DEPUTY COMMISSIONER OF INCOME-TAX, PUNE vs. ATLAS COPCO (INDIA) LTD., PUNE

PER R.S.SYAL, VP : The Revenue has filed two appeals in relation to the assessment years 2008-09 and 2009-10 against the orders passed

2 Atlas Copco (India) Limited A.Yrs. 2008-09 and 2009-10

by the CIT(A)-IT/TP on 18-12-2012 and 30.6.2014 respectively.

The assessee has also filed Cross objections for the said years.

days. Similar cross objection filed by the assessee for the A.Y.

2009-10 is also late by 1018 days. The assessee has moved an

application for condonation of delay. The ld. AR submitted that

the assessee was not properly advised by its then counsel for

espousing the legal issue now sought to be raised in the Cross

objections, which is fundamental in nature. The ld. DR strongly

opposed the condonation of delay.

raised a legal ground challenging the validity of assessment order

passed u/s.143(3) r.w.s. 144C of the Income-tax Act, 1961

(hereinafter also called `the Act’). The moot point is as to whether

such a long delay deserves condonation. At this stage, it is

relevant to note the judgment of the Hon’ble Bombay High Court

in Vijay Vishin Meghani Vs. DCIT & Anr (2017) 398 ITR 250

(Bom) holding that none should be deprived of an adjudication on

merits unless it is found that the litigant deliberately delayed the

filing of appeal. Similar to the cases under consideration, in that

3 Atlas Copco (India) Limited A.Yrs. 2008-09 and 2009-10

case too, delay of 2984 days crept in due to improper legal advice.

Relying on Concord of India Ins. Co. Limited VS Nirmala Devi

(1979) 118 ITR 507 (SC), the Hon’ble jurisdictional High Court

condoned the delay.

(2017) 98 CCH 0469 BomHC, there was a delay of 1662 days in

filing the appeal. Such a delay was not condoned by the Hon’ble

High Court. In further appeal, condoning the delay, the Hon’ble

Supreme Court in Anil Kumar Nehru vs. ACIT (2018) 103 CCH

0231 ISCC, held that : `It is a matter of record that on the identical

issue raised by the appellant in respect of earlier assessment, the

appeal is pending before the High Court. In these circumstances,

the High Court should not have taken such a technical view of

dismissing the appeal in the instant case on the ground of delay,

when it has to decide the question of law between the parties in

any case in respect of earlier assessment year. For this reason we

set aside the order of the High Court; condone the delay for filing

the appeal and direct to decide the appeal on merits.’

assessee has raised a legal ground through these Cross objections,

4 Atlas Copco (India) Limited A.Yrs. 2008-09 and 2009-10

which goes to the root of the matter. It would be seen infra that the

said legal issue is squarely covered in the assessee’s favour by

several orders passed by the Tribunal including those by the Pune

Benches. Under these circumstances, we condone the delay and

take up the Cross objections for disposal on merits.

A.Y. 2008-09 :

objection is as under:

“Validity of the Order passed u/s. 143(3) r.w.s 144C of the Income- tax Act. 1961: 1. On the facts and in the circumstances of the case and in law, the learned Assessing Officer (Ld. AO) erred in passing the draft assessment order dated December 29, 2011 without following the mandate as laid down under section 144C of the Income-tax Act, 1961 (the Act). The Respondent prays that the said draft assessment order be held as void-ab-initio, bad in law and illegal and consequently the entire assessment ought to be quashed. 2. On the facts and in the circumstances of the case and in law, the Ld. AO erred in issuing a notice of demand under section 156 and a notice under section 274 read with section 271(1)(c) of the Act along with the said draft assessment order, thereby not following the mandate as laid down under section 144C of the Act. The Respondent prays that the said draft assessment order be held as void-ab-initio, bad in law and illegal and consequently the entire assessment ought to be quashed.”

