MOHAN JUTE BAGS MFG.CO.,KOLKATA vs. PCIT-12, KOLKATA

This is an appeal filed by the Assessee against the order of Ld. PCIT-12, Kolkata dated 17.03.2020 passed u/s 263 of Income Tax Act, 1961 ( hereinafter referred to as the ‘Act’) for Assessment year 2014-15.

At the outset, the Ld. AR Shri Akkal Dudhewewela assails the jurisdiction of the Ld. Pr. CIT-12, Kolkata to have invoked the revisional jurisdiction u/s. 263 of the Act. According to the Ld. AR, the order of the AO dated 25.09.2017 has been interdicted by the Ld. Pr. CIT is itself non-est in the eyes of law, therefore, the impugned order of the Ld. Pr. CIT is null in the eyes of law.

The brief facts of the case in respect of the jurisdictional issue is that the assessee had filed its return of income for AY 2014-15on 29.09.2014 declaring taxable income of Rs.7,17,070/-. The AO noticing that the case was selected for scrutiny under CASS issued statutory notices, to commence the scrutiny assessment. The AO noticed that as the total transaction of the assessee with the related party exceeded Rs. 5 crores, and it attracted the provisions of Transfer Pricing, he referred the same to the Transfer Pricing Officer (hereinafter referred to as ‘TPO’) after getting approval of the Ld. Pr. CIT-12,

We have heard rival submissions and gone through the material available on record. We note that the assessee’s return of income was taken up for scrutiny proceedings and the AO had referred to the TPO the domestic transfer pricing issue. Pursuant to the reference made to the TPO, the TPO passed the order u/s. 92CA(3) of the Act dated 31.07.2017 determining ALP at Rs.8,92,829/-. Thereafter, the AO had issued the original assessment order u/s. 143(3) of the Act dated 25.09.2017 which according to the assessee, is non est in the eyes of law, since as per law the AO was bound to issue draft assessment order and Mohan Jute Bags Mfg. Co., AY 2014-15 thereby inter-alia give an opportunity to assessee to avail to go before the Dispute Resolution Panel (hereinafter referred to as DRP). Thus by not framing the draft assessment order, after receipt of TPO order, the AO has acted arbitrarily without scant regard to the mandatory procedure to be followed as per section 144C of the Act and thereby vitiating the assessment order dated 25.09.2017.

The issue arising in the present appeal before us is whether such an assessment order passed by the Assessing Officer is void being passed without jurisdiction? So in such an event, whether the Ld. PCIT can interfere by exercising his jurisdiction u/s 263 of the Act by holding that such assessment order is erroneous as well as prejudicial to the interest of revenue, which would pave way for him to exercise the revisional jurisdiction u/s 263 of the Act. The Ld. PCIT on the examination of the record noted that the assessment order passed by the Assessing Officer was framed without issuing draft order of the proposed addition to the assessee as is required under section 144C of the Act, and had passed an order under section 143(3) of the Act making addition of Rs. 8,92,829/-. The said order passed by the Assessing Officer, as per the Ld. PCIT was not in conformity with law and was held to be erroneous and prejudicial to the interest of revenue and accordingly, show cause notice was issued under section 263 of the Act asking the assessee to explain as to why the said order passed by the Assessing Officer under section 143(3) of the Act should not be revised or set-aside under section 263 of the Act. The contention of the assessee before us is that the omission on the part of the Assessing Officer not to comply with the provisions of section 144C(2) of the Act by not framing the draft assessment order and by not providing the statutory prescribed time to the assessee to exercise the discretion to file objections before the DRP, makes the assessment order passed by the Assessing Officer to be without jurisdiction and so void.

