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Income Tax Appellate Tribunal, “K” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI MANOJ KUMAR AGGARWAL
Date of Hearing – 17.07.2019 Date of Order – 21.08.2019
O R D E R PER SAKTIJIT DEY. J.M.
Captioned appeal by the assessee is against the order dated 22nd February 2017, passed by the learned Commissioner of Income Tax (Appeals)–56, Mumbai, for the assessment year 2010–11.
In grounds no.1 and 2, the assessee has raised a legal issue challenging the validity of the assessment order.
2 HSBC Invest Direct Securities (I) P. Ltd.
Brief facts are, the assessee, as stated by the Departmental Authorities, is an Indian Company engaged in broking and distribution of financial products. For the assessment year under dispute, the assessee filed its return of income on 29th September 2010, declaring loss of ` 44,90,53,025. In the course of assessment proceedings, the Assessing Officer noticing that during the year the assessee has entered into international transaction with its overseas Associated Enterprise (AE) made a reference to the Transfer Pricing Officer to determine the arm’s length price of such transaction. After calling for various information from the assessee including the audit report, the Transfer Pricing Officer passed an order under section 92CA((3) of the Act proposing adjustment of ` 1,12,44,576. On the basis of the order passed by the Transfer Pricing Officer, the Assessing Officer passed the assessment order under section 143(3) of the Act, on 30th March 2014, adding the adjustment proposed by the Transfer Pricing Officer, which resulted in reduction of loss declared by the assessee to ` 43,78,08,449. Against the assessment order so passed, the assessee preferred appeal before the first appellate authority.
Before learned Commissioner (Appeals), the assessee took a specific ground challenging the validity of the assessment order on the ground that before the final assessment order, the Assessing Officer has not forwarded a draft of the said order as required under section 3 HSBC Invest Direct Securities (I) P. Ltd. 144C(1) of the Act. However, the aforesaid legal ground raised by the assessee did not find favour with learned Commissioner (Appeals) and ultimately he upheld the addition.
The learned Authorised Representative reiterating the stand taken before the first appellate authority submitted, in case of an eligible assessee, if the Assessing Officer proposes to make any variation in the returned income, he has to forward a draft assessment order as per the mandate of section 144C(1) of the Act. He submitted, without following the mandatory provision of section 144C(1) of the Act, the Assessing Officer has straight away passed the final assessment order which is against the scheme of section 144C of the Act. Thus, he submitted, the assessment order has to be declared as null and void. In support of such contention, he relied upon the following decisions:–
i) ACIT v/s Zuari Cement Ltd., SLP(C) CC no.16694/ 2013, etc., dated 27.09.2013 (SC); ii) M/s. Zuari Cement Ltd. v/s ACIT, W.P. no.5557/2012, dated 21.02.2013 (Bom. HC); iii) ACIT v/s Nokia India P. Ltd., [2018] 98 taxmann.com 374 (SC); iv) ACIT v/s Vijay Television P. Ltd., [2018] 95 taxmann.c om 101 (Mad.); v) JCB India Ltd. v/s DCIT, [2017] 85 taxmann.com 155 (Delhi);
4 HSBC Invest Direct Securities (I) P. Ltd. vi) PCIT v/s Andrew Telecommunications Pvt. Ltd., [2018] 96 taxmann.com 613 (Bom.); and vii) International Air Transport Association v/s DCIT, [2016] 68 taxmann.com 246 (Bom.).
The learned Departmental Representative relied upon the observations of learned Commissioner (Appeals).
We have considered rival submissions and perused the material on record. There is no dispute between the parties that the Assessing Officer has not passed any draft assessment order as provided under section 144C(1) of the Act. The only assessment order passed by him is the impugned assessment order. It is also relevant to observe, though, the assessee had challenged the validity of the impugned assessment order before learned Commissioner (Appeals), however, he has disposed of the issue in a cryptic and non–speaking order observing as under:–
“Further, as regards grounds 1 and 2, the arguments of the appellant are carefully considered and I do not find any reason to interfere with the order of the A.O. u/s 143(3) as the same are in order and I do not find any merit in the argument of the appellant. Hence, grounds 1 and 2 are dismissed.”
From The aforesaid observation of the first appellate authority, it is very much clear that he has not addressed the issue with the seriousness it deserves. Be that as it may, it is evident, in the relevant previous year; the assessee had entered into international transaction
5 HSBC Invest Direct Securities (I) P. Ltd. with its overseas AE. For determining the arm’s length price of such transaction, the Assessing Officer has also made a reference to the Transfer Pricing Officer. The only addition/variation to the income/loss returned by the assessee made in the assessment order is on account of adjustment proposed by the Transfer Pricing Officer. Therefore, the assessee is an eligible assessee as defined under section 144C(15) of the Act. That being the case, the provisions of section 144C of the Act have to be followed in the matter of assessment relating to the assessee. In this context, it is necessary to examine the provisions of section 144C of the Act. As could be seen from the words used in sub– section (1) of section 144C of the Act, it is mandatory on the part of the Assessing Officer to pass a draft assessment order if he proposes to vary the income of the assessee on the basis of the order passed by the Transfer Pricing Officer. On receipt of the draft assessment order, the assessee can either file an objection against such draft assessment order before the DRP within a period of thirty days and if no such objection is filed within 30 days or the assessee accepts the variation, the Assessing Officer has to pass the final assessment order under sub–section (3) of section 144C of the Act. In case the assessee files objections before the DRP within the stipulated period, the Assessing Officer has to complete the assessment in terms of the directions of the DRP as provided under section 144C(13) of the Act. In the present case, the facts on record clearly reveal that the Assessing Officer has not framed any draft assessment order, though, he has made a variation to the returned income of the assessee by incorporating the adjustments
6 HSBC Invest Direct Securities (I) P. Ltd. proposed by the Transfer Pricing Officer. Therefore, as per the mandate of section 144C(1) of the Act, the Assessing Officer should have passed the draft assessment order which has not been done in the present case. Thus, the final assessment order passed by the Assessing Officer without proposing the draft assessment order is against the scheme of the Act and in complete violation of the mandate of section 144C(1) of the Act. That being the case, it is a patent jurisdictional error committed by the Assessing Officer which is incurable. The Hon’ble Andhra Pradesh High Court in Zuari Cement Ltd. v/s ACIT, in W.P. No.5557/2012, vide judgment dated 21st February 2013, has laid down the ratio expressing the aforesaid view. It is relevant to observe, the Special Leave Petition (SLP) filed by the Revenue against the aforesaid decision of the Hon’ble Andhra Pradesh High Court, has been dismissed by the Hon'ble Supreme Court. Following the aforesaid decision of the Hon’ble Andhra Pradesh High Court, different High Courts including the Hon'ble Jurisdictional High Court have held that without framing a draft assessment order under section 144C(1) of the Act, the Assessing Officer cannot pass final assessment order. In this context, we may refer to the decisions cited before us by the learned Authorised Representative. It is relevant to observe, the decision of the Hon'ble Delhi High Court in Nokia India Pvt. Ltd. (supra) has been upheld by the Hon'ble Supreme Court while dismissing the SLP filed by the Revenue. Thus, keeping in view the relevant statutory provisions as well as the ratio laid down in the decisions referred to above, we have no hesitation in holding that the impugned assessment order having been passed without complying to 7 HSBC Invest Direct Securities (I) P. Ltd. the mandatory provisions of section 144C of the Act, should be declared as void ab–initio. Accordingly, we quash the impugned assessment order. Resultantly, the impugned order of learned Commissioner (Appeals) is set aside. Grounds no.1 and 2, are allowed. 9. In view of our decision in grounds no.1 and 2, hereinbefore, the other grounds raised on merits have become infructuous, hence, there is no need to adjudicate them.
In the result, assessee’s appeal is partly allowed. Order pronounced in the open Court on 21.08.2019