its return declaring income of Rs.1,44,59,01,250/-. Certain

5 Atlas Copco (India) Limited A.Yrs. 2008-09 and 2009-10

international transactions were reported by the assessee. The

Assessing Officer (AO) made a reference to the Transfer Pricing

Officer (TPO) for determining the arm’s length price (ALP) of the

international transactions. The TPO passed the order u/s. 92CA(3)

of the Act proposing transfer pricing adjustments. Then, the AO

passed the order u/s.143(3) of the Act on 29-12-2011 marking it as

“Assessment order’’. At the end of this order, the AO remarked

that: `This is the proposed order of assessment passed u/s.143(3)

r.w.s.144C(1) of the Income Tax Act, 1961’ determining the total

income at Rs.1,56,72,76,785/-. The assessee was also made aware

that: `within 30 days of the receipt of this draft order’, it should

either file acceptance to the variations or file objections to such

variations before the Dispute Resolution Panel. Thereafter, the AO

proceeded to calculate tax in the same order directing to “Issue

demand notice and challan accordingly after giving credit to

prepaid taxes, if any’ and further directing to `Issue notice u/s.274

r.w.s. 271(1)(c) of the I.T. Act, 1961”. A demand notice dated

29-12-2011 was also simultaneously issued, a copy of which has

been placed on record by the ld. AR. Then, the AO issued penalty

notice u/s.274 r.w.s. 271(1)(c) of the Act, again, on 29-12-2012,

whose copy has also been placed on record. Thereafter, the AO

6 Atlas Copco (India) Limited A.Yrs. 2008-09 and 2009-10

passed the final assessment order dated 27-02-2012 u/s.143(3)

r.w.s. 144C of the Act determining total income at Rs.156.73 crore.

the draft order by designating it as the “Assessment order” u/s

143(3) of the Act on 29-12-2011 and also issued notice of demand

u/s.156 along with initiation of the penalty proceedings.

Thereafter, he passed the final assessment order again

characterizing it as `Assessment order’ on 27-2-2012. Under such

circumstances, the assessee has raised the issue that the final

assessment order lacked validity and hence should be quashed as

the AO/TPO failed to follow the statutorily prescribed procedure

u/s.144C of the Act.

Dispute Resolution Panel” provides through sub-section (1) of

section 144C that: “The Assessing Officer shall, notwithstanding

anything to the contrary contained in this Act, in the first instance,

forward a draft of the proposed order of assessment (hereafter in

this section referred to as the draft order) to the eligible assessee if

he proposes to make, on or after the 1st day of October, 2009, any

variation in the income or loss returned which is prejudicial to the

7 Atlas Copco (India) Limited A.Yrs. 2008-09 and 2009-10

interest of such assessee.’ Sub-section (2) of section 144C states

that the assessee shall either file his acceptance to the AO on the

variations proposed in the draft order or file his objections, if any,

with the DRP. In case, the assessee accepts the variation in the

draft order or no objections are received within 30 days, then sub-

section (3) states that: `The Assessing Officer shall complete the

assessment on the basis of the draft order’. In case, the assessee

does not agree with the draft order, it can, inter alia, raise

objections before the DRP, which shall issue directions under sub-

section (5) of section 144C. Upon receipt of the directions from

the DRP, the AO completes the assessment under sub-section (13)

in conformity with the directions given by the DRP.

order passed under sub-section (1) is only a tentative order which

does not fasten any tax liability on the assessee. In case variations

to the income in the draft order are accepted by the assessee or no

objections are received within 30 days, the AO completes the

assessment under section 144C(3) on the basis of draft order and

the matter ends. In case the assessee objects to the variations in the

income as proposed in the draft order and approaches the DRP, the

final assessment order is passed by the AO u/s.144C (13) giving

8 Atlas Copco (India) Limited A.Yrs. 2008-09 and 2009-10

effect to the directions given by the DRP under sub-section (5). In

case the assessee seeks to take the route of seeking redressal of its

grievances through the channel of the CIT(A), in that case, again

the AO has to pass a separate assessment order, which is obviously

distinct from the draft order. So, it is only on the finalization of the

variation in the income as per the draft order, to the extent

specified in the provision, that the AO is obliged to pass an

assessment order, either under sub-section (3) or (13) of section

144C of the Act, determining the tax liability, pursuant to which a

notice of demand is issued. Thus it follows that, irrespective of the

course of action followed by the assessee, whether or not accepting

the variation in the draft order or choosing the route of the DRP or

the CIT(A), a draft order has to be necessarily followed by an

assessment order on the basis of which a notice of demand is

issued and it is then that the assessment is said to have come to an

end.

ITR 634 (SC) has held that assessment order involves

determination of income and tax. It laid down that: `‘Assessment' is

one integrated process involving not only the assessment of the

total income but also the determination of the tax. The latter is as

9 Atlas Copco (India) Limited A.Yrs. 2008-09 and 2009-10

crucial for the assessee as the former.’ Again the Hon’ble Summit

Court in Auto and Metal Engineers vs. UOI (1998) 229 ITR 399

(SC) has held that the process of assessment involves (i) filing of

the return of income under s. 139 or under s. 142 in response to a

notice issued under s. 142(1) ; (ii) inquiry by the AO in accordance

with the provisions of ss. 142 and 143 ; (iii) making of the order of

assessment by the AO under s. 143(3) or s. 144; and (iv) issuing of

the notice of demand under s. 156 on the basis of the order of

assessment. The process of assessment thus commences with the

filing of the return or where the return is not filed, by the issuance

by the AO of notice to file the return under s. 142(1) and it

culminates with the issuance of the notice of demand under s. 156.

