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Income Tax Appellate Tribunal, MUMBAI BENCH “K” MUMBAI
Before: SHRI ABY T VARKEY & SHRI OM PRAKASH KANT
PER OM PRAKASH KANT, AM PER OM PRAKASH KANT, AM These cross appeals by the assessee and the Revenue are These cross appeals by the assessee and the These cross appeals by the assessee and the directed against final assessment order dated 26/02/2014 passed directed against final assessment order dated 26/02/2014 passed directed against final assessment order dated 26/02/2014 passed by the Assistant Commissioner o Commissioner of Income-tax, Circle tax, Circle-1, Thane (hereinafter shall be referred as hereinafter shall be referred as ‘the Assessing Officer Assessing Officer’) in terms of section 143(3) read with section 144C(13) of the section 143(3) read with section 144C(13) of the section 143(3) read with section 144C(13) of the Income-tax Act, 1961 (in short ‘the Act Act’) for assessment year 2009-10 10, in pursuant to the direction dated 20/12/2013 of the the direction dated 20/12/2013 of the Ld. Dispute Resolution Panel Dispute Resolution Panel (DRP).
The grounds raised by the assessee in its appeal in ITA No. The grounds raised by the assessee in its appeal in IT The grounds raised by the assessee in its appeal in IT 2628/Mum/2014 are reproduced as under: 2628/Mum/2014 are reproduced as under:
“1. On the facts and circumstances of the case and in law, the On the facts and circumstances of the case and in law, the On the facts and circumstances of the case and in law, the learned Asstt. Commissioner of Income Tax, Circle learned Asstt. Commissioner of Income Tax, Circle - 1, Thane ("the 1, Thane ("the AO'Y/Addl. Commissioner of Income Tax, transfer pricing officer AO'Y/Addl. Commissioner of Income Tax, transfer pricing officer AO'Y/Addl. Commissioner of Income Tax, transfer pricing officer - I(5) (the TPO") erred in making an adjustment of Rs.5,96,53,388/ I(5) (the TPO") erred in making an adjustment of Rs.5,96,53,388/ I(5) (the TPO") erred in making an adjustment of Rs.5,96,53,388/- in relation to the international transaction in respect o in relation to the international transaction in respect of export of f export of finished goods (Manufacturing segment). finished goods (Manufacturing segment).
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The Appellant prays that the aforesaid adjustment be deleted. The Appellant prays that the aforesaid adjustment be deleted. The Appellant prays that the aforesaid adjustment be deleted.
Without prejudice to Ground no. 1, on the facts and in the 2. Without prejudice to Ground no. 1, on the facts and in the 2. Without prejudice to Ground no. 1, on the facts and in the circumstances of the case and in circumstances of the case and in law, the AO/PO erred in making an law, the AO/PO erred in making an adjustment on adjustment on the total turnover (i.e. controlled as well the total turnover (i.e. controlled as well as uncontrolled) instead of applying only to the controlled uncontrolled) instead of applying only to the controlled uncontrolled) instead of applying only to the controlled transactions of the Appellant. transactions of the Appellant.
The Appellant prays that the AO be directed to restrict the The Appellant prays that the AO be directed to restrict the The Appellant prays that the AO be directed to restrict the adjustment to the controlled adjustment to the controlled transactions of the Appellant. transactions of the Appellant.
Without prejudice to Ground no. 1 & 2, on the facts and in the 3. Without prejudice to Ground no. 1 & 2, on the facts and in the 3. Without prejudice to Ground no. 1 & 2, on the facts and in the circumstances of the case circumstances of the case and in law, the AO/TO erred in applying and in law, the AO/TO erred in applying two methods (Transaction Net Margin Method two methods (Transaction Net Margin Method (TNMM') in the first (TNMM') in the first place and then Comparable Uncontrolled Price Method ('CUP') as place and then Comparable Uncontrolled Price Method ('CUP') place and then Comparable Uncontrolled Price Method ('CUP') an alternate) for calculating Arms' Length Price of international alternate) for calculating Arms' Length Price of international alternate) for calculating Arms' Length Price of international transactions and making transactions and making adjustment based on the higher of two adjustment based on the higher of two methods followed whereas the law specifically methods followed whereas the law specifically requires selection of requires selection of Most Appropriate Method. Most Appropriate Method.
The Appellant prays that the afo The Appellant prays that the aforesaid additions be deleted. resaid additions be deleted.
Without prejudice to Ground no. 3, on the facts and circumstances 4. Without prejudice to Ground no. 3, on the facts and circumstances 4. Without prejudice to Ground no. 3, on the facts and circumstances of the case and in law, of the case and in law, the AO/PO erred in computing an alternative the AO/PO erred in computing an alternative Transfer Pricing adjustment based on Transfer Pricing adjustment based on comparison of export prices comparison of export prices (using CUP method) for th (using CUP method) for the product sold to group companies e product sold to group companies and third parties.
The Appellant prays that the aforesaid additions be deleted The Appellant prays that the aforesaid additions be deleted The Appellant prays that the aforesaid additions be deleted
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Without prejudice to Ground no. 4, on the facts and in the 5. Without prejudice to Ground no. 4, on the facts and in the 5. Without prejudice to Ground no. 4, on the facts and in the circumstances of the case and in circumstances of the case and in law, the AO/TO erred in not giving law, the AO/TO erred in not giving revised calculation of adjustment in the assessment lation of adjustment in the assessment order based on order based on the directions of Dispute Resolution Panel allowing relief for market the directions of Dispute Resolution Panel allowing relief for market the directions of Dispute Resolution Panel allowing relief for market level adjustment to calculate alternative transfer pricing adjustment to calculate alternative transfer pricing adjustment to calculate alternative transfer pricing adjustment.
The Appellant prays that the aforesaid additions be deleted. The Appellant prays that the aforesaid additions be deleted. The Appellant prays that the aforesaid additions be deleted.
On the facts and in the circumstances of the case and in law, the 6. On the facts and in the circumstances of the case and in law, the 6. On the facts and in the circumstances of the case and in law, the AO erred in making AO erred in making additions of Rs. 55,44,990/- under section 69C under section 69C of the Act.
The Appellant prays that the aforesaid additions be deleted. The Appellant prays that the aforesaid additions be deleted. The Appellant prays that the aforesaid additions be deleted.
7 Without prejudice to Ground 6 above, on the fa Without prejudice to Ground 6 above, on the facts and in the cts and in the circumstances of the case and circumstances of the case and in law, the AO erred in invoking in law, the AO erred in invoking section 69C of the Act in respect of addition of section 69C of the Act in respect of addition of Rs.55,44,990/ Rs.55,44,990/-
On the facts and circumstances of the case and in law, the AO erred On the facts and circumstances of the case and in law, the AO erred On the facts and circumstances of the case and in law, the AO erred in not allowing set off in not allowing set off of short term capital loss of Rs 55,25,462/ loss of Rs 55,25,462/- against Long Term Capital Gain of Rs against Long Term Capital Gain of Rs 5.27.20.000/-.
The Appellant prays that the aforesaid adjustment of short term The Appellant prays that the aforesaid adjustment of short term The Appellant prays that the aforesaid adjustment of short term loss against long term loss against long term capital gain be allowed.
On the facts and circumstances of the case and in law, the AO 9. On the facts and circumstances of the case and in law, the AO 9. On the facts and circumstances of the case and in law, the AO erred in not granting credit d in not granting credit for tax deducted of Rs 762,232/ for tax deducted of Rs 762,232/- withheld by Lanxess Pte. Ltd. Singapore from remittance withheld by Lanxess Pte. Ltd. Singapore from remittance withheld by Lanxess Pte. Ltd. Singapore from remittance towards provision of IT services. provision of IT services.
The Appellant prays that the credit for withholding tax be granted. The Appellant prays that the credit for withholding tax be granted. The Appellant prays that the credit for withholding tax be granted.
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On the facts and in the circumstance 10. On the facts and in the circumstances of the case and in law and s of the case and in law and in law, the AO erred in not in law, the AO erred in not giving effect to the rectification giving effect to the rectification application letters with respect to Ground no. 8 & 9 while application letters with respect to Ground no. 8 & 9 while application letters with respect to Ground no. 8 & 9 while passing the order under section 143(3) r.w.s. 144C(13) of the Act. the order under section 143(3) r.w.s. 144C(13) of the Act.” ” 2.1 The grounds raised by the grounds raised by the Revenue in its appeal in its appeal in ITA No. 2788/Mum/2014 are reproduced as under: 2788/Mum/2014 are reproduced as under:
The Ld. DRP The Ld. DRP-III, Mumbai has allowed relief to the assessee III, Mumbai has allowed relief to the assessee without appreciating the fact that the AO has rightly made the without appreciating the fact that the AO has rightly made the without appreciating the fact that the AO has rightly made the disallowance, since the assessee failed to prove the genuin disallowance, since the assessee failed to prove the genuin disallowance, since the assessee failed to prove the genuineness of the transactions in respect of negative difference of Rs. 66,90,600/ the transactions in respect of negative difference of Rs. 66,90,600/ the transactions in respect of negative difference of Rs. 66,90,600/- and parties who confirm with positive and parties who confirm with positive difference of Rs.4,18,31,261/ difference of Rs.4,18,31,261/- 2. The Ld. DRP 2. The Ld. DRP-Ill, Mumbai erred in allowing relief to the assessee Ill, Mumbai erred in allowing relief to the assessee without any supporting evidence to prove without any supporting evidence to prove the genuineness of the the genuineness of the transaction disallowed by the AO. transaction disallowed by the AO. 3. Before us the assessee also preferred an additional ground us the assessee also preferred an additional ground vide us the assessee also preferred an additional ground letter dated 01/09/2021, which was filed on 11/11/2021 before the letter dated 01/09/2021, which was filed on 11/11/2021 before the letter dated 01/09/2021, which was filed on 11/11/2021 before the Registry of the Tribunal Tribunal. The said additional ground is reproduce . The said additional ground is reproduced as under:
“11. On the facts, in law and in circumstances of the present case, On the facts, in law and in circumstances of the present case, On the facts, in law and in circumstances of the present case, the draft assessment order dated the draft assessment order dated 28 March 2013 passed for AY 28 March 2013 passed for AY 2009-10 under section 143(3) read with 144C(1) of the Income 10 under section 143(3) read with 144C(1) of the Income 10 under section 143(3) read with 144C(1) of the Income-tax
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Act, 1961 (Act') and all proceedings consequent to Act, 1961 (Act') and all proceedings consequent to such draft such draft assessment order including final assessment order including final assessment order passed u/s assessment order passed u/s 143(3) read with 144C(13) of the Act dated 26 February 2014 are 143(3) read with 144C(13) of the Act dated 26 February 2014 are 143(3) read with 144C(13) of the Act dated 26 February 2014 are void-ab-initio, illegal and bad in law since the provisions of section initio, illegal and bad in law since the provisions of section initio, illegal and bad in law since the provisions of section 144C were applicable only from AY 144C were applicable only from AY 2010-11 and onwards It is the humble prayer of the Appellant that the assessment order It is the humble prayer of the Appellant that the assessment order It is the humble prayer of the Appellant that the assessment order framed without following the due framed without following the due procedure under law, be quashed. procedure under law, be quashed. 12. On the facts, in law and in circumstances of the present case, the 12. On the facts, in law and in circumstances of the present case, the 12. On the facts, in law and in circumstances of the present case, the assessment order dated 26 assessment order dated 26 February 2014 is passed after the expiry sed after the expiry of the time limit prescribed under 153 of the Act and is of the time limit prescribed under 153 of the Act and is therefore, time barred and is liable to be quashed. time barred and is liable to be quashed.” 3.1 As regard to the admissibility of the additional ground regard to the admissibility of the additional ground regard to the admissibility of the additional grounds, the Ld. Counsel of the assessee submitted that of the assessee submitted that ground raised be raised being purely legal in nature and no investigation of the fresh facts is required legal in nature and no investigation of the fresh facts is required legal in nature and no investigation of the fresh facts is required, therefore same might might be admitted for adjudication. The admitted for adjudication. The Ld. Departmental Representative Departmental Representative objected for filing the additional objected for filing the additional ground after delay of five years after filing the appe ground after delay of five years after filing the appeal. al.
We have heard rival submission of the parties on the issue of We have heard rival submission of the parties on the issue of We have heard rival submission of the parties on the issue of the admissibility of the additional ground. We agree with the the admissibility of the additional ground. We agree with the the admissibility of the additional ground. We agree with the contention of the Ld. Counsel of the assessee that additional ground assessee that additional ground
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is purely of legal nature and no investigation of the fresh facts is purely of legal nature and no investigation of the fresh facts is purely of legal nature and no investigation of the fresh facts is required and therefore same required and therefore same is eligible for admission in view of the eligible for admission in view of the decision of the Hon’ble Supreme Court in the case of decision of the Hon’ble Supreme Court in the case of decision of the Hon’ble Supreme Court in the case of NTPC Ltd. V. CIT (1998) 229 ITR 383 (SC) CIT (1998) 229 ITR 383 (SC). As regard to the objectio . As regard to the objection of the Ld. DR of delay in raising the additional ground of delay in raising the additional ground, we find that additional , we find that additional ground has been raised before hearing of the case and copy of the ground has been raised before hearing of the case and copy of the ground has been raised before hearing of the case and copy of the same was supplied to the supplied to the Ld. DR well in advance before hearing of ce before hearing of the case, therefore we do not find any vi therefore we do not find any violation of the principle of olation of the principle of natural justice and, accordingly accordingly, we reject objection raised by the we reject objection raised by the Ld. DR. We admit the additional ground for adjudication. We admit the additional ground for adjudication. We admit the additional ground for adjudication.
