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Income Tax Appellate Tribunal, MUMBAI BENCH “J”, MUMBAI
Before: SHRI C.N. PRASAD, HONBLE & SHRI G. MANJUNATHA, HONBLEShri Ajit Kumar Jain & Shri Siddhesh Chaugule Shri Manish Kumar Singh
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “J”, MUMBAI BEFORE SHRI C.N. PRASAD, HON'BLE JUDICIAL MEMBER AND SHRI G. MANJUNATHA, HON'BLE ACCOUNTANT MEMBER ITA NO.9197/MUM/2010 (A.Y: 2006-07) M/s. SI Group India Limited v. Dy. Commissioner of Income-tax Plot No: D-2/I, TTC Industrial Area Large Taxpayer Unit 29th Floor, World Trade Centre No.1 Opp. Juinagar Railway Station Cuffe parade, Mumbai – 400 005 Thane-Belapur Road, Turbhe Navi Mumbai – 400 705 PAN: AAACH7323L (Appellant) (Respondent) Assessee by : Shri Ajit Kumar Jain & Shri Siddhesh Chaugule Department by : Shri Manish Kumar Singh
Date of Hearing : 05.09.2019 Date of Pronouncement : 28.11.2019
O R D E R PER C.N. PRASAD (JM)
In this appeal a Miscellaneous Application in M.A.No. 161/MUM/2017 in M.A.No.245/MUM/2016 in ITA No. 9197/MUM/2010 for the A.Y. 2006-07 was moved by the assessee on the ground that additional Ground Nos. 3.1 to 3.3 raised by the assessee were not
2 ITA NO.9197/MUM/2010 (A.Y: 2006-07) M/s. SI Group India Limited disposed off by the Tribunal while deciding the appeal in ITA.No. 9197/Mum/2010 dated 31.03.2016.
The Tribunal in its order in M.A. No. 161/MUM/2017 dated 05.04.2019 partially recalled the order in ITA No. 9197/Mum/2010 to dispose off the additional Ground Nos. 3.1 to 3.3 observing as under: - “1. This Miscellaneous Application (MA) is filed by the assessee for rectification of the alleged mistake in the order dated 16.12.2016 passed in M.A No. 245/Mum/2016 for Assessment Year (AY) 2006- 07. In the application, the applicant/assessee pleaded that in the Miscellaneous Application No. 245/Mum/2016, the applicant/assessee pointed out the mistake in not adjudicating ground no. 1.1 to 2.1 and additional ground no. 3.1 to 3.3 while deciding ITA No. 9197/Mum/2010 vide order dated 31.03.2016. The Tribunal while deciding the M.A. No.245/Mum/2016 recalled the order dated 31.03.2016 qua ground no. 1.1 to 2.1. However, inadvertently no order for recalling ground no. 3.1 to 3.3 was passed. The ld. AR submits that while recalling the order dated 31.03.2016 in ITA No. 9197/Mum/2010, the Hon’ble Tribunal recorded that additional ground no. 3.1 to 3.3 was raised by assessee, however, inadvertently not recalled the order qua the additional ground no.3.1 to 3.3. The ld. AR submits that non-adjudication of additional ground of appeal is a mistake apparent on record and while recalling the order dated 31.03.2016 qua ground no.1.1 to 2.1, the order qua ground no.3.1 to 3.3 was also to be recalled, which was left inadvertently. 2. On the other hand, the ld. DR for the revenue submits that he left the issue on the discretion of Tribunal. 3. We have considered the submission of parties and have gone through the record of original appeal ITA No. 9197/Mum/2010 and record of M.A. No. 245/Mum/2016. Perusal of record and the order dated 16.12.2016 reveals that while partly recalling the order dated 31.03.2016, we inadvertently left to recall the order qua ground no.3.1 to 3.3. Therefore, we direct to recall the order dated 31.03.2016 qua additional ground no. 3.1 to 3.3 as well and further direct the registry to fix the case for hearing by regular bench. The parties be informed through proper notice 4. In the result, MA filed by the assessee is allowed.”
