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Income Tax Appellate Tribunal, MUMBAI BENCH “J”, MUMBAI
M/s. Truetzschler India Pvt. Ltd. 43, V.B. Gandhi Marg, Fort, Mumbai 400 001 PAN: AAACI2153N ...... अपीलाथ� /Appellant बनाम Vs. Dy. CIT, Range – 2(3), Room No.552, Aaykar Bhavan, M.K.Road, Mumbai 400 020 ..... ��तवाद�/Respondent [ अपीलाथ� �वारा/ Appellant by : Shri Nitesh Joshi ��तवाद� �वारा/Respondent by : Shri A. Mohan सुनवाई क� �त�थ/ Date of hearing : 02/09/2020 घोषणा क� �त�थ/ Date of pronouncement : 30/09/2020 आदेश/ ORDER PER VIKAS AWASTHY, JM:
This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals)-24, Mumbai (in short ‘the CIT (A)’) dated 16/01/2015 for the assessment year 2009-10. The assessee in appeal has raised Additional Ground challenging the validity of assessment order dated 13/05/2013 passed under section 143(3) r.w.s. 144C(13) of the Income tax Act,1961 (in short ‘the Act’). The additional ground of appeal read as under:- “The Learned AO erred in passing the assessment order after expiry of time limit prescribed under section 153 of the Income Tax Act, 1961. On the facts and in circumstances of the case and in law, assessment order passed by the Ld.A.O is time barred and ought to be quashed.”
2. Shri Nitesh Joshi, appearing on behalf of the assessee/appellant submitted that by way of additional ground, the assessee has raised a legal issue assailing the validity of the assessment order being barred by limitation. Narrating chronology of events, the ld. Authorized Representative of the assessee submitted that Transfer Pricing Officer (TPO) passed the order under section 92CA(3) of the Act on 09/01/2013. The Assessing Officer passed draft assessment order on 27/03/2013. Thereafter, the Assessing Officer was required to pass final assessment order within the limitation period provided under section 153 (1) i.e. by 31/03/2013, whereas, final assessment order was passed on 13/05/2013 i.e after the expiry of limitation period. The ld. Authorized Representative of the assessee submitted that the time limit for passing assessment order in the impugned assessment year does not get extended by application of Section 144C of the Act mandating reference to dispute resolution panel as the provisions of said section do not apply to the impugned assessment year. To support his contentions, the ld. Authorised Representative placed reliance on the recent decision of Hon’ble Madras High Court in the case of M/s. Vedanta Limited vs. ACIT in Writ Petition No.1729 of 2011 decided on 22/10/2019.
2.1. The ld. Authorized Representative of the assessee submitted that the additional ground raised is purely legal in nature and for its adjudication no additional evidence is required to be adduced. Section 144C was inserted to the statute by the Finance (No.2) Act 2009 with retrospective effect from 01/04/2009. The new section gave an option to the eligible assessee to opt for an alternative mechanism for the fast track dispute resolution. The introduction of section 144C was not merely procedural change but a substantive change providing an option to the assessee to take the advantage of fast track disposal of the grievance by Dispute Resolution Panel (DRP). The Hon'ble Madras High Court in the case of M/s. Vedanta Ltd.(supra) has held that the provisions of section 144C inserted by Finance (No.2) Act 2009 are applicable from assessment year 2011-12 onwards only and they would not apply to assessment year 2009-10 or to earlier assessment years.
2.2. The ld. Authorized Representative of the assessee filed written submissions to support his arguments. The same are reproduced herein below: “• The appellant had filed its return of income for A.Y 2009-10 on 29.09.2009. • Its case was referred to Transfer Pricing Officer ("TPO") to determine the arm's length price of international transaction entered into with its AE. • The Learned TPO has passed order u/s 92CA on 09.01.2013 making an upward adjustment. Thereafter Ld. AO has passed draft assessment order on 26.03.2013. (copy enclosed at page no 6 to 8) • Appellant did not file any reply in respect of the said draft assessment order (within 30 days from the date of receipt of draft order). Hence, the Ld. AO passed the final assessment order on 13.05.2013. (copy enclosed at page no 9 to 10) As per the 3rd proviso to section 153(1), the Assessing Officer ought to have • passed the assessment order within 36 months from the end of the relevant assessment year. Accordingly, the Assessing Officer ought to have passed the final assessment order by 31.03.2013. • The Ld. AO has passed final order, on 13.05.2013 which stood time barred on 31.3.2013 in the light of section 153(1).