Briefly stated facts of the case are that Briefly stated facts of the case are that during relevant year during relevant year the assessee was engaged in the busin assessee was engaged in the business of manufacturing and trading ess of manufacturing and trading of chemical and chemical intermediaries cal and chemical intermediaries. The assessee f . The assessee filed return of income for the year under consideration i.e. AY 2009 of income for the year under consideration i.e. AY 2009 of income for the year under consideration i.e. AY 2009-10 on 29/09/2009 declaring total income 29/09/2009 declaring total income at ₹9,56,52,080/ 080/-. The return of income filed by the assesse income filed by the assessee was selected for the scrutiny e was selected for the scrutiny
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assessment and statutory notices under the assessment and statutory notices under the Act were issued and were issued and complied with. During scrutiny proceedings, the complied with. During scrutiny proceedings, the Assessing Officer Assessing Officer noted the international transactions carried out by the assessee noted the international transactions carried out by the assessee noted the international transactions carried out by the assessee company and therefore determin company and therefore determination of arms length price of said ation of arms length price of said international transactions was referred to the international transactions was referred to the Ld. Transfer Pricing Transfer Pricing Officer (TPO). The Ld. Ld. TPO in his order dated 28/01/2013 proposed TPO in his order dated 28/01/2013 proposed a transfer pricing adjustment of a transfer pricing adjustment of ₹5,96,53,388/-. After receipt of the . After receipt of the order of the Ld. TPO, the TPO, the Assessing Officer issued a draft assessment issued a draft assessment order on 28/03/2013 order on 28/03/2013, wherein in addition to the transfer pricing , wherein in addition to the transfer pricing adjustment, the Assessing Officer Assessing Officer also proposed addition in respect also proposed addition in respect of un-verified purchases amounting to verified purchases amounting to ₹5,62,65,098/ 98/-. The assessee filed objection against the draft assessment order before the led objection against the draft assessment order before the Ld. led objection against the draft assessment order before the DRP. The Ld. DRP, after taking into consideration remand report , after taking into consideration remand report , after taking into consideration remand report from the AO/TPO on the additional evidence from the AO/TPO on the additional evidences submitted by the submitted by the assessee, issued direction to the assessee, issued direction to the Assessing Officer vide vide order dated 20/12/2013. Pursuant to the direction of the 20/12/2013. Pursuant to the direction of the Ld. DRP, the DRP, the Assessing
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Officer has passed the impugned assessment order after making has passed the impugned assessment order after making has passed the impugned assessment order after making transfer pricing adjustment of transfer pricing adjustment of ₹5,96,53,388/-and disallowance of and disallowance of unexplained expenditure of unexplained expenditure of ₹55,44,990/-. Aggrieved both the . Aggrieved both the assessee and the Revenue Revenue are before the Tribunal by way of raising by way of raising the grounds as reproduced reproduced above.
The assessee has filed The assessee has filed a paperbook in two volumes containing paperbook in two volumes containing pages 1 to 677.
In respect of the additional ground, the In respect of the additional ground, the Ld. Counsel of the assessee submitted that draft assessment order dated 28/03/2013 submitted that draft assessment order dated 28/03/2013 submitted that draft assessment order dated 28/03/2013 under section 143(3) read with section 144C(1) and final under section 143(3) read with section 144C(1) and final under section 143(3) read with section 144C(1) and final assessment order dated 26/02/2014 under section 143(3) read assessment order dated 26/02/2014 under section 143(3) read assessment order dated 26/02/2014 under section 143(3) read with section 144C(13) of the with section 144C(13) of the Act are void ab initio void ab initio, because provisions of section 144C are applicable only from assessment year provisions of section 144C are applicable only from assessment year provisions of section 144C are applicable only from assessment year 2010-11 and onwards. He submitted that in view of non 11 and onwards. He submitted that in view of non 11 and onwards. He submitted that in view of non- applicability of section 14 of section 144C, the assessment was to be completed , the assessment was to be completed
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within the limitation provided for scrutiny cases under section within the limitation provided for scrutiny cases under section within the limitation provided for scrutiny cases under section 143(3) of the Act, whereas the assessment has been completed after , whereas the assessment has been completed after , whereas the assessment has been completed after the said limitation provided under section 153 of the the said limitation provided under section 153 of the the said limitation provided under section 153 of the Act, therefore assessments are time assessments are time-barred and liable to be quashed. The barred and liable to be quashed. The Ld. Counsel referred to para 45.5 of the Circular No. 5/2010 dated No. 5/2010 dated 03/06/2010, wherein i wherein it was explained that section 14 t was explained that section 144C of the Act shall apply from assessment year 2010 shall apply from assessment year 2010-11. The Ld. Ld. Counsel also referred to decision of Hon’ble referred to decision of Hon’ble Madras High Court in the case of High Court in the case of Vedanta Ltd Vs ACIT in writ Petition No. 1729 of 2011 Vedanta Ltd Vs ACIT in writ Petition No. 1729 of 2011 Vedanta Ltd Vs ACIT in writ Petition No. 1729 of 2011 and submitted that provisions of section 14 provisions of section 144C have been held to be 4C have been held to be applicable from assessment year 2010 om assessment year 2010-11 only by the Hon’ble High 11 only by the Hon’ble High Court.
The Ld. DR on the other hand submitted that the section 144C DR on the other hand submitted that the section 144C DR on the other hand submitted that the section 144C has provided change in procedure of assessment in case of c has provided change in procedure of assessment in case of c has provided change in procedure of assessment in case of certain category of assessees. The section has not created any obligation category of assessees. The section has not created any obligation category of assessees. The section has not created any obligation of tax liability and therefore tax liability and therefore, the amendment was in the nature of , the amendment was in the nature of only
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a procedural change. procedural change. He submitted that section 144C(1) of the He submitted that section 144C(1) of the Act specifically lays down that changed procedure specifically lays down that changed procedure of forwarding draft of forwarding draft assessment order for eligible assessee assessment order for eligible assessee in case of variation in the in case of variation in the income or loss returned, income or loss returned, is to be followed on after the first day of on after the first day of October 2009. Further he submitted that Hon’ble October 2009. Further he submitted that Hon’ble Madras Madras High Court in Writ Petition No. No. 1526 and 1527 of 2014 in the case of Vijay 1526 and 1527 of 2014 in the case of Vijay Television Private Limited Television Private Limited has affirmed the decision of the has affirmed the decision of the Hon’ble Andhra Pradesh High Court in the case of Hon’ble Andhra Pradesh High Court in the case of Hon’ble Andhra Pradesh High Court in the case of Zuari Cement Limited Vs Asst Commissioner of Income Limited Vs Asst Commissioner of Income-tax Circle 2(1) in WP Circle 2(1) in WP of 5557 of 2012 dated 21.02.2 of 5557 of 2012 dated 21.02.2013. The Hon’ble High Court The Hon’ble High Court referring to memorandum explaining the Finance Bill referring to memorandum explaining the Finance Bill referring to memorandum explaining the Finance Bill, has held that section 144C would take effect from 01/10/2009. Therefore section 144C would take effect from 01/10/2009. Therefore section 144C would take effect from 01/10/2009. Therefore, according to the Ld. DR, the decision of Hon’ble Madras Madras High Court in the case of Vijay Television Pri Television Private Limited has laid down the has laid down the law clearly and same should be followed and the subsequent d same should be followed and the subsequent d same should be followed and the subsequent decision in Vedanta Ltd. (supra), cited by assessee, the Hon’ble High decision in Vedanta Ltd. (supra), cited by assessee, the Hon’ble High decision in Vedanta Ltd. (supra), cited by assessee, the Hon’ble High
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Court of Madras has not taken into consideration the decision in the Court of Madras has not taken into consideration the decision in the Court of Madras has not taken into consideration the decision in the case of Vijay Television Pv case of Vijay Television Pvt. Ltd. (supra), therefore, finding in the t. Ltd. (supra), therefore, finding in the case of Vedanta Ltd. might be ignored. case of Vedanta Ltd. might be ignored.
We have heard rival submission We have heard rival submissions of the parties on the issue in of the parties on the issue in dispute and perused the relevant material on record. The only dispute and perused the relevant material on record. The only dispute and perused the relevant material on record. The only dispute raised in ground dispute raised in ground before us is whether procedure of whether procedure of assessment for certain category of ass assessment for certain category of assessees specified in section essees specified in section 144C would be applicable from 01/10/2009 or from assessment 4C would be applicable from 01/10/2009 or from assessment 4C would be applicable from 01/10/2009 or from assessment year 2010-11. By way of section 144 By way of section 144C, alternative dispute resolution C, alternative dispute resolution mechanism has been has been introduced for certain assessees, wh n assessees, who satisfied specific conditions. Those assessees have been categori . Those assessees have been categori . Those assessees have been categorized as eligible assessees. Under this mechanism eligible assessees. Under this mechanism, in case of eligible , in case of eligible assessees, if there is a variation in assessed income or loss as , if there is a variation in assessed income or loss as , if there is a variation in assessed income or loss as compared to the returned income or loss compared to the returned income or loss prejudicial prejudicial to the interest of the assessee, then instead of p of the assessee, then instead of passing final assessment order [ assing final assessment order [as provided under section 143(3) of the provided under section 143(3) of the Act], the Assessing Officer Assessing Officer is
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required to pass a draft assessment order. Against said draft required to pass a draft assessment order. Against said draft required to pass a draft assessment order. Against said draft assessment order, the assessee the assessee has been given the option to file has been given the option to file objections before Dispute Resolution Panel Dispute Resolution Panel (DRP) (which consist of which consist of three officers of the rank of Commissioner of three officers of the rank of Commissioner of Income Tax Income Tax). The Ld. DRP is required to dispose off said objections within specified DRP is required to dispose off said objections within specified DRP is required to dispose off said objections within specified period. Thus, by way of period. Thus, by way of this provision under section 144C is provision under section 144C, procedure of assessment has been modified for cert procedure of assessment has been modified for cert procedure of assessment has been modified for certain category of the assessees. For ready reference, the said section 144C(1) For ready reference, the said section 144C(1) For ready reference, the said section 144C(1) is reproduced as under: reproduced as under:
“144C. (1) The Assessing Officer shall, notwithstanding anything to the 144C. (1) The Assessing Officer shall, notwithstanding anything to the 144C. (1) The Assessing Officer shall, notwithstanding anything to the contrary contained in this Act, in the first instance, forwards a draft of contrary contained in this Act, in the first instance, forwards a draft of contrary contained in this Act, in the first instance, forwards a draft of the proposed order of assessment (hereafter in this section referred to the proposed order of assessment (hereafter in this section referred to the proposed order of assessment (hereafter in this section referred to as the draft order) to the eligible as as the draft order) to the eligible assessee if he proposes to make, on if he proposes to make, on or after the 1st day of October, 2009, any variation in the income or after the 1st day of October, 2009, any variation in the income or after the 1st day of October, 2009, any variation in the income or loss returned which is prejudicial to the interest of such or loss returned which is prejudicial to the interest of such or loss returned which is prejudicial to the interest of such assessee.” 8.1 Thus, according to the section, notwithstanding anything according to the section, notwithstanding anything according to the section, notwithstanding anything contrary in the Act, the the Assessing Officer has been directed to follow has been directed to follow the procedure of forwarding draft assessment order the procedure of forwarding draft assessment order the procedure of forwarding draft assessment order in case of
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certain category of assessees, who have been defined as eligible certain category of assessees, who have been defined as eligible certain category of assessees, who have been defined as eligible assessee, if the Assessing Officer Assessing Officer proposes on or after the first proposes on or after the first day of October 2009 to very day of October 2009 to very returned income or loss, returned income or loss, which is prejudicial to the interest of such assessee prejudicial to the interest of such assessee. By the Finance Act By the Finance Act (No.2), 2009, the legislat the legislature has introduced above above procedural change of assessment with effect fr change of assessment with effect from 01/10/2009.
8.2 However, the Central Board of However, the Central Board of Direct Taxes Direct Taxes (CBDT) vide Circular No. 5/2010 dated 03/06/2010 issued explanatory notes to No. 5/2010 dated 03/06/2010 issued explanatory notes to No. 5/2010 dated 03/06/2010 issued explanatory notes to the provisions of the Finance (No. 2) the provisions of the Finance (No. 2) Act, 2009, wherein para 45.5 , wherein para 45.5 mentioned the applicability of said provision, wh mentioned the applicability of said provision, which reads as under: ich reads as under:
45.5 Applicability Applicability - These amendments have been made applicable These amendments have been made applicable with effect from 1 with effect from 1st October, 2009, and will accordingly apply in will accordingly apply in relation to assessment year 2010 relation to assessment year 2010-11 and subsequent assessment and subsequent assessment years. The Dispute Resolution Panel Rules have been notified by S.O. No. years. The Dispute Resolution Panel Rules have been notified by S.O. No. years. The Dispute Resolution Panel Rules have been notified by S.O. No. 2958(E) dated 20* November, 2009. 2958(E) dated 20* November, 2009. 8.3 However subsequently, the CBDT issued clarification subsequently, the CBDT issued clarification subsequently, the CBDT issued clarification vide circular No. 9/ 2013 dated 19 circular No. 9/ 2013 dated 19th No. 2013 wherein withdrawn th No. 2013 wherein withdrawn this
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para 45.5 of circular No. 5/2010 dated 03/06/2010. For ready para 45.5 of circular No. 5/2010 dated 03/06/2010. For ready para 45.5 of circular No. 5/2010 dated 03/06/2010. For ready
reference, said circular is reproduced as under: reference, said circular is reproduced as under:
45.5 Applicability: These amendments have been made applicable with 45.5 Applicability: These amendments have been made applicable with 45.5 Applicability: These amendments have been made applicable with effect from 1s October, 2009 and will accordingly apply in relation to effect from 1s October, 2009 and will accordingly apply in relation to effect from 1s October, 2009 and will accordingly apply in relation to assessment year 2010 ssment year 2010-11 and subsequent assessment years. The 11 and subsequent assessment years. The Dispute Resolution Panel Rules have been notified by S.O. No. 2958 (E) Dispute Resolution Panel Rules have been notified by S.O. No. 2958 (E) Dispute Resolution Panel Rules have been notified by S.O. No. 2958 (E) dated 20th November, 2009." dated 20th November, 2009."
