against law and logic? 2A. Whether the Tribunal is right in law in relying on an order of the Supreme Court dismissing the Special Leave Petition as a binding authority and is not such an approach vitiated in the light of the judgment in (2019)(6) SCC 270? 3. Is not the final assessment order legal and with jurisdiction? 3. Let us refer to the dates which have bearing on the legal question canvassed by both the revenue and the assessee. On 29-09-2009, the assessee filed return for the assessment year 2009-2010. The assessment, since has a few implications in considering Arm's Length Price under Section 92CA of the Act, the assessment was referred to the Transfer Pricing Officer. On 29.12.2011, the Assessing Officer served on the assessee the draft assessment order under Section 144C(1) of the Act. The assessment was referred to the Dispute Resolution Panel keeping in perspective the objections raised by the assessee against the draft assessment order under Section 144C of the Act

ITA No.248 of 2019 4 dated 29.12.2011. The Dispute Resolution Panel through Annexure-B dated 10.12.2013 issued directions to the Assessing Officer. The Assessing Officer through Annexure-C dated 31.12.2013 made assessment for the assessment year 2009-2010. The assessee carried the order Annexure-C dated 31.12.2013 in Appeal IT(TP)A No.02/Coch/2014 before ITAT, Cochin Bench. Vide order dated 21.11.2014 ITAT allowed the appeal in part and remitted the matter to the Assessing Officer for statistical purposes and fresh assessment on the issues referred to A.O. The Assessing Officer through assessment order in Annexure-E dated 2.3.2016 made revised final assessment order under Section 144C of the Act. The assessee, keeping in perspective the special procedure under Section 144C of the Act, claims that the assssee was compelled to file appeal before the Commissioner of Income Tax (Appeals) against the revised final assessment order dated 2.3.2016 made by the Assessing Officer de hors the procedure under Section 144C of the Act. The

ITA No.248 of 2019 5 logic being the remedy of appeal to the Tribunal is available only if the procedure of Sec.144C was followed by the A.O. CIT (Appeals) allowed the appeal in part and this resulted in ITA No.336/Coch/2018 at the instance of the revenue and C.O.No.57/Coch/2018 by the assessee. The assessee in the Cross Objection questioned the legality and propriety of revised final assessment order dated 2.3.2016 of the A.O. The ITAT through the order under appeal dismissed ITA No.336/Coch/2018 filed by the revenue and allowed the Cross Objection filed by the assessee vide C.O.No.57/Coch/2018. Hence the appeal at the instance of revenue. 4. Mr.Christopher Abraham argues that the legal objection raised against the assessment order dated 02.03.2016 and canvassed by the assessee with reference to Section 144C of the Act is not available in the circumstances of the case. In as much as the assessee instead of availing remedy by way of appeal before the Tribunal moved the Commissioner of Income Tax

ITA No.248 of 2019 6 (Appeals) and in the appeal filed by the revenue against the order of CIT (Appeals) in Annexure-H, Cross Objections are filed raising the objection of not following Sec.144C of the Act while issuing assessment order dated 2.3.2016. Therefore the assessee, it shall be understood, condoned the omission in not re-doing the assessment strictly in accordance with Section 144C of the Act. The assessee has choice and option to waive this requirement, therefore the case on hand stands singular and the view taken by the Tribunal raises a substantial question of law for decision by this Court. He in support thereof relies on the decisions in K.V.Abdul Azeez v Commissioner of Income Tax1, Director of Inspection of Income Tax (Investigation), New Delhi v Pooran Mall and sons2 and Apollo Tyres Ltd., Kochi v Union of India3. 5. Mr.Joseph Markos contends that the assessment procedure under Section 144C of the Act is attracted and adherance becomes necessary having regard to a few 1 [2018] 404 ITR 288 (Ker.) 2 [1974] 96 ITR 390 (SC) 3 Judgment dated 20.4.2010 of Delhi High Court in WP(C) No.13338 of 2009.

