YAZAKI (I) P LIMITED,(FORMERLY KNOWN AS TATA YAZAKI AUTOCOMP LTD),PUNE vs. ACIT, CIRCLE-7, PUNE

आदेश / ORDER

PER R.S.SYAL, VP :

This appeal by the assessee is directed against the final assessment order passed by the Assessing Officer (AO) u/s. 143(3) r.w.s.144C(3) of the Income-tax Act, 1961 (hereinafter also called ‘the Act’) in relation to the Assessment year 2008-09.

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“12. 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 27 December 2011 without following the mandate as laid down under section 144C of the Income-tax Act, 1961 (the Act).

The Appellant 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.

The Appellant 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.”

grounds taken by the assessee, it is discernible that the same are

legal grounds involving adjudication on questions of law. The

Hon’ble Supreme Court in National Thermal Power Company Ltd.

Vs. CIT (1998) 229 ITR 383 (SC) has observed that “the purpose of

the assessment proceedings before the taxing authorities is to

assess correctly the tax liability of an assessee in accordance with

law. If, for example, as a result of a judicial decision given while

the appeal is pending before the Tribunal, it is found that a non-

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taxable item is taxed or a permissible deduction is denied, we do

not see any reason why the assessee should be prevented from

raising that question before the tribunal for the first time, so long as

the relevant facts are on record in respect of that item”.

Answering the question posed before it in affirmative, their

Lordships held that on the facts found by the authorities below a

question of law arises (though not raised before the authorities)

which bears on the tax liability of the assessee and the Tribunal has

jurisdiction to examine the same. We find that the additional

grounds raised before the Tribunal involve pure questions of law

and no fresh investigation of facts is necessary for their

determination. We are, therefore, admitting such additional

grounds and espousing them for disposal on merits.

engaged in manufacturing wiring harnesses, high tension cables,

connectors, terminals and junctions and fuse boxes to serve

passenger cars and commercial vehicles. The assessee filed its

return declaring certain international transactions. 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 Transfer Pricing Officer (TPO)

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passed order u/s. 92CA(3) of the Act on 28-10-2011 proposing

certain amount of transfer pricing adjustment. The AO passed an

`Assessment order’ on 27-12-2011 u/s.143(3) r.w.s.144C(3) of the

Act determining total income at Rs.17,81,56,751/- as against the

Nil income declared by the assessee. The additions included

transfer pricing addition of Rs.13.19 crore; disallowance

u/s.40(a)(ia) amounting to Rs.1.04 crore; and disallowance

u/s.40A(2)(a) at Rs.3.57 crore. Pursuant to such an order, a

demand notice was issued. In addition, the AO also issued show

cause notice u/s.274 for imposition of penalty u/s.271(1)(c) of the

Act on all the issues on which the additions were made. The

assessee raised objections before the DRP with reference to the

additions in the said order dated 27.12.2011, which were disposed

off. Pursuant to the directions given by the DRP on 05-09-2012,

the AO passed `Assessment order’ on 29-11-2012 u/s.143(3)

r.w.s. 144C(13) of the Act determining total income at Rs.24.15

crore, against which the instant appeal has been filed before the

Tribunal.

assessment order should be set aside because the statutorily

prescribed procedure was not followed in as much as the AO

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issued final assessment order in place of draft assessment order

followed by issuing notice of demand and also initiating penalty

proceedings u/s.271(1)(c) of the Act. This has been countered by

the ld. DR who submitted that albeit the AO inadvertently

described it as an `Assessment order’, but in essence it was a draft

order, which was also treated by the assessee as such - filing

objections before the DRP. He further submitted that although the

notice of demand was issued pursuant to such a draft order, but the

same was never enforced and further though penalty proceedings

were initiated through this draft order, but no penalty order was

actually passed. He still further submitted that if the assessee was

aggrieved by the nomenclature of draft order, then it should not

have agitated the matter before the DRP or should have challenged

it by means of a writ petition, which it did not. Crux of his

argument was that a draft order was simply wrongly described as

an `Assessment order’, which did not prejudice the assessee in any

manner.

material on record. Section 144C of the Act has caption

“Reference to Dispute Resolution Panel”. Sub-section (1) of

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

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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 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, then sub-section (3) states

that: `The Assessing Officer shall complete the assessment on the

basis of the draft order’. In case, the assessee objects to the draft

order, it can, inter alia, raise concerns with the DRP which shall

issue directions under sub-section (5) of section 144C. Upon

receipt of the directions from the DRP, the AO shall complete 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, the

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AO completes 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) after considering the directions given by the DRP

under sub-section (5). 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 if the assessee

raises objection before the DRP, it is only on the passing of the

order under section 144C(13) that the assessment is treated as

finalized on which notice of demand can be issued. It is overt

from the above discussion that the statute has prescribed a

particular procedure to be followed in case some variation is made

in the returned income of an eligible assessee defined u/s 144C(15)

of the Act.