In the above extracted Para 45.5 there has been an inadvertent error In the above extracted Para 45.5 there has been an inadvertent error In the above extracted Para 45.5 there has been an inadvertent error in stating the applicability of in stating the applicability of the provisions of section 144C inserted the provisions of section 144C inserted vide Finance (No.2) Act, 2009 that amendments will apply in relation vide Finance (No.2) Act, 2009 that amendments will apply in relation vide Finance (No.2) Act, 2009 that amendments will apply in relation to the assessment year 2010 to the assessment year 2010-11 and subsequent assessment years. 11 and subsequent assessment years. Accordingly, para 45.5 is replaced with the following: Accordingly, para 45.5 is replaced with the following:
"45.5. Applicability: Secti "45.5. Applicability: Section 144C has been inserted with effect from on 144C has been inserted with effect from 1st April, 2009. Accordingly, the Assessing Officer is required to 2009. Accordingly, the Assessing Officer is required to 2009. Accordingly, the Assessing Officer is required to forward a draft forward a draft assessment order to the eligible assessee, if he assessment order to the eligible assessee, if he proposes to make, on or after proposes to make, on or after the Is day of October, 2009, any variation the Is day of October, 2009, any variation in the income or loss returned which ncome or loss returned which is prejudicial to the interest of is prejudicial to the interest of such assessee. In other words section 144C is such assessee. In other words section 144C is applicable to any order applicable to any order which proposes to make variation in income or loss which proposes to make variation in income or loss returned by an returned by an eligible assessee, on or after 1st October, 2009 irrespec eligible assessee, on or after 1st October, 2009 irrespec eligible assessee, on or after 1st October, 2009 irrespective of the assessment year to which it pertains. Amendments to other sections of assessment year to which it pertains. Amendments to other sections of assessment year to which it pertains. Amendments to other sections of the Income-tax Act referred to in para 45.3 of the circular 5/2010 tax Act referred to in para 45.3 of the circular 5/2010 tax Act referred to in para 45.3 of the circular 5/2010 dated 3rd June, dated 3rd June, 2010 shall also apply from 1st October, 2009" 2010 shall also apply from 1st October, 2009"
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8.4 In the case before the Hon’ble Andhra Pra the case before the Hon’ble Andhra Pradesh High Court in desh High Court in the case of Zuari Cement Ltd versus Asst Commissioner of the case of Zuari Cement Ltd versus Asst Commissioner of the case of Zuari Cement Ltd versus Asst Commissioner of Income Tax (supra), the Assessing Officer Assessing Officer did not comply the procedure laid did not comply the procedure laid down under section 144C of the down under section 144C of the Act and instead of issuing draft and instead of issuing draft assessment order, straightway issued a f assessment order, straightway issued a final assessment order on inal assessment order on 22/12/2011. The assessee filed writ petition before the Hon’ble 22/12/2011. The assessee filed writ petition before the Hon’ble 22/12/2011. The assessee filed writ petition before the Hon’ble division bench of Andhra Pradesh High Court challenging the final division bench of Andhra Pradesh High Court challenging the final division bench of Andhra Pradesh High Court challenging the final assessment order passed by the assessment order passed by the Assessing Officer Assessing Officer. Before the Hon’ble High Court, on behalf of the Hon’ble High Court, on behalf of the Revenue it was argued that in it was argued that in view of CBDT Circular Circular No. 5/2010, the procedure under section the procedure under section 144C was to apply only from the assessment year 2010 4C was to apply only from the assessment year 2010 4C was to apply only from the assessment year 2010-11 and later years. The Hon’ble High Court years. The Hon’ble High Court vide decision dated 21.03.2013 decision dated 21.03.2013 rejected the contention of the the contention of the Revenue and held that said argument and held that said argument is not tenable. The Hon’ble High Court referred to the memorandum is not tenable. The Hon’ble High Court referred to the memorandum is not tenable. The Hon’ble High Court referred to the memorandum explaining the Finance Bill in the notes and clauses accompanying explaining the Finance Bill in the notes and clauses accompanying explaining the Finance Bill in the notes and clauses accompanying the Finance Bill and held that amendment relating to section 144C of the Finance Bill and held that amendment relating to section 144C of the Finance Bill and held that amendment relating to section 144C of
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the Act would take effect f would take effect from 01/10/2009. Accordingly rom 01/10/2009. Accordingly, the Hon’ble High Court held the assessment order Hon’ble High Court held the assessment order issued was issued was contrary to the mandatory provisi to the mandatory provision of section 144C of the Act on of section 144C of the Act. The relevant finding of the Hon’ble High Court is reproduced as under: finding of the Hon’ble High Court is reproduced as under: finding of the Hon’ble High Court is reproduced as under:
“A reading of the above section A reading of the above section shows that if the assessing officer shows that if the assessing officer proposes to make, on or after 01.10.2009, any variation in the income proposes to make, on or after 01.10.2009, any variation in the income proposes to make, on or after 01.10.2009, any variation in the income or loss returned by an assessee, then, notwithstanding anything to the or loss returned by an assessee, then, notwithstanding anything to the or loss returned by an assessee, then, notwithstanding anything to the contrary contained in the Act, he shall first pass a draft assessment contrary contained in the Act, he shall first pass a draft assessment contrary contained in the Act, he shall first pass a draft assessment order, forward it to the assessee and after the assessee files his rward it to the assessee and after the assessee files his rward it to the assessee and after the assessee files his objections, if any, the assessing officer shall complete assessment objections, if any, the assessing officer shall complete assessment objections, if any, the assessing officer shall complete assessment within one month. The assessee is also given an option to file objections within one month. The assessee is also given an option to file objections within one month. The assessee is also given an option to file objections before the Dispute Resolution Panel in which event the l before the Dispute Resolution Panel in which event the latter can issue atter can issue directions for the guidance of the Assessing Officer to enable him to directions for the guidance of the Assessing Officer to enable him to directions for the guidance of the Assessing Officer to enable him to complete the assessment. complete the assessment. In the case of the petitioner, admittedly the TPO suggested an In the case of the petitioner, admittedly the TPO suggested an In the case of the petitioner, admittedly the TPO suggested an adjustment of Rs.52.14 crores u/s.92CA of the Act on 20.09.2011 and adjustment of Rs.52.14 crores u/s.92CA of the Act on 20.09.2011 and adjustment of Rs.52.14 crores u/s.92CA of the Act on 20.09.2011 and forwarded it t forwarded it to the Assessing Officer and to the assessee under sub o the Assessing Officer and to the assessee under sub- section (3) thereof. The assessing officer accepted the variation section (3) thereof. The assessing officer accepted the variation section (3) thereof. The assessing officer accepted the variation submitted by the TPO without giving the petitioner any opportunity to submitted by the TPO without giving the petitioner any opportunity to submitted by the TPO without giving the petitioner any opportunity to object to it and passed the impugned assessment order. As this has object to it and passed the impugned assessment order. As this has object to it and passed the impugned assessment order. As this has occurred after 01.10.2009, the cut off date prescribed in sub occurred after 01.10.2009, the cut off date prescribed in sub occurred after 01.10.2009, the cut off date prescribed in sub-section (1) of S.144C, the Assessing Officer is mandated to first pass a draft (1) of S.144C, the Assessing Officer is mandated to first pass a draft (1) of S.144C, the Assessing Officer is mandated to first pass a draft assessment order, communicate it to the assessee, hear his objections assessment order, communicate it to the assessee, hear his objections assessment order, communicate it to the assessee, hear his objections and then complete assessment. Admittedly, th and then complete assessment. Admittedly, this has not been done and is has not been done and
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the respondent has passed a final assessment order dated 22.12.2011 the respondent has passed a final assessment order dated 22.12.2011 the respondent has passed a final assessment order dated 22.12.2011 straight away. Therefore, the impugned order of assessment is clearly straight away. Therefore, the impugned order of assessment is clearly straight away. Therefore, the impugned order of assessment is clearly contrary to S.144C of the Act and is without jurisdiction, null and void. contrary to S.144C of the Act and is without jurisdiction, null and void. contrary to S.144C of the Act and is without jurisdiction, null and void.
The contention of t The contention of the Revenue that the circular No.5/2010 of the CBDT he Revenue that the circular No.5/2010 of the CBDT has clarified that the provisions of S.144C shall not apply for the has clarified that the provisions of S.144C shall not apply for the has clarified that the provisions of S.144C shall not apply for the assessment year 2008 assessment year 2008-09 and would apply only from the assessment 09 and would apply only from the assessment year 2010-2011 and later years is not tenable in as much as the 2011 and later years is not tenable in as much as the 2011 and later years is not tenable in as much as the language of Sub of Sub-section (1) of Section 144C referring to the cut off referring to the cut off date of 01.10.2009 indicates an intention of the legislature to make it date of 01.10.2009 indicates an intention of the legislature to make it date of 01.10.2009 indicates an intention of the legislature to make it applicable, if there is a proposal by the Assessing Officer to make a applicable, if there is a proposal by the Assessing Officer to make a applicable, if there is a proposal by the Assessing Officer to make a variation in the income or loss returned by the assessee which is riation in the income or loss returned by the assessee which is riation in the income or loss returned by the assessee which is prejudicial to the assessee, after 01.10.2009. Therefore, this particular prejudicial to the assessee, after 01.10.2009. Therefore, this particular prejudicial to the assessee, after 01.10.2009. Therefore, this particular provision introduced by provision introduced by Finance (No.2) Act, 2009, would apply if , 2009, would apply if the above condition is satisfied and other provisions, in which similar above condition is satisfied and other provisions, in which similar above condition is satisfied and other provisions, in which similar contrary intention is not indicated, which were introduced by the said contrary intention is not indicated, which were introduced by the said contrary intention is not indicated, which were introduced by the said enactment, would apply from 01.04.2009 i.e., from the assessment year enactment, would apply from 01.04.2009 i.e., from the assessment year enactment, would apply from 01.04.2009 i.e., from the assessment year 2010-2011.
It is not disputed that the memo It is not disputed that the memorandum explaining the Finance Bill randum explaining the Finance Bill and the Notes and clauses accompanying the Finance Bill which and the Notes and clauses accompanying the Finance Bill which and the Notes and clauses accompanying the Finance Bill which preceded the Finance (No.2) Act Finance (No.2) Act, 2009 clearly indicated that the , 2009 clearly indicated that the amendments relating to S.144C would take ef amendments relating to S.144C would take effect from 01.10.2009. In fect from 01.10.2009. In our view, the circular No.5/2010 issued byt he CBDT stating that our view, the circular No.5/2010 issued byt he CBDT stating that our view, the circular No.5/2010 issued byt he CBDT stating that S.144C(1) would apply only from the assessment year 2010 S.144C(1) would apply only from the assessment year 2010 S.144C(1) would apply only from the assessment year 2010-2011 and subsequent years and not for the assessment year 2008 subsequent years and not for the assessment year 2008-09 is contrary 09 is contrary to the express language in S.14 to the express language in S.144C(1) and the said view of the Revenue 4C(1) and the said view of the Revenue is unacceptable. The circular may represent only the understanding of is unacceptable. The circular may represent only the understanding of is unacceptable. The circular may represent only the understanding of the Board/Central Government of the statutory provisions, but it will the Board/Central Government of the statutory provisions, but it will the Board/Central Government of the statutory provisions, but it will
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not bind this Court or the Supreme Court. It cannot interfere with the not bind this Court or the Supreme Court. It cannot interfere with the not bind this Court or the Supreme Court. It cannot interfere with the jurisdiction and power of this Court to declare what the legislature iction and power of this Court to declare what the legislature iction and power of this Court to declare what the legislature says and take a view contrary to that declared in the circular of the says and take a view contrary to that declared in the circular of the says and take a view contrary to that declared in the circular of the CBDT (Ratan Melting and Wire Industries Case (1 Supra), Indra CBDT (Ratan Melting and Wire Industries Case (1 Supra), Indra CBDT (Ratan Melting and Wire Industries Case (1 Supra), Indra Industries (2 supra). The Revenue has not been able to pursua Industries (2 supra). The Revenue has not been able to pursua Industries (2 supra). The Revenue has not been able to pursuade us to take a contra view by citing any authority. take a contra view by citing any authority. In this view of the matter, we are of the view that the impugned order In this view of the matter, we are of the view that the impugned order In this view of the matter, we are of the view that the impugned order of assessment dated 23.12.2011 passed by the respondent is contrary of assessment dated 23.12.2011 passed by the respondent is contrary of assessment dated 23.12.2011 passed by the respondent is contrary to the mandatory provisions of S.144C of the Act and is passed i to the mandatory provisions of S.144C of the Act and is passed i to the mandatory provisions of S.144C of the Act and is passed in violation thereof. Therefore, it is declared as one without jurisdiction, violation thereof. Therefore, it is declared as one without jurisdiction, violation thereof. Therefore, it is declared as one without jurisdiction, null and void and unenforceable. Consequently, the demand notice null and void and unenforceable. Consequently, the demand notice null and void and unenforceable. Consequently, the demand notice dated 23.12.2011 issued by the respondent is set aside. dated 23.12.2011 issued by the respondent is set aside.” 8.5 Subsequently, identical issue of non Subsequently, identical issue of non-compliance of the compliance of the procedure laid down under section 144C of the procedure laid down under section 144C of the Act Act came up before the single bench judge of Hon’ble the single bench judge of Hon’ble Madras High Court in the case of High Court in the case of Vijay Television private Limited (supra), wherein the Hon’ble High Vijay Television private Limited (supra), wherein the Hon’ble High Vijay Television private Limited (supra), wherein the Hon’ble High Court vide decision dated 29.04.2014 decision dated 29.04.2014, followed the findi , followed the finding in the case of Zuari cement Ltd (supra) and held as under: case of Zuari cement Ltd (supra) and held as under:
“32. As against this order of the Division Bench of the Andhra Pradesh 32. As against this order of the Division Bench of the Andhra Pradesh 32. As against this order of the Division Bench of the Andhra Pradesh High Court, the Revenue went on appeal before the Honourable High Court, the Revenue went on appeal before the Honourable High Court, the Revenue went on appeal before the Honourable Supreme Court. The record of proceedings of the Supreme Court Supreme Court. The record of proceedings of the Supreme Court Supreme Court. The record of proceedings of the Supreme Court indicate that the Special Leave Petition was dismissed on 27.09.2013. indicate that the Special Leave Petition was dismissed on 27.09.2013. indicate that the Special Leave Petition was dismissed on 27.09.2013.