ITA No.248 of 2019 7 intricacies envisaged by Section 92B; 92CA etc. Section 92B;92CA etc., are attracted to the case in relation to transfer prising shown by the assessee. The Assessing Officer, by issuing draft assessment order (Annexure-A dated 28.3.2013), had also accepted that the assessment for the subject assessment year is to be completed only in terms of Section 144C(13) of the Act. The Dispute Resolution Panel issued directions and they were carried out by the Assessing Officer in the assessment order made under Section 143(3) read with Section 144C(13) of the Act in Annexure-C. The remedy against the assessment order in Annexure-C is an appeal before Income Tax Appellate Tribunal. The assessee rightly filed appeal before ITAT and the Tribunal allowed the appeal in part and rightly so, the Tribunal could remit the issues in which the Tribunal, for the limited purpose of remand, accepted the case of assessee. The remand and remitting to the Assessing Officer would mean and pre-suppose that the procedure under Section 144C of the Act is defeated

ITA No.248 of 2019 8 by the Assessing Officer. There is no escape from the requirement of re-doing the assessment under Sec.144C of the Act, viz. at the first instance the Assessing Officer under Section 144C(1) forwards a draft of the proposed order of assessment known as draft order to the assessee, in the event the Assessing Officer proposing a variation to the income return which is prejudicial to the assessee. The assessee under Section 144C(2) shall within 30 days has the option to accept the variation or file objections to the proposed draft variation of the Assessing Officer. The issues at divergence being proposed variation and objection of the assessee are made over to DRP under Section 144C(15). DRP follows the procedure stipulated by Section 144C (5) to (12) and finally issues direction to the Assessing Officer. The direction of DRP is binding on assessment order and the final assessment order is issued by the Assessing Officer in terms of DRP directives. The remedy of the assessee against the final assessment order of the Assessing Officer made by following the procedure

ITA No.248 of 2019 9 of Sec.144C is before Income Tax Appellate Tribunal under Section 253(1)(d) of the Act. 6. In the first round the assessee followed the legal procedure and challenged before the Tribunal the final assessment order dated 31.12.2013 (Annexure-C). The Tribunal remitted a few issues to the Assessing Officer through Annexure-D order. The order made by the Tribunal to the procedure required to be followed is draft assessment order on the proposed variation and receive objections, if any, of the assessee and subject to the directives the Dispute Resolution Panel may issue in this behalf issue revised final assessment order in matters covering Section 92B; 92CA etc. Admittedly the assessment is to be made under Section 144C of the Act. The Assessing Officer does not have jurisdiction to make revised final assessment order without recourse to DRP. The omission in re-doing the procedure under Section 144C is not a curable defect. The omission is completely illegal, without jurisdiction and an incurable defect, and

ITA No.248 of 2019 10 resultantly there is no waiver of the legal objections available to the assessee against the order in Annexure E dated 2.3.2016. He explains by arguing that the remedy under Section 253(1)(d) of appeal before the Tribunal is available only when the assessment order is made in compliance with the directions issued by DRT. The filing of appeal before the Commissioner (CIT) Appeals does not bar the grounds raised before the Tribunal in C.O.No.57/Coch/2018. He relies on the following citations: Nokia India v CIT4, SLP order of Supreme Court dismissing SLP5, JCB India Ltd. V Deputy Commissioner of Income Tax6 Asst.Commissioner of Income Tax v Vijay Television Pvt. Ltd.7 , Turner International India Pvt. Ltd. V Deputy Commissioner of Income Tax8 Commissioner of Income Tax v C-Sam (India) Pvt. Ltd.9 He prays for answering the issue in favour of assessee and against revenue. 4 (2018) 98 Taxmann.com 373 (Delhi) 5 (2018) 295 Taxmann 91 (SC) 6 (2017) 398 ITR 189 (Del) 7 (2018) 407 ITR 642 (Mad) 8 (2017) 398 ITR 177 (Del) 9 (2017) 398 ITR 182 (Guj)

