JAIN IRRIGATION SYSTEMS LTD.,,JALGAON vs. JOINT COMMISSIONER OF INCOME-TAX,,

The cross appeals filed by assessee and Revenue were heard together and are being disposed of by this consolidated order for the sake of convenience.

The learned Authorized Representative for the assessee pointed out that additional ground of appeal has been raised by assessee, which goes to the root of jurisdiction exercised by Assessing Officer and the same needs to be taken up first.

The additional ground of appeal raised by assessee reads as under:- X. On the facts and in the circumstances, learned Assessing Officer ('learned AO') has erred in completing assessment proceedings under section 143(3) of the Act without following the mandatory provisions of section 144C(1) of the Act and without issuing draft assessment order as stipulated under section 144C(1) of the Act, even though the learned AO has made an addition under section 92CA(3) of the Act on the basis of order of the Transfer Pricing Officer and hence, the assessment order under section 143(3) of the Act passed on 21/03/2013 may be declared as illegal and bad in law.

The issue raised vide additional ground of appeal is that where the Assessing Officer has failed to follow the mandatory provisions of section 144C of the Act i.e. has not issued any draft assessment order but has issued final

The learned Authorized Representative for the assessee before us pointed out that additional ground of appeal raised is purely legal issue and stands covered by orders of Hon’ble Bombay High Court and even by orders of Pune Bench of Tribunal and does not require any adjudication of facts and be admitted for adjudication. We find merit in the plea of assessee that the issue raised in additional ground of appeal is jurisdictional legal issue and does not require any investigation into facts, hence the same is admitted for adjudication.

The learned Authorized Representative for the assessee pointed out that the TPO had passed order under section 92CA(3) of the Act, dated 28.01.2013, wherein adjustment of ₹ 91,94,100/- was proposed. Consequent thereto, assessment proceedings were taken up by Assessing Officer vide letter dated 15.02.2013. The assessee had offered addition as per transfer pricing order along with other offers. The Assessing Officer passed assessment order under section 143(3) of the Act, dated 21.03.2013. The learned Authorized Representative for the assessee before us has placed copy of demand notice issued in Form No.7 and also notice issued under section 274 r.w.s. 271(1)(c) of the Act initiating penalty proceedings, dated 21.03.2013. It has been pointed out that the said issue stands covered by decision of Hon’ble Bombay High Court in Pr.CIT Vs. Lionbridge Technologies (P.) Ltd. (2018) 100 taxmann.com 413 (Bom) and also by Pune Bench of Tribunal in Soktas India (P.) Ltd. Vs.

The learned Departmental Representative for the Revenue on the other hand, pointed out that the Assessing Officer had issued show cause notice to assessee as to why transfer pricing adjustment be not made in the hands of assessee and the assessee vide its communication accepted the upward adjustment in its hands. Hence there is no infirmity in the order of Assessing Officer in passing the said final order. In this regard, reliance was placed on the ratio laid down by Pune Bench of Tribunal in DCIT Vs. Magna International Inc. (2019) 197 TTJ 875 (Pune).

We have heard the rival contentions and perused the record. In the facts of present case, the assessee had reported certain international transactions in its return of income. The Assessing Officer thus, made reference under section 92CA(1) of the Act to the Transfer Pricing Officer, who in turn, passed an order dated 28.01.2013 under section 92CA(3) of the Act and proposed an upward adjustment of ₹ 91,94,100/-. On receipt of said order of TPO, the Assessing Officer refers to the order passed in the case of assessee proposing an upward adjustment of ₹ 91,94,100/- on account of international transactions undertaken by assessee. This is mentioned in para 1 of assessment order. Further, in the body of order at page 23 while talking about disallowance of depreciation out of non compete fee, the Assessing Officer refers to the written submissions filed by assessee vide letter dated 15.02.2013 wherein the assessee has offered addition on account of transfer

The issue which arises in the present appeal is whether where the Assessing Officer was in receipt of order passed by TPO under section 92CA(3) of the Act proposing an upward adjustment of ₹ 91,94,100/-, it was necessary for the Assessing Officer first to pass a draft assessment order and thereafter, pass a final assessment order.

Looking at the provisions of the Act i.e. section 144C(1) of the Act, which lays down that the Assessing Officer shall (notwithstanding anything to the contrary contained in this Act) in the first instance forward a draft of proposed order of assessment to the eligible assessee if he proposes to make, on or after first day of October, 2009 any variation in the income or loss returned, which is prejudicial to the interest of such assessee. Sub-section (2) of the said section provides that on receipt of draft order, the eligible assessee shall within 30 days of the receipt by him of the draft order, (a) file his acceptance of the variation to the Assessing Officer; or (b) file his objections, if any, to such variation with DRP and the Assessing Officer. Under sub-section (3), the Assessing Officer shall then complete assessment on the basis of draft assessment order, if, (a) the assessee intimates to the Assessing Officer the acceptance of variation, or (b) no objections are received within period specified in sub-section (2). In case an objection is filed before the DRP, then the procedure is provided in

In the facts of present case, the TPO had passed order under section 92CA(3) of the Act proposing variation in the income which is prejudicial to the interest of assessee, such adjustment needs to be proposed in the draft assessment order by the Assessing Officer to the assessee, which the Assessing Officer failed to do. It is only after the receipt of draft order, the assessee has to either file his acceptance or objection to the said proposal. Admittedly, in the facts of present case, the assessee has accepted the upward adjustment proposed in his case, but the said adjustment was confronted to the assessee during assessment proceedings and vide written letter the assessee has accepted the same. However, the Assessing Officer has not passed any draft order but has passed final assessment order along with demand notice and notice initiating penalty proceedings. Such an order passed by the Assessing Officer suffers from infirmity as the same is against provisions of the Act.

The Hon’ble Bombay High Court in Pr.CIT Vs. Lionbridge Technologies (P.) Ltd. (supra) have laid down the proposition that in terms of section 144C(1)

Applying the said proposition to the facts of present case and mainly relying on the proposition that mere consent of parties does not bestow the

The stand of Revenue in this case that the assessee having participated in assessment proceedings and hence, the error, if any, stands corrected, do not stand in view of the dictate of the Hon’ble Bombay High Court. The learned Departmental Representative for the Revenue has also relied on the decision of Tribunal in DCIT Vs. Magna International Inc. (supra), wherein the facts are at variance. Since the assessee suo motu in good faith claims to have offered additional income to tax at the beginning of assessment proceedings itself, the said income was assessed in the hands of assessee and the Tribunal held that variation in income was not on account of any addition made by the Assessing Officer but was on account of voluntary offer of additional income by the assessee and it could not be said that the Assessing Officer had made variation in the income returned, which was prejudicial to the interest of such assessee. Then the issue was decided on merits of the said case. However, the said proposition does not hold good as the facts are at variance.

We further find that similar issue of Assessing Officer having passed final assessment order under section 143(3) making certain adjustments to

In the result, the appeal of assessee is allowed and the appeal of Revenue is dismissed.