• With reference to non-applicability of provisions of section 144C, we rely upon the decision of Hon'ble Madras High Court in the case of Vedanta Limited (Writ Petition No. 1729 of 2011) wherein it has been held that section 144C inserted by Finance Act, 2009 is applicable for assessment year A.Y 2010-11 & onwards only and not applicable for assessment A.Y 2009-10 or any earlier year. (copy enclosed at page no 11 to 29). • As per our knowledge and on public domain, there is no decision of Bombay High Court considering this aspect of the matter. • In the present case, the Ld. AO has passed final order on 13.05.2013 which is time barred in the light of Section 153(1), accordingly, bad in law.”
On the other hand Sh. A. Mohan representing the Department vehemently opposed the additional ground raised by the assessee. The ld. Departmental Representative placed reliance on CBDT Circular No.5 of 2010 dated 03/06/2010 to counter the argument made on behalf of the assessee/appellant.
Both sides heard and orders of authorities below perused. The assessee in appeal has raised 10 grounds assailing the addition/disallowances on merit. The assessee has also filed additional ground of appeal challenging the validity of assessment order. The additional ground raised by the assessee is purely legal in nature, which goes to the root of ascertaining validity of the assessment order. The ld. Authorized Representative of the assessee at this stage has confined his submissions only to the legal issue raised in additional ground. No arguments were advanced on the merits of the addition. Since, the additional ground raised is purely legal in nature and required no fresh evidence, we have no hesitation in admitting the same.
5. From the oral as well as written submissions of Ld. AR, it is quite evident that the assessee has challenged validity of the assessment order dated 13/05/2013 on the ground that it has been passed beyond the period of limitation as prescribed under 3rd proviso to section 153 (1) of the Act as was applicable to assessment year 2009-10. The relevant extract of the provisions (as applicable to AY 2009-10) reads as under: - Time limit for completion of assessments and reassessments. 153. [(1) No order of assessment shall be made under section 143 or section 144 at any time after the expiry of— (a) two years from the end of the assessment year in which the income was first assessable ; or (b) one year from the end of the financial year in which a return or a revised return relating to the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year, is filed under sub-section (4) or sub- section (5) of section 139, whichever is later :]
******** ******** Provided also that in case the assessment year in which the income was first assessable is the assessment year commencing on the 1st day of April, 2009 or any subsequent assessment year and during the course of the proceeding for the assessment of total income, a reference under sub-section (1) of section 92CA— (i) is made before the 1st day of July, 2012, but an order under sub-section (3) of that section has not been made before such date; or (ii) is made on or after the 1st day of July, 2012, the provisions of clause (a) shall, notwithstanding anything contained in the first proviso, have effect as if for the words "two years", the words "three years" had been substituted.] The third proviso providing revised time limit for completion of assessment in certain cases has been inserted by the Finance Act, 2012 with effect from 01/07/2012. This proviso provides an outer limit of three years from the end of relevant assessment year for completion of assessment in case a reference has been made u/s 92CA(1). The assessee’s case is covered by this third proviso.
The provisions of section 144C of the Act vide which the assessee was given an option to take the benefit of specialised Dispute Resolution Panel as an alternate mechanism for expeditious disposal of dispute was inserted by the Finance (No.2) Act, 2009 w.r.e.f. 01/4/2009. The Hon'ble Madras High Court in the case of M/s. Vedanta Ltd. vs. ACIT (supra) has considered the issue of applicability of newly inserted provisions of Section 144C and has held that the amendment being substantive in nature would apply prospectively from assessment year 2011-12 onwards. For the sake of completeness the relevant extract of the judgment is reproduced as under:-
“19. Coming to the aspect of assumption of jurisdiction under Section 144C, the provisions of Section 144C inserted by Finance (No.2) Act, 2009 set out a new and distinct scheme of assessment separate from regular assessment. The object of insertion of Section 144C has been explained in the Explanatory notes to Finance (No.2) Act, 2009 as follows:
'45. Provision for constitution of alternate dispute resolution mechanism 45.1 The dispute resolution mechanism presently in place is time consuming and finality in high demand cases is attained after long drawn litigation till Supreme Court. In order to address the concern of the multi- national companies and to provide mechanism for speedy disposal of their cases so as to attain finality, a new section 144C is inserted in the Income- tax Act to facilitate expeditious resolution of disputes. 45.2 The salient features of the alternate dispute resolution mechanism are as under:- .....
45.5 Applicability - These amendments have been made applicable with effect from 1st October, 2009, and will accordingly apply in relation to assessment year 2010-11 and subsequent assessment years. The Dispute Resolution Panel Rules have been notified by S.O. No. 2958(E) dated 20th November, 2009.'
