M/S INATECH INDIA PRIVATE LIMITED ,BANGALORE vs. INCOME TAX OFFICER WARD-3(1)(4), BANGALORE

Per Jason P. Boaz, Accountant Member

This appeal by the assessee is directed against the order of CIT(A)-3, Bangalore dated 23.11.2017 for Assessment Year 2012-13. In this order, the CIT(A) dismissed the assessee’s appeal holding it to be non-maintainable, for the stated reason that the order of assessment concluded under section 143(3) r.w.s. 92CA of the Income Tax Act,

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Page 2 of 23 1961 (in short ‘the Act’) dated 24.03.2016 is only a “draft assessment order” and an appeal against such “draft assessment order’ can be filed only before the Dispute Resolution Panel (DRP), Bangalore.

2.1 The assessee, a company, engaged in the business of software development, filed its return of income for Assessment Year 2012-13 on 28.11.2012 declaring total income of Rs.4,89,920/-. The case was selected for scrutiny for this Assessment Year. Since the assessee had reported that it had entered into international transactions in the year under consideration, the Assessing Officer (AO) made a reference to the Transfer Pricing Officer (TPO) for determining the arms length price (ALP) of the international transactions. The TPO vide order under section 92CA of the Act dated 19.01.2016 has proposed TP Adjustment of Rs.6,31,12,225/- in respect of software development services rendered by the assessee. Thereafter, the AO passed an assessment order for Assessment Year 2012-13 under section 143(3) r.w.s. 92CA of the Act dated 24.03.2016 wherein the assessee’s income was determined at Rs.6,36,02,040/-; which included the transfer pricing adjustment of Rs.6,31,12,225/-. The AO also determined the tax payable by the assessee at Rs.2,95,37,104/-. This order of the AO was titled as “Draft Assessment Order”. This order dated 24.03.2016 was sent to the assessee by registered post, with an acknowledgment slip (copy placed on record), which also mentioned “draft order under section 143(3) r.w.s. 92CA with DN 271(1)(c)”. The order dated 24.03.2016 was received by the assessee on 31.03.2016. Along with the order dated

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Page 3 of 23 24.03.2016, notice of demand under section 156 of the Act was received by the assessee raising demand of Rs.2,95,37,104/- as was stated in the order and also notice under section 274 r.w.s. 271 of the Act for initiating penalty proceedings under section 271(1)(c) of the Act. The assessee vide letter dated 15.04.2016 (copy placed at pages 165 to 178 of paper book) put forth its reply to the AO in respect of the notice under section 274 r.w.s. 271 of the Act dated 24.03.2016 issued for initiation of penalty proceedings under section 271(1)(c) of the Act. The assessee also filed a petition dated 26.05.2016 before the AO for stay on recovery of demand raised (copy placed a pages 179 to 192 of paper book). It appears from the record before us that there was no response received from the AO on these letters.

2.2 Aggrieved by the order of assessment dated 24.03.2016 for Assessment Year 2012-13, the assessee filed an appeal before the CIT(A)-3; Bangalore, on 28.04.2016, wherein it had raised grounds No.2 (extracted at page 2 para 2 of the CIT(A)’s order dated 23.11.2017) contending that the order passed was invalid as the AO has passed the said assessment order in violation of the procedure set out in section 144C of the Act.

2.3 Subsequently, the AO passed another order of assessment dated 24.05.2016 for Assessment Year 2012-13, received by the assessee on 24.05.2016 wherein it was stated that since the assessee had not filed its objections before the DRP against the draft assessment order dated 24.03.2016, the final order of assessment dated 24.05.2016 has now been passed.

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Page 4 of 23 2.4 The appeal field by the assessee against the order dated 24.03.2016 for Assessment Year 2012-13 before the CIT(A) was disposed off vide the impugned order dated 23.11.2017; wherein he held that the order passed by the AO on 24.03.2016 was a “draft assessment order” and therefore the assessee ought to have filed its objections thereto before the DRP. In that view of the matter, the CIT(A) held that the assessee’s appeal is not maintainable and dismissed the same. While holding so, the CIT(A) relied on the fact that the order dated 24.03.2016 mentions “DRAFT ASSESSMENT ORDER” on page 1 thereof and therefore by no stretch of imagination it can be considered as final order of assessment.

