ALOK INFRASTRUCTURE LTD,MUMBAI vs. PRINCIPLE COMMISSIONER OF INCOME TAX-6, MUMBAI

In this appeal, assessee contests on the invoking of provisions contained in section 263 to pass the impugned revisionary order by holding that impugned assessment order passed is erroneous and prejudicial to the interest of revenue by applying clause (a) to Explanation 2 of sub-section (1) of Section 263. Assessee contends that the impugned assessment order against which revisionary proceedings were undertaken was passed u/s.143(3) r.w.s. 144B which itself is invalid as the same was passed without following the mandate as laid down in Section 144C and Section 144B(1)(xxv). On this line of argument, submission of the assessee is that the impugned order passed u/s.263 is invalid and bad in law liable to be quashed ab initio.

1. Facts as culled out from records are that assessee filed its return of income on 30.11.2017 reporting total loss at Rs.39,00,88,416/-. A reference was made by the ld. Assessing Officer to the ld. Transfer Pricing Officer (TPO) on 20.12.2019 u/s.92CA(1) for determination of Arm’s Length Price (ALP) with reference to international transactions reported by the assessee in its Form 3CEB placed on record. Ld. TPO

2. Subsequent to this, within next five days, i.e., on 20.04.2021, ld. Assessing Officer passed the final assessment order u/s.143(3) r.w.s. 144B without taking into account the reference made by him to the ld. TPO and order received from the ld. TPO proposing an upward TP adjustment. The total loss to be carried forward was assessed at Rs.38,60,02,302/- after making certain disallowances in the said final assessment order.

Thereafter, ld. PCIT on examination of the assessment records, took note of the fact that order u/s.92CA(3) had been passed by ld. TPO proposing an upward adjustment on account of interest to be charged on loans and advanced given to associated enterprises. However, ld. Assessing Officer failed to make an addition on this account in the order passed by him u/s.143(3) r.w.s. 144B leading to an under assessment of income amounting to Rs.19,57,51,430/-. He, by referring to Explanation 2 to Section 263 invoked the revisionary proceedings by issuing a show cause notice u/s.263 seeking explanation from the assessee as to why the assessment order so passed by the ld. Assessing Officer be not treated as prejudicial to the interest of revenue and to set it aside for fresh adjudication. There was no reply from the assessee on this show cause notice.

1. Further, ld. PCIT while passing the impugned revisionary order observed that the case of the assessee was selected for complete scrutiny with international transaction being one of the issues involved. In para-5.1, ld. PCIT notes that the order passed by ld. Assessing Officer u/s.143(3) r.w.s. 144B is in contravention to the provisions of the Act without taking cognizance of the proposed adjustment made by the ld. TPO vide his order u/s.92CA(3). Para 5.1 from the order of ld. PCIT is extracted below for ready reference. “5.1 In the instant case, it is seen from the records that the case was selected for complete scrutiny, with "International Transactions" being one of the issues involved. Subsequently, a reference to the TPO was sent by the AO on 20.12.2019 for determination of Arm's Length Price with regard to the International Transactions. Accordingly, the TPO vide order passed u/s.92CA(3) dated 29.01.2021, suggested an upward adjustment of Rs. 19,57,51,430/- on account of interest to be charged on Loans and Advances" given to AE. However, the AO without taking cognizance of the proposed adjustment passed an order u/s.143(3) rws 144B on 20.04.2021 in contravention to the provisions of the Act, thereby rendering the order dated 20.04.2021 both erroneous and prejudicial to the interests of the revenue as the same is hit by the clause (a) to Explanation 2 of sec. 263.”

Before us, contention of the assessee is that assessment order passed by ld. Assessing Officer u/s.143(3) r.w.s. 144B itself is invalid as the same was passed without following the mandate contained in section 144C and 144D(1)(xxv). Since the impugned assessment order itself is bad in law, there is no occasion for ld. PCIT to invoke revisionary proceedings and pass an order u/s.263 which in turn is also invalid and bad in law. From the reading of section 144C, it is noted that once an order u/s.92CA(3) is passed by ld. TPO proposing an upward adjustment, it is incumbent upon the Assessing Officer to pass a draft assessment order u/s.144C. Ld. Assessing Officer passing the final order overlooking the legal position and not taking into account the mandate given u/s.144C to take cognizance of the order of ld. TPO u/s.92CA(3), deprives the assessee of an opportunity of questioning the draft assessment order u/s.144C before the Dispute Resolution Panel (DRP). When such a mandate is not complied with, the assessment order so passed by ld. Assessing Officer is liable to be set aside as bad in law. In the present case, ld. Assessing Officer has passed a draft assessment order but not within the mandate of section 144C but u/s.143(3) r.w.s. 143(3A) and 144(3B). Section 144C starts with a non obstante clause “The Assessing Officer shall, notwithstanding anything to the contrary contained in this Act…” and thus, overrides the provisions resorted to by the ld. Assessing Officer to pass the final assessment order by-passing the provisions contained in Section 144C to first pass a draft assessment order by taking into account the proposed TP adjustments by ld. TPO u/s.92CA(3).

