THE PR. COMMISSIONER OF INCOME TAX -4 vs. HEADSTRONG SERVICES INDIA PVT. LTD.

Pursuant to the aforesaid remand, the Assessing Officer passed the assessment order dated 31st March, 2014 and the same was challenged by the respondent-assessee before the CIT(A), which partly allowed the appeal. Being aggrieved by the order passed by the CIT(A), respondent-assessee as well as Revenue filed appeals before the ITAT, being ITA No. 5409/DEL/2014 and ITA No. 6117/DEL/2014 respectively. 7. In its appeal, respondent-assessee raised the ground with regard to validity of the remand assessment as the Assessing Officer had not followed the procedure contemplated under Section 144C of the Act, while framing remand assessment. The ITAT vide order dated 30th September, 2015 allowed the appeal of the respondent-assessee on the said ground without going into the merits of the case. The relevant portion of the said order is reproduced hereinbelow:- 10. ………. it is crystal clear that, a direction was given to the AO for following proper procedure while deciding the issue relating to transfer pricing adjustment denovo. It is not in dispute that for the international transactions a procedure for computation of arms length price has been prescribed in Section 92C of the Act and the 2020:DHC:3740-DB

From the above provisions it is crystal clear that the TPO after getting the reference from the AO is required to give an opportunity of being heard to the assessee who can furnish evidences including any information or document and after considering those the TPO shall by order in writing determine the arms length price in relation to the international transaction and send copy of his order to the AO as well as to the assessee. In this regard a specific provision has been made in sub section 3 of section 92CA of the Act which read as under:

After receiving the order from the TPO, the AO is required to pass a draft assessment order u/s 144C(1) of the Act and the same is to be forwarded to the eligible assessee who after receiving the draft assessment order may file his objection, if there is any variation in the income or loss returned, to the Dispute Resolution Penal within 30 days of the receipt of the draft order and the DRP after considering the objections of the assessee shall issue the directions as per the provisions of section 144C(6)of the Act which read as under:

In our opinion, in such type of cases, the DRP before issuing any direction may make such an inquiry as it thinks fit or choose any further inquiry to be made by any income tax authority, and report the result of the same to it, the DRP may confirm, reduce or enhance the variation proposed in the draft order, however, it shall not set aside any proposed variation or issue any direction under sub section 5 of section 144C of the Act for further inquiry and passing of the assessment order. Every direction issued by the DRP shall be binding on the AO but no direction shall be issued unless an opportunity of being heard is given to the assessee. Thereafter the AO shall in conformity with the directions of the DRP complete the assessment order within one month from the end of the month in which such direction is received. However, in the instant case, the AO did not pass any draft order and also not asked the assessee to file the objection before the DRP, he framed the assessment on the basis of comment of the TPO to whom a reference was made by him vide letter dated 07.02.2014. The TPO also passed the order u/s 92CA(5) r.w.s 254 of the Act on 28.03.2014 and not u/s 92CA(3) of the Act. Therefore, it can be said that in the present case, the AO had not followed the procedure in accordance with law as was directed by the ITAT vide order dated 17.07.2012, so, the assessment order dated 31.3.2014 passed by the AO was not in accordance with law and was void ab-initio. For the aforesaid view, we are fortified by the judgment of the Hon'ble Madras High Court in the case of Vijay Television Pvt. Ltd. vs. TRP and Ors reported at (2014) 369 ITR 130 wherein it has been held as under:

In view of the aforesaid discussion and the judicial pronouncement, we set aside the impugned order of the ld. CIT(A) on this issue. In the present case, the procedure contemplated u/s 144C of the Act is violated by the AO, therefore, we are of the confirmed view that the assessment vide order dated 31.03.2014 framed by the AO was null and void ab initio. Since we have decided the legal issue in favour of the assessee therefore, no separate findings are being given for the other issues raised by the assessee on merit.

In the result appeal of the assessee is partly allowed.

