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ITA No.427/2022 A/W ITA No.428/2022, ITA No.429/2022
IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 24TH DAY OF FEBRUARY, 2023 PRESENT THE HON’BLE MR. JUSTICE P.S. DINESH KUMAR AND THE HON’BLE MR. JUSTICE RAMACHANDRA D. HUDDAR ITA NO. 427 OF 2022 A/W ITA NO. 428 OF 2022 ITA NO. 429 OF 2022
ITA NO. 427 OF 2022
BETWEEN:
THE COMMISSIONER OF INCOME TAX
INTERNATIONAL TAXATION
4TH FLOOR, BMTC BUILDING
80 FEET ROAD, KORMANGALA
BENGALURU - 560 095.
THE DEPUTY COMMISSIONER OF INCOME TAX
INTERNATIONAL TAXATION
CIRCLE-1(1), 4TH FLOOR
BMTC BUILDING, 80 FEET ROAD
KORMANGALA
BENGALURU – 560 095.
.…APPELLANTS
(BY SHRI. K.V. ARAVIND, SENIOR STANDING COUNSEL)
AND:
M/s. CISCO SYSTEMS SERVICES B.V. INDIA BRANCH
ITA No.427/2022 A/W ITA No.428/2022, ITA No.429/2022
BRIGADE SOUTH PARADE NO.10, MAHATMA GANDHI ROAD BENGALURU – 560 001. PAN: AACCC 4836D. …RESPONDENT
(BY SHRI. NAGESHWAR RAO, ADVOCATE) [THROUGH VIDEO CONFERENCING]
THIS ITA IS FILED UNDER SEC.260-A OF INCOME TAX ACT, 1961, ARISING OUT OF ORDER DATED 12/01/2022 PASSED IN IT(IT)A NO. 2572/BANG/2019, FOR THE ASSESSMENT YEAR 2011-2012, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN AND ALLOW THE APPEAL, SET ASIE THE ORDERS PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, BENGALURU IN IT(IT)A NO. 2572/BANG/2019 DATED 12/01/2022 FOR ASSESSMENT YEAR 2011- 2012 ANNEXURE-D AND CONFIRM THE ORDER OF THE DRP CONFIRMING THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, INTERNATIONAL TAXATION, CIRCLE-1(1), BENGALURU AND ETC.
ITA NO. 428 OF 2022
BETWEEN:
THE COMMISSIONER OF INCOME TAX INTERNATIONAL TAXATION 4TH FLOOR, BMTC BUILDING 80 FEET ROAD, KORMANGALA BENGALURU – 560 095.
THE DEPUTY COMMISSIONER
OF INCOME TAX
INTERNATIONAL TAXATION
CIRCLE-1(1), 4TH FLOOR
BMTC BUILDING, 80 FEET ROAD
KORMANGALA
BENGALURU – 560 095. .…APPELLANTS
(BY SHRI. K.V. ARAVIND, SENIOR STANDING COUNSEL)
ITA No.427/2022 A/W ITA No.428/2022, ITA No.429/2022
AND:
CISCO SYSTEMS SERVICES B.V. INDIA BRANCH BRIGADE SOUTH PARADE NO.10, M.G. ROAD BENGALURU – 560 001. PAN: AACCC 4836D. …RESPONDENT
(BY SHRI. NAGESHWAR RAO, ADVOCATE)
[THROUGH VIDEO CONFERENCING]
THIS ITA IS FILED UNDER SEC.260-A OF INCOME TAX ACT, 1961, ARISING OUT OF ORDER DATED: 27/12/2021 PASSED IN IT(IT)A NO. 2888/BANG/2017, FOR THE ASSESSMENT YEAR 2013-2014, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN AND ALLOW THE APPEAL, SET ASIDE THE ORDERS PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, BENGALURU IN IT(IT)A NO. 2888/BANG/2017 DATED: 27/12/2021 FOR ASSESSMENT YEAR 2013- 2014 ANNEXURE-D AND CONFIRM THE ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, INTERNATIONAL TAXATION, CIRCLE- 1(1), BENGALURU AND ETC.
ITA NO. 429 OF 2022
BETWEEN:
THE COMMISSIONER OF INCOME TAX INTERNATIONAL TAXATION 4TH FLOOR, BMTC BUILDING 80 FEET ROAD, KORMANGALA BENGALURU – 560 095.
THE DEPUTY COMMISSIONER
OF INCOME TAX
INTERNATIONAL TAXATION
CIRCLE-1(1), 4TH FLOOR
BMTC BUILDING, 80 FEET ROAD
ITA No.427/2022 A/W ITA No.428/2022, ITA No.429/2022
KORMANGALA
BENGALURU – 560 095.