a. The learned Assessing Officer (AO) has erred in passing order under section 143(3) of the act without invoking the provisions of section 144C of the Act which is mandatory. b. The learned AO has erred in not complying with the provisions of Section 144C of the Act wherein it is stated that "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

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Page 5 of 23 section referred to as the draft order) to the eligible assessee if he proposes to make, any variation in the income or loss returned which is prejudicial to the interest of such assessee". c. The learned AO has erred in passing order under Section 143(3) of the Act along with notice of demand under section 156 of the Act and penalty notice under Section 274 read with Section 271(1)(c) of the Act without invoking the provisions of the Section 144C of the Act. d. Learned AO/CIT(A) ought to have appreciated that:

The above mentioned assessment order issued by  the learned AO without invoking the provisions of section 144C is null and void in the eyes of law; The assessee has been deprived of its statutory  right to approach the Dispute Resolution Panel (hereinafter referred to as DRP) and get directions against the wrong adjustment made; Demand has been raised, which is illegal and  unjustified, as it emanates out of a void order; and Penalty proceedings initiated by issue of notice under Section 274 read with Section 271 of the Act is illegal and invalid. The learned AO has erred in denying the appellant a reasonable e. opportunity of being heard before a final assessment order was issued under Section 143(3) of the Act. The learned CIT(A) has erred in dismissing the appeal f. holding that appeal against a draft assessment order can only be filed before CIT(A) and hence appeal filed by Appellant before CIT(A) cannot be considered a valid appeal.

g. The CIT(A) ought to have appreciated that assessment order passed along with notice of demand and penalty notice amounts to final assessment order and appeal against such final assessment order lies with CIT(A).

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Page 6 of 23 h. The learned CIT(A) erred in not placing reliance on judicial precedents (including Apex Court and High Court decisions) which have held that final order passed as against a draft assessment order is without jurisdiction, null and void and unenforceable.

Without prejudice to and notwithstanding the above grounds 1 and 2, the appellant submits the following: 3. The learned CIT (A) erred in not specifically adjudicating on the following grounds raised by the Assesee in connection with the transfer pricing issues; The learned AO/ learned Transfer Pricing Officer ("TPO")  have erred in rejecting the economic analysis undertaken by Inatech India in the transfer pricing documentation and adjusting the transfer price of Inatech India pertaining to the service income under Section 92CA of the Act. The learned AO/ learned TPO erred in rejecting the  Comparable Uncontrolled Price ("CUP") method and adopting Transactional Net Margin Method ("TNMM") as the most appropriate method in determining the arm's length price for the international transactions of the Company. Without prejudice to the argument of the Company against the  application of TNMM as the most appropriate method ("MAM"), the learned AO/learned TPO erred in: Not appreciating that appropriate economic I. adjustments should have been performed while applying TNMM as the MAM to eliminate the material difference between the Assesse and the comparable companies. II. Not appreciating that the foreign exchange gain of the Company should be treated as an operating income for the purpose of the transfer pricing analysis. III. Carrying out erroneous working capital adjustment while undertaking the transfer pricing analysis. IV. Erroneously considering the segmental results of AE and Non AE operations while proposing the transfer pricing adjustment.

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Page 7 of 23 Erroneously considering the service revenue from AE V. while proposing the transfer pricing adjustment. VI. Not applying multiple year/prior year data for comparable companies while determining arm's length price. VII. Applying a threshold of 75% for the export earning filter against a more rationale threshold of 25% VIII. Considering 25 percent as the threshold limit for the Related Party Transactions ("RPT") filter as this number is an arbitrary number. Without prejudice to the other arguments of the Company, the  learned AO/learned TPO erred in including functionally dissimilar companies that do not satisfy the test of comparability in the final comparable companies set. Without prejudice to the other arguments of the Company, the  learned AO/learned TPO erred in the margin computation of the following comparable companies:  Genesys International Corporation. Ltd Persistent Systems Limited Without prejudice to the other arguments of the Company, the  learned AO/learned TPO erred in not applying the upper limit of Rs. 200 Crores for the sales turnover filter. Specifically, the following comparable companies should be rejected: Infosys Limited o Persistent Systems Limited o R S Software (India) Limited o Mindtree Limited o Sasken Communication Technology Limited o o Larsen & Toubro Infotech Limited The learned AO/ learned TPO erred in not appreciating that that  the transaction of the Company with California Software Limited, India (Dubai Branch) ("Calsoft Dubai branch") does not qualify as an international transaction since both the transacting companies are resident in India. Therefore transfer pricing adjustment, if any, should not be computed on the transaction with Calsoft Dubai branch. 4. Levy of interest under section 234B - Rs.95,79,504