In view of the aforesaid order dated 30th September, 2015, ITAT dismissed the Revenue‟s appeal holding that since the assessment had been annulled in the appeal filed by the respondent-assessee, nothing survived for consideration in the Revenue‟s appeal. This order has been impugned before this Court. The relevant portion of the impugned order is reproduced hereinbelow: - ―3. At the outset, Ld. AR brought to our notice that the appeal preferred by the assessee in ITA No.5409/Del/2014 was heard and disposed of by a Co-ordinate Bench of this Tribunal vide order dated 30.09.2015 set aside the impugned order of the Ld. CIT (A) and held that the procedure contemplated under Section 144 of the Act was violated by the AO as such the assessment order dated 31.03.2014 framed by the AO was null & void ab initio. A copy of the said order is produced before us for perusal. Ld. DR does not 2020:DHC:3740-DB

We have perused the order and operative portion of the order is as follows:- 14. "In view of the aforesaid discussion and the judicial pronouncement, we set aside the impugned order of the Ld. CIT(A)on this issue. In the present case, the procedure contemplated u/ s 144C of the Act is violated by the AO, therefore, we are of the confirmed view that the assessment vide order dated 31.03.2014 framed by the AO was null and void ab initio. Since we have decided the legal issue in favour of the assessee therefore, no separate findings are being given for the other issues raised by the assessee on merit. "

In view of the annulment of the assessment and setting aside of the impugned order of the Ld.CIT(A), nothing survives for consideration in this appeal as such while respectfully following the same, we dismiss this appeal of the Revenue.

In the result, the appeal of the Revenue is dismissed‖.

The ITAT while remanding the matter of transfer pricing adjustment to the Assessing Officer vide order dated 17th July, 2012 had not only „restored‟ the matter “to the file of the Assessing Officer ―for following proper procedure” but also to “decide the matter de novo‖. 14. This Court is of the view that once the ITAT directed the Assessing Officer to decide the matter de novo, it meant that a new hearing of the matter had to be conducted, as if the original hearing had not taken place (See: meaning of “De novo hearing” in Black‟s Law Dictionary). 2020:DHC:3740-DB

Consequently, the Assessing Officer had to decide the matter in accordance with the elaborate procedure mentioned in Section 144C and not dehors it.

This Court is of the opinion that it is essential to analyse Section 144C. The said Section reads as under:- ―144C. (1) 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 (hereafter 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 which is prejudicial to the interest of such assessee.

In the opinion of this Court, Section 144C is a self contained provision which carves out a separate class of assesses i.e. „eligible assessee‟ i.e. any person in whose case the variation arises as a consequence of the order of the Transfer Pricing Officer passed under sub-section (3) of Section 92CA. For this class of assesses, it prescribes a collegium of three commissioners, once objections are preferred. Dispute Resolution Panel‟s powers are co-terminous with the CIT(A), including the power to confirm, reduce or enhance the variation proposed and to consider the issues not agitated by the Assessee in the objections. In fact, under Section 144C, the Dispute Resolution Panel can issue directions as it thinks fit for the guidance of the Assessing Officer to enable him to complete the assessment and the Dispute Resolution Panel can confirm, reduce or enhance the variations proposed in the draft order. It is specifically stipulated in Section 144C that every direction issued by the Dispute Resolution Panel shall be binding on 2020:DHC:3740-DB

The expression „in the first instance‟ has been used in Section 144C to signify the first step to be taken by the Assessing Officer in a series of acts contemplated by the said Section while dealing with the case of an eligible assessee. This Court is further of the view that if the Assessing Officer under Section 144C can prepare a draft assessment order only, then by virtue of a remand order which directs the Assessing Officer to decide the matter de novo, the Assessing Officer cannot get the power to pass an assessment order, when there is an objection by the Assessee like in the present case, without reference of the Dispute Resolution Panel which comprises of three Principal Commissioners or Commissioners of Income Tax constituted by the Board. 2020:DHC:3740-DB

Now to accept the appellant‟s argument would be to permit the Assessing Officer to decide the objections filed by the Assessee – which power has been specifically denied by the statute.