ITA No.248 of 2019 11 7. This Court has referred to the admitted dates in the orders made by the Assessing Officer in the first round etc. and also the revised final assessment order made in Annexure-E for the purpose of appreciating the legal objection raised by the assessee and now the grounds canvassed by the revenue. The citations relied on by the assessee are to the effect that with the interdiction of assessment order made under Section 143(3) read with Section 144C(5) & (13) of the Act by the Tribunal, the matter is remitted to A.O. The issues re- visit the table of Assessing Officer for a decision in the same manner in which the first final assessment order was made by the Assessing Officer. In cases to which Section 92CA is attracted, the assessment could be completed only by following the procedure under Section 144C of the Act. We do not prefer to burden our judgment with reproducing all the portions relied on by the assessee from the decisions cited at the Bar, except the view taken by the Delhi High Court in Nokia India (P)

ITA No.248 of 2019 12 Ltd. v Additional Commissioner of Income Tax and the Special Leave Petition filed against the said decision in SLP (Civil) Diary No. 7302/2018: i) Nokia India Pvt.Ltd. V Addl.Commissioner of Income Tax "By the order dated 30th August 2013, the Assessee's appeal was allowed by the Income Tax Appellate Tribunal (ITAT). The matter concerning transfer pricing addition on account of Advertising, Marketing and Promotion ('AMP') expenses was remanded to the TPO/AO. The TPO then passed a fresh order on remand on 28th October 2016. When the matter went before the AO thereafter, the petitioner, by the letter dated 7th December 2016, informed the AO that the assessment proceedings had become time-barred by virtue of Section 153 (2A) of the Act. However, without disposing of that objection, the AO passed the impugned final assessment order dated 28th March 2017. The principal ground of challenge by the petitioner is that the impugned final order of the AO has been passed in violation of Section 144C of the Act inasmuch as it was nto preceded by a draft assessment order as was mandatory int erms of Section 144C(1) of the Act. The second ground is that the impugned order was passed beyond the period of limitation. The principal ground of challenge should succeed as it is squarely covered in favour of the Assessee and against the Revenue by the decision dated 17th May 2017 passed by this Court in Turner International India (P) Ltd. V Dy.CIT [2017] 82 Taxmann.com 125 (Delhi). There, the Court categorically held that the mandatory requirements under Section 144C(1) of the Act had to be met even where the TPO had passed the order int he second round on remand by the ITAT. This is also the view of the Gujarat High Court in CIT v C-Sam (India) (P) Ltd. [2017] 84 Taxmann.com 261. By a separate order passed in JCB India Ltd. V Dy.CIT

ITA No.248 of 2019 13 [2017] 85 Taxmann.com 155/251 Taxman 143 (Delhi), the Court followed its decision in Turner International India (P) Ltd. (supra) and quashed the final assessment order which was challenged in those cases. Once there is a clear order of setting aside of an assessment order with the requirement of the AO/TPO to undertake a fresh exercise of determining the arm's length price, the failure to pass a draft assessmetn order, would violate Section 144C(1) of the Act result. This is not a curable defect in terms of Section 292B of the Act as held by this Court in its decision dated 17th July, 2015 in ITA No.275/2015 Pr.CIT v Citi Financial Consumer Finance India Pvt.Ltd. In view of the fact that the Court is accepting the first ground of challenge raised by the Assessee as regards violation of Section 144C, the Court is not examining the ground of limitation. For all of the aforementioned reasons, the writ petition is allowed and the impugned final assessment order dated 28th March 2017 passed by the AO/TPO and the consequent orders passed thereafter, including initiation of penalty proceedings and penalty orders, are hereby set aside. The application is disposed of." ii. Additional Commissioner of Income Tax v Nokia India (P) Ltd. "Once there is a clear order of setting aside of an assessment order with the requirement of the AO/TPO to undertake a fresh exercise of determining the arm's length price, the failure to pass a draft assessment order, would violate Section 144C(1) of the Act result. This is not a curable defect in terms of Section 292B of the Act as held by this Court in its decision dated 17th July 2015 in ITA No.275/2015 Pr.CIT v Citi Financial Consumer Finance India Pvt.Ltd. In view of the fact that the Court is accepting the first ground of challenge raised by the assessee as regards violation of Section 144C, the Court is not examinignt he ground of limitation. For all of the aforementioned reasons, the writ petition is allowed and the impugned final assessmtn