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The decision of the Division Bench of the Andhra Pradesh High 33. The decision of the Division Bench of the Andhra Pradesh High 33. The decision of the Division Bench of the Andhra Pradesh High Court deals with an identical issue as that of the present case. In this Court deals with an identical issue as that of the present case. In this Court deals with an identical issue as that of the present case. In this case, against the order passed by the second re case, against the order passed by the second respondent on 26.03.2013, spondent on 26.03.2013, the petitioner filed objections before the DRP, the first respondent the petitioner filed objections before the DRP, the first respondent the petitioner filed objections before the DRP, the first respondent herein and the first respondent refused to entertain it by stating that herein and the first respondent refused to entertain it by stating that herein and the first respondent refused to entertain it by stating that the order passed by the second respondent is a final order and it had the order passed by the second respondent is a final order and it had the order passed by the second respondent is a final order and it had jurisdiction to enter jurisdiction to entertain objections only if it is a draft assessment tain objections only if it is a draft assessment order. While so, the order dated 26.03.2013 of the second respondent order. While so, the order dated 26.03.2013 of the second respondent order. While so, the order dated 26.03.2013 of the second respondent can only be termed as a final order and in such event it is contrary can only be termed as a final order and in such event it is contrary can only be termed as a final order and in such event it is contrary to Section 144C Section 144C of the Act. As mentioned supra, in and by the order the Act. As mentioned supra, in and by the order dated 26.03.2013, the second respondent determined the taxable dated 26.03.2013, the second respondent determined the taxable dated 26.03.2013, the second respondent determined the taxable amount and also imposed penalty payable by the petitioner. According amount and also imposed penalty payable by the petitioner. According amount and also imposed penalty payable by the petitioner. According to the learned senior counsel for the petitioners, even as on this date, to the learned senior counsel for the petitioners, even as on this date, to the learned senior counsel for the petitioners, even as on this date, he website of the department indicate the amount determined by the the website of the department indicate the amount determined by the he website of the department indicate the amount determined by the second respondent payable by the company inspite of issuance of the second respondent payable by the company inspite of issuance of the second respondent payable by the company inspite of issuance of the corrigendum on 15.04.2013 as a tax due amount. Thus, while issuing corrigendum on 15.04.2013 as a tax due amount. Thus, while issuing corrigendum on 15.04.2013 as a tax due amount. Thus, while issuing the corrigendum, the second respondent did not even wi the corrigendum, the second respondent did not even wi the corrigendum, the second respondent did not even withdraw the taxable amount determined by him or updated the status in the taxable amount determined by him or updated the status in the taxable amount determined by him or updated the status in the website. In any event, such an order dated 26.03.2013 passed by the website. In any event, such an order dated 26.03.2013 passed by the website. In any event, such an order dated 26.03.2013 passed by the second respondent can only be construed as a final order passed in second respondent can only be construed as a final order passed in second respondent can only be construed as a final order passed in violation of the statutory provisions of the Act violation of the statutory provisions of the Act. The corrigendum dated . The corrigendum dated 15.04.2013 is also beyond the period prescribed for limitation. Such a 15.04.2013 is also beyond the period prescribed for limitation. Such a 15.04.2013 is also beyond the period prescribed for limitation. Such a defect or failure on the part of the second respondent to adhere to the defect or failure on the part of the second respondent to adhere to the defect or failure on the part of the second respondent to adhere to the statutory provisions is not a curable defect by virtue of the statutory provisions is not a curable defect by virtue of the statutory provisions is not a curable defect by virtue of the corrigendum dated 15.04.201 corrigendum dated 15.04.2013. By issuing the corrigendum, the 3. By issuing the corrigendum, the respondents cannot be allowed to develop their own case. Therefore, respondents cannot be allowed to develop their own case. Therefore, respondents cannot be allowed to develop their own case. Therefore, following the order passed by the Division Bench of the Andhra following the order passed by the Division Bench of the Andhra following the order passed by the Division Bench of the Andhra Pradesh High Court, which was also affirmed by the Honourable Pradesh High Court, which was also affirmed by the Honourable Pradesh High Court, which was also affirmed by the Honourable
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Supreme Court by dismissing Supreme Court by dismissing the Special Leave Petition filed thereof, the Special Leave Petition filed thereof, on 27.09.2013, the orders, which are impugned in these writ petitions on 27.09.2013, the orders, which are impugned in these writ petitions on 27.09.2013, the orders, which are impugned in these writ petitions are liable to be set aside. are liable to be set aside.” 8.6 Subsequent to the above decisions, Hon’ble single to the above decisions, Hon’ble single to the above decisions, Hon’ble single Bench Judge of Madras High Court in the case of M/s Vedanta Ltd (supra) on High Court in the case of M/s Vedanta Ltd (supra) on High Court in the case of M/s Vedanta Ltd (supra) on 22/10/2019, held that section 14 held that section 144C is effective from assessment 4C is effective from assessment year 2010-11 only. The relevant finding of the Hon’ble High Court is 11 only. The relevant finding of the Hon’ble High Court is 11 only. The relevant finding of the Hon’ble High Court is reproduced as under: reproduced as under:
“20. The Dispute Resolution Panel (DRP) was const 20. The Dispute Resolution Panel (DRP) was constituted as an ituted as an alternate dispute resolution mechanism, to provide a specialized alternate dispute resolution mechanism, to provide a specialized alternate dispute resolution mechanism, to provide a specialized forum for expeditious disposal of disputes. An assessment involving forum for expeditious disposal of disputes. An assessment involving forum for expeditious disposal of disputes. An assessment involving transfer pricing disputes, is thus taken out of regular track and a fast transfer pricing disputes, is thus taken out of regular track and a fast transfer pricing disputes, is thus taken out of regular track and a fast track dispute mechanism evolved befor track dispute mechanism evolved before a panel of three Senior e a panel of three Senior Commissioners. The Explanatory Circular makes it clear that the Commissioners. The Explanatory Circular makes it clear that the Commissioners. The Explanatory Circular makes it clear that the scheme of assessment under scheme of assessment under Section 144C will apply in relation to will apply in relation to A.Y.2010-11 and subsequent assessment years only. 11 and subsequent assessment years only. No doubt, this No doubt, this Court is not bound by the Explanatory Circular, though necessary Court is not bound by the Explanatory Circular, though necessary Court is not bound by the Explanatory Circular, though necessary weightage will have to be accorded to the explanation set forth by the weightage will have to be accorded to the explanation set forth by the weightage will have to be accorded to the explanation set forth by the Board, immediate and proximate to the insertion of the provision itself, Board, immediate and proximate to the insertion of the provision itself, Board, immediate and proximate to the insertion of the provision itself, in order to understand the appl in order to understand the applicability, scope and width of the newly icability, scope and width of the newly inserted provision. inserted provision. 21. Even otherwise, the settled position of law as set out in the case of 21. Even otherwise, the settled position of law as set out in the case of 21. Even otherwise, the settled position of law as set out in the case of Karimtharuvi (supra) is to the effect that Karimtharuvi (supra) is to the effect that Income Tax Act Income Tax Act, as it stands
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amended on the first day of April of any financial year, must apply to amended on the first day of April of any financial year, must apply to amended on the first day of April of any financial year, must apply to the assessments of that year. Any amendment in the Act which comes the assessments of that year. Any amendment in the Act which comes the assessments of that year. Any amendment in the Act which comes into force after the first day of April of a financial year would not apply into force after the first day of April of a financial year would not apply into force after the first day of April of a financial year would not apply to an assessment for that year, even if t to an assessment for that year, even if the assessment were to be he assessment were to be finalized subsequent to the coming into force of the amendment. (see finalized subsequent to the coming into force of the amendment. (see finalized subsequent to the coming into force of the amendment. (see paragrah 6 of Karimtharuvi (supra)). paragrah 6 of Karimtharuvi (supra)).
Section 144 C is extracted below to the extent to which it is 22. Section 144 C is extracted below to the extent to which it is 22. Section 144 C is extracted below to the extent to which it is relevant.
'Reference to dispute resolution panel. 'Reference to dispute resolution panel.
144C (1) The Assessing Officer shall, notwithstanding anything to the The Assessing Officer shall, notwithstanding anything to the The Assessing Officer shall, notwithstanding anything to the contrary contained in this Act, in the first instance, forward a draft of contrary contained in this Act, in the first instance, forward a draft of contrary contained in this Act, in the first instance, forward a draft of the proposed order of assessment (hereafter in this section referred to the proposed order of assessment (hereafter in this section referred to the proposed order of assessment (hereafter in this section referred to as the draft order) to the eligible assessee if h as the draft order) to the eligible assessee if he proposes to make, on or e proposes to make, on or after the 1st day of October, 2009, any variation in the income or loss after the 1st day of October, 2009, any variation in the income or loss after the 1st day of October, 2009, any variation in the income or loss returned which is prejudicial to the interest of such assessee.' returned which is prejudicial to the interest of such assessee.' returned which is prejudicial to the interest of such assessee.'
Sub-section (2) states that on receipt of the draft order, the section (2) states that on receipt of the draft order, the section (2) states that on receipt of the draft order, the assessee shall, within 30 assessee shall, within 30 days either file acceptance of the variations or days either file acceptance of the variations or objections to the same before DRP. Sub objections to the same before DRP. Sub-section (3) states that the section (3) states that the Assessing Officer shall complete the assessment on the basis of the Assessing Officer shall complete the assessment on the basis of the Assessing Officer shall complete the assessment on the basis of the draft order, if the assessee intimates acceptance of the variations to draft order, if the assessee intimates acceptance of the variations to draft order, if the assessee intimates acceptance of the variations to him or if no objections are received within 30 days. Sub im or if no objections are received within 30 days. Sub im or if no objections are received within 30 days. Sub-section (4) states that, in any event, the Assessing Officer shall complete the states that, in any event, the Assessing Officer shall complete the states that, in any event, the Assessing Officer shall complete the assessment by way of final order of assessment to be passed within one assessment by way of final order of assessment to be passed within one assessment by way of final order of assessment to be passed within one month from the end of the month in which either a month from the end of the month in which either acceptance from the cceptance from the assessee is received, or the period of filing of objections expires. Sub assessee is received, or the period of filing of objections expires. Sub assessee is received, or the period of filing of objections expires. Sub- section (5) onwards deal with the hearing of the objections before the section (5) onwards deal with the hearing of the objections before the section (5) onwards deal with the hearing of the objections before the
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DRP and sub-section (10), states that every direction issued by the DRP section (10), states that every direction issued by the DRP section (10), states that every direction issued by the DRP shall be binding on t shall be binding on the Assessing Officer. Sub-section (13) thereafter section (13) thereafter states that upon receipt of the directions of the DRP, the Assessing states that upon receipt of the directions of the DRP, the Assessing states that upon receipt of the directions of the DRP, the Assessing Authority shall pass an order of assessment in conformity with the Authority shall pass an order of assessment in conformity with the Authority shall pass an order of assessment in conformity with the directions issued. Thus by virtue of insertion of directions issued. Thus by virtue of insertion of Section 144C Section 144C, the legislature has put in place a distinct, new scheme of assessment in legislature has put in place a distinct, new scheme of assessment in legislature has put in place a distinct, new scheme of assessment in regard to a specified class of assessees. regard to a specified class of assessees.
The question as to whether the amendment or change brought 24. The question as to whether the amendment or change brought 24. The question as to whether the amendment or change brought about by Section 144C Section 144C is merely procedural or substantive would stand is merely procedural or substantive would stand answered by the narration of the Scheme o answered by the narration of the Scheme of assessment, as I have f assessment, as I have noticed above. No doubt, above. No doubt, Section 144C prescribes a new procedure for new procedure for assessment. But can it be called a mere shift in procedure? I believe not assessment. But can it be called a mere shift in procedure? I believe not assessment. But can it be called a mere shift in procedure? I believe not as that would be an oversimplification of the matter. The procedure as that would be an oversimplification of the matter. The procedure as that would be an oversimplification of the matter. The procedure inserted is substantive, in that it offers a new scheme of assessment to inserted is substantive, in that it offers a new scheme of assessment to inserted is substantive, in that it offers a new scheme of assessment to a distinct class of ass a distinct class of assessees, that is, those assessee whose assessments essees, that is, those assessee whose assessments involve the issues of Transfer Pricing and determination of Arms involve the issues of Transfer Pricing and determination of Arms involve the issues of Transfer Pricing and determination of Arms Length Price. The provisions of Length Price. The provisions of Section 144C do not, thus merely do not, thus merely prescribe procedure but a prescribe procedure but a substantive exercise in assessment. substantive exercise in assessment.
The Supreme Court in the case of R.Sharadamma (supra) after 25. The Supreme Court in the case of R.Sharadamma (supra) after 25. The Supreme Court in the case of R.Sharadamma (supra) after considering an earlier judgment of the Supreme Court in the case considering an earlier judgment of the Supreme Court in the case considering an earlier judgment of the Supreme Court in the case of Commissioner of Income Tax V. Dhadi Commissioner of Income Tax V. Dhadi Sahu (199 ITR 610), states as (199 ITR 610), states as follows:
'5. The assessee filed appeals before the Tribunal contending that by '5. The assessee filed appeals before the Tribunal contending that by '5. The assessee filed appeals before the Tribunal contending that by virtue of the amendment effect by virtue of the amendment effect by Taxation Laws (Amendment) Act Taxation Laws (Amendment) Act, 1970, the Inspecting Assistant 1970, the Inspecting Assistant Commissioner lost jurisdiction to Commissioner lost jurisdiction to proceed with the said penalty proceedings with effect from April 1, proceed with the said penalty proceedings with effect from April 1, proceed with the said penalty proceedings with effect from April 1, 1971 inasmuch as in the said cases, the amount of income in respect of 1971 inasmuch as in the said cases, the amount of income in respect of 1971 inasmuch as in the said cases, the amount of income in respect of
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which the particulars have been concealed, was less than Rupees which the particulars have been concealed, was less than Rupees which the particulars have been concealed, was less than Rupees twenty five thousa twenty five thousand, within the meaning of Sub-section (2) of section (2) of Section 274 as amended in 1970 with effect from April 1, 1971. The contention as amended in 1970 with effect from April 1, 1971. The contention as amended in 1970 with effect from April 1, 1971. The contention was that penalty proceedings cannot continue before the Inspecting was that penalty proceedings cannot continue before the Inspecting was that penalty proceedings cannot continue before the Inspecting Assistant Comm Assistant Commissioner because the essential requirement of amended issioner because the essential requirement of amended Sub-section (2) was not satisfied. The Tribunal accepted the said plea section (2) was not satisfied. The Tribunal accepted the said plea section (2) was not satisfied. The Tribunal accepted the said plea and allowed the appeal. At the instance of the Revenue, the Tribunal and allowed the appeal. At the instance of the Revenue, the Tribunal and allowed the appeal. At the instance of the Revenue, the Tribunal stated the following question for the opinion of the Orissa Hi stated the following question for the opinion of the Orissa Hi stated the following question for the opinion of the Orissa High Court under Section 256(1) Section 256(1) of the Act :
Whether, on the facts and circumstances of the case and on a true Whether, on the facts and circumstances of the case and on a true Whether, on the facts and circumstances of the case and on a true interpretation of interpretation of Section 274, as amended by the Taxation Laws Taxation Laws (Amendment) Act (Amendment) Act, 1970 the Inspecting Assistant Commissioner to , 1970 the Inspecting Assistant Commissioner to whom the case was referred prior to April 1, 1971, had jurisdiction to whom the case was referred prior to April 1, 1971, had jurisdiction to whom the case was referred prior to April 1, 1971, had jurisdiction to impose penalty. impose penalty.
The High Court answered the que 6. The High Court answered the question in favour of the assessee stion in favour of the assessee whereupon the matter was brought to this Court. This Court at the whereupon the matter was brought to this Court. This Court at the whereupon the matter was brought to this Court. This Court at the outset stated the general principle applicable in this behalf in the outset stated the general principle applicable in this behalf in the outset stated the general principle applicable in this behalf in the following words: following words:
It may be stated at the outset the general principle is that a law which It may be stated at the outset the general principle is that a law which It may be stated at the outset the general principle is that a law which brings about a change in the forum does not affect pending actions brings about a change in the forum does not affect pending actions brings about a change in the forum does not affect pending actions unless an intention to the contrary is clearly shown. One of the modes unless an intention to the contrary is clearly shown. One of the modes unless an intention to the contrary is clearly shown. One of the modes by which such an intention is shown is by making a provision for by which such an intention is shown is by making a provision for by which such an intention is shown is by making a provision for change over of change over of
proceedings from the court or the Tri proceedings from the court or the Tribunal where they are pending to bunal where they are pending to the court or the Tribunal which, under the new law, gets jurisdiction to the court or the Tribunal which, under the new law, gets jurisdiction to the court or the Tribunal which, under the new law, gets jurisdiction to try them.