Under the provisions of section 144C of the Act, it is provided that where the Assessing Officer proposes to make, on or after 01.10.2009, any variation in the income or loss returned, which is prejudicial to the interest of assessee, then the Assessing Officer shall in the first instance forward the draft of the proposed order of assessment to the eligible assessee. Under sub-section (2) of section 144C of the Act on receipt of the draft order, the eligible assessee shall within 30 days of the receipt, file his acceptance of the Mohan Jute Bags Mfg. Co., AY 2014-15 variation to the Assessing Officer or file his objections, if any, to such variation with the DRP and the Assessing Officer. Under sub-section (3) of section 144C of the Act, the Assessing Officer shall complete the assessment on the basis of draft order if the assessee intimates to the Assessing Officer the acceptance of the variation or no objections are received within period specified in sub-section (2) of section 144C of the Act. Thereafter, the Assessing Officer is empowered to pass the assessment order within one month from the end of month, in which the acceptance is received or the period of filing objections under sub-section (2) of section 144C of the Act expires. Under sub-section (5) of section 144C of the Act, it is provided that the Dispute Resolution Panel shall in case where objection is received under sub-section (2) issue such directions as it thinks fit for the guidance of the Assessing Officer to enable him to complete the assessment. Upon receipt of the said directions, the Assessing Officer shall in conformity with the same, complete the assessment without providing any further opportunity of being hearing to the assessee within one month from the end of the month in which such direction is received, notwithstanding anything to the contrary contained in section 153 or 153B of the Act, as per sub-section (13) to section 144C of the Act. In view of the aforesaid provisions of section 144C of the Act it can be seen that where the TPO proposes any variation in the income or loss returned by the assessee, which is prejudicial to the interest of assessee, the Assessing Officer shall in the first instance forward the draft of the proposed assessment order to the assessee and thereafter, if no objections are received and/or the assessee files his acceptance to the variation to the Assessing Officer, then the Assessing Officer is empowered to complete the assessment within one month from the end of the month thereof. In case, the assessee files his objection before the DRP and where the said Panel issues directions as it thinks fit, then the Assessing Officer on receipt of such directions shall complete the assessment in conformity with such directions. In view of the said provisions of the Act, we note that the compliance to section 144C of the Act is mandatory in all such cases, where the TPO proposes variation in the income or loss returned, which is prejudicial to the interests of assessee. Only after complying with the conditions laid down in section 144C of the Act, the Assessing Officer is empowered to pass the assessment order under section 143(3) r.w.s. 144C of the Act by completing the assessment on such enhanced income or variation in the loss returned by the assessee.

In the case of Vijay Television vs. DRP [2014] 225 Taxman 35 (Mad), it was held in para 12 that non-passing of draft assessment order after adjustment made by the TPO renders proceedings null & void by observing as under:-

Further we note that the Hon’ble High Court of Andhra Pradesh in M/s. Zuari Cements Ltd. Vs. ACIT (Petition CC NO. 16694/2013 date 27.09.2013) on similar issue where after receipt of the order passed by the TPO under section 92CA(3) of the Act, the Assessing Officer had passed the assessment order under section 143(3) of the Act raising a demand of Rs.27,40,71,913/- without giving an opportunity to the assessee under section 144C of the Act, observed that where the Assessing Officer proposes to make on or after 01.10.2009, any variation in the income or loss returned by the assessee, then notwithstanding to the contrary contained in the Act, he shall first pass the draft assessment order, forward the same to the assessee and after assessee files his objections, if any, the Assessing Officer shall complete the assessment within one month, in view of the provisions of section 144C of the Act. It was further observed that the assessee is also given an option to file an objection before the DRP, in which the latter can issue directions for the guidance of Assessing Officer to enable him to complete assessment. Where the Assessing Officer accepted the variation submitted by the TPO without giving the petitioner any opportunity to object to it and pass the assessment order, it was held by the Hon’ble High Court of A.P that the impugned order of assessment was clearly contrary to section 144C of Mohan Jute Bags Mfg. Co., AY 2014-15 the Act and was without jurisdiction, null and void. The objection of the Revenue that the Circular No.5/2010 of the CBDT which laid down that the provisions of section 144C of the Act shall not apply for the assessment year 2008-09 and would only apply from assessment year 2010-11 and later years was held to be not tenable where the language of sub-section (1) of section 144C of the Act referred to the cutoff date of 01.10.2009 indicates the intention of Legislature to make it applicable. The Hon’ble High Court of A.P further held that the Circular No.5/2010 issued by the CBDT stating that section 144C(1) of the Act would apply only from assessment year 2010-11 and subsequent years and not from assessment year 2008-09 was contrary to the expressed language of the section and the said view of the Revenue was held to be not acceptable. The Hon’ble High Court of A.P thereafter held that the impugned order of assessment dated 23.12.2011 passed by the respondent was contrary to the mandatory provisions of section 144C of the Act is declared as one without jurisdiction, null and void and unenforceable. The Hon’ble High Court of Andhra Pradesh held as under:-

The Hon’ble Supreme Court (supra) in ACIT Vs. Zuari Cements Ltd. (supra) had dismissed the Special Leave Petition filed by the Department upon hearing the Counsel. According to the Ld. A.R. Shri Akkal Dudhwewala since the said Special Leave Petition was dismissed after hearing the Counsel the view taken by the Hon’ble High Court of Andhra Pradesh has been approved by the Apex Court. And thus we are of the view that AO was bound to follow the mandatory provision of law scrupulously and therefore non- framing and issue of draft assessment order is not curable defect because it is a jurisdictional defect which cannot be subsequently corrected by the Ld. PCIT u/s 263 of the Act, since the assessment order of AO dated 25.09.2017 is null in the eyes of law.

In view of the aforesaid discussion of the issue we hold that the AO’s omission to frame draft assessment order breached the Rule of Law and consequently, his non-action to frame draft assessment order before passing the final assessment order was in contravention of mandatory provision of law as stipulated in section 144C of the Act, consequently his

In the result, the appeal of assessee is allowed.