.…APPELLANTS
(BY SHRI. K.V. ARAVIND, SENIOR STANDING COUNSEL)
AND:
M/s. CISCO SYSTEMS SERVICES B.V. INDIA BRANCH BRIGADE SOUTH PARADE NO.10, MAHATMA GANDHI ROAD BENGALURU – 560 001. PAN: AACCC 4836D. …RESPONDENT
(BY SHRI. NAGESHWAR RAO, ADVOCATE)
[THROUGH VIDEO CONFERENCING]
THIS ITA IS FILED UNDER SEC.260-A OF INCOME TAX ACT, 1961, ARISING OUT OF ORDER DATED: 19/01/2022 PASSED IN IT(IT)A NO. 961/BANG/2017, FOR THE ASSESSMENT YEAR 2012-2013, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN AND ALLOW THE APPEAL, SET ASIDE THE ORDERS PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, BENGALURU IN IT(IT)A NO. 961/BANG/2017 DATED: 19/01/2022 FOR ASSESSMENT YEAR 2012- 2013 ANNEXURE-D AND CONFIRM THE ORDER OF THE DRP CONFIRMING THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, INTERNATIONAL TAXATION, CIRCLE-1(1), BENGALURU AND ETC.
THESE ITAs, HAVING BEEN HEARD AND RESERVED FOR JUDGMENT ON 07.02.2023 COMING ON FOR PRONOUNCEMENT OF JUDGMENT, THIS DAY, P.S. DINESH KUMAR J., PRONOUNCED THE FOLLOWING:-
ITA No.427/2022 A/W ITA No.428/2022, ITA No.429/2022
JUDGMENT
These three appeals by the Revenue, challenging the orders passed by ITAT1 have been filed with a delay of 65 days to consider following questions of law: “1. Whether on the facts and in the circumstances on the case, quashing the assessment order by concluding that there was no ‘Draft Assessment Order’ passed under section 144C of the Act whereas there was indeed a draft assessment order passed by assessing authority which was served on to the assessee and further availing the same opportunity was provided through such draft assessment order, the assessee approached the DRP and the directions of the DRP were passed and thereafter the ‘final Assessment order’ was passed?
Whether on the facts and in the circumstances on the case, the Tribunal is right in quashing final assessment order by relying on decisions of Hon’ble Madras High Court in case of Vijay Television (reported in 2014) 369 ITR page 113 (MAD) for quashing final assessment order by holding that there was no draft assessment order without appreciating that the facts are distinguishable in the case since a Draft Assessment order was passed indeed in this case and the assessee approached the Dispute Resolution Panel base on such order?
Whether on the facts and in the circumstances on the case, order passed by Tribunal can be said as perverse in nature in
1 Income Tax Appellate Tribunal
ITA No.427/2022 A/W ITA No.428/2022, ITA No.429/2022
holding that ‘Draft Assessment Order’ was passed under section 144C of the Act merely because the assessing authority mentioned in such order that the demand notice has to be issued? ”
ITA No. 427/2022 has been filed challenging order dated January 12, 2022 in IT(IT)A No. 2572/Bang/2019. ITA No. 429/2022 has been filed challenging order dated January 19, 2022 in IT(IT)A No. 961/Bang/2017. ITA No. 428/2022 has been filed challenging order dated December 27, 2021 in IT(IT)A No. 2888/Bang/2017.
The questions of law raised and also the assessee in all the three appeals are common. Hence, these appeals are being disposed of by this common order.
Heard Shri. K. V. Aravind, learned Senior Standing Advocate for the Revenue and Shri.Nageshwar Rao, learned Advocate for the Assessee.
Briefly stated the facts of the case are, assessee is a company incorporated and registered in Amsterdam and
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having its branch office in India. It is engaged in providing technical advanced professional engineering and consultancy services. Assessee filed its return for A.Y.2 2011-12, 2012-13 and 2013-14. Learned Advocates on both sides have adverted to facts in ITA No.427/2022. Therefore, illustratively the facts of the said appeal are recorded in this order. They have submitted that the questions of law are same in all three appeals.
For A.Y. 2011-12, Assessee has filed its return declaring income of Rs.17,92,72,000/-. Assessee received a notice of demand dated December 28, 2018 under Section 156 of the Income Tax Act, 19613 for Rs.82,99,46,321/- along with the draft assessment order under Section 143(3) of the Act passed by the ACIT (Intl. Taxn)4, Circle I, Bengaluru.
Revenue’s case is, for A.Y. 2011-12, assessment under Section 143(3) was completed on December 31, 2015.
2 Assessment Year 3 ‘the Act’ for short 4 Assistant Commissioner of Income Tax (International Taxation)
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Subsequently, the case was taken up for re-assessment based on the information collected during the survey.
On December 28, 2018, Assessing officer passed draft assessment order under Section 147 read with Section 144(C) of the Act. Assessee filed objections before the DRP5 and the DRP disposed of the objections on September 23, 2019. Assessing Authority passed the final assessment order under Section 147 read with Section 144(C) of the Act on October 15, 2019 by making an addition of Rs.78,76,82,156/- and retained additions made in the assessment order dated October 31, 2015. Assessee challenged the same before ITAT. By the impugned order, ITAT has allowed assessee’s appeal. Feeling aggrieved, Revenue has preferred these appeals.