3 ITA NO.9197/MUM/2010 (A.Y: 2006-07) M/s. SI Group India Limited 3. In view of the order of the Tribunal in M.A. No. 161/MUM/2017 dated 05.04.2019 the only grounds to be adjudicated in this appeal which is remaining is the additional Ground Nos. 3.1 to 3.3 which reads as under: “3.1. On the facts and in circumstances of the case and in law, the A.O. erred in not allowing the set-off of the brought forward long term capital losses against current year's long term capital gains in the Final Assessment Order passed u/s. 143(3) r.w.s. 144C (13) of the Act even though such set-off was allowed in the Draft Assessment Order u/s. 143(3) r.w.s. 144C of the Act. 3.2 He erred in not appreciating the fact that no variation could be made while passing the Final Assessment Order u/s. 143(3) r.w.s. 144C(13) of the Act from the additions disallowances made in the Draft Assessment Order passed u/s 143(3) r.w.s. 144C of the Act other than that provided under the Directions given by the Dispute Resolution Panel u/s. 144C(5)of the Act. 3.3. The Appellant prays that it be held that the AO had exceeded his jurisdiction by not allowing the said set-off of brought forward long term capital losses against current year's long term capital gains.”
Ld. Counsel for the assessee referring to the draft assessment order dated 29.12.2009 and the final assessment order dated 21.10.2010 submitted that there is variation in setoff of brought forward long term capital losses against current year’s long term capital gains. Ld. Counsel for the assessee submits that no variation could be made while passing final assessment order U/s. 143(3) r.w.s 144C(13) of the Act from that of the additions/disallowance made in the draft assessment order passed U/s.143(3) r.w.s 144C of the Act other than the adjustments as directed by the Dispute Resolution Panel [for short “DRP”] U/s.144(C)(5) of the Act. Ld. Counsel for the assessee submitted that since there is no direction by the DRP to vary the setoff of brought forward long term capital losses i.e.,
4 ITA NO.9197/MUM/2010 (A.Y: 2006-07) M/s. SI Group India Limited not to allow setoff of brought forward long term capital losses against current year long term capital gains the variation made by the Assessing Officer in the final assessment order is not correct and is made without any such direction by the Ld. DRP. Ld. Counsel for the assessee referring to section 144(c)(1) of the Act submits that if the Assessing Officer proposes any variation of income or loss returned by the assessee he should propose only in the draft assessment order and as per section 144C(5) of the Act the DRP may confirm, reduce or enhance the variation proposed in the draft assessment order and on receiving the directions of the DRP the Assessing Officer U/s. 143(3) r.w.s. 144C shall pass an order in confirmity with the directions of the DRP and complete the assessment. Ld. Counsel for the assessee submits that since the assessee has not objected or raised any objections before the DRP to the draft assessment order and in respect of the set off of losses except short term capital loss against short term capital gain there shall not be any variation other than those directed by the Ld. DRP.
Reliance was placed on the decision of the Hon’ble Madras High Court in the case of CIT v. M/s. Sanmina SCI India Pvt. Ltd., in Tax Case (Appeal) No. 567 of 2016 dated 08.08.2017, Hon'ble Gujarat High Court in the case of the PCIT v. Woco Motherson Advanced Rubber Technologies Ltd., [80 taxmann.com 63] and the decision of the
5 ITA NO.9197/MUM/2010 (A.Y: 2006-07) M/s. SI Group India Limited Coordinate Bench in the case of M/s. Piramal Enterprises Ltd., v. ACIT in ITA.No. 5471/Mum/2017 dated 30.07.2018.
On the other hand, Ld. DR submits that there is no substantial change in the draft assessment order and the final assessment order since it is only a mistake in calculation the Assessing Officer corrected the same in the final assessment order, otherwise, the computation is in accordance with the provisions of law.