ITA No.248 of 2019 14 order dated 28th March 2017 passed by the AO/TPO and the consequent orders passed thereafter, including initiation of penalty proceedings and penalty orders are hereby set aside. The application is disposed of." 8. The decisions relied on by the revenue are completely distinguishable. The nature of objection and the timing of objection considered in the reported decisions are completely distinguishable. 9. On the contrary, the decisions relied on by the assessee deal with circumstances similar to the case on hand and the ratio laid down arises under Section 143(3) read with Section 144C of the Act. Hence we do not propose to undertake the narrative of explaining how the decisions relied on by the revenue are distinguishable, both in fact and law. It is suffice to note that the decisions are nowhere near the point. 10. The requirement of re-doing the same procedure upon remand to the Assessing Officer under Section 144C is held to be mandatory and omission in following the procedure is held to be an incurable defect. The revenue

ITA No.248 of 2019 15 does not dispute the omissions pointed out in this behalf by the Tribunal. The filing of appeal before the Commissioner of Income Tax (Appeals) cannot be treated as a waiver of an objection available to the assessee in this behalf under Sec.144C etc. Section 253(1)(d) provides for appeal only when order has been made under Section 143(3) read with Section 144C of the Act. Annexure-E order is an order made under Section 143(3) of the Act and not a final revised assessment order made in compliance with the directions issued by DRP. The assessee, hence was justified in moving the CIT(Appeals). This Court has difficulty in accepting the argument of the revenue to sustain the order in Annexure-E. The arguments have been confined to the points considered above and we are of the view that the Tribunal has correctly considered the objections of assessee against Annexure-E order and recorded the findings which resulted in the order under appeal. The order of Tribunal is to be understood in the background of what is

ITA No.248 of 2019 16 considered by the Assessing Officer in Annexure-E and what was not the subject matter before the Assessing Officer, upon the remand in the first round of litigation cannot and could not be understood as made by the Tribunal. We are in agreement with the argument of Mr.Joseph Markos that Annexure-E is limited only to the issues remitted by the Tribunal in Annexure D order dated 21.11.2014. For the above reasons and the discussion the questions are answered in favour of the assessee and against the revenue. IT Appeal fails and accordingly dismissed. Sd/-S.V.BHATTI JUDGE sd/- VIJU ABRAHAM JUDGE css/

ITA No.248 of 2019 17 APPENDIX OF ITA 248/2019 PETITIONER'S ANNEXURE ANNEXURE-A COPY OF DRAFT ASSESSMENT ORDERS U/S.143(3) R.W.S. 144C (1) DATED 28.3.2013. ANNEXURE-B COPY OF DRP'S ORDER DATED 12.12.2013. ANNEXURE-C COPY OF ASSESSMENT ORDERS U/S.143(3) R.W.S. 144C DATED 31.12.2013. ANNEXURE-D COPY OF ITAT ORDER DATED 21.11.2014. ANNEXURE-E COPY OF ASSESSMENT ORDERS U/S.143(3) R.W.S. 144C R.W.S. 254 DATED 02.03.2016 ANNEXURE-F COPY OF RECTIFICATION APPLICATION FILED BY ASSESSEE. ANNEXURE-G COPY OF STAY APPLICATION FILED BY ASSESSEE. ANNEXURE-H COPY OF CIT (A)'S ORDER DATED 16.4.2018. ANNEXURE-I COPY OF ITAT ORDER ANNEXURE-J COPY OF SUPREME COURT ORDER IN THE CASE OF NOKIA INDIA P LTD ANNEXURE K COPY OF DELHI HIGH COURT IN THE CASE OF NOKIA INDIA P LTD