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The Court then observed that once a reference was validly made to 7. The Court then observed that once a reference was validly made to 7. The Court then observed that once a reference was validly made to the Inspecting Assistant Commissioner he did not lose the jurisdiction the Inspecting Assistant Commissioner he did not lose the jurisdiction the Inspecting Assistant Commissioner he did not lose the jurisdiction to deal with the matter on account of the aforesaid to deal with the matter on account of the aforesaid Amendment Act Amendment Act. It pointed out that the pointed out that the Amending Act does not does not contain any does not does not contain any provision that the provision that the references validly pending before the Inspecting references validly pending before the Inspecting Assistant Commissioner should be returned without passing any final Assistant Commissioner should be returned without passing any final Assistant Commissioner should be returned without passing any final order if the amount of income in respect of which the particulars have order if the amount of income in respect of which the particulars have order if the amount of income in respect of which the particulars have been concealed did not exceed Rupees twenty five thousand. The said been concealed did not exceed Rupees twenty five thousand. The said been concealed did not exceed Rupees twenty five thousand. The said circumstance, it held, supported the inference drawn by the Court that circumstance, it held, supported the inference drawn by the Court that circumstance, it held, supported the inference drawn by the Court that the Inspecting Assistant Commissioner continued to have jurisdiction the Inspecting Assistant Commissioner continued to have jurisdiction the Inspecting Assistant Commissioner continued to have jurisdiction to impose penalty. The Court observed : to impose penalty. The Court observed :
It is also true that no litigant has any vested right in the matter of It is also true that no litigant has any vested right in the matter of It is also true that no litigant has any vested right in the matter of procedural law but, where the question is of change of forum, it ceases edural law but, where the question is of change of forum, it ceases edural law but, where the question is of change of forum, it ceases to be a question of procedure only. The forum of appeal or proceedings to be a question of procedure only. The forum of appeal or proceedings to be a question of procedure only. The forum of appeal or proceedings is a vested right as opposed to pure procedure to be followed before a is a vested right as opposed to pure procedure to be followed before a is a vested right as opposed to pure procedure to be followed before a particular forum. The right becomes vested whe particular forum. The right becomes vested when the proceedings are n the proceedings are initiated in the Tribunal or the court of first instance and, unless the initiated in the Tribunal or the court of first instance and, unless the initiated in the Tribunal or the court of first instance and, unless the Legislature has, by express words or by necessary implication, clearly Legislature has, by express words or by necessary implication, clearly Legislature has, by express words or by necessary implication, clearly so indicated, that vested right will continue inspite of the change of so indicated, that vested right will continue inspite of the change of so indicated, that vested right will continue inspite of the change of jurisdiction of the jurisdiction of the different Tribunals or forums.'
Thus, where there is a change in the form of assessment itself, such 26. Thus, where there is a change in the form of assessment itself, such 26. Thus, where there is a change in the form of assessment itself, such change is not a mere deviation in procedure but a substantive shift in change is not a mere deviation in procedure but a substantive shift in change is not a mere deviation in procedure but a substantive shift in the manner of framing an assessment. A substantive right has enured the manner of framing an assessment. A substantive right has enured the manner of framing an assessment. A substantive right has enured to the parties by virtue of the introduction of ies by virtue of the introduction of Section 144C Section 144C, that, bearing in mind the settled position that the law applicable on the first bearing in mind the settled position that the law applicable on the first bearing in mind the settled position that the law applicable on the first day of assessment year be reckoned as the applicable law for day of assessment year be reckoned as the applicable law for day of assessment year be reckoned as the applicable law for assessment for that year, leads one to the inescapable conclusion that r that year, leads one to the inescapable conclusion that r that year, leads one to the inescapable conclusion that
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the provisions of the provisions of Section 144C can be held to be applicable only can be held to be applicable only prospectively, from AY 2011 prospectively, from AY 2011-12 only.
In J.K.Synthetics Ltd., (supra), the Benc 27. In J.K.Synthetics Ltd., (supra), the Bench states categorically as h states categorically as follows:
'........... The Board is not competent to give directions regarding the '........... The Board is not competent to give directions regarding the '........... The Board is not competent to give directions regarding the exercise of the any judicial power by its subordinates. The opinions exercise of the any judicial power by its subordinates. The opinions exercise of the any judicial power by its subordinates. The opinions expressed in those communications pertain to the exercise of powers expressed in those communications pertain to the exercise of powers expressed in those communications pertain to the exercise of powers by the taxing authorities, as it is for those authorities to determine as ing authorities, as it is for those authorities to determine as ing authorities, as it is for those authorities to determine as to the year in which the undertaking began to "manufacture or to to the year in which the undertaking began to "manufacture or to to the year in which the undertaking began to "manufacture or to produce articles" within the meaning of produce articles" within the meaning of Section 80J of the Income tax of the Income tax Act, 1961. The communications sent by the Board and impugned in the 961. The communications sent by the Board and impugned in the 961. The communications sent by the Board and impugned in the Writ Petition are replies sent by the Board to the letters written by the Writ Petition are replies sent by the Board to the letters written by the Writ Petition are replies sent by the Board to the letters written by the appellant.
They cannot bind the taxing authorities who have to decide the They cannot bind the taxing authorities who have to decide the They cannot bind the taxing authorities who have to decide the question in issue on its own merits, uninfluen question in issue on its own merits, uninfluenced by extraneous ced by extraneous considerations. The question in issue is a question of fact.' considerations. The question in issue is a question of fact.'
In the case of Prasad Productions (P) Ltd. (supra), a Division Bench 28. In the case of Prasad Productions (P) Ltd. (supra), a Division Bench 28. In the case of Prasad Productions (P) Ltd. (supra), a Division Bench of this Court has also clarified the position that where a Circular has of this Court has also clarified the position that where a Circular has of this Court has also clarified the position that where a Circular has explained a provision to be app explained a provision to be applicable qua a particular assessment licable qua a particular assessment year, the benefit of such Circular cannot be withdrawn at a later date, year, the benefit of such Circular cannot be withdrawn at a later date, year, the benefit of such Circular cannot be withdrawn at a later date, so as to deny the assessee the benefit extended earlier. Though in the so as to deny the assessee the benefit extended earlier. Though in the so as to deny the assessee the benefit extended earlier. Though in the present case there is no benefit as such that is in question, there is a present case there is no benefit as such that is in question, there is a present case there is no benefit as such that is in question, there is a substantively procedural right that has enured to both parties as on tantively procedural right that has enured to both parties as on tantively procedural right that has enured to both parties as on 01.04.2009 that relates to assessments for A.Y.2010 01.04.2009 that relates to assessments for A.Y.2010-11 onwards. The 11 onwards. The relevant portion of the 2013 Circular reads thus: relevant portion of the 2013 Circular reads thus:
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'Para 45.5 of the Circular No.5/2010 dated 03.06.2010 reads as under: 'Para 45.5 of the Circular No.5/2010 dated 03.06.2010 reads as under: 'Para 45.5 of the Circular No.5/2010 dated 03.06.2010 reads as under: “45.5 Applicability: These amendments have been made applicable .5 Applicability: These amendments have been made applicable .5 Applicability: These amendments have been made applicable with effect from 1st October, 2009 and will accordingly apply in with effect from 1st October, 2009 and will accordingly apply in with effect from 1st October, 2009 and will accordingly apply in relation to assessment year 2010 relation to assessment year 2010-11 and subsequent assessment years. 11 and subsequent assessment years. The Dispute Resolution Panel Rules have been notified by S.O. The Dispute Resolution Panel Rules have been notified by S.O. The Dispute Resolution Panel Rules have been notified by S.O. No. 2958 (E) dated 20th November, 2009.” In the above extracted Para 45.5 (E) dated 20th November, 2009.” In the above extracted Para 45.5 (E) dated 20th November, 2009.” In the above extracted Para 45.5 there has been an inadvertent error in stating the applicability of the there has been an inadvertent error in stating the applicability of the there has been an inadvertent error in stating the applicability of the provisions of section 144C section 144C inserted vide Finance (No.2) Act Finance (No.2) Act, 2009 that amendments will apply in relation to the assessment year 2010 amendments will apply in relation to the assessment year 2010 amendments will apply in relation to the assessment year 2010- 11 and subsequent assessment years. Accordingly, para 45.5 is replaced and subsequent assessment years. Accordingly, para 45.5 is replaced and subsequent assessment years. Accordingly, para 45.5 is replaced with the following: with the following:
“45.5. Applicability: “45.5. Applicability: Section 144C has been inserted with effect from 1st has been inserted with effect from 1st April, 2009. Accordingly, the Assessing Officer is required to forward a April, 2009. Accordingly, the Assessing Officer is required to forward a April, 2009. Accordingly, the Assessing Officer is required to forward a draft assessment order to the eligible assessee, if he proposes to make, draft assessment order to the eligible assessee, if he proposes to make, draft assessment order to the eligible assessee, if he proposes to make, on or after the 1st day of October, 2009, any variation in the income or ter the 1st day of October, 2009, any variation in the income or ter the 1st day of October, 2009, any variation in the income or loss returned which is prejudicial to the interest of such assessee. In loss returned which is prejudicial to the interest of such assessee. In loss returned which is prejudicial to the interest of such assessee. In other words section 144C section 144C is applicable to any order which proposes is applicable to any order which proposes to make variation in income or loss returned by an eligible assessee, on or make variation in income or loss returned by an eligible assessee, on or make variation in income or loss returned by an eligible assessee, on or after 1st October, 2009 irrespective of the assessment year to which it after 1st October, 2009 irrespective of the assessment year to which it after 1st October, 2009 irrespective of the assessment year to which it pertains.
Amendments to other sections of the Amendments to other sections of the Income-tax Act referred to in referred to in para 45.3 of the circular 5/2010 dated 3rd June, 2010 shall also apply para 45.3 of the circular 5/2010 dated 3rd June, 2010 shall also apply para 45.3 of the circular 5/2010 dated 3rd June, 2010 shall also apply from 1st October, 2009” The right that has enured to the parties in from 1st October, 2009” The right that has enured to the parties in from 1st October, 2009” The right that has enured to the parties in 2009 cannot be modified by a Clarification issued by the Board, three 2009 cannot be modified by a Clarification issued by the Board, three 2009 cannot be modified by a Clarification issued by the Board, three years thereafter. It appears years thereafter. It appears to me quite possible that the long silence of to me quite possible that the long silence of the Board followed by the sudden Clarification issued in 2013 might the Board followed by the sudden Clarification issued in 2013 might the Board followed by the sudden Clarification issued in 2013 might itself be inspired by challenges similar to the one before me now, itself be inspired by challenges similar to the one before me now, itself be inspired by challenges similar to the one before me now,
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perhaps, even the present one. Though the Clarificatory Circular has perhaps, even the present one. Though the Clarificatory Circular has perhaps, even the present one. Though the Clarificatory Circular has not been challenged, in the light of the detailed discussion as above, I een challenged, in the light of the detailed discussion as above, I een challenged, in the light of the detailed discussion as above, I am of the view that this Circular will not bind the Assessing Officer, am of the view that this Circular will not bind the Assessing Officer, am of the view that this Circular will not bind the Assessing Officer, particularly when it does not lay down the correct position of law. particularly when it does not lay down the correct position of law. particularly when it does not lay down the correct position of law. 29. Reference by the learned Senior Standing Coun 29. Reference by the learned Senior Standing Coun 29. Reference by the learned Senior Standing Counsel for the Departmen to the judgment of the Supreme Court in the case of Departmen to the judgment of the Supreme Court in the case of Departmen to the judgment of the Supreme Court in the case of Commissioner of Central Excise, Bolpur Vs. Ratan Melting & Wire Commissioner of Central Excise, Bolpur Vs. Ratan Melting & Wire Commissioner of Central Excise, Bolpur Vs. Ratan Melting & Wire Industries (231 E.L.T.22) will only serve to support the conclusion that Industries (231 E.L.T.22) will only serve to support the conclusion that Industries (231 E.L.T.22) will only serve to support the conclusion that I have arrived at above and the decision of t I have arrived at above and the decision of the Gujarat High Court in he Gujarat High Court in the case of Commissioner of Income Tax, Vadodara the case of Commissioner of Income Tax, Vadodara – – 2 V. C-Sam (India) (P.) Ltd. (398 ITR 182) referred to by the learned Standing (India) (P.) Ltd. (398 ITR 182) referred to by the learned Standing (India) (P.) Ltd. (398 ITR 182) referred to by the learned Standing Counsel also does not support his case. Counsel also does not support his case.” 8.7 We find that both We find that both, the Division Bench of the Hon’ble And of the Hon’ble Andhra Pradesh High Court and Pradesh High Court and Single Bench of the Hon’ble of the Hon’ble Madras High Court in the case of Vedanta Limited Vedanta Limited, has given contrary finding and has given contrary finding and so the issue before us is which findings should be followed. We find so the issue before us is which findings should be followed. We find so the issue before us is which findings should be followed. We find that there is no decision on the issue of the juris that there is no decision on the issue of the jurisdictional High Court. dictional High Court. The judicial discipline demand that decision of the higher forum The judicial discipline demand that decision of the higher forum The judicial discipline demand that decision of the higher forum should be followed. Since the decision of the Hon’ble Andhra should be followed. Since the decision of the Hon’ble Andhra should be followed. Since the decision of the Hon’ble Andhra Pradesh High Court is of the division bench whereas the decision of Pradesh High Court is of the division bench whereas the decision of Pradesh High Court is of the division bench whereas the decision of the Hon’ble Madras High Court in the cas High Court in the case of Vedanta Ltd (supra) is e of Vedanta Ltd (supra) is
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of the single bench, and therefore we are inclined to follow the of the single bench, and therefore we are inclined to follow the of the single bench, and therefore we are inclined to follow the decision of the Hon’ble Andhra Pradesh High Court in the case of decision of the Hon’ble Andhra Pradesh High Court in the case of decision of the Hon’ble Andhra Pradesh High Court in the case of Zuari Cement Ltd (supra), wherein it is held that procedure of Zuari Cement Ltd (supra), wherein it is held that procedure of Zuari Cement Ltd (supra), wherein it is held that procedure of issuing draft assessment ord issuing draft assessment order laid down in the section 14 down in the section 144C is to be followed with effect from 01/10/2009. In the instant case, though followed with effect from 01/10/2009. In the instant case, though followed with effect from 01/10/2009. In the instant case, though the assessment year involve the assessment year involve is 2009-10, the draft assessment order 10, the draft assessment order has been issued on 28/03/2013, much after the specified date of has been issued on 28/03/2013, much after the specified date of has been issued on 28/03/2013, much after the specified date of 01/10/2009 and therefore 01/10/2009 and therefore we do not find any violation of the law we do not find any violation of the law by the Assessing Officer Assessing Officer in issuing the draft assessment order on in issuing the draft assessment order on 28/03/2013 and passing of the final 28/03/2013 and passing of the final assessment order dated assessment order dated 26/02/2014 by the 26/02/2014 by the Assessing Officer. Therefore . Therefore, the final assessment order passed by the assessment order passed by the Assessing Officer is well within the is well within the limitation provided in law. Thus limitation provided in law. Thus, the additional grounds raised by the additional grounds raised by the assessee are accordingly dismissed. the assessee are accordingly dismissed.