We have heard the rival submissions and perused the orders of the authorities below. We observe that the Assessing Officer in the draft assessment order passed u/s. 143(3) r.w.s. 144C dated 29.12.2019 it is proposed to compute the income and losses of the assessee as under: - “9. Subject to the above remarks, total income of the assessee is computed as under: Total (Rs.) Total (Rs.) Total Business income as per -18,45,11,086 computation filed by assessee with return of income and as per order u/s 154 dated 10/06/2008 Add: Deduction u/s 35D -Para 2 17,911 Transfer pricing-Para 3 4,50,36,416 Depreciation-Para 4 4,07,849 Other Insurance Claims-Para 5 11,76,009 Provision for creditors advance- 15,48,228 Para 6 Less: Royalty disallowed in A.Y. 05-06- (3,94,432) 4,77,91,981 Para 7 -13,67,19,105 Short term capital gain as per return 29,12,827 of income Business loss to be carried forward -13,38,06,278 Long term capital gain 25,29,16,974
6 ITA NO.9197/MUM/2010 (A.Y: 2006-07) M/s. SI Group India Limited Total (Rs.) Total (Rs.) Less: B/f Long term capital loss of A.Y. Nil 1998-99 1,47,919/- (1,47,919) 2002-03 27,77,42,142/- (25,27,69,064) 2004-05 94,53,777/- Total income Nil Losses to be carried forward are as below: Particulars A.Y. Amount (Rs.) Business loss 2006-07 13,39,50,412 Long term capital loss 2002-03 2,49,73,078 2004-05 94,53,777 Short-term capital loss 2002-03 1,44,134 These losses are subject to rectifications and appeal effect or any other orders passed in any of the previous assessment years or this assessment year.”
In the final assessment order passed u/s. 144C(13) dated 21.10.2010 the Assessing Officer computed the income and losses of the assessee as under: -
“10. Subject to the above remarks, total income of the assessee is computed as under: Total (Rs.) Total (Rs.) Total Business income as per -18,45,11,086 computation filed by assessee with return of income and as per order u/s 154 dated 10/06/2008 Add: Deduction u/s 35D -Para 2 17,911 Transfer pricing-Para 3 3,95,34,685 Provision for creditors advance- 15,48,228 Para 6 Less: Royalty disallowed in A.Y. 05-06 - (3,94,432) 4,07,06,392 Para 7 -14,38,04,694 Short term capital gains as per 29.12.827 return of income Balance Business loss -14,08,91,867 Long term capital gain 25,29,16,974 Balance Long term capital gains 11,20,25,107 Less: Brought forward capital losses
7 ITA NO.9197/MUM/2010 (A.Y: 2006-07) M/s. SI Group India Limited Total (Rs.) Total (Rs.) A.Y. 98-99 1,47,919 1,47,919 (long term) A.Y. 02-03 1,44,134 1,44,134 (Short term) A.Y. 02-03 27,77,42,142 11,17,33,054 11,20,25,107 (long term) Total income Nil Losses to be carried forward are as below: Particulars A.Y. Amount (Rs.) Long term capital loss 2002-03 16,60,09,088 2004-05 94,53,777 These losses are subject to rectifications and appeal effect or any other orders passed in any of the previous assessment years or this assessment year.”
We observe that against the draft assessment order the assessee filed its objections on various additions/disallowance made. We observe that in respect of set off of losses the assessee has objected the action of the Assessing Officer only in respect of short term capital losses of ₹.1,44,134/- which was not allowed to be set off against short term capital gains of ₹.29,12,827/-. In so far as the set off of other losses are concerned, (other than the above issue) the assessee has accepted the draft assessment order.
