POLISETTY SOMASUNDARAM GLOBAL LIMITED,VIJAYAWADA vs. DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-1, GUNTUR

PER S. BALAKRISHNAN, Accountant Member :

This appeal is filed by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals)-3, Visakhapatnam in DIN & Order No. ITBA/APL/S/250/2023-24/1054379946(1), dated 14/07/2023 arising out of the order passed U/s. 153C of

2 the Income Tax Act, 1961 [the Act] in DIN & Order No.

ITBA/AST/S/153C/2021-22/1042390716(1) dated 31/3/2022 for

the AY 2018-19.

M/s. Polisetty Somasundaram Global Limited - is registered as a

Foreign Company in the year 2012 with the Registrar of

Companies, ROK, UAE as International Business Companies

(IBC). The