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8.8 The ground in 1 (one) 1 (one) raised by the assessee in the appeal is raised by the assessee in the appeal is general in nature and therefore we are not re general in nature and therefore we are not required to adjudicate quired to adjudicate upon specifically.
In ground No. 2 2, the assessee has challenged the finding of the , the assessee has challenged the finding of the Ld. AO in making AO in making transfer pricing adjustment on the total adjustment on the total manufacturing turnover of the assessee. manufacturing turnover of the assessee.
The facts of the issue in dispute are that as the issue in dispute are that assessee reported sessee reported various international transactions as under: various international transactions as under:
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10.1 According to the assessee, transactions relating to purchase of to the assessee, transactions relating to purchase of to the assessee, transactions relating to purchase of raw materials, payment of royalty, payment of indenting raw materials, payment of royalty, payment of indenting raw materials, payment of royalty, payment of indenting commission etc. are closely linked to the primary transactions of are closely linked to the primary transactions of are closely linked to the primary transactions of ‘export of products’ and therefore those transactions had not been and therefore those transactions had not been and therefore those transactions had not been evaluated separately from the transfer pricing prospective and evaluated separately from the transfer pricing prospective and evaluated separately from the transfer pricing prospective and considered to be combined transactions and evaluated by applying considered to be combined transactions and evaluated by applying considered to be combined transactions and evaluated by applying the Transactional Net Margin Method (TNMM) Transactional Net Margin Method (TNMM), by taking operatin by taking operating profit/sales as profit level indicator. The assessee in its search profit/sales as profit level indicator. The assessee in its search profit/sales as profit level indicator. The assessee in its search process for comparable companies included companies engaged in for comparable companies included companies engaged in for comparable companies included companies engaged in manufacturing of chemicals manufacturing of chemicals and identified 10 comparable identified 10 comparables having arithmetic mean (OP/Sales) of 5.73% using multiple year data mean (OP/Sales) of 5.73% using multiple year data mean (OP/Sales) of 5.73% using multiple year data. The Ld. TPO directed the assessee to use single year data and profit level TPO directed the assessee to use single year data and profit level TPO directed the assessee to use single year data and profit level indicator as operating profit/total cost (OP/TC), bec operating profit/total cost (OP/TC), bec operating profit/total cost (OP/TC), because according to him the arm’s length price of sales i.e. export of finished goods length price of sales i.e. export of finished goods length price of sales i.e. export of finished goods was under determination and therefore same was under determination and therefore same cannot be taken as cannot be taken as numerator for profit level indicator. The numerator for profit level indicator. The Ld. TPO retained the list of TPO retained the list of
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the comparables of the assessee, however after updating the the comparables of the assessee, however after updating the the comparables of the assessee, however after updating the
margins of the assessee as well as of the company using financial margins of the assessee as well as of the company using financial margins of the assessee as well as of the company using financial
data for financial year 2008 data for financial year 2008-09, computed mean margin of ed mean margin of
comparables at 9.78%, as under: comparables at 9.78%, as under:
S. No. Company Name Segment Name OP/Sales OP/TC 1. Alkyl Amines Chemicals Ltd. Alkyl Amines Chemicals Ltd. 12.98% 12.98% 14.92% 2. Balaji Amines Ltd. 12.80% 12.80% 14.67% 3. Deepak Nitrite Ltd. 12.01% 12.01% 13.65% 4. Haryana Leather Chemicals Ltd. Haryana Leather Chemicals 5.50% 5.50% 5.82% 5. Laffans Petrochemicals Ltd. Laffans Petrochemicals Ltd. 7.89% 7.89% 8.56% 6. Nocil Ltd. 11.59% 11.59% 13.11% 7. S I Group-India Ltd. -1.19% 1.19% -1.18% 8. Sadhana Nitro Chem Ltd. Sadhana Nitro Chem Ltd. 8.59% 8.59% 9.40% 9. Amines & Plasticizers Ltd. Amines & Plasticizers Ltd. Chemical 6.09% 6.09% 6.49% 10. Indofil Organic Inds. Ltd. Indofil Organic Inds. Spcd 11.00% 11.00% 12.36% Mean 8.73% 8.73% 9.78% 10.2 The Ld. TPO revised the margin of the manufacturing segment revised the margin of the manufacturing segment revised the margin of the manufacturing segment
of the assessee on the sales and on the cost of the assessee on the sales and on the cost, as under: as under:
Particulars Amount (₹) Amount ( Operating Income (A) 1,87,48,36,650/- 1,87,48,36,650/ Less : COGS (B) 1,519,452,806/- 1,519,452,806/ Operating Expenses (C) Operating Expenses (C) 242,698,805/- Total Operating Expenses (E=A Total Operating Expenses (E=A-B-C) 1,762,151,611/- 1,762,151,611/ Operating Profit/(Loss)(F=A Operating Profit/(Loss)(F=A-E) 11,26,85,039/- OP/Net Sales (F/A) 6.39% OP/Total Cost (F/E) 6.01%
10.3 Thereafter the the Ld. TPO, TPO, computed computed adjustment adjustment of of
₹5,96,53,388/- to the international transaction as under: to the international transaction as under: to the international transaction as under:
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Particulars Assessee’s Margin Assessee’s Margin Operating Income (A) 1,87,48,36,650/- 1,87,48,36,650/ Total Operating Expenses (B) Total Operating Expenses (B) 1,762,151,611/- 1,762,151,611/ Operating Profit/(Loss)(C=A Operating Profit/(Loss)(C=A-B) 11,26,85,039/- OP/Total Cost (F/E) 6.39% Arm’s Length Margin (G) Arm’s Length Margin (G) 9.78% Arm’s Length Price (H=G*B) Arm’s Length Price (H=G*B) 1,934,490,038/- 1,934,490,038/ Difference between the arm’s length price and the Difference between the arm’s length price and the 5,96,53,388/- transfer price (I) Transaction value of the Assessee (J) Transaction value of the Assessee (J) 416,006,359/- 5% of Transfer Price (K=J*5%) Price (K=J*5%) 20,800,318/- Adjustment Value 5,96,53,388/- 10.4 The Ld. TPO alternatively also computed adjustment of TPO alternatively also computed adjustment of TPO alternatively also computed adjustment of ₹3,98,23,060/- applying CUP method, however finally did not applying CUP method, however finally did not applying CUP method, however finally did not consider the same for making adjustment. consider the same for making adjustment.
Before the Ld. DRP, the assessee submitted that manufacturing DRP, the assessee submitted that manufacturing DRP, the assessee submitted that manufacturing segment consist of local sales as well as export transactions to the segment consist of local sales as well as export transactions to the segment consist of local sales as well as export transactions to the AE, and therefore for the purpose of transfer pricing adjustment, AE, and therefore for the purpose of transfer pricing adjustment, AE, and therefore for the purpose of transfer pricing adjustment, only the international transactions with AE should be considered only the international transactions with AE should be considered only the international transactions with AE should be considered and not entire manufacturing turnover. entire manufacturing turnover. Before the Before the Ld. DRP, the assessee filed data of local and export segment, assessee filed data of local and export segment, though though the same was not audited. The was not audited. The Ld. DRP rejected the contention of the assessee DRP rejected the contention of the assessee of applying adjustment only to the transactions of the export of th of applying adjustment only to the transactions of the export of th of applying adjustment only to the transactions of the export of the goods observing as under: goods observing as under:
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“2.5.6 The assessee has contended regarding the proportionate 2.5.6 The assessee has contended regarding the proportionate 2.5.6 The assessee has contended regarding the proportionate adjustment only to the extent of international transactions of export of only to the extent of international transactions of export of only to the extent of international transactions of export of finished goods to the AEs. In this regard the assessee also has relied on goods to the AEs. In this regard the assessee also has relied on goods to the AEs. In this regard the assessee also has relied on the certain decisio certain decisions of the Hon ble ITAT. In respect of such ns of the Hon ble ITAT. In respect of such contentions of contentions of the assessee, it is stated that rule 10B(1)(a) to (e) of the the assessee, it is stated that rule 10B(1)(a) to (e) of the IT. Rules, 1962 prescribe five different methods for computation of 1962 prescribe five different methods for computation of 1962 prescribe five different methods for computation of arm's length price of the international transaction of the assessee. price of the international transaction of the assessee. price of the international transaction of the assessee. Each of the method has to be applied as per the provisions given in the method has to be applied as per the provisions given in the method has to be applied as per the provisions given in the rules. After the rules are applied and the consequent adjustment is After the rules are applied and the consequent adjustment is After the rules are applied and the consequent adjustment is arrived at, there is no further scope to alter such figure based on any at, there is no further scope to alter such figure based on any at, there is no further scope to alter such figure based on any consideration of turnover of AE and non AE t consideration of turnover of AE and non AE transactions.
2.5.7 If in the facts of the case, income arising from international 2.5.7 If in the facts of the case, income arising from international 2.5.7 If in the facts of the case, income arising from international transaction can be arrived at on a singular or standalone basis and the transaction can be arrived at on a singular or standalone basis and the transaction can be arrived at on a singular or standalone basis and the comparable or the comparable uncontrolled transaction is searched comparable or the comparable uncontrolled transaction is searched comparable or the comparable uncontrolled transaction is searched keeping in view the FAR of the keeping in view the FAR of the international transaction, then such international transaction, then such benchmarking obviously would not require benchmarking obviously would not require any proportional any proportional adjustment after arriving at the adjustment as per rules. Even if adjustment after arriving at the adjustment as per rules. Even if adjustment after arriving at the adjustment as per rules. Even if income arising from the international transaction cannot be computed income arising from the international transaction cannot be computed income arising from the international transaction cannot be computed on a singular or individua on a singular or individual/separate basis and the margin of the l/separate basis and the margin of the assessee/ tested party is computed either at segmental or entity level assessee/ tested party is computed either at segmental or entity level assessee/ tested party is computed either at segmental or entity level and the comparables are searched having regard to the FAR of the and the comparables are searched having regard to the FAR of the and the comparables are searched having regard to the FAR of the segment or the entity of the assessee, the consequent benchmarking segment or the entity of the assessee, the consequent benchmarking segment or the entity of the assessee, the consequent benchmarking done and adjustment arrived also is not open to be subjected to any adjustment arrived also is not open to be subjected to any adjustment arrived also is not open to be subjected to any alteration on any interpretation. The very concept of applying the alteration on any interpretation. The very concept of applying the alteration on any interpretation. The very concept of applying the aggregate quantum of adjustment arrived to the international aggregate quantum of adjustment arrived to the international aggregate quantum of adjustment arrived to the international transaction, connotes the fact that it is because of the internationa transaction, connotes the fact that it is because of the internationa transaction, connotes the fact that it is because of the international transaction of the assessee that either at the transaction level or at the transaction of the assessee that either at the transaction level or at the transaction of the assessee that either at the transaction level or at the
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entity level, the margin earned by the assessee is less compared to the entity level, the margin earned by the assessee is less compared to the entity level, the margin earned by the assessee is less compared to the margins of the comparables. margins of the comparables.
2.5.8 The argument regarding the proportionate adjustment would in 2.5.8 The argument regarding the proportionate adjustment would in 2.5.8 The argument regarding the proportionate adjustment would in any case pre-suppose the condition that the margin earned by the suppose the condition that the margin earned by the suppose the condition that the margin earned by the assessee from the international transaction and also from the third from the international transaction and also from the third from the international transaction and also from the third party transaction are at same levels and still the margins earned from transaction are at same levels and still the margins earned from transaction are at same levels and still the margins earned from the international international transactions are required to be adjusted on transactions are required to be adjusted on proportionate basis. If the basic presumption of proportionate oportionate basis. If the basic presumption of proportionate oportionate basis. If the basic presumption of proportionate application or computation of the adjustment in proportion to the application or computation of the adjustment in proportion to the application or computation of the adjustment in proportion to the international transaction is that the assessee has earned margin from international transaction is that the assessee has earned margin from international transaction is that the assessee has earned margin from the international transaction and from the third party tran the international transaction and from the third party tran the international transaction and from the third party transaction at par, then in the first place there would be no requirement of any par, then in the first place there would be no requirement of any par, then in the first place there would be no requirement of any adjustment to be made. In the facts of the assessee's case it cannot be adjustment to be made. In the facts of the assessee's case it cannot be adjustment to be made. In the facts of the assessee's case it cannot be said that it has earned margin from the international transaction at said that it has earned margin from the international transaction at said that it has earned margin from the international transaction at the same level that it earned from thi same level that it earned from third party transactions. rd party transactions. Accordingly, contentions of the assessee regarding adjustment to be Accordingly, contentions of the assessee regarding adjustment to be Accordingly, contentions of the assessee regarding adjustment to be computed having regard to the proportion of volume of AE's computed having regard to the proportion of volume of AE's computed having regard to the proportion of volume of AE's transaction, to the total transaction is not found to be acceptable. In transaction, to the total transaction is not found to be acceptable. In transaction, to the total transaction is not found to be acceptable. In respect of the reliance on decisio respect of the reliance on decisions of the Honble ITAT, it is stated ns of the Honble ITAT, it is stated that in such decisions, the primary concept acknowledged is that in in such decisions, the primary concept acknowledged is that in in such decisions, the primary concept acknowledged is that in the TNMM proportionate adjustment is warranted and that in TNMM proportionate adjustment is warranted and that in TNMM proportionate adjustment is warranted and that in application of such proportionate adjustment, the margins of the of such proportionate adjustment, the margins of the assessee from assessee from transactions w transactions with AE and with third parties are same. However, in the However, in the case of the assessee no such fact has been case of the assessee no such fact has been demonstrated. Accordingly demonstrated. Accordingly the contention of the assessee regarding the contention of the assessee regarding proportionate adjustment is proportionate adjustment is not found to be acceptable. not found to be acceptable.”
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Before us, the Ld. Ld. Counsel of the assessee referred to the order of the assessee referred to the order of the Tribunal in the case of the assessee for assessment year 2008 in the case of the assessee for assessment year 2008- in the case of the assessee for assessment year 2008 09 in ITA No. 7202/Mum/2012 and submitted that 09 in ITA No. 7202/Mum/2012 and submitted that 09 in ITA No. 7202/Mum/2012 and submitted that Tribunal has already adjudicated this issue in favour of the assessee with the this issue in favour of the assessee with the direction to make adju direction to make adjustment only in relation to transactions with stment only in relation to transactions with the AE.