Assailing ITAT’s order, Shri. K. V. Aravind submitted that: ITAT failed to notice that assessee had understood the order dated December 28, 2018 as ‘draft
5 Dispute Resolution Panel
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assessment order’ and filed its objections before the DRP; that the authority in Vijay Television Pvt Ltd Vs. DRP6 (hereinafter referred to as ‘Vijay Television Case’), case is distinguishable on the fact that draft assessment order was passed in this case; ITAT’s view that issuance of demand notice and initiation of penalty proceedings are fatal to the proceedings when assessee had accepted the draft assessment order and filed its objection before the DRP is erroneous; the demand notice was not enforced; and any mistake or defect shall not invalidate the draft assessment order as per Section 292B of the Act and it is a curable defect.
With these submissions, Shri. Aravind prayed for allowing these appeals.
6 (2014) 369 ITR 113 (Mad)
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Opposing these appeals, Shri. Nageshwar Rao for the assessee, submitted that at the stage of passing the draft assessment order the ACIT had completed the assessment and issued a demand notice. This is contrary to law laid down in various authorities. Therefore, the impugned order does not call for any interference.
We have carefully considered the rival contentions and perused the records.
Undisputed facts of the case are, in the draft assessment order, the ACIT has ordered issuance of demand notice and to initiate penalty proceeding under Section 271(1)(c) of the Act. Both the draft assessment order and the demand notice are dated December 28, 2018.
Argument canvassed by the Revenue is, though demand notice has been issued, assessee had understood the order dated December 28, 2018 as a draft assessment order and filed its objections before the DRP. The defect if any is a
ITA No.427/2022 A/W ITA No.428/2022, ITA No.429/2022
curable one. On the other hand, Shri. Nageshwar Rao’s argument is that the ACIT had completed the assessment at the stage of passing the draft assessment order and issued the demand notice. Thus, the re-assessment proceeding was complete. This procedure followed by ACIT is contrary to law laid down in Vijay Television Case and other authorities.
Section 144C lays down a detailed procedure. Under Section 144C(1), the AO7 is required to forward a draft of the proposed order of assessment to the assessee. Assessee may file its acceptance or objection before the DRP and the AO. If assessee intimates its acceptance or no objections are received within 30 days, the AO shall complete the assessment. Where the DRP receives any objection from the assessee, it shall issue necessary directions to the AO to enable him to complete the assessment after considering the documents/material mentioned in Section 144C (6)(a) to (g) which includes the draft order. Before issuing the directions,
7 Assessing Officer
ITA No.427/2022 A/W ITA No.428/2022, ITA No.429/2022
the DRP may also make such further enquiry by any Income Tax Authority.
Upon receipt of the directions from DRP under Sub- Section 5, the AO shall, in conformity with the directions, complete the assessment within one month from the end of the month in which such direction is received. A notice of demand under Section 156 may be issued after completion of the assessment under Section 144C(13).
In Vijay Television Case, it is held as follows:
“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 26.03.2013 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
ITA No.427/2022 A/W ITA No.428/2022, ITA No.429/2022
pay the tax amount as also penalty under Section 271 of the Act.”
(Emphasis Supplied)
In the case on hand, though it is claimed by the Revenue that order dated December 28, 2018 was a draft assessment order, we may record that the ACIT has directed issuance of demand notice and also initiated penalty proceedings. As in Vijay Television Case, the said order along with demand notice was served on the assessee.
In Vijay Television Case, instead of passing the draft assessment order, the final assessment order was passed. Subsequently, Revenue sought to correct the mistake by issuing corrigendum. Following the decision of Andhra Pradesh High Court in Zuari Cement Ltd Vs. Asstt. CIT8, the Madras High Court set aside the order in Vijay Television Case.
8 W.P. No. 5557 of 2012, dated 21.02.2013
ITA No.427/2022 A/W ITA No.428/2022, ITA No.429/2022
In Kalyan Kumar Ray Vs. CIT9, relied upon by Shri. Nageshwar Rao, it is held that assessment is one integrated process involving not only the assessment of total income but also determination of the tax. In this case at the stage of passing the draft order, the ACIT had assessed the tax, passed a final order and also issued a demand notice.
Mr. Aravind also contended that the demand notice was not enforced. It is settled that demand notice stems out of an order of assessment and it is enforceable. It meets the assessee with civil consequences. The argument on behalf of the Revenue that the demand notice was not enforced is fallacious and noted only to be rejected.
We have carefully considered Section 292B of the Act. The mistake which the ACIT has done in passing the final order at the stage of draft order is not curable under Section 292B of the Act.
9 (1991) 191 ITR 634 SC
ITA No.427/2022 A/W ITA No.428/2022, ITA No.429/2022
We have considered the appeals both on delay and merits. In the light of discussion made hereinabove, these appeals are devoid of merit and they are accordingly, dismissed. The questions of law are answered in favour of the Assessee and against the Revenue.
No costs.
Sd/- JUDGE
Sd/- JUDGE
SPS