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Facts
The assessee filed an appeal against the Assessment Order passed under section 143(3) r.w.s 144C(13) of the Act. The Dispute Resolution Panel (DRP) had directed the deletion of additions made by the TPO. However, the Assessing Officer (AO), in the final assessment order, deviated from the draft assessment order and DRP's directions, making an addition that was not part of the draft. The assessee also claimed denial of prepaid tax credit.
Held
The Tribunal held that the AO erred by making an addition in the final assessment order that was outside the scope of the DRP's directions and the draft assessment order. The Tribunal also directed the AO to verify and allow the claim for prepaid tax credit. Consequently, Revised Ground No.2 was allowed, and Revised Ground No.3 was allowed for statistical purposes.
Key Issues
Whether the Assessing Officer can make additions in the final assessment order beyond the directions of the DRP and the draft assessment order? Whether prepaid tax credit was erroneously denied to the assessee?
Sections Cited
143(3), 144C(13), 144C(5), 144C(1), 144C(11), 234A, 234B, 234C
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, PUNE BENCHES “C” :: PUNE
Before: DR.MANISH BORAD & SHRI VINAY BHAMORE
ORDER
PER VINAY BHAMORE, JM:
This is an appeal filed by the Assessee against the Assessment Order under section 143(3) r.w.s 144C(13) of the Act, dated 25.10.2024 to give effect to the order of the Dispute Resolution Panel(DRP) passed u/s.144C(5) of the Act, dated 26.09.2024 emanating from Draft Assessment Order under section 144C(1) of [A] the Act, dated 26.12.2023. The Assessee has filed Revised Grounds of appeal
as under : “Revised Grounds of appeal :
1. Ground 1: Erroneous adjustment under section 143(1) ought to have been addressed in the regular assessment proceedings.
1.1 On the facts and in the circumstances of the case and in law, the learned Dispute Resolution Panel(“Ld. DRP”) erred in holding that the adjustments made under section 143(1) by the Assessing Officer, Centralized Processing Centre (“Assessing Officer (CPC”) cannot be addressed during the course of assessment proceedings under section 143(3) of the Income-tax Act, 1961 (“the Act”).
1.2 In doing so, the learned DPR erred in : a) Not appreciating that the Assessing Officer (CPC) itself had expressed its inability to rectify the adjustment and had specifically directed the Appellant to seek redressal during scrutiny proceedings; b) Not appreciating the fact that, pursuant to the above, the Appellant made multiple submissions before the learned Assessing Officer ("Ld. AO") during the course of assessment proceedings, seeking relief from the erroneous adjustments made under section 143(1): c) Not considering that, in light of the Appellant's submissions, the Ld. AO had correctly adopted the returned income as the starting point for computing the assessed income in the draft order issued under section 144C(1); d) Not appreciating that in law and in light of the CBDT Circular No. 14 (XL-35) dated 11/04/1955, an Appellant can seek appropriate relief even during the course of assessment proceedings, notwithstanding the availability or exercise of an alternative remedy.
1.3 The Appellant prays before the Hon'ble Tribunal to issue direction for necessary verification and grant of appropriate relief in accordance with the law.
Ground 2: Invalid addition/enhancement of income in the Final Order without prior notice 2.1 In the facts and circumstances of the case, the Ld. AO has erred in deviating from the income assessed in the draft order issued under section 144C(1) of the Act, by making an addition of INR 3,76,54,322 in the final assessment order without any directions from the Ld. DRP to such effect. Hence, the impugned addition/adjustment is liable to be deleted.
2.2 Without prejudice to the above, the addition/enhancement made in the final order is liable to be deleted, as the same was made without prior intimation or notice of enhancement, either by the Ld. DRP or the Ld. AO, as mandated under the relevant provisions of the Act including section 144C(11) of the Act.
Ground 3: Erroneous denial of prepaid tax credit pertaining to the Amalgamating Entity 3.1 In the facts and circumstances of the case and in law, the Ld. DRP and Ld. AO has erred in denying credit of prepaid taxes amounting to INR 1,35,68,223 related to the amalgamating entity, Switzer Process Instruments Pvt. Ltd. 3.2 The Appellant prays before your Honour to issue appropriate directions to the Ld. AO for verification and consequential relief as per the provisions of the Act and in law.
4. Ground 4: Erroneous double addition/adjustment by the Ld. AO 4.1 In the facts and circumstances of the case, the Ld. DRP and Ld. AO erred in continuing with the adjustments/additions of INR 3,76,54,322 erroneously imputed by the Assessing Officer (CPC), resulting into clear case of double addition 4.2 The Appellant prays the Hon'ble Tribunal to remit the matter to the Ld. AO for verification and necessary rectification as per the provisions of the Act and in law.
The Appellant craves leave to add, amend, alter, modify or withdraw any grounds of appeal in the interest of justice.”
Findings & Analysis : 2. We have heard both the parties and perused the records. In this case, Draft Assessment Order u/s.144C(1) of the Act was passed on 26.12.2023. In the said Draft Assessment Order in para 5, it is categorically mentioned “therefore, the income of the assessee is assessed at Rs.23,01,44,193/-, in this Draft Assessment Order passed u/s.144C(1) of the Income Tax Act, under normal provisions.”