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Page 8 of 23 Learned AO has erred in levying interest under section 234B which is consequential to additions made in the assessment order

5.1.1 The primary contention agitated by the assessee in this appeal is that the order dated 24.03.2016 passed under section 143(3) r.w.s. 92CA of the Act by the AO for Assessment Year 2012-13 is an invalid order, as he had not invoked the provisions of section 144C of the Act. The issue raised before us is whether once the AO had issued the order of assessment under section 143(3) r.w.s. 92CA of the Act dated 24.03.2016, it is open to Revenue to contend that the said assessment order already issued is only a draft assessment order; just because it is mentioned so; particularly when; not only the notice of demand under section 156 of the Act raising tax demand of Rs.2,95,37,100/- consequent to the passing of regular order of assessment is issued to the assessee; penalty proceedings under section 271(1)(C) of the Act have been initiated by simultaneously issue of notice under section 274 r.w.s. 271(1)(C) of the Act dated 24.03.2016, but also when the order of assessment so issued is in form and substance a regular assessment order. Therefore, the issue which is to be decided by us is whether the order of assessment for Assessment Year 2012-13 passed on 24.03.2016 in the case on hand is only a draft assessment order or a final / regular order of assessment.

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5.1.2 The legal position in respect of the passing of a draft order of assessment is covered / laid out in section 144C of the Act.

Section 144C(1) of the Act reads as under:

“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 (hereinafter 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.”

The assessees who are eligible to receive such a draft order of assessment has been specified out in section 144C(15)(b) of the Act, which reads as under:- “(15) For the purposes of this section; (a) ………………………….. (b) “eligible assessee” means – (i) any person in whose case the variation referred to in sub-section (1) arises as a consequence of the order of the Transfer Pricing Officer passed under sub-section (3) of section 92CA;”

5.1.3 In the case on hand, there has been an order under section 92CA of the Act passed by the TPO and therefore it is amply clear that the assessee is an “eligible assessee” entitled to receive a draft order of assessment. In these circumstances, the issuance of a draft order of assessment is a sine-qua-non before the AO can pass the regular / final order of assessment under section 143(3) r.w.s. 144C of the Act.

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Page 10 of 23 5.2.1 As regard the issue of whether the impugned order dated 24.03.2016 is a draft order of assessment claimed by AO and upheld by the CIT(A) or whether it is a regular / final order of assessment, as contended by the assessee, we have carefully considered the rival submissions and contentions put forth and perused the facts, details and material on record. After a careful consideration of the same, we are of the view that the impugned order dated 24.03.2016 for Assessment Year 2012-13 is a regular order of assessment; both in form and substance as not only is the income computed therein, but also the tax payable thereon is determined and required to be paid by the assessee within 30 days as per the notice of demand issued under section 156 of the Act along with the impugned order of assessment. Not only that, entries have been made in the demand and collection register based on the order of assessment dated 24.03.2016 and the demand raised by virtue of this order has been uploaded on the website of the Department in the assessee’s name. In these circumstances, it is evident that the AO himself considered and passed the order dated 24.03.2016 as the regular / final order of assessment; as otherwise, if it was in fact a draft order of assessment, he would not have raised the demand on the assessee by issue of notice of demand under section 156 of the Act, requiring the assessee to pay the demand raised and make entries to this effect in the website / records of the Department (copy placed at page 205 of Paper Book). Therefore, in our view, Revenue’s plea that the order dated 24.03.2006 is a ‘Draft Assessment Order’, as mentioned therein, and the issuance of the Notice of Demand under section 156 of the Act is a curable mistake cannot be accepted. Further, it is seen from the order dated 24.03.2016 that notice initiating penalty proceedings under section