Ld. CIT DR has placed reliance on the decision of Coordinate Bench of ITAT, Delhi in the case of NT Back Office Services (P.) Ltd. vs PCIT [2019] 102 taxmann.com 547 (Del) to assert that since ld. Assessing Officer failed to take cognizance of the order by ld. TPO

1. From the reading of the said decision, we take note of the factual position as contained in para 8 that it is a case where a draft assessment order was in fact passed by the ld. Assessing Officer as required u/s.144C. However, while passing the draft assessment order, ld. Assessing Officer failed to incorporate the adjustment proposed by the ld. TPO. It was on this factual position where a draft assessment order was in fact on record, but without taking into account the proposed adjustment that the coordinate bench directed the ld. Assessing Officer to pass a draft assessment order after referring the issue once again to ld. TPO.

In the present case before us, the factual position is that there is no draft order passed by ld. Assessing Officer within the meaning of section 144C. Ld. Counsel for the assessee placed reliance on the decision of Hon’ble juri ictional High Court of Bombay in the case of Gigabyte Technology (India) (P.) Ltd. vs CIT [2020] 121 taxmann.com 301 (Bom) where on identical fact pattern, it held that where a final assessment order is made by the Assessing Officer without compliance to the mandate of Section 144C, the same is not merely an erroneous order, but such an order is without juri iction, null and void. Accordingly, Hon’ble Court held in favour of the assessee quashing the revisionary order so passed by the PCIT. While dealing the issue, the factual position as contained in para 31 of this order is reproduced:

1. Hon’ble Court referred to the decision of Hon’ble High Court of Andhra Pradesh in the case of Zuari Cement Ltd. in WP No. 5557 of 2012 dt. 21.02.2013. It also referred to the decision of Hon’ble High Court of Delhi in the case of Control Risks India (P.) Ltd. [2019] 107 taxmann.com 82 (Delhi). The observations of Hon’ble Court on both these decisions are contained in para 32 and 33, which are reproduced below for ready reference.

In Control Risk India (P.) Ltd. (supra), the Division Bench of Delhi High Court, held that consequent upon order of TPO under section 92 CA(3) of the said Act, it is incumbent upon the Assessing Officer to pass a draft assessment order under section 144C of the said Act and this is a settled position as explained by the Court in its decision in Turner International India (P.) Ltd. v. Dy. CIT [2017] 82 taxmann.com 125/398 ITR 177 (Delhi). In the said case the Assessing Officer overlooked the above legal position and 8 Alok Infrastructure Ltd. AY 2017-18

Considering the factual position and the position of law as contained in section 144C dealt by Hon’ble juri ictional High Court of Bombay in the case of Gigabyte (supra), the main point which remains for our consideration is that in a situation when the order of ld. PCIT is upheld, can the order of ld. Assessing Officer passed without making a draft order as per the mandate of section 144C, be amenable to revisionary proceedings to make good of the lapse, which has occurred while passing the final assessment order. The question which arises to our mind is, can the provisions of revision contained in section 263 be applied on a draft order as contained in section 144C.

1. From the perusal of the provisions contained in section 263 relevant to AY 2017-18, we note that it refers to “any order passed therein by the Assessing Officer”. Further, section 144C(1) refers to “forward a draft of the proposed order of assessment”. This proposed order is then referred as ‘draft order’ in the said section. Thus, this draft order contained in section 144C is a proposal made by the ld. Assessing Officer to the assessee which is based on proposals made by ld. TPO arising out of reference made under section 92CA, which are yet to attain finality in terms of passing and completing the assessment under section 144C(3)/(13) r.w.s. 143(3). By way of draft of the proposed order, assessee is given an opportunity to raise its objections before the ld. DRP or otherwise go into appeal before the ld. CIT(A). Appeal before the ld. CIT(A) can be filed only after the lapse of time as mandated under 9 Alok Infrastructure Ltd. AY 2017-18

2. We find that in the present facts and circumstances, the legal maxim ‘sublato fundamento cadit opus’ is applicable, meaning thereby – ‘a foundation being removed, the superstructure falls’. Once the basis of a proceeding is gone, the action taken thereon would fall to the ground. Thus, in the absence of such foundation, exercise of invoking revisionary proceedings and passing an order stands vitiated. In light of these facts and discussion made above, we are in agreement with the contention made by the assessee and accordingly, hold that the revisionary proceedings stand vitiated, leading the impugned order also as bad in law.

3. Considering the facts on record and discussion made above including the position of law and juridical precedents, we hold that the assessment order passed by ld. Assessing Officer under section 143(3) r.w.s. 144B dated 20.04.2021 is invalid and therefore liable to be quashed. Once the assessment itself is held to be null and void, there is no occasion for ld. PCIT to invoke revisionary proceedings and pass

In the result, appeal of the assessee is allowed.