2.1 The Assessee had declared Total Income of Rs.20,55,52,510/- in the Return of Income. Thus, in the Draft Assessment Order the Assessing Officer made an addition of Rs.,2,45,91,683/- as per the Order of the TPO and decided the Total Income at Rs.Rs.23,01,44,193/-.
2.2 The Assessee filed Objections before the Dispute resolution Panel(DRP). The DRP vide its order dated 29/09/2024 directed the TPO/AO to delete the addition. Accordingly, the Assessing Officer passed Assessment Order u/s 143(3) r.w.s 144C(13) on 25/10/2024. The relevant paragraphs number 6, 7 and 8 of the Assessment Order are reproduced here as under: “06. The TPO vide ITBA/COM/F/17/2024-25/1069613672(1) dated 11.10.2024 adhering to the directions by Ld.DRP deleted the adjustment of Rs.2,45,91,683/- in respect of the international Transaction of the assessee for AY 2021-22.
In view of this discussion, the total income of the assessee is assessed as under Particular Amount (Rs.) Income as per ITRfiled 20,55,52,510/- Income as per 143(1) 24,32,06,832/- Adjustment proposed by NIL DRP Assessed income 24,32,06,832/- 08. Assessed u/s 143(3) of the Act. Charge interest u/s 234A, 234B and 234C. Issue Demand Notice accordingly.”
2.3 Thus, it can be noted that in the Assessment Order the Assessing Officer suo-moto assessed the Income as per the Total Income decided by the Order u/s 143(1) of the Act.
2.4 The Section 144C(13) is reproduced here as under : “144C. (1) The Assessing Officer shall, notwithstanding anything to the contrary contained in this Act, in the first instance, forward a draft of the proposed order of assessment (hereafter in this section referred to as the draft order) to the eligible assessee if he proposes to make, on or after the 1st day of October, 2009, any variation [***] which is prejudicial to the interest of such assessee.
(2) On receipt of the draft order, the eligible assessee shall, within thirty days of the receipt by him of the draft order,—
(a) file his acceptance of the variations to the Assessing Officer; or (b) file his objections, if any, to such variation with,— (i) the Dispute Resolution Panel; and (ii) the Assessing Officer.
(3) The Assessing Officer shall complete the assessment on the basis of the draft order, if—
(a) the assessee intimates to the Assessing Officer the acceptance of the variation; or (b) no objections are received within the period specified in sub-section (2).
4…………………. …………… (13) Upon receipt of the directions issued under sub-section (5), the Assessing Officer shall, in conformity with the directions, complete, notwithstanding anything to the contrary contained in section 153 or section 153B, the assessment without providing any further opportunity of being heard to the assessee, within one month from the end of the month in which such direction is received.”
2.5 Thus, as per the Section 144C, which is applicable in the case of the assessee, the Assessing Officer has to first issue a draft Assessment Order specifying the proposed additions then the Assessee has right to file Objections before the DRP. In the case of the Assessee the Assessing Officer issued Draft Assessment Order proposing only adjustments suggested by the TPO and in the Draft Assessment Order, the Assessing Officer has not considered the adjustment made under section 143(1) of the Act. The Assessee filed objections before the DRP against the said Draft Assessment Order. DRP directed to delete the additions suggested by Transfer Pricing Officer. Therefore, as per Section 144C(13) of the Act, the Assessing Officer has to pass the assessment order in conformity with the directions of the DRP. In this case, DRP directed to delete the adjustment proposed by TPO. Therefore, in the assessment order, the Assessing Officer had to only consider the Draft Assessment Order and the directions of the DRP. After giving effect to the directions of the DRP Order, the total income would have been equal to Returned Income. However, the Assessing Officer suo-moto considered the total income mentioned in the order u/s.143(1) of the Act. The Section 144C of the Act, precludes the Assessing Officer to make any changes outside the directions of the DRP based on DRAFT Assessment Order. Therefore, the Assessing Officer suo-moto considering the total income as per the order under section 143(1) is outside the scope of Section 144C of the Act. Therefore, the addition made by Assessing Officer in the assessment order dated 25.10.2024 assessing the total income at Rs.24,32,06,832/- based on order u/s.143(1) is bad in law. Therefore, we direct the Assessing Officer to assess the total income of the Assessee at Rs.20,55,52,510/- which was the total income shown in the Return of Income. Accordingly, Revised Ground No.2 of the Assessee is allowed.
Revised Ground No.3 : 3. Assessee has claimed that the Assessing Officer has not granted credit to the prepaid taxes amounting to Rs.1,35,68,223/- related to the amalgamating entity. The Assessing Officer is directed to verify the facts and allow the claim as per law. Assessing Officer shall provide opportunity to the Assessee. Accordingly, Revised Ground No.3 is allowed for statistical purpose.
Revised Ground No.1, 4 becomes academic in nature once we have adjudicated Revised Ground No.2 of the Assessee, hence, Revised Ground Nos.1 and 4 are dismissed as unadjudicated.