We observe that, an issue as to whether there can be any variations in the final assessment order passed from that of the draft assessment order other than the directions of the DRP has come up before the Coordinate Bench of the Tribunal in the case of M/s. Piramal Enterprises
8 ITA NO.9197/MUM/2010 (A.Y: 2006-07) M/s. SI Group India Limited Ltd v. Addl. CIT (supra) and the Tribunal considering this issue in the light of the decision of the Hon’ble Madras High Court in the case of
CIT v. Sanmina SCI India Pvt. Ltd., (supra) and the decision of the Hon’ble Gujarat High Court in the case of PCIT v. Woco Motherson Advance Rubber Technologies Ltd., (supra) and the decision of the Hon’ble
Supreme Court in the case of the PCIT v. Woco Motherson Advance
Rubber Technologies Ltd. [89 taxmann.com 007] held as under: “10. We have patiently and carefully heard the parties and considered their submissions with regard to the disputed issue. We have also applied our mind to the facts on record and decisions relied upon. Undisputedly, in the return of income filed for the impugned assessment year, the assessee had claimed deduction of ` 247.10 crore under section 80IC of the Act. In course of the assessment proceedings, the Assessing Officer examined assessee’s claim of deduction under section 80IC of the Act by calling for the books of account and various other information. It is also evident, the Assessing Officer conducted independent enquiry by issuing notices under section 133(6) of the Act. However, while framing the draft assessment order on 29th December 2011, the Assessing Officer disallowed an amount of ` 13.63 crore out of the total deduction claimed by the assessee under section 80IC of the Act, thereby, allowing deduction of ₹.233.47 crore. Undisputedly, against the draft assessment order so passed, assessee did not file any objections before the DRP and the Assessing Officer within the prescribed time limit as per section 144C(2) of the Act. Thus, in absence of any objection from the assessee, the Assessing Officer proceeded to pass the final assessment order under section 143(3) r/w section 144C of the Act on 29th December 2012, as per section 144C(3) of the Act. However, while passing the final assessment order, the Assessing Officer disallowed the entire deduction claimed under section 80IC of the Act amounting to ₹. 247.10 crore, meaning thereby, he made a departure from the draft assessment order insofar as it relates to disallowance of deduction under section 80IC of the Act 11. The core issue arising for consideration before us is, while passing the final assessment order whether the Assessing Officer is empowered to vary the draft assessment order? In other words, whether the Assessing Officer can make an addition / disallowance in the final assessment order which was not proposed in the draft assessment order? Before venturing to decide the issue, it is necessary to look into the provision of section 144C of the Act under which the Assessing Officer has proceeded in the instant
9 ITA NO.9197/MUM/2010 (A.Y: 2006-07) M/s. SI Group India Limited case. Section 144C(1) of the Act empowers the Assessing Officer to pass a draft assessment order if he intends to make a variation in the income or loss returned by an assessee in whose case such variation arises as a consequence of the order of the Transfer Pricing Officer passed under sub– section (3) of section 92CA of the Act. Thus, it becomes clear, the Assessing Officer can pass a draft assessment order under section 144C(1) of the Act only in a case where he proposes to make addition on the basis of transfer pricing adjustment suggested by the Transfer Pricing Officer. Once such a draft assessment order is made, the assessee has the option to either object to the draft assessment order before the DRP and Assessing Officer or accept the variation made in the draft assessment order. Sub–section (2) of section 144C of the Act provides, if the assessee within 30 days of receipt of the draft assessment order files his acceptance of the variations made in the draft assessment order or if the assessee does not file any objection against the draft assessment order before the DRP and the Assessing Officer, the Assessing Officer shall complete the assessment on the basis of the draft assessment order within a period of one month from the end of the month in which the acceptance is received or the period of filing of objections against the draft assessment order expires. In a case, where the assessee objects to the draft assessment order before the DRP, the DRP in terms of sub–section (5) of section 144C of the Act will dispose off the objections. Sub–section (10) of section 144C of the Act makes it clear that the direction issued by the DRP while disposing off assessee’s objection shall be binding on the Assessing Officer. Sub–section (13) of section 144C of the Act provides that the Assessing Officer on receipt of the direction of the DRP shall pass the final assessment order in conformity with the directions of the DRP. Thus, the scheme of section 144C of the Act of the Act, which a code by itself, suggest that where the assessee either accepts the variation suggested in the draft assessment order or does not file any objection before the DRP and the Assessing Officer against the draft assessment order, the Assessing Officer shall pass the final assessment order on the basis of draft assessment order. However, in a case where the