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

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

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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”. Thus 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 taxmann 273

(Bom.) in which the Tribunal in the first round restored the matter

to the AO on the ground that the DRP failed to deal with the

assessee’s objections. During such remand proceedings, 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). On

realizing the mistake, the AO issued a corrigendum to such an

assessment with a view to treat it as a draft assessment order and

not a final assessment order. Matter finally travelled to the

Hon’ble High Court. Deciding the issue in favour of the assessee,

the Hon’ble High Court held that the corrigendum was without

jurisdiction. A principle which follows from the above decisions

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and several other decisions on the same line is that the statutorily

mandated procedure must be followed by the authorities. In case

there is a default in following such a procedure, the assessment is

vitiated. The same cannot be cured even by remanding matter to

the concerned authority.

admitted position that the AO, on receipt of an order from the

TPO, did not pass any draft order u/s 144C(1) of the Act. He

directly proceeded to pass an `Assessment order’ u/s. 144C(3) of

the Act on 27.12.2011 determining the total income at Rs.17.82

crore. Not only that, he also issued demand notice on the same

date, namely, 27-12-2011, a copy of which has been placed at page

1 of the paper book determining the amount payable by the

assessee at Rs.8,77,37,516/-.

and noticed that an order u/s 144C(3) is passed after the draft order

is passed u/s 144C(1) and further when the assessee either

intimates to the Assessing Officer the acceptance of the variation;

or no objections are received within the stipulated period. An

order passed u/s 144C(3) is a final assessment order. Reverting to

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the facts, we find that the AO passed an `Assessment order’ u/s

144C(3) of the Act on 27.12.2011. This could have been only on

the assessee accepting the variation. As against that, it is seen that

no variations were intimated to the assessee through a draft order.

The AO not only passed such “assessment order” but also directed

to “issue show cause notice u/s.274 r.w.s. 271(1)(c) of the I.T. Act,

on all the issues on which the additions have been made”. It,

therefore, transpires that on receipt of an order from the TPO, the

AO simply proceeded to pass the final assessment order

u/s.144C(3) of the Act. The fact that in the covering letter to the

assessee, the AO described it as a `draft order’ is of no

consequence, when, in fact, ex facie, the order was passed as a

final assessment order u/s 144C(3) followed by a notice of demand

as well. It is only when the assessee filed objections against such

an `assessment order’ before the DRP, that the AO realized his

mistake and went on to pass another `Assessment order’ on

29.11.2012, this time u/s 144C(13) of the Act. Consequently, it is

palpable that the AO kept on passing one final assessment order

[u/s 144C(3)] after another final assessment order [u/s 144C(13)].

On going through the entire exercise of assessment, it can be seen

that so many statutorily mandated procedural lapses have occurred

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at the end of the AO, which have the effect of vitiating the

impugned assessment order.

Vijay Television (supra) by arguing that firstly, it was a decision in

a writ petition and hence does not have a binding effect in other

cases and secondly, no draft order was passed in that case. In our

considered opinion these contentions are sans merit. Even if a

decision is rendered in a writ petition, it does not cease to be

operative in other cases to the extent of ratio decidendi laid down

therein. The next distinction drawn by the ld. DR was that the

decision to quash the final assessment order came in the absence of

the AO passing a draft order, which was not a case in the extant

appeal. We have noted above that no draft order u/s 144C(1) of the

Act was passed in the instant case also. Moreover, in our

considered opinion, the real issue is whether the statutorily laid

down procedure was followed or not. Any lapse in such a

procedure, as is instantly the case, cannot save the final assessment

order. The further reliance of the ld. DR on the judgment of the

Hon’ble Delhi High Court in the case of BSC C & C Joint venture

vs. JCIT (W.P. (C) 7623/2017 & CM 31533/2017)dated 5.2.2018 is

of no avail. That is case based on the concession of the assessee

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before the Hon’ble High Court, in which the petitioner agreed that

the order dated 3.8.2017 may be treated as a draft assessment

order; the demand notice etc. sent along with the assessment order

may be accordingly treated as withdrawn; the procedure u/s 144C

may be applied and followed inasmuch as the assessee would

either file its acceptance to the variation within 30 days or raise

objections. What is relevant to note is that the decision in this

case, which is based on a concession of the petitioner, cannot be

construed as having laid down any ratio by the Hon’ble High

Court so as to have a binding effect. It is further relevant to note

that it was also decision on a writ petition filed by the assessee

the `Assessment order’ passed by the AO on 29-11-2012

determining total income at Rs.24.15 crore, the assessee took up

the matter with the competent authorities under Mutual Agreement

Procedure (MAP) in respect of the transfer pricing adjustment

flowing from transactions with Yazaki Corporation, Japan (YCJ),

its Associated Enterprise (AE), under Article 25 of the DTAA

between India and Japan. An application was moved not only for

the year under consideration but also the succeeding assessment

year. The competent authorities of both the countries have

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resolved the issue concerning international transactions of the