On going through the above precedents, it is manifested that the

assessment proceedings come to an end on the issue of notice of

demand u/s 156 of the Act. Once a notice of demand is issued, the

AO becomes functus officio in so far as the completion of

assessment is concerned. It consequently follows that issue of

notice of demand marks the completion of the assessment.

AO issued notice of demand on 29.12.2011 tantamounting to

legally finalizing the assessment, which was just the stage of draft

10 Atlas Copco (India) Limited A.Yrs. 2008-09 and 2009-10

order. As against that, it was incumbent upon him to statutorily

pass the final assessment order after the draft order and then issue

notice of demand. Issue of notice of demand brings down the

curtain on the process of assessment. Until notice of demand is

issued, the assessment cannot be said to have concluded.

Vs. DRP (2014) 369 ITR 113 (Mad.) was confronted with a

situation in which the AO, pursuant to the order of the TPO, passed

a final assessment order instead of a draft order. A question arose

as to whether the order so passed could be treated as a valid order.

Accepting the contention of the assessee, the Hon’ble High Court

set aside the order passed by the AO by observing that: “where

there was omission on the part of the AO to follow the mandatory

procedures prescribed in the Act, such omission cannot be termed

as a mere procedural irregularity and it cannot be cured”.

Resultantly, the assessment order was quashed. Almost similar

issue came up for consideration before the Hon’ble jurisdictional

High Court in Pr. CIT Vs. Lionbridge Technologies Pvt. Lt. (2019)

260 Taxman 273 (Bom.) in which the Tribunal in the first round

restored the matter to the AO on the ground that the DRP failed to

11 Atlas Copco (India) Limited A.Yrs. 2008-09 and 2009-10

deal with the assessee’s objections. During the remand

proceedings, a reference was made to the TPO. On receipt of the

TPO’s order, the AO straightaway passed an order u/s.143(3) r.w.s.

144C(13), which action came to be disapproved by the Hon’ble

High Court. It, ergo, follows that the statutorily mandated

procedure must be adhered to by the authorities, non-observance of

which renders the assessment order null and void.

Benches of the Tribunal in Skoda Auto India Ltd. Vs. ACIT. In that

case also the AO passed the draft order and simultaneously issued

notice of demand and initiated penalty proceedings by issuing

notice u/s 274 of the Act. It was thereafter that the final assessment

order was passed. The assessee challenged the legality of the final

assessment order. Vide its order dated 02-07-2019, the Tribunal in

ITA No.714/PUN/2011 has held that the demand got crystallised

on passing of the draft order pursuant to issue of demand notice

which is contrary to the relevant provision of the Act. Ex

Consequenti, the draft order was held to be invalid in law and the

consequential assessment order void ab-initio.

12 Atlas Copco (India) Limited A.Yrs. 2008-09 and 2009-10

order passed by the Hyderabad Benches in BS Ltd. Vs. ACIT

(2018) 94 taxmann.com 346 (Hyderabad-Trib.) in which it has

been held that the issuance of demand notice along with the draft

order is only a procedural mistake. In our considered opinion, this

case does not advance the Departmental stand. Unlike the assessee

in the instant case not raising objections before the DRP and

pursuing the appeal straight away before the ld. CIT(A), the

assessee in that case adopted the route of the DRP. Be that as it

may, it is found that similar issue came up for consideration before

the Pune Benches of the Tribunal in series of cases including

Eaton Fluid Power Ltd. Vs. DCIT (2018) 96 taxmann.com 512

(Pune Trib.). In that case also, the AO passed the draft order

u/s.143(3) r.w.s. 144C(1) of the Act. Thereafter, he issued notice

of demand u/s.156 and initiated penalty proceedings u/s.271(1)(c)

of the Act. When this infirmity in not following the statutorily

mandated procedure was pointed out, the Tribunal declared the

assessment order to be without jurisdiction and hence, null and

void.