assessee files objections against the draft assessment order before the DRP, the Assessing Officer is duty bound to complete the final assessment in conformity with the directions of the DRP. Thus, on a reading of section 144C of the Act it is very much clear that only in a case where the final assessment order is passed in conformity with the directions of the DRP, the Assessing Officer can vary the draft assessment order in respect of any addition / disallowance as per the directions of the DRP. However, where the Assessing Officer passes the final assessment order under sub–section (3) of section 144C of the Act, he has no such power to deviate from the draft assessment order and can pass the final assessment order only on the basis of draft assessment order. This is so because if an addition or disallowance is made in the final assessment order which was not made in the draft assessment order, the assessee is deprived of objecting to the addition / disallowance made before the DRP. Thus, the assessee is
10 ITA NO.9197/MUM/2010 (A.Y: 2006-07) M/s. SI Group India Limited divested of a valuable statutory right of challenging the addition / disallowance made, since, the DRP as per the scheme of section 144C functions like a first appellate authority. This is in complete violation of rules of natural justice. In such situation it is immaterial whether before making such addition / disallowance in the final assessment order, the assessee was given opportunity of being heard or not. What is material is, the assessee must be given a fair opportunity to redress its grievance as per the mechanism provided under the statute. Addition / disallowance of a item of income in final assessment order which was not proposed in the draft assessment order deprives the assessee from redressing its grievance before the appropriate authority as per the statutory provision. Statute provides sufficient time to the Assessing Officer to make assessment. Therefore, we are unable to accept the plea of the department that, since, at the time of passing of draft assessment order enquiry was incomplete, hence, Assessing Officer is competent to make addition/disallowance in variance with draft assessment order. That being the case, in our considered opinion, the Assessing Officer cannot make any addition or disallowance in the final assessment order which was not proposed in the draft assessment order. The Hon'ble Gujarat High Court in Woco Motherson Advance Rubber Technologies Ltd.(supra) while examining identical issue, after interpreting the provision contained under section 144C of the Act held as under:– “13. Considering the aforesaid, it appears that there is complete machinery provided under Section 144C of the Act. In the entire scheme of Section 144C, it refers to the draft assessment order ie., variation in the income or loss returned proposed in the draft assessment order. Even the objections are required to be submitted by the assessee with respect to the variation proposed in the draft assessment order. Even, the DRP is also required to consider the objections raised by the assessee with respect to the variation proposed in the draft assessment order. The DRP is also required to issue directions with respect to the variation proposed in the draft draft assessment order and even considering the records relating to the draft order. Considering the entire scheme of Section 144C of the Act, it appears that in conformity with the principles of natural justice, the assessee is required to be given an opportunity to submit objections with respect to the variation proposed in the income or loss returned. Therefore, while passing the final assessment order, the Assessing Officer cannot go beyond what is proposed in the draft assessment order. If the submissions made on behalf of the Revenue are accepted that the Assessing Officer, while passing the final assessment order can also go beyond the variation proposed in the draft assessment order, then in that case, it can be said that the assessee shall not given any opportunity to raise objections against such additions or
11 ITA NO.9197/MUM/2010 (A.Y: 2006-07) M/s. SI Group India Limited disallowances which were not even proposed in the draft assessment order. Therefore, the same can be considered to be in breach of the principles of natural justice. 13.1 At this stage, it is required to be noted that even while passing the regular assessment order, if the officer proposes to make any further addition and/or disallowances, in that case also, the Assessing Officer is required to issue required notice under Section 142 of the Act and the assessee is required to be given an opportunity to raise objection against such addition and/or disallowance. Under the circumstances, considering the entire scheme of Section 144C of the Act, the Assessing Officer cannot make any addition and/or disallowance then what is proposed in the draft assessment order. 14. The contention raised on behalf of the Revenue that the aforesaid lapse can be said to be a procedural lapse has also no substance. Such additions/disallowances other than those proposed in the draft assessment order cannot be said to be a mere procedural lapse. 14.1 Under the circumstances, we are of the opinion that the learned Tribunal has not committed any error in deleting the disallowance made by the Assessing Officer with respect to the claim of the assessee under Section 10AA of the Act, as the same was not proposed by the Assessing Officer in the draft assessment order and for which, no opportunity was given to the assessee to submit the objections against such disallowance.” 