The Dispute Resolution Panel (DRP) was constituted as an alternate dispute resolution mechanism, to provide a specialized forum for expeditious disposal of disputes. An assessment involving transfer pricing disputes, is thus taken out of regular track and a fast track dispute mechanism evolved before a panel of three Senior Commissioners. The Explanatory Circular makes it clear that the scheme of assessment under Section 144C will apply in relation to A.Y.2010-11 and subsequent assessment years only. No doubt, this Court is not bound by the Explanatory Circular, though necessary weightage will have to be accorded to the explanation set forth by the Board, immediate and proximate to the insertion of the provision itself, in order to understand the applicability, scope and width of the newly inserted provision.
Even otherwise, the settled position of law as set out in the case of Karimtharuvi (supra) is to the effect that Income Tax Act, as it stands amended on the first day of April of any financial year, must apply to the assessments of that year. Any amendment in the Act which comes into force after the first day of April of a financial year would not apply to an assessment for that year, even if the assessment were to be finalized subsequent to the coming into force of the amendment. (see paragrah 6 of Karimtharuvi (supra)).
Section 144 C is extracted below to the extent to which it is relevant. Reference to dispute resolution panel. 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 in the income or loss returned which is prejudicial to the interest of such assessee.'
Sub-section (2) states that on receipt of the draft order, the assessee shall, within 30 days either file acceptance of the variations or objections to the same before DRP. Sub-section (3) states that the Assessing Officer shall complete the assessment on the basis of the draft order, if the assessee intimates acceptance of the variations to him or if no objections are received within 30 days. Sub-section (4) states that, in any event, the Assessing Officer shall complete the assessment by way of final order of assessment to be passed within one month from the end of the month in which either acceptance from the assessee is received, or the period of filing of objections expires. Sub-section (5) onwards deal with the hearing of the objections before the DRP and sub-section (10), states that every direction issued by the DRP shall be binding on the Assessing Officer. Sub-section (13) thereafter states that upon receipt of the directions of the DRP, the Assessing Authority shall pass an order of assessment in conformity with the directions issued. Thus by virtue of insertion of Section 144C, the legislature has put in place a distinct, new scheme of assessment in regard to a specified class of assessees.
The question as to whether the amendment or change brought about by Section 144C is merely procedural or substantive would stand answered by the narration of the Scheme of assessment, as I have noticed above. No doubt, Section 144C prescribes a new procedure for assessment. But can it be called a mere shift in procedure? I believe not as that would be an oversimplification of the matter. The procedure inserted is substantive, in that it offers a new scheme of assessment to a distinct class of assessees, that is, those assessee whose assessments involve the issues of Transfer Pricing and determination of Arms Length Price. The provisions of Section 144C do not, thus merely prescribe procedure but a substantive exercise in assessment.
The Supreme Court in the case of R. Sharadamma (supra) after considering an earlier judgment of the Supreme Court in the case of Commissioner of Income Tax V. Dhadi Sahu (199 ITR 610), states as follows:
'5. The assessee filed appeals before the Tribunal contending that by virtue of the amendment effect by Taxation Laws (Amendment) Act, 1970, the Inspecting Assistant Commissioner lost jurisdiction to proceed with the said penalty proceedings with effect from April 1, 1971 inasmuch as in the said cases, the amount of income in respect of which the particulars have been concealed, was less than Rupees twenty five thousand, within the meaning of Sub-section (2) of Section 274 as amended in 1970 with effect from April 1, 1971. The contention was that penalty proceedings cannot continue before the Inspecting Assistant Commissioner because the essential requirement of amended Sub-section (2) was not satisfied. The Tribunal accepted the said plea and allowed the appeal. At the instance of the Revenue, the Tribunal stated the following question for the opinion of the Orissa High Court under Section 256(1) of the Act : Whether, on the facts and circumstances of the case and on a true interpretation of Section 274, as amended by the Taxation Laws (Amendment) Act, 1970 the Inspecting Assistant Commissioner to whom the case was referred prior to April 1, 1971, had jurisdiction to impose penalty.
6. The High Court answered the question in favour of the assessee whereupon the matter was brought to this Court. This Court at the outset stated the general principle applicable in this behalf in the following words:
It may be stated at the outset the general principle is that a law which brings about a change in the forum does not affect pending actions unless an intention to the contrary is clearly shown. One of the modes by which such an intention is shown is by making a provision for change over of proceedings from the court or the Tribunal where they are pending to the court or the Tribunal which, under the new law, gets jurisdiction to try them.