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Page 11 of 23 271(1)(c) of the Act was also issued to the assessee, which ought not to be issued if the said order was a draft order of assessment. It has also been pointed out by the learned AR for the assessee that, if the impugned order dated 24.03.2016 was intended to be a draft order of assessment, the AO would have forwarded the same to the assessee with a covering letter informing the assessee of the same and requiring the assessee to file its objections thereto, if any, before the DRP; as was done in the assessee’s own case for the subsequent Assessment Year 2013-14 (copy of the Draft order of assessment for Assessment Year 2013-14 dated 28.12.2016 passed under section 143(3) r.w.s. 144C of the Act placed on record). For the Assessment Year under consideration i.e., Assessment Year 2012-13, we find from the record before us that the assessee vide letter dated 15.04.2016 has filed its reply to the AO on penalty proceedings initiated by notice under section 274 r.w.s. 271(1)(c) of the Act dated 24.03.2016 (copy placed at pages 165 to 178 of paper book) and further that the assessee filed a petition dated 26.05.2016 seeking stay on recovery of demand (copy placed at pages 179 to 182 of paper book). If the issuance of the notice of demand under section 156 of the Act raising and requiring payment of the tax demand by the assessee and issue of notice for initiating penalty proceedings were mistakes and the impugned order was supposed to be a draft order of assessment, we find that no such efforts were made by the AO to correct these mistakes committed and to inform the assessee in this regard.

5.2.2 In our considered view, the clinching issue of the status of the impugned order dated 24.03.2016 for Assessment Year 2012-13 is

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Page 12 of 23 evidenced by the undisputed fact that the demand was raised and has been uploaded in the website of the Department on 25.03.2016 (copy of extract from website of Income Tax Department placed at page 205 of paper book). This unambiguously establishes that the impugned order dated 24.03.2016 was by action, form and substance the regular / final order of assessment; notwithstanding the fact that it is titled “Draft Assessment Order” on page 1 thereof. In the factual matrix of this case, as discussed above, it appears to us that the subsequent order passed on 24.05.2016 is only a cover-up exercise, in a poor attempt, to convert a regular assessment order into a draft order of assessment. In our view, once a regular order of assessment dated 24.03.2016 for Assessment Year 2012-13 was passed, passing of one more order on 24.05.2016 is legally not tenable. In view of the above factual matrix of the case, we have no hesitation in holding that the order of assessment dated 24.03.2016 is the regular / final order of assessment for Assessment Year 2012-13, in form and substance and shall be treated as such.

5.3.1 In regard to the question of what is the impact of an assessment order being directly issued in a situation in which the assessee is an “eligible assessee” who ought to have been issued / served with a draft order of assessment, as per the requirements of the provisions of section 144C(1) r.w.s. 144C(15)(b) of the Act, we find that this issue has been considered and decided in several judicial pronouncements cited by the assessee. We find that in an identical case, the Division Bench of the Hon’ble Andhra Pradesh High Court, in the case of Zuari Cement Ltd., Vs. ACIT in W.P. No.5517 of 2012 dated

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Page 13 of 23 21.02.2013, has explained the scope of the validity of the demand notice issued by the AO, as under:-

“We have noted the contentions of the respective parties.

S.144C of the Act was introduced by the Finance (No.2) Act, 2009 and sub-sections (1) to (8) thereof states: 144C. Reference to Dispute Resolution Pane.— (1) The Assessing Officer shall, notwithstanding anything to the contrary contained in this Act, in the first instance, forwarded 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 day of October, 2009, any variation in the income or loss returned 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 variation 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) The Assessing Officer shall, notwithstanding anything contained in section 153, pass the assessment order under sub-section (3) within one month from the end of the month in which, - (a) the acceptance is received or (b) the period of filing of objections expires.

(5) The Dispute Resolution, Panel shall, in a 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.

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Page 14 of 23 (6) The Dispute Resolution Panel shall issue the directions referred to in sub-section (5), after considering the following, namely:- (a) draft order; (b) objections filed by the assessce; (c)evidence furnished by the assessee; (d) report, if any, of the Assessing Officer, Valuation Officer or Transfer Pricing Officer or any other authority; (e)records relating to the draft order; (f) evidence collected by, or caused to he collected by, it; and (g) result of any enquiry made by, or caused to be made by, it (7) The Dispute Resolution Panel may, before issuing any directions referred to in sub-section (5),- (a) make such further enquiry, as it thinks fit; or (b) cause any further enquiry to be made by any income-tax authority and report the result of the same to it. (8) The Dispute Resolution Panel may confirm, reduce or enhance the variations proposed in the draft order so, however, that it shall not set aside any proposed variation or issue any direction under subsection (5) for further enquiry and passing of the assessment order.

A reading of the above section shows that if the Assessing Officer proposes to make, on or after 01.10.2009, any variation in the income or loss returned by an assessee, then, notwithstanding anything to the contrary contained in the Act, he shall first pass a draft assessment order, forward it to the assessee and after the assessee files his objections, if any, the Assessing Officer shall complete assessment within one month. The assessee is also given an option to file objections-before the Dispute-Resolution Panel in which event the latter can issue directions for the guidance of the Assessing Officer to enable him to complete the assessment.

In the case of the petitioner, admittedly the TPO suggested an adjustment of Rs.52.14 crores u/s.92CA of the Act on 20.09.2011 and forwarded it to the Assessing Officer and to the assessee under sub-section (3) thereof. The Assessing Officer accepted the variation submitted by the TPO without giving the petitioner any opportunity to object to it and-passed the impugned assessment order. As this has occurred after 01.10.2009, the cut off date prescribed in sub-section (1) of S.144C, the

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Page 15 of 23 Assessing Officer is mandated to first pass a draft assessment order, communicate it to the assessee, hear his objections and then complete assessment. Admittedly this has not been done and the respondent has passed a final assessment order dt.23.12.2011 straight away. Therefore, the impugned order of assessment is clearly contrary to 5.144C of the Act and is without jurisdiction, null and void.

The contention of the Revenue that the circular No.5/2010 of the CBDT has clarified that the provisions of S.144C shall not apply for the assessment year 2008-09 and would apply only from the assessment year 2010-11 and later years is not tenable in as much as the language of sub-section (1) of 5.144C referring to the cut off date of 01.10.2009 indicates an intention of the legislature to make it applicable, if there is aproposal ,by the Assessing Officer to make a variation in the income or loss returned by the assessee which is prejudicial to the assessee, after 1.10.2009. Therefore, this particular provision introduced by Finance (No.2) Act, 2009 would apply if the above condition is satisfied and other provisions, in which similar contrary intention is not indicated, which were introduced by the said enactment, would apply from 01.04.2009 i.e., from the assessment year 2010-11.

It is not disputed that the memorandum explaining the Finance Bill and the Notes and clauses accompanying the Finance Bill which preceded the Finance (No.2) Act, 2009 clearly indicated that the amendments relating to 5.144C would take effect from 01.10.2009. In our view, the circular No.5/2010 issued by the CBDT stating that S.144C(1) would apply only from the assessment year 2010-11 and subsequent years and not for the assessment year 2008-09 is contrary to the express language in S.144C(1) and the said view of the Revenue -is unacceptable. The circular may represent only the understanding of the Board/Central Government of the statutory provisions, but it will not bind this court or the Supreme Court. It cannot interfere with the jurisdiction and power of this court to declare what the legislature says and take a view contrary to that declared in the circular of the CBDT (Ratan Melting and Wire Industries Case (1 supra), Indra Industries (2 supra). The Revenue has not been able to persuade us to take a contra view by citing any authority.

In this view of the matter, we are of the view that the impugned order of assessment dt.23.12.2011 passed by the respondent is contrary to the

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Page 16 of 23 mandatory provisions of S.144C of the Act and is passed in violation thereof. Therefore, it is declared as one without jurisdiction, null and void and unenforceable. Consequently, the demand notice dated 23.12.2011 issued by the respondent is set aside.”

Revenue’s Special Leave Petition (SLP), filed against the aforesaid order of the Hon’ble Andhra Pradesh High Court in the case of Zuari Cements Ltd., (supra), before the Hon’ble Apex Court was dismissed vide order CC 16694/2013 dated 27.09.2013.

5.3.2 We also find that this issue has been decided in the case of Vijay Television (Pvt.) Ltd., Vs. Dispute Resolution Panel, Chennai (2014) 369 ITR 113 (Mad), wherein the Hon’ble Madras High Court has, inter alia, at paras 20 to 24 thereof has held / observed as under:

“20. Under Section 144 (C) of the Act, it is evident that the assessing officer is required to pass only a draft assessment order on the basis of the recommendations made by the TPO after giving an opportunity to the assessee to file their objections and then the assessing officer shall pass a final order. According to the learned senior counsel for the petitioners, this procedure has not been followed by the second respondent inasmuch as a final order has been straightaway passed without passing a draft assessment order. 21. As rightly pointed out by the learned senior counsel for the petitioners, in the order passed on 26.03.2013, the second respondent even raised a demand as also imposed penalty. Such demand has to be raised only after a final order has been passed determining the tax liability. The very fact that the taxable amount has been determined itself would show that it was passed as a final order. In fact, a notice for demand under Section 156 of the Act was issued pursuant to such order dated 26.03.2013 of the second respondent. Both the order dated:12.03.2013 and the notice for demand thereof have been served simultaneously on the petitioner. Therefore, not only the assessment is complete, but also a notice dated 28.03.2013 was issued thereon calling upon the petitioner to pay the tax amount as also penalty under Section 271 of the Act. Thereafter, the

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Page 17 of 23 petitioner was given an opportunity of hearing on 12.04.2013. Subsequently, the second respondent realised the mistake in passing a final order instead of a draft assessment order which resulted in issuing a corrigendum on 15.04.2013. In the corrigendum it was only stated that the order passed on 26.03.2013 under Section 143C of the Act has to be read and treated as a draft assessment order as per Section 143C read with Section 93CA(4) read with Section 143 (3) of the Act. In and by the order dated 15.04.2013, the second respondent granted thirty days time to enable the assessee to file their objections. On receipt of the corrigendum dated 15.04.2013, the petitioner company approached the first respondent, but the first respondent declined to issue any direction to the assessment officer on the ground that the first respondent has got jurisdiction only to entertain such an appeal if the order passed by the second respondent is a pre-assessment order. Therefore, it is evident that the first respondent declined to entertain the Objections raised by the petitioner company on the ground that the order passed by the second respondent is not a draft assessment order, rather it is a final order. Thus, the first respondent had treated the order dated 26.03.2013 of the second respondent as a final order and therefore it refused to entertain the objections filed on behalf of the petitioner company. 22. As mentioned supra, as per Section 144C (1) of the Act, the second respondent-assessing officer has no right to pass a final order pursuant to the recommendations made by the TPO. In fact, the second respondent- assessing officer himself has admitted by virtue of the corrigendum dated 15.04.2013, the order dated 26.03.2013 is only a final order and it was directed to be treated as a draft assessment order. In this context, it is worthwhile to refer to the decision of the Honourable Supreme Court in decision Deepak Agro Foods (supra) wherein in Para No.10, the Honourable Supreme Court discussed as to when an order could be construed as a final order:— "10. Shri Rajiv Dutta, learned senior counsel appearing on behalf of the appellant, submitted that the light of its afore- extracted observations and a clear finding that the assessment order for the assessment year 1995-96 had been anti-dated, the order was null and void. It was urged that assessment proceedings after the expiry of the period of limitation being a nullity in law, the High Court should have annulled the assessment and there was no question of a fresh assessment. Thus, the nub of the grievance of the appellant is that in remanding the matter back to the Assessing Officer, the High Court has not only extended

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Page 18 of 23 the statutory period prescribed for completion of assessment, it has also conferred jurisdiction upon the Assessing Officer, which he otherwise lacked on the expiry of the said period." 23. It is evident from the above decision of the Honourable Supreme Court that if an order is passed beyond the statutory period prescribed, such order is a nullity and has no force of law. In that case before the Honourable Supreme Court, the period for assessment proceedings expired and thereafter, fresh assessment orders have been issued by anti-dating it. In those circumstances, it was held that the High Court ought not to have remanded the matter back to the assessment officer and by doing so, the statutory period prescribed for completion of assessment has been extended by conferring jurisdiction upon the Assessing Officer, which he otherwise lacked on the expiry of the said period. In that case, the Honourable Supreme Court also held that there is a distinction between an order which is a nullity and an order which is irregular and illegal. Where an authority making order lacks inherent jurisdiction, such an order will be null and void ab initio, as the defect of jurisdiction goes to the root of the matter and strikes at his very authority to pass any order and such a defect cannot be cured even by consent of the parties. 24. This decision squarely applies to the facts of this case. In this case, the order passed by the second respondent lacks jurisdiction especially when it is beyond the period of limitation prescribed by the statute. When there is a statutory violation in not following the procedures prescribed, such an order cannot be cured by merely issuing a corrigendum.”

At paras 31 to 33 of this order, the Hon’ble Madras High Court, following the decision of the Hon’ble Andhra Pradesh High Court in the case of Zuari Cements Ld., (supra), held as under: “31. In identical case as that of the case on hand, the Division Bench of the Andhra Pradesh High Court. in an unreported decision, had an occasion to consider the scope of the validity of the demand notice issued by the assessing officer in the case of Zuari Cement Ltd. (supra), wherein it was held as under:—

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Page 19 of 23 "A reading of the above section shows that if the assessing officer proposes to make, on or after 01.10.2009, any variation in the income or loss returned by an assessee, then, notwithstanding anything to the contrary contained in the Act, he shall first pass a draft assessment order, forward it to the assessee and after the assessee files his objections, if any, the assessing officer shall complete assessment within one month. The assessee is also given an option to file objections before the Dispute Resolution Panel in which event the latter can issue directions for the guidance of the Assessing Officer to enable him to complete the assessment. In the case of the petitioner, admittedly the TPO suggested an adjustment of Rs.52.14 crores u/s.92CA of the Act on 20.09.2011 and forwarded it to the Assessing Officer and to the assessee under subsection (3) thereof The assessing officer accepted the variation submitted by the TPO without giving the petitioner any opportunity to object to it and passed the impugned assessment order. As this has occurred after 01.10.2009, the cut off date prescribed in sub-section (1) of S. 144C, the Assessing Officer is mandated to first pass a draft assessment order, communicate it to assessee, hear his objections and then complete assessment. Admittedly, this has not been done and the respondent has passed a final assessment order dated 22.12.2011 straight away. Therefore, the impugned order of assessment is clearly contrary to S.144C of the Act and is without jurisdiction, null and void. The contention of the Revenue that the circular No.5/2010 of the CBDT has clarified that the provisions of S.144C shall not apply for the assessment year 2008-09 and would apply only from the assessment year 2010-2011 and later years is not tenable in as much as the language of Sub-section (1) of Section 144C referring to the cut off date of 01.10.2009 indicates an intention of the legislature to make it applicable, if there is a proposal by the Assessing Officer to make a variation in the income or loss returned by the assessee which is prejudicial to the assessee, after 01.10.2009. Therefore, this particular provision introduced by Finance (No.2) Act, 2009, would apply if the above condition is satisfied and other provisions, in which similar contrary intention is not indicated, which were introduced by the said enactment, would apply from 01.04.2009 i.e., from the assessment year 2010-2011. It is not disputed that the memorandum explaining the Finance Bill and the Notes and clauses accompanying the Finance Bill which preceded the Finance (No.2) Act, 2009 clearly indicated that the amendments relating to S.144C would take effect from 01.10.2009. In our view, the circular No.5/2010 issued by the CBDT stating that S.144C(1) would apply only from the assessment year 2010-2011 and subsequent years and not for the assessment year 2008-09 is contrary to the express language in S'.144C(1) and the said view of the Revenue is unacceptable. The circular may represent only the understanding of the Board/Central Government of the statutory provisions, but it will not bind this Court or the Supreme Court. It cannot interfere with the jurisdiction and power of this Court to

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Page 20 of 23 declare what the legislature says and take a view contrary to that declared in the circular of the CBDT (Ratan Melting and Wire Industries Case (1 Supra), Indra Industries (2 supra). The Revenue has not been able to persuade us to take a contra view by citing any authority. In this view of the matter, we are of the view that the impugned order of assessment dated 23.12.2011 passed by the respondent is contrary to the mandatory provisions of S.144C of the Act and is passed in violation thereof. Therefore, it is declared as one without jurisdiction, null and void and unenforceable. Consequently, the demand notice dated 23.12.2011 issued by the respondent is set aside." 32. As against this order of the Division Bench of the Andhra Pradesh High Court, the Revenue went on appeal before the Honourable Supreme Court. The record of proceedings of the Supreme Court indicate that he Special Leave Petition was dismissed on 27.09.2013. 33. The decision of the Division Bench of the Andhra Pradesh High Court deals with an identical issue as that of the present case. In this case, against the order passed by the second respondent on 26.03.2013, the petitioner filed objections before the DRP, the first respondent herein and the first respondent refused to entertain it by stating that the order passed by the second respondent is a final order and it had jurisdiction to entertain objections only if it is a draft assessment order. While so, the order dated 26.03.2013 of the second respondent can only be termed as a final order and in such event it is contrary to Section 144C of the Act. As mentioned supra, in and by the order dated 26.03 2013, the second respondent determined the taxable amount and also imposed penalty payable by the petitioner. According to the learned senior counsel for the petitioners, even as on this date, the website of the department indicate the amount determined by the second respondent payable by the company inspite of issuance of the corrigendum on 15.04.2013 as a tax due amount_ Thus, while issuing the corrigendum, the second respondent did not even withdraw the taxable amount determined by him or updated the status in the website. In any event, such an order dated 26.03.2013 passed by the second respondent can only be construed as a final order passed in violation of the statutory provisions of the Act. The corrigendum dated 15.04.2013 is also beyond the period prescribed for limitation. Such a defect or failure on the part of the second respondent to adhere to the statutory provisions is not a curable defect by virtue of the corrigendum dated 15.04.2013. By issuing the corrigendum, the respondents cannot be allowed to develop their own case. Therefore, following the order passed by the Division Bench of the Andhra Pradesh High Court, which was also affirmed by the Honourable Supreme Court by

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Page 21 of 23 dismissing the Special Leave Petition filed thereof, on 27.09.2013, the orders, which are impugned in these writ petitions are liable to be set aside.

5.3.3 It is evident from the above judicial pronouncements; i.e., of Hon’ble Andhra Pradesh High Court in the case of Zuari Cements Ltd., (supra) and of the Hon’ble Madras High Court in the case of Vijay Television (P) Ltd., (supra), that where there is an omission on the part of the AO to follow the mandatory procedures laid down and prescribed by the Act, such an omission cannot be termed as a mere procedural irregularity and is not curable. We find that the principles enunciated in the above judicial pronouncements have been followed by Tribunals in decisions cited by the assessee. We are also of the considered view that the above principles apply squarely to the facts of the case on hand. In the case on hand, as discussed above, the assessee was entitled to receive a draft order of assessment, but it is absolutely clear from the unimpeachable facts on record that the AO did not follow the procedure mandated in the Act, thereby rendering the impugned order dated 24.03.2016 for Assessment Year 2012-13 invalid. Issue of the subsequent order dated 24.05.2016 cannot cure the violation of the statutory mandate laid down in the Act in this regard.

5.4 Per contra, the learned DR submits that the aforesaid mistakes of the AO are at best procedural lapses and that the matter should, therefore, be restored to the file of the AO for adjudication de-novo. In this regard, the learned DR referred to the decision of the Hon’ble Karnataka High Court in the case of Rinki Chakraborty (2012) 20 taxmann.com 609 (Kar. HC). On a careful perusal thereof, we find that

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Page 22 of 23 the above case referred to by the learned DR was rendered the issue of re-opening of assessment under section 147 of the Act. It was also brought to our notice that the Hon’ble High Court, in a subsequent case, has disagreed with the decision cited by the learned DR and referred the matter to a larger Bench. However in view of the decision of the Hon’ble Apex Court in the case of Zuari Cements Ltd., (supra) dismissing Revenue’s SLP and upholding the order of the Hon’ble Andhra Pradesh High Court (supra) which is exactly on the issue before us in the case on hand, we are of the view that the submissions of the learned DR are devoid of any merit.

5.5 In view of the facts and circumstances of the case and the factual and legal matrix prevailing, as discussed above, from para 5 to 5.4 of this order, we quash the impugned order of assessment dated 24.03.2016 for Assessment Year 2012-13 by holding it to be a legal nullity. Consequently, ground No.2 of assessee’s appeal is allowed.

Since ground No.2 has been decided in favour of the assessee by holding that the order of assessment dated 24.03.2016 for Assessment Year 2012-13 in the case on hand is liable to be quashed, ground No.3 raised on merits of additions made is rendered academic, does not call for adjudication at this stage.

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Page 23 of 23 7. Ground No.4 is on charging of interest and in view of our deciding ground No.2 in favour of the assessee, this ground is rendered academic and requires no adjudication at this stage.

Pronounced in the open court on 30th April, 2019.

Sd/- Sd/- (N. V. VASUDEVAN) (JASON P. BOAZ) Vice President Accountant Member Bangalore. Dated: 30th April, 2019. /NS/* Copy to: 1. Appellants 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. 6. Guard file By order

Assistant Registrar, ITAT, Bangalore.