12. The Special Leave Petition filed by the Department against the aforesaid decision of the Hon'ble Gujarat High Court has been dismissed by the Hon'ble Supreme Court in PCIT v/s Woco Motherson Advance Rubber Technologies Ltd. (supra). 13. The Hon'ble Madras High Court in Sanmina SCI India Pvt. Ltd. (supra) while dealing with identical issue has held as under:– “8. The question posed relates essentially to whether the impugned order of Final Assessment dated 20.2.014 is an excess of jurisdiction by the Assessing Officer or within the powers granted to him in terms of s.144C of the Act. The answer reveals itself on an analysis of the Scheme itself. The tone is set in subsection (1) thereof wherein the role of an Assessing Officer and the limits of his jurisdiction are demarcated, in that, the order of draft assessment is to set out the proposed variations and forward the same to the Assessee for response. Then again, sub- section (3) of 144C requires the Assessing Officer to complete the assessment on the basis of the draft order. In setting out the
12 ITA NO.9197/MUM/2010 (A.Y: 2006-07) M/s. SI Group India Limited scope of the DRP to issue directions, sub-section (6) restricts the DRP to consideration of the draft order and the objections filed by the Assessee along with connected evidence, report, records, and enquiries. 9. It is only in sub-section (8) where the power of enhancement is granted to the DRP, that the scope of the variations as proposed under section 144C(1) stand expanded. The interests of both the Assessee and the Revenue to respond to the proposed variations has been protected and an opportunity to be heard has been specifically provided for under sub-section (11). Thus where Legislature provided for any variation in assessment over and above that proposed in the order of draft assessment, it has specifically provided for an opportunity of hearing prior thereto. Thereafter in terms of sub- section (13), the Assessing Officer is bound to conform to the directions given by the DRP and give effect to the same. Contrary to the mandate in sub- section (11), it has been thought unnecessary to grant an opportunity to the assessee prior to the passing of the final order. This leads to the inescapable conclusion that the Assessing Officer is not expected to, and shall not venture to raise any issue except the variations specified by him in 144C(1) in the order of draft assessment or any issue raised by the DRP by way of enhancement in terms of sub-section (8) of 144C. The scheme of s.144C would thus be wholly violated if the Assessing Officer takes it upon himself to include in the final order of assessment such additions/disallowance/variations that do not form part of the order of draft assessment. 10. Further, we do not agree with the submission of the Learned Counsel for the Appellant to the effect that since the provisions of s.10A have been dealt with in the order of assessment, albeit in another context, the Assessing Officer is at liberty to consider any and all aspects relating to s.10A including the issue of priority in the set off of losses at the stage of final assessment. The proposition sought to be put forth is too wide to be accepted and would distort the scheme of s.144 C as noted above. We now advert to the provisions of s.144B and the judgments cited at the Bar in support of their respective submissions.” 14. The ratio laid down in the aforesaid decisions, if applied to the facts of the present appeal, clinches the issue in favour of the assessee. Thus, in the aforesaid view of the matter we hold that the disallowance of deduction under section 80IC of the Act made by the Assessing Officer in the final assessment order, over and above the amount disallowed in the draft assessment order, should be deleted. The Assessing Officer is directed to do so. As regards the amount disallowed in the draft
13 ITA NO.9197/MUM/2010 (A.Y: 2006-07) M/s. SI Group India Limited assessment order, we will deal with the issue separately while deciding ground no. VIII raised by the assessee. This ground is allowed.”
In our view this decision of the Tribunal squarely applicable to the facts of the assessee’s case.
In the case before us, the Assessing Officer deviated from the draft assessment order and computed the losses which were not proposed in the draft assessment order. This is not permissible in view of the above judgments of the Hon’ble Madras High Court and the Hon’ble Gujarat High Court. Thus, respectfully following the above decision of the coordinate Bench we direct the Assessing Officer to restore the computation of income and losses as proposed in the draft assessment order other than those issues which were objected before the Ld. DRP. Thus, the additional grounds raised by the assessee are allowed.
In the result, appeal of the assessee is allowed on additional grounds.
Order pronounced in the open court on the 28th November, 2019 Sd/- Sd/- (G. MANJUNATHA) (C.N. PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai / Dated 28/11/2019 Giridhar, Sr.PS
14 ITA NO.9197/MUM/2010 (A.Y: 2006-07) M/s. SI Group India Limited Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. The CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file.
//True Copy// BY ORDER (Asstt. Registrar) ITAT, Mum