7. The Court then observed that once a reference was validly made to the Inspecting Assistant Commissioner he did not lose the jurisdiction to deal with the matter on account of the aforesaid Amendment Act. It pointed out that the Amending Act does not does not contain any provision that the references validly pending before the Inspecting Assistant Commissioner should be returned without passing any final order if the amount of income in respect of which the particulars have been concealed did not exceed Rupees twenty five thousand. The said circumstance, it held, supported the inference drawn by the Court that the Inspecting Assistant Commissioner continued to have jurisdiction to impose penalty. The Court observed :
It is also true that no litigant has any vested right in the matter of procedural law but, where the question is of change of forum, it ceases to be a question of procedure only. The forum of appeal or proceedings is a vested right as opposed to pure procedure to be followed before a particular forum. The right becomes vested when the proceedings are initiated in the Tribunal or the court of first instance and, unless the Legislature has, by express words or by necessary implication, clearly so indicated, that vested right will continue inspite of the change of jurisdiction of the different Tribunals or forums.'
Thus, where there is a change in the form of assessment itself, such change is not a mere deviation in procedure but a substantive shift in the manner of framing an assessment. A substantive right has enured to the parties by virtue of the introduction of Section 144C, that, bearing in mind the settled position that the law applicable on the first day of assessment year be reckoned as the applicable law for assessment for that year, leads one to the inescapable conclusion that the provisions of Section 144C can be held to be applicable only prospectively, from AY 2011-12 only.
[Emphasised by us]
The Hon’ble High Court also made it clear that the Circular issued in 2013 to bring the assessment year 2009-10 in the fold of newly inserted provisions of Section 144C would have no application. The relevant extract of the observations of the Hon’ble High Court on CBDT Circular on which the ld. DR has placed heavy reliance is as under:
“28. In the case of Prasad Productions (P) Ltd. (supra), a Division Bench of this Court has also clarified the position that where a Circular has explained a provision to be applicable qua a particular assessment year, the benefit of such Circular cannot be withdrawn at a later date, so as to deny the assessee the benefit extended earlier. Though in the present case there is no benefit as such that is in question, there is a substantively procedural right that has enured to both parties as on 01.04.2009 that relates to assessments for A.Y.2010-11 onwards. The relevant portion of the 2013 Circular reads thus:
'Para 45.5 of the Circular No.5/2010 dated 03.06.2010 reads as under: “45.5 Applicability: These amendments have been made applicable with effect from 1st October, 2009 and will accordingly apply in relation to assessment year 2010-11 and subsequent assessment years. The Dispute Resolution Panel Rules have been notified by S.O. No. 2958 (E) dated 20th November, 2009.” In the above extracted Para 45.5 there has been an inadvertent error in stating the applicability of the provisions of section 144C inserted vide Finance (No.2) Act, 2009 that amendments will apply in relation to the assessment year 2010- 11 and subsequent assessment years. Accordingly, para 45.5 is replaced with the following: “45.5. Applicability: Section 144C has been inserted with effect from 1st April, 2009. Accordingly, the Assessing Officer is required to forward a draft assessment 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. In other words section 144C is applicable to any order which proposes to make variation in income or loss returned by an eligible assessee, on or after 1st October, 2009 irrespective of the assessment year to which it pertains. Amendments to other sections of the Income-tax Act referred to in para 45.3 of the circular 5/2010 dated 3rd June, 2010 shall also apply from 1st October, 2009”
The right that has enured to the parties in 2009 cannot be modified by a Clarification issued by the Board, three years thereafter. It appears to me quite possible that the long silence of the Board followed by the sudden Clarification issued in 2013 might itself be inspired by challenges similar to the one before me now, perhaps, even the present one. Though the Clarificatory Circular has not been challenged, in the light of the detailed discussion as above, I am of the view that this Circular will not bind the Assessing Officer, particularly when it does not lay down the correct position of law.”
[Emphasised by us]
The facts of the case, provisions of Section 153(1) of the Act (as they were applicable in AY 2009-10) and the ratio of judgement rendered in the case of M/s. Vedanta Limited (supra) makes it explicitly lucid that the provisions of section 144C would not apply in the impugned assessment year and hence, the time period for passing the assessment order would not get enlarged.
Ergo, the Assessing Officer was under obligation to pass the assessment order within the time specified under 3rd proviso to Sec. 153(1) of the Act i.e. on or before 31/03/2013. Since the order has been passed beyond the period of limitation the same is null and void. The assessee succeeds on the legal ground raised as additional ground of appeal. The assessment order is quashed and the appeal of assessee is allowed.
Since the legal ground raised in the appeal is decided in favour of the assessee, the grounds of appeal raised on merits of the addition have become academic and hence, are not deliberated.
In the result, appeal of the assessee is allowed.
Order pronounced on Wednesday the 30th day of September, 2020.