The Ld. DR on the other hand relied on the order of the lower DR on the other hand relied on the order of the lower DR on the other hand relied on the order of the lower authorities.
We have heard rival submission of the parties on the issue in We have heard rival submission of the parties on the issue in We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. The dispute and perused the relevant material on record. The dispute and perused the relevant material on record. The issue in dispute is whether the transfer pric dispute is whether the transfer pricing adjustment should be made ing adjustment should be made on the entire manufacturing manufacturing turnover of the assessee or in respect of turnover of the assessee or in respect of international transactions carried out by the assessee with the international transactions carried out by the assessee with the international transactions carried out by the assessee with the Associated Enterprises Associated Enterprises. In our opinion, the entire exercise of tire exercise of determination of arm’s determination of arm’s-length price is in respect of the international length price is in respect of the international
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transactions carried out by the assessee with the transactions carried out by the assessee with the transactions carried out by the assessee with the Associated Enterprises and therefore adjustment is also should be limited to and therefore adjustment is also should be limited to and therefore adjustment is also should be limited to the international transactions carried ou the international transactions carried out with the t with the Associated Enterprises and cannot be applied over the transactions with and cannot be applied over the transactions with and cannot be applied over the transactions with unrelated party or domestic parties unless covered under unrelated party or domestic parties unless covered under unrelated party or domestic parties unless covered under Domestic Transfer Pricing Provisions Transfer Pricing Provisions. In the case of the assessee identical . In the case of the assessee identical issue has been decided in favour of the assessee by the issue has been decided in favour of the assessee by the issue has been decided in favour of the assessee by the Tribunal in assessment year 2008 assessment year 2008-09, observing as under:
“7.3 Before us, the learned AR for the assessee submitted that the 7.3 Before us, the learned AR for the assessee submitted that the 7.3 Before us, the learned AR for the assessee submitted that the assessee had no dispute either in re assessee had no dispute either in relation to the selection of lation to the selection of comparables or in relation to computation of mean margin of comparables or in relation to computation of mean margin of comparables or in relation to computation of mean margin of comparable or the margin computed by TPO/AO in case of the comparable or the margin computed by TPO/AO in case of the comparable or the margin computed by TPO/AO in case of the assessee. The assessee was disputing only the method of computation assessee. The assessee was disputing only the method of computation assessee. The assessee was disputing only the method of computation of TP adjustment. It was pointed out that of TP adjustment. It was pointed out that the AO had made the the AO had made the adjustment to the entire revenue which was not correct as adjustment adjustment to the entire revenue which was not correct as adjustment adjustment to the entire revenue which was not correct as adjustment is required to be made only with respect to transactions with AE. The is required to be made only with respect to transactions with AE. The is required to be made only with respect to transactions with AE. The learned AR placed reliance on the decision of Tribunal in case of learned AR placed reliance on the decision of Tribunal in case of learned AR placed reliance on the decision of Tribunal in case of THYSSENKRUPP INDUSTRIES INDIA P THYSSENKRUPP INDUSTRIES INDIA P. LTD Vs. ACIT in ITA No. . LTD Vs. ACIT in ITA No. 7032/Mum/2011 and the decision of Tribunal in case of TARA JEWELS 7032/Mum/2011 and the decision of Tribunal in case of TARA JEWELS 7032/Mum/2011 and the decision of Tribunal in case of TARA JEWELS EXPORTS P. LTD Vs. ACIT in ITA 6972/mum/2010 for the said EXPORTS P. LTD Vs. ACIT in ITA 6972/mum/2010 for the said EXPORTS P. LTD Vs. ACIT in ITA 6972/mum/2010 for the said proposition. The learned CIT(D)R on the other hand placed reliance on proposition. The learned CIT(D)R on the other hand placed reliance on proposition. The learned CIT(D)R on the other hand placed reliance on the order of AO/TPO. the order of AO/TPO.
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7.4 We have pe 7.4 We have perused the records and considered matter carefully. The rused the records and considered matter carefully. The dispute is regarding TP adjustment made by AO/TPO on account of dispute is regarding TP adjustment made by AO/TPO on account of dispute is regarding TP adjustment made by AO/TPO on account of transactions with associate enterprises (AEs) in relation to the transactions with associate enterprises (AEs) in relation to the transactions with associate enterprises (AEs) in relation to the manufacturing segment. The AO/TPO have applied TNMM for bench manufacturing segment. The AO/TPO have applied TNMM for bench manufacturing segment. The AO/TPO have applied TNMM for bench marking the transaction and seven comparable have been selected e transaction and seven comparable have been selected e transaction and seven comparable have been selected which gave arithmetic mean margin of 5.42%. The margin of the which gave arithmetic mean margin of 5.42%. The margin of the which gave arithmetic mean margin of 5.42%. The margin of the assessee has been computed at 1.73%. The assessee had computed the assessee has been computed at 1.73%. The assessee had computed the assessee has been computed at 1.73%. The assessee had computed the margin at 9.04% after making adjustment for under margin at 9.04% after making adjustment for under-utilization of utilization of capacity which has not been accepted by the AO/TPO. The learned AR which has not been accepted by the AO/TPO. The learned AR which has not been accepted by the AO/TPO. The learned AR for the assessee has not disputed before us either the comparables or for the assessee has not disputed before us either the comparables or for the assessee has not disputed before us either the comparables or the arithmetic mean margin of the comparables or the margin of the the arithmetic mean margin of the comparables or the margin of the the arithmetic mean margin of the comparables or the margin of the assessee computed by AO/TPO at 1.73%. Only limited dispute r assessee computed by AO/TPO at 1.73%. Only limited dispute r assessee computed by AO/TPO at 1.73%. Only limited dispute raised is that AO had made the adjustment with respect to entire revenue of that AO had made the adjustment with respect to entire revenue of that AO had made the adjustment with respect to entire revenue of manufacturing segment whereas the adjustment is required only in manufacturing segment whereas the adjustment is required only in manufacturing segment whereas the adjustment is required only in relation to transaction with associated enterprises. The plea raised by relation to transaction with associated enterprises. The plea raised by relation to transaction with associated enterprises. The plea raised by the learned AR for the assessee is quite rea the learned AR for the assessee is quite reasonable and is supported by sonable and is supported by the several decisions of the Tribunal as mentioned in para 7.3 of the several decisions of the Tribunal as mentioned in para 7.3 of the several decisions of the Tribunal as mentioned in para 7.3 of this order. We, therefore, direct the AO to make the adjustment only in order. We, therefore, direct the AO to make the adjustment only in order. We, therefore, direct the AO to make the adjustment only in relation transactions with the AE. relation transactions with the AE.” 14.1 Since identical issue in dispute is involved in t identical issue in dispute is involved in the ground raised he ground raised before us, respectfully following the finding of the before us, respectfully following the finding of the Tribunal Tribunal (supra), we set aside the finding of the we set aside the finding of the Assessing Officer on the issue in dispute and restore the matter back to him for dispute and restore the matter back to him for comparison of export comparison of export segment of the assessee with the e segment of the assessee with the export segment of comparable xport segment of comparable
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companies and then determine the arm’s and then determine the arm’s-length price of the length price of the international transactions with AE applying the mean margin of the international transactions with AE applying the mean margin of the international transactions with AE applying the mean margin of the comparables. The ground No. comparables. The ground No. 2 of the appeal of the assessee is of the appeal of the assessee is accordingly allowed for statistical pur accordingly allowed for statistical purposes.
The ground No. 3 The ground No. 3 to 5 have been raised on alternative basis n alternative basis only subject to relief on ground only subject to relief on ground No. 2. Since we have already allowed . Since we have already allowed the ground No. 2 in favour of the assessee, the ground No. 3 to 5 are in favour of the assessee, the ground No. 3 to 5 are in favour of the assessee, the ground No. 3 to 5 are rendered merely academic and therefore we ar rendered merely academic and therefore we are not e not adjuciating those grounds. Same are dismissed as infructuous. those grounds. Same are dismissed as infructuous.
The ground No. The ground No. 6 and 7 of the appeal of the assessee and of the appeal of the assessee and ground No. one and two of the appeal of the ground No. one and two of the appeal of the Revenue Revenue relate to the issue of additions made in respect of the purchase issue of additions made in respect of the purchases by the by the Assessing Officer.
The facts in brief qua the issue in dispute are that brief qua the issue in dispute are that brief qua the issue in dispute are that in the draft assessment order for verification of the for verification of the genuineness genuineness of the
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purchases the Ld. AO the Ld. AO issued notice under section 133(6) of the issued notice under section 133(6) of the Act and on the basis of outcome of said enq and on the basis of outcome of said enquiry under section 133(6), uiry under section 133(6), the Ld. Assessing Officer Assessing Officer proposed disallowance of proposed disallowance of ₹5,62,65,098/- under four categories. Under fir under four categories. Under first category disallowance of st category disallowance of ₹22,08,487/-was made where was made where ‘no reply’ of notice issued under of notice issued under section 133(6) was received. According to the section 133(6) was received. According to the Assessing Officer Assessing Officer, in those cases identity of the purchaser and genuineness of the se cases identity of the purchaser and genuineness of the se cases identity of the purchaser and genuineness of the transactions transactions transactions was was was not not not established. established. established. Under Under Under second second second category, category, category, disallowance of ₹55, 55,34,750/-was made where the was made where the notice issued under under section section 133(6) 133(6) ‘returned back’. . In In third third category, category disallowance of ₹4,18,31, 4,18,31,261/- has been made where assessee has been made where assessee company has ‘shown more amount of the purchase shown more amount of the purchase shown more amount of the purchases then the amount confirmed by the party amount confirmed by the party’ i.e. positive difference. In fourth positive difference. In fourth category purchase expenses ha category purchase expenses have been reported less by the assessee been reported less by the assessee as compared to the concerned party, for which the as compared to the concerned party, for which the Assessing Officer Assessing Officer
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has made addition of has made addition of ₹66,90,600/- treating the same as undisclosed the same as undisclosed income.
Before the Ld. Dispute Resolution Panel, the assessee filed , the assessee filed confirmation of the parties as additional evidence. The Ld. DRP confirmation of the parties as additional evidence. The Ld. DRP confirmation of the parties as additional evidence. The Ld. DRP obtained remand report from the obtained remand report from the Assessing Officer Assessing Officer. In the remand report the Ld. Assessing Officer Assessing Officer accepted the contention of the accepted the contention of the assessee except in respect of amount of assessee except in respect of amount of ₹10,240/- in the case of M/s in the case of M/s Ashok chemical industry and Ashok chemical industry and ₹55,34,750/-in the case of Arihant he case of Arihant Industries (Madras) Private Limited. Madras) Private Limited. The relevant finding of the The relevant finding of the Ld. DRP reproduced as under: DRP reproduced as under:
“3.5.1 It is seen from the assessment order that the AO has made 3.5.1 It is seen from the assessment order that the AO has made 3.5.1 It is seen from the assessment order that the AO has made addition u/s. 69C of Rs. 4,95,74,488/ u/s. 69C of Rs. 4,95,74,488/- and further addition of Rs. and further addition of Rs. 66,99,600/- as income from undisclosed sources. It is seen that such as income from undisclosed sources. It is seen that such as income from undisclosed sources. It is seen that such addition made by the AO are in respect of the purchases made by the made by the AO are in respect of the purchases made by the made by the AO are in respect of the purchases made by the assessee from various parties to whom notice us. 133(6) wer from various parties to whom notice us. 133(6) were issued. from various parties to whom notice us. 133(6) wer In the remand proceedings, the AO has found all the other transactions remand proceedings, the AO has found all the other transactions remand proceedings, the AO has found all the other transactions to be in order except transaction with two parties viz. Arihant in order except transaction with two parties viz. Arihant in order except transaction with two parties viz. Arihant Industries (Madras) P. Ltd. and Ashok Chemicals Industry. (Madras) P. Ltd. and Ashok Chemicals Industry. (Madras) P. Ltd. and Ashok Chemicals Industry.
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3.5.2 In the remand report the AO has reported that i 3.5.2 In the remand report the AO has reported that in the case of n the case of Ashok Chemicals Industry, an amount of Rs. 10,240/ Chemicals Industry, an amount of Rs. 10,240/- reflected to have reflected to have been paid on 31.03.2009 is not seen in the bank statement of the paid on 31.03.2009 is not seen in the bank statement of the paid on 31.03.2009 is not seen in the bank statement of the assessee and to that extent this amount remain un and to that extent this amount remain un-reconciled. The reconciled. The assessee in its submission subsequent to its submission subsequent to the remand proceedings has the remand proceedings has not been able to reconcile the same. Accordingly, the addition to the able to reconcile the same. Accordingly, the addition to the able to reconcile the same. Accordingly, the addition to the extent of Rs. 10,240/ Rs. 10,240/- made in the case of Ashok Chemicals Industry is made in the case of Ashok Chemicals Industry is found to be justifiable. to be justifiable.
3.5.3 In the case of Arihant Industries (Madras) P. Ltd., the A 3.5.3 In the case of Arihant Industries (Madras) P. Ltd., the A 3.5.3 In the case of Arihant Industries (Madras) P. Ltd., the AO has made an addition of Rs. 55,34,750/ addition of Rs. 55,34,750/-. In this case, a notice u/s. 133(6) . In this case, a notice u/s. 133(6) of the Act was returned back. The assessee had submitted zero copies Act was returned back. The assessee had submitted zero copies Act was returned back. The assessee had submitted zero copies of the bills from this party and contended that party's address had bills from this party and contended that party's address had bills from this party and contended that party's address had changed. In the additional evidence, Anne In the additional evidence, Annexure - C submitted by the C submitted by the assessee was only a bank statement of Citi Bank. The AO observed that was only a bank statement of Citi Bank. The AO observed that was only a bank statement of Citi Bank. The AO observed that in the absence of ledger account from the party, the purpose for which absence of ledger account from the party, the purpose for which absence of ledger account from the party, the purpose for which payment has been made cannot be ascertained. He further observed payment has been made cannot be ascertained. He further observed payment has been made cannot be ascertained. He further observed that though on going thr that though on going through the bank statement, the payment to ough the bank statement, the payment to Arihant Intermediates (Madras) P. Ltd. appears to have been made, Arihant Intermediates (Madras) P. Ltd. appears to have been made, Arihant Intermediates (Madras) P. Ltd. appears to have been made, but the purpose of these payments cannot be established. Even during the purpose of these payments cannot be established. Even during the purpose of these payments cannot be established. Even during the proceedings before the panel subsequent to the remand report of proceedings before the panel subsequent to the remand report of proceedings before the panel subsequent to the remand report of the AO, the assessee could not produce the reconciliation and the copy ssessee could not produce the reconciliation and the copy ssessee could not produce the reconciliation and the copy of ledger account of the assessee in the books of Arihant Industries ledger account of the assessee in the books of Arihant Industries ledger account of the assessee in the books of Arihant Industries (Madras) P. Ltd. to arrive at the conclusion that the purchases made (Madras) P. Ltd. to arrive at the conclusion that the purchases made (Madras) P. Ltd. to arrive at the conclusion that the purchases made by the assessee from these parties were genuine. Accordingly the assessee from these parties were genuine. Accordingly the assessee from these parties were genuine. Accordingly, the action of the AO in making the addition of Rs. 55,34,750/ of the AO in making the addition of Rs. 55,34,750/- in respect in respect of this party is found to be justifiable. party is found to be justifiable.
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3.5.4 In the facts of the case and in view of the remand report of the AO 3.5.4 In the facts of the case and in view of the remand report of the AO 3.5.4 In the facts of the case and in view of the remand report of the AO except for the aforesaid 2 amounts, the AO is directed not to ma except for the aforesaid 2 amounts, the AO is directed not to ma except for the aforesaid 2 amounts, the AO is directed not to make the addition of the balance amount as proposed in the assessment order addition of the balance amount as proposed in the assessment order addition of the balance amount as proposed in the assessment order under the head disallowance of unexplained expenditure. We direct under the head disallowance of unexplained expenditure. We direct under the head disallowance of unexplained expenditure. We direct accordingly.” 19. Before us the us the Ld. Counsel of the assessee submitted that of the assessee submitted that identical issue in the assessment year 2008 identical issue in the assessment year 2008-09 has been set aside by 09 has been set aside by the Tribunal to the file of the to the file of the Assessing Officer Assessing Officer for necessary examination in the light of the observation of the examination in the light of the observation of the Tribunal Tribunal.
The Ld. DR on the other h DR on the other hand relied on the draft assessment and relied on the draft assessment order and submitted that order and submitted that Ld. DRP has allowed relief to the assessee DRP has allowed relief to the assessee without proper verification. without proper verification.
We have heard rival submission of the parties on the issue in We have heard rival submission of the parties on the issue in We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. The dispute and perused the relevant material on record. The dispute and perused the relevant material on record. The issue in dispute is regarding purchase expenses debited in th dispute is regarding purchase expenses debited in th dispute is regarding purchase expenses debited in the profit and loss account. In the draft assessment order the . In the draft assessment order the Assessing Officer Assessing Officer has made addition on the basis of the response made addition on the basis of the response of the notice under of the notice under
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section 133(6) issued d to those purchase parties. During proceeding During proceeding before the Ld. DRP, the DRP, the Assessing Officer again verified the evidence again verified the evidence submitted by the assessee and concluded that except t submitted by the assessee and concluded that except t submitted by the assessee and concluded that except two parties, addition was not required addition was not required. As far as the contention of the . As far as the contention of the Ld. Counsel of the assessee is concerned of the assessee is concerned, the Tribunal Tribunal (supra) in assessment year 2008 assessment year 2008-09 has restored the issue to the file of the 09 has restored the issue to the file of the Assessing Officer observing as under observing as under:
“8.4 We have perused the records and considered the rival contentions 8.4 We have perused the records and considered the rival contentions 8.4 We have perused the records and considered the rival contentions carefully. The dispute is regarding addition made by AO on account of carefully. The dispute is regarding addition made by AO on account of carefully. The dispute is regarding addition made by AO on account of creditors, purchases and other expenses u/s 69 C of the IT Act. The AO creditors, purchases and other expenses u/s 69 C of the IT Act. The AO creditors, purchases and other expenses u/s 69 C of the IT Act. The AO had issued notices u/s 133(6) to the parties w had issued notices u/s 133(6) to the parties with a view to ascertain ith a view to ascertain the genuineness of the transactions which had been returned in many the genuineness of the transactions which had been returned in many the genuineness of the transactions which had been returned in many cases or no reply had been received. In cases where reply had been cases or no reply had been received. In cases where reply had been cases or no reply had been received. In cases where reply had been received, there were discrepancies and amounts confirmed was more received, there were discrepancies and amounts confirmed was more received, there were discrepancies and amounts confirmed was more in some cases while less in som in some cases while less in some other cases. The total addition made e other cases. The total addition made by AO is Rs. 53521277/ by AO is Rs. 53521277/- on account of these factors as per details given on account of these factors as per details given in para 8.2 of this order. The learned AR for the assessee has argued in para 8.2 of this order. The learned AR for the assessee has argued in para 8.2 of this order. The learned AR for the assessee has argued that addition u/s 69C could be made only when the expenditure is that addition u/s 69C could be made only when the expenditure is that addition u/s 69C could be made only when the expenditure is accounted. The entire transaction in relation to the category in which . The entire transaction in relation to the category in which . The entire transaction in relation to the category in which replies were not received or the notices were returned back had been replies were not received or the notices were returned back had been replies were not received or the notices were returned back had been unaccounted in the books and, therefore, no addition could be made unaccounted in the books and, therefore, no addition could be made unaccounted in the books and, therefore, no addition could be made u/s 69C and accordingly it has been requested that the add u/s 69C and accordingly it has been requested that the add u/s 69C and accordingly it has been requested that the addition made
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on this account may be deleted. We are however unable to accept the on this account may be deleted. We are however unable to accept the on this account may be deleted. We are however unable to accept the arguments advanced. Merely because the AO has used the wrong arguments advanced. Merely because the AO has used the wrong arguments advanced. Merely because the AO has used the wrong section it does not make the addition legally invalid if the addition section it does not make the addition legally invalid if the addition section it does not make the addition legally invalid if the addition could be justified based on some other provisi could be justified based on some other provisions of the Act. In such ons of the Act. In such cases the addition could always be made u/s 68 of the IT Act and, cases the addition could always be made u/s 68 of the IT Act and, cases the addition could always be made u/s 68 of the IT Act and, therefore, we reject the arguments advanced. However, we find, therefore, we reject the arguments advanced. However, we find, therefore, we reject the arguments advanced. However, we find, substance in the argument of learned AR that the AO/TPO had asked substance in the argument of learned AR that the AO/TPO had asked substance in the argument of learned AR that the AO/TPO had asked for almost entire details of transact for almost entire details of transactions entered into by the assessee ions entered into by the assessee which was voluminous. The assessee before the DRP had filed further which was voluminous. The assessee before the DRP had filed further which was voluminous. The assessee before the DRP had filed further material on sample basis covering 89.43% of cases in which replies material on sample basis covering 89.43% of cases in which replies material on sample basis covering 89.43% of cases in which replies had not been received and 69.57% cases in which the notices had been had not been received and 69.57% cases in which the notices had been had not been received and 69.57% cases in which the notices had been returned back. It returned back. It has been pointed out that the assessee was now has been pointed out that the assessee was now having full details and, therefore, in case further details are required having full details and, therefore, in case further details are required having full details and, therefore, in case further details are required the assessee could submit the same before the AO. Similarly in case of the assessee could submit the same before the AO. Similarly in case of the assessee could submit the same before the AO. Similarly in case of discrepancies it has been pointed out that the assessee had given discrepancies it has been pointed out that the assessee had given discrepancies it has been pointed out that the assessee had given explanation in respect of differences positive or negative pointed out explanation in respect of differences positive or negative pointed out explanation in respect of differences positive or negative pointed out by the parties in the cases in which reply had been received and these by the parties in the cases in which reply had been received and these by the parties in the cases in which reply had been received and these explanation had been duly noted by AO at pages 25 to 31 of the explanation had been duly noted by AO at pages 25 to 31 of the explanation had been duly noted by AO at pages 25 to 31 of the assessment order and again at pages 36 to 42 of as assessment order and again at pages 36 to 42 of assessment order. The sessment order. The explanation given had not been examined and the entire difference explanation given had not been examined and the entire difference explanation given had not been examined and the entire difference had not been added. In our view matter requires fresh examination at had not been added. In our view matter requires fresh examination at had not been added. In our view matter requires fresh examination at the level of AO by specifically considering each explanation by the the level of AO by specifically considering each explanation by the the level of AO by specifically considering each explanation by the assessee in respect of difference assessee in respect of differences found and the assessee may also be s found and the assessee may also be given further opportunity to provide details and evidence in respect of given further opportunity to provide details and evidence in respect of given further opportunity to provide details and evidence in respect of cases in which no reply had been received or the notices had been cases in which no reply had been received or the notices had been cases in which no reply had been received or the notices had been returned back because disallowing the entire amount considering the returned back because disallowing the entire amount considering the returned back because disallowing the entire amount considering the ture of details is not justified. We, therefore, set aside voluminous na voluminous nature of details is not justified. We, therefore, set aside the order of AO and restore the matter back to him for passing a fresh the order of AO and restore the matter back to him for passing a fresh the order of AO and restore the matter back to him for passing a fresh
Lanxess India Pvt. Ltd. Lanxess India Pvt. Ltd. 46 ITA Nos. 2628 & 2788/M/2014 ITA Nos. 2628 & 2788/M/2014
order after necessary examination in the light of observations made in order after necessary examination in the light of observations made in order after necessary examination in the light of observations made in this order and after allowing opportunity of hearing to this order and after allowing opportunity of hearing to the assessee. the assessee.” 21. Thus, we find that, in the case matter we find that, in the case matter is of verification of the verification of the parties and the Ld. DRP has provided opportunity DRP has provided opportunity to assessee and after taking into consideration the additional evidence submitted by after taking into consideration the additional evidence submitted by after taking into consideration the additional evidence submitted by the assessee and calling for remand r the assessee and calling for remand report from the assessee has eport from the assessee has sustained addition in respect of the two parties only, particularly sustained addition in respect of the two parties only, particularly sustained addition in respect of the two parties only, particularly where the assessee failed to substantiate purchase amount recorded where the assessee failed to substantiate purchase amount recorded where the assessee failed to substantiate purchase amount recorded in its books of accounts. In our opinion, the exercise of the in its books of accounts. In our opinion, the exercise of the in its books of accounts. In our opinion, the exercise of the verification has already been d verification has already been done during the proceeding before the g the proceeding before the DRP. The assessee has not provided any justified reasons for . The assessee has not provided any justified reasons for . The assessee has not provided any justified reasons for restoring the matter back to the file of the restoring the matter back to the file of the Assessing Officer Assessing Officer. The Ld. DRP has duly considered the submission of the assessee DRP has duly considered the submission of the assessee DRP has duly considered the submission of the assessee and wherever the assessee has f wherever the assessee has failed to substantiate with evidence in ailed to substantiate with evidence in that case only additional se only additional is sustained. Therefore, the ground No. 6 the ground No. 6 and 7 of the appeal of assessee are dismissed. and 7 of the appeal of assessee are dismissed.
Lanxess India Pvt. Ltd. Lanxess India Pvt. Ltd. 47 ITA Nos. 2628 & 2788/M/2014 ITA Nos. 2628 & 2788/M/2014
As far as ground As far as grounds of the Revenue are concerned, we find that concerned, we find that during proceeding before the DRP, the matter during proceeding before the DRP, the matter of verification was verification was remanded to the Ld. Assessing Officer and on the report of the and on the report of the Ld. Assessing Officer only only, the Ld. DRP has directed to delete , the Ld. DRP has directed to delete part of the additions on the issue in di additions on the issue in dispute except the two amounts mentioned spute except the two amounts mentioned above. In such circumstances, we do not find any justified reasons above. In such circumstances, we do not find any justified reasons above. In such circumstances, we do not find any justified reasons for the Revenue agitate agitate when the same Assessing Officer Assessing Officer has recommended to the DRP for not making additions in respect of the recommended to the DRP for not making additions in respect of the recommended to the DRP for not making additions in respect of the amount, which has now be amount, which has now been contested before us. Before us, nothing Before us, nothing has been brought which could show that any malafide was observed has been brought which could show that any malafide was observed has been brought which could show that any malafide was observed by the Department in the action of the AO in remand proceeding i.e. by the Department in the action of the AO in remand proceeding i.e. by the Department in the action of the AO in remand proceeding i.e. report of which is normally sent through range head. In such report of which is normally sent through range head. In such report of which is normally sent through range head. In such circumstances, the remand report has been a bonafide action by the remand report has been a bonafide action by the remand report has been a bonafide action by the Ld. AO. The Ld. DR also could not explain as what is the error in DR also could not explain as what is the error in DR also could not explain as what is the error in direction of the Ld. DRP DRP. In view of the above discussion, we dismiss view of the above discussion, we dismiss the ground Nos. 1 and and 2 of the appeal of the Revenue Revenue.
Lanxess India Pvt. Ltd. Lanxess India Pvt. Ltd. 48 ITA Nos. 2628 & 2788/M/2014 ITA Nos. 2628 & 2788/M/2014
In ground No. . 8, the assessee has raised the issue of not the assessee has raised the issue of not allowing set off of certain capital loss of allowing set off of certain capital loss of ₹55,25,462/ 462/- against long term capital gain of term capital gain of ₹5,27,20,000/-. In ground No. 9 ( No. 9 (nine), the assessee is seeking credit of tax deducted at source of seeking credit of tax deducted at source of ₹7,62,232/-. seeking credit of tax deducted at source of In ground No. 10, the assessee the assessee is seeking direction to the seeking direction to the Assessing Officer for considering the rectification application of the assessee in for considering the rectification application of the assessee in for considering the rectification application of the assessee in respect of ground No. respect of ground No. 8 and 9 before us.
Before us both the Before us both the Ld. Counsel of the assessee as well as of the assessee as well as Ld. DR agreed that issue involved in ground No. that issue involved in ground No. 8 and 9 are subject matter are subject matter of verification at the end end of the Assessing Officer and therefore same and therefore same might be restored to the file of the might be restored to the file of the Assessing Officer Assessing Officer. Accordingly both the ground No both the ground Nos. 8 and 9, are restored to the file of the are restored to the file of the Assessing Officer for deciding a for deciding afresh after verification from the fresh after verification from the record. Since, we have already we have already restored the ground N the ground No. 8 and 9, therefore, the ground No. 10 is accordingly rendered infructuous ground No. 10 is accordingly rendered infructuous ground No. 10 is accordingly rendered infructuous.
Lanxess India Pvt. Ltd. Lanxess India Pvt. Ltd. 49 ITA Nos. 2628 & 2788/M/2014 ITA Nos. 2628 & 2788/M/2014
In the result, the appe he result, the appeal of the assessee is allowed partly for al of the assessee is allowed partly for statistical purposes where as the appeal of the statistical purposes where as the appeal of the Revenue Revenue is dismissed.
Order pronounced in the Court on ounced in the Court on 18/07/2022. Sd/- Sd/- - (ABY T VARKEY ABY T VARKEY) (OM PRAKASH KANT OM PRAKASH KANT) JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated: 18/07/2022 Rahul Sharma, Sr. P.S. Copy of the Order forwarded to Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. The CIT(A)- 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. BY ORDER, //True Copy// (Sr. Private Secretary) (Sr. Private Secretary) ITAT, Mumbai ITAT, Mumbai