assessee with YCJ. A copy of such a Resolution dated 10-09-2015

has been placed on record. It states the amount of total transfer

pricing adjustment as per the rectification order dated 21-03-2013

at Rs.16.43 crore, having transfer pricing adjustment relating to

YCJ at Rs.9,85,89,000/- and the remaining amount of

Rs.6,57,81,925/- on account of transactions with non-YCJ AEs.

As per the Resolution, the amount of transfer pricing adjustment

corresponding to transactions with YCJ has been reduced to

Rs.5,78,23,800/-, thereby giving relief of Rs. 4.07 crore and odd.

Such a Resolution has been admittedly accepted by the assessee.

the quashing of the assessment order on the legal issue as

discussed hereinabove. Normally, if an assessment order is

quashed, all the additions made in the order stand deleted and the

returned income becomes the finally determined total income.

However, position is little different, when the assessee has

accepted a MAP resolution as per which some amount of addition

has been held to be sustainable, which has been accepted by the

assessee.

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for the purposes of the Act. Sub-section (2) lists certain matters in

respect of which the Board may provide for rules. Clause (h) of

section 295(2) empowers the Board to make rules providing for:

`the procedure for giving effect to the terms of any agreement for

the granting of relief in respect of double taxation or for the

avoidance of double taxation which may be entered into by the

Central Government under this Act.’ Pursuant to the prescription

of section 295(2)(h), rules have been framed under part IX-C of

Income-tax Rules, 1962 covering rules 44G, 44GA and 44H.

Instantly, we are concerned with rule 44H. Sub-rule (4) of rule

44H states that the effect of Resolution arrived at under the mutual

agreement procedure (MAP) shall be given by the AO within the

stipulated period, if the assessee gives his acceptance to the

resolution taken under mutual agreement procedure; and withdraws

his appeal, if any, pending on the issue which was the subject matter

for adjudication under mutual agreement procedure. Crux of rule

44H(4) is that when a Resolution has been made on an issue under

the MAP proceedings, which the assessee has accepted, the same

attains finality. The assessee, as a pre-condition, has to necessarily

withdraw its appeal to the extent of the subject matter for

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adjudication under the MAP. On going through the mandate of

Rule 44H(4), it becomes patent that where the assessee has

accepted the Resolution of dispute under MAP; given acceptance

to the Resolution; and has taken action for withdrawing of his

appeal pending on the issue which was subject matter of

adjudication before the MAP, such a Resolution binds the assessee.

In such a situation, the Resolution accepted by the assessee under

the MAP has the effect of substituting the originally returned

income with the further additional income as accepted under the

Resolution. Having accepted the MAP order, the assessee cannot

agitate such an issue in the appellate proceedings. In the extant

case, the assessee admittedly accepted the Resolution under the

MAP. Once the assessee has accepted such a Resolution as per

which the amount of transfer pricing adjustment, corresponding to

transactions with YCJ, has been restricted to Rs.5,78,23,800/-, the

assessee now cannot resile from such Resolution and is bound by

the same. The ld. AR fairly admitted that the Resolution has been

accepted by the assessee. In that view of the matter, the amount of

transfer pricing addition sustained under the MAP proceedings at

Rs.5,78,23,800/- will be considered as a part of total income

returned by the assessee, which cannot be assailed in any appellate

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proceedings. However, all other remaining additions, including the

balance of transfer pricing addition in respect of transactions with

non-YCJ AEs would stand deleted because of the illegality

occurring due to not following the statutorily prescribed procedure

u/s 144C of the Act. We, therefore, overturn the impugned order

on this legal issue itself but direct to adopt total income at

Rs.5,78,23,800/-, being, the amount of Nil income originally

returned as added by the amount of transfer pricing adjustment

accepted by the assessee under MAP.

Order pronounced in the Open Court on 12th July, 2019.

Sd/- Sd/- (PARTHA SARATHI CHAUDHURY) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; �दनांक Dated : 12th July, 2019 सतीश

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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)-13, Pune 4. The Pr.CIT-5, Pune िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, पुणे 5. “सी” / DR ‘C’, ITAT, Pune; 6. गाड� फाईल / Guard file. आदेशानुसार आदेशानुसार आदेशानुसार/ BY ORDER, आदेशानुसार // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune

Date 1. Draft dictated on 09-07-2019 Sr.PS 2. Draft placed before author 11-07-2019 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. *