case are similar to those considered by the Pune Benches of the

13 Atlas Copco (India) Limited A.Yrs. 2008-09 and 2009-10

Tribunal in the case of Skoda Auto India Ltd. Vs. ACIT (supra) and

Eaton Fluid Power Ltd. Vs. DCIT (supra). As the AO in the extant

case issued notice of demand at the stage of the draft order, which,

actually ought to have been done at the stage of passing the final

order, thereby assigning the finality to the assessment at the stage

of draft order itself, we hold that the resultant final assessment

order got vitiated in the eyes of law and hence cannot stand.

assessment year 2006-07 also, the assessee took similar argument

urging that the assessment order be declared null and void. We

have noted above that the assessment proceedings get completed

on the issue of notice of demand only. On examination of facts, the

Tribunal for such earlier year found that even though penalty

notice was issued u/s 274 but no notice of demand was issued u/s

156 of the Act pursuant to the draft order. It was under such

circumstances that the Tribunal in ITA No. 1470/Pun/2010 vide its

order dated 21.08.2019 did not accept the contention of the

assessee to the effect that the assessment got concluded on the

passing of the draft order and hence the final assessment order was

a nullity. It is an altogether different matter that the initiation of

penalty through the draft order carried some infirmity, but that

14 Atlas Copco (India) Limited A.Yrs. 2008-09 and 2009-10

would not impinge upon the validity of the assessment order.

to be null and void. Thus, the income offered in the return

becomes total income of the assessee.

A.Y. 2009-10 :

objection challenging the validity of the assessment order passed

by the AO on the ground that the AO issued notice of demand

u/s.156 and also penalty notice along with draft order.

declaring total income at Rs.128.23 crore. Certain international

transactions were reported. The AO made a reference to the TPO

for their benchmarking. The TPO proposed transfer pricing

adjustment of Rs.6.33 crore in relation to the international

transaction of Indenting Commission; Rs.1.25 core in the payment

of Royalty; and Rs.1.00 crore on account of difference in price of

products sold to Associated Enterprises and Non-Associated

Enterprises. The AO passed the “Assessment order” u/s.143(3)

r.w.s. 144C(1) of the Act on 28-03-2013. He not only computed

15 Atlas Copco (India) Limited A.Yrs. 2008-09 and 2009-10

total income, but also computed the amount of interest u/ss 234B

to 234D in the assessment order itself. At the end of the assessment

order, he directed to issue demand notice for Rs.4.32 crore, which

is inclusive of the interest and also simultaneously initiated penalty

proceedings u/s.271(1)(c) by means of notice u/s.274. A copy of

the demand notice has also been placed on record. The final

assessment order came to be passed later on 30-04-2013.

Challenge has been laid in the assessee’s Cross objection to the

validity of the final assessment order on the ground that the AO

completed the assessment at the stage of passing of the draft

assessment order by not only issuing notice of demand u/s.156 but

also initiating penalty u/s.271(1)(c) of the Act.

circumstances for this year are mutatis mutandis similar to those of

the preceding year discussed hereinabove. Following the same

view, we declare the assessment order to be null and void. In view

of this, the income declared by the assessee in the return of income

becomes final.

Cross objections of the assessee for the two years under

16 Atlas Copco (India) Limited A.Yrs. 2008-09 and 2009-10

consideration in quashing the assessments, there is no need to deal

with the grounds raised by the Revenue in its appeals on merits.

as validity of the assessment orders is concerned and the appeals of

the Revenue are dismissed.

Order pronounced in the Open Court on 29th August, 2019.

Sd/- Sd/- (PARTHA SARATHI CHAUDHURY) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; �दनांक Dated : 29th August, 2019 सतीश आदेश क� क� क� �ितिलिप क� �ितिलिप �ितिलिप अ�ेिषत �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order is forwarded to: अ�ेिषत आदेश आदेश आदेश अपीलाथ� / The Appellant; 1. ��यथ� / The Respondent; 2. 3. The CIT(A)-IT/TP, Pune 4. The CIT-V, Pune िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, पुणे 5. “सी” / DR ‘C’, ITAT, Pune; 6. गाड� फाईल / Guard file. आदेशानुसार आदेशानुसार/ BY ORDER, आदेशानुसार आदेशानुसार // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune

Atlas Copco (India) Limited A.Yrs. 2008-09 and 2009-10

Date 1. Draft dictated on 26-08-2019 Sr.PS 2. Draft placed before author 28-08-2019 Sr.PS 3. Draft proposed & placed JM before the second member 4. Draft discussed/approved JM by Second Member. 5. Approved Draft comes to Sr.PS the Sr.PS/PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order. *