It is further settled law that when a power is given to do certain thing in a certain way, the thing must be done in that way or not at all and other methods of performance are forbidden. [See: Taylor Vs. Taylor,1875) 1 Ch.D.426; Nazir Vs. King Emperor, AIR 1936 PC 253, AIR 1975 SC 985; Babu Verghese Vs. Bar Council of Kerala, (1999) 3 SCC 422].

The appellant has also contended that the failure to follow the procedure under Section 144C of the Act, at the highest, was a procedural irregularity and not an illegality. This issue is no longer res integra. It is now settled law that failure to adhere to the mandatory procedure prescribed under Section 144C of the Act would vitiate the entire proceedings and the same cannot be treated as an irregularity/ curable defect. 23. In ESPN Star Sports Mauritius S.N.C. ET Companies vs. Union of India, (2016) 388 ITR 383 (Delhi) this Court, after discussing the judgments of the Andhra Pradesh High Court, High Court of Bombay as well as Madras High Court in Vijay Television Pvt. Ltd. vs. TRP and Ors. 2020:DHC:3740-DB

In Zuari Cement Ltd. v. ACIT (decision dated 21st February, 2013 in WP(C) No.5557/2012), the Division Bench (DB) of the Andhra Pradesh High Court categorically held that the failure to pass a draft assessment order under Section 144C (1) of the Act would result in rendering the final assessment order ―without jurisdiction, null and void and unenforceable.‖ In that case, the consequent demand notice was also set aside. The decision of the Andhra Pradesh High Court was affirmed by the Supreme Court by the dismissal of the Revenue's SLP (C) [CC No. 16694/2013] on 27th September, 2013.

In Vijay Television (P) Ltd. v. Dispute Resolution Panel [2014] 369 ITR 113 (Mad.), a similar question arose. There, the Revenue sought to rectify a mistake by issuing a corrigendum after the final assessment order was passed. Consequently, not only the final assessment order but also the corrigendum issued thereafter was challenged. Following the decision of the Andhra Pradesh High Court in Zuari Cement Ltd. v. ACIT (supra) and a number of other decisions, the Madras High Court in Vijay Television (P) Ltd. v. Dispute Resolution Panel (supra) quashed the final order of the AO and the demand notice. Interestingly, even as regards the 2020:DHC:3740-DB

Recently, this Court in ESPN Star Sports Mauritius S.N.C. ET Compagnie v. Union of Indi [2016] 388 ITR 383 (Del.), following the decision of the Andhra Pradesh High Court in Zuari Cement Ltd. v. ACIT (supra), the Madras High Court in Vijay Television (P) Ltd. v. Dispute Resolution Panel, Chennai (supra) as well as the Bombay High Court in International Air Transport Association v. DCIT

Mr. Dileep Shivpuri, learned counsel for the Revenue sought to contend that the failure to adhere to the mandatory requirement of issuing a draft assessment order under Section 144C (1) of the Act would, at best, be a curable defect. According to him the matter must be restored to the AO to pass a draft assessment order and for the Petitioner, thereafter, to pursue the matter before the DRP.

The Court is unable to accept the above submission. The legal position as explained in the above decisions in unambiguous. The failure by the AO to adhere to the mandatory requirement of Section 144C (1) of the Act and first pass a draft assessment order would result in invalidation of the final assessment order and the consequent demand notices and penalty proceedings.‖

Keeping in view the aforesaid, this Court is of the opinion that no question of law, let alone a substantial question of law, arises in the present appeal. 26. This Court is of the view that till the Income Tax Department ensures that the Assessing Officers follow the mandate of law, in particular, binding provisions like Section 144C and eschew filing of unnecessary appeals rather than in nearly all matters where the Assessing Officer has taken a view against the Assessee, the assessments will not achieve finality for a number of years like in the present case where the case of assessment year 2007-08 stands remanded and restored to the file of the Assessing Officer. 27. Consequently, we dismiss the present appeal and confirm the impugned order of the ITAT with costs of Rs.11,000/- to be paid to Delhi High Court Legal Services Committee.