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HC-KAR NC: 2025:KHC:32054-DB ITA No. 48 of 2024
IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 19TH DAY OF AUGUST, 2025 PRESENT THE HON'BLE MR. JUSTICE S.G.PANDIT AND THE HON'BLE MR. JUSTICE K. V. ARAVIND INCOME TAX APPEAL NO. 48 OF 2024 BETWEEN: 1. THE PR. COMMISSIONER OF INCOME TAX 5TH FLOOR, BMTC BUILDING, 80 FEET ROAD, KORMANGALA, BENGALURU- 560 095.
THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 1(1)(1) 2ND FLOOR, BMTC BUILDING, 80 FEET ROAD, KORAMANGALA BENGALURU- 560095. …APPELLANTS (BY SRI. SUSHAL TIWARI, ADV.)
AND: M/S. ALPHA ELSEC DEFENCE AND AEROSPACE SYSTEMS PVT. LTD., 9, INTERFACE, ACCOLADE SERVICES ROAD, HAL 2ND STAGE, BENGALURU -560 008. PAN: AAECA 7856M
…RESPONDENT
(BY SMT. TANMAYEE RAJKUMAR, ADV.)
THIS APPEAL IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 08.02.2023 PASSED IN ITA NO.912/BANG/2019, FOR THE ASSESSMENT YEAR 2010-2011, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN; ALLOW THE APPEAL AND SET-ASIDE THE ORDERS PASSED BY THE INCOME-TAX APPELLATE TRIBUNAL, BENGALURU IN ITA NO.912/BANG/2019 DATED 08.02.2023 FOR ASSESSMENT YEAR 2010- 2011 ANNEXURE-A AND CONFIRM THE ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1(1)(1), BENGALURU & ETC.
Digitally signed by MARIGANGAIAH PREMAKUMARI Location: HIGH COURT OF KARNATAKA
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HC-KAR NC: 2025:KHC:32054-DB ITA No. 48 of 2024
THIS APPEAL, COMING ON FOR ADMISSION, THIS DAY, JUDGMENT WAS DELIVERED THEREIN AS UNDER:
CORAM: HON'BLE MR. JUSTICE S.G.PANDIT AND HON'BLE MR. JUSTICE K. V. ARAVIND
ORAL JUDGMENT (PER: HON'BLE MR. JUSTICE K.V. ARAVIND)
Heard learned counsel Sri.Sushal Tiwari for appellants and learned counsel Smt.Tanmayee Rajkumar for respondent. Perused the appeal papers.
This appeal by the Revenue challenging the order passed by the Income Tax Appellate Tribunal, Bengaluru ‘C’ Bench, Bengaluru (for short, ‘the Tribunal’) dated 08.02.2023 in ITA.No.912/BANG/2019 for the Assessment Year 2010-11.
The assessee is a joint venture company promoted by M/s. Alpha Design Technologies Pvt Ltd., and M/s. ITL Optronics of Israel engaged in the business of manufacturing, assembling and testing of opto electronic equipment. The respondent-assessee filed return of income on 27.09.2010 declaring loss of Rs.9,60,93,512/-.
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HC-KAR NC: 2025:KHC:32054-DB ITA No. 48 of 2024
The Assessing Officer after selecting the return of income for scrutiny, referred the matter for determination of Arms Length Price (for short, ‘ALP’) by the Transfer Pricing Officer (for short, ‘TPO’). The TPO by order dated 29.09.2016, passed an order under Section 92CA, adjusting the ALP. The Assessing Officer incorporating the ALP issued the Draft Assessment Order. The assessee preferred objections before the Dispute Resolution Panel (for short, ‘DRP’). The DRP by order dated 25.11.2014 issued directions considering the objections of the respondent-assessee. The Assessing Officer passed final assessment order on 30.12.2014 giving effect to order of TPO and the directions of DRP. The assessee preferred the appeal before the Tribunal challenging the order of DRP and final assessment order. The Tribunal by order dated 27.11.2015, set aside and remanded determination of ALP in respect of three comparable companies.
The TPO giving effect to the order of the Tribunal re-adjusted the ALP by order dated 29.09.2016.
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HC-KAR NC: 2025:KHC:32054-DB ITA No. 48 of 2024
The Assessing Officer giving effect to the order of Tribunal dated 27.11.2015 and re-determination of ALP by the TPO by order dated 29.09.2016 passed order giving effect on 22.11.2016. The assessee preferred appeal before the Commissioner of Income Tax (Appeals) challenging the order dated 22.11.2016. The Appellate Commissioner (Appeals) upheld the determination of ALP by the TPO. The assessee preferred further appeal before the Tribunal. The Tribunal under impugned order held that the order giving effect dated 22.11.2016 is void, ab-initio for not passing draft assessment order as required under Section 144C of the Income Tax Act, 1961 (for short, ‘1961 Act’).
Learned counsel Sri.Sushal Tiwari for the appellant submits that the order of the Tribunal dated 27.11.2015 has given positive direction without any exercise to be undertaken by the TPO. It is his submission that unless the TPO has taken a judicious decision while giving effect to the directions of the Tribunal, the Assessing Officer is not required to pass draft assessment
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HC-KAR NC: 2025:KHC:32054-DB ITA No. 48 of 2024
order. It is further submitted that when the Assessing Officer was not enabled to make any determination of ALP, the TPO has given effect to the directions.
On the other hand, learned counsel Smt.Tanmayee Rajkumar appearing for the respondent- assessee submits that the order of remand by the Tribunal directed consideration of three comparables applying certain filters. The TPO was directed to re-determine the ALP considering the comparables as directed by the Tribunal. The TPO while giving effect to the order of the Tribunal has determined and re-adjusted the ALP and the same was in variance of ALP as submitted by the assessee. It is further submitted that once the variation is found, Section 144C(1) of the Act is attracted. The Assessing Officer was required to pass Draft Assessment Order enabling the assessee to file objections before the DRP. It is further submitted that the issue of Draft Assessment Order is mandatory, the same not being issued, the order giving effect dated 22.11.2016 is void,
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HC-KAR NC: 2025:KHC:32054-DB ITA No. 48 of 2024
ab initio. It is submitted that the Tribunal is justified in declaring the order giving effect as void, ab initio. Learned counsel further relies on the judgment of this Court in the case of PR. COMMISSIONER OF INCOME TAX-2 AND ANOTHER VS. M/S. CISCO SYSTEMS CAPITAL (INDIA) PVT. LTD., (ITA.NO.128/2021 DATED 20.09.2021) in support of her submission.
We have given our thoughtful consideration to the submissions made by learned counsel appearing for the parties and perused the appeal papers.
The Assessing Officer referred the matter to TPO for determination of ALP and the TPO passed the order under Section 92CA of the Act. The Assessing Officer issued Draft Assessment Order which was subjected to objection before the DRP. The DRP considering the objections has issued certain directions. The Assessing Officer has passed final assessment giving effect to the directions of DRP. The said final assessment order was the
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HC-KAR NC: 2025:KHC:32054-DB ITA No. 48 of 2024
subject matter before the Tribunal. These facts are not in dispute.
The Tribunal while considering the contention of the assessee set aside the three comparability of three companies to the Transfer Pricing Officer/Assessing Officer for verification and re-determination of ALP. The TPO giving effect to the order of the Tribunal has determined the re-adjusted ALP. It is not in dispute that the ALP determined by the TPO while giving effect to the order of Tribunal is in variance. Section 144C(1) of the Act mandates that if any variation is found as a consequence of the order of the TPO under Section 92CA(3) of the Act, the Assessing Officer is bound to issue draft order of assessment. In the present case, the order giving effect to the direction of the Tribunal resulted in the variation. In view of the language of Section 144C(1) of the Act, the Assessing Officer is required to issue Draft Assessment Order. The contention of the Revenue that the TPO has only given effect to the directions and no independent
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HC-KAR NC: 2025:KHC:32054-DB ITA No. 48 of 2024
finding was recorded and hence, there is no requirement to issue Draft Assessment Order cannot be accepted. From perusal of the order of assessment of the Tribunal, it is clear that the determination of ALP was left to the discretion of the TPO while considering the three comparables.
Additionally, this Court in the case of M/S. CISCO SYSTEMS CAPITAL (INDIA) PVT. LTD., (supra) while considering the similar contention, has held that it is mandatory for the Assessing Officer to pass a Draft Assessment Order under Section 144C of the Act. It is further held that if the Draft Assessment Order is not passed under Section 144C of the Act, the assessment order is void, ab initio.
The contention of the learned counsel for the Revenue that the Tribunal instead of declaring the order as void, ab initio for not issuing the Draft Assessment Order, the Tribunal ought to have granted an opportunity by
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HC-KAR NC: 2025:KHC:32054-DB ITA No. 48 of 2024
permitting the Assessing Officer to pass Draft Assessment Order and then to follow the procedure for passing the final assessment order is untenable. However, if any recourse is available to the Revenue in accordance with law, it is open for the Revenue to exercise.
The law laid down by this Court in the judgment supra is squarely applicable to the facts of the present case. Hence, the appeal is meritless and accordingly stands dismissed.
Sd/- (S.G.PANDIT) JUDGE
Sd/- (K. V. ARAVIND) JUDGE
NC CT:bms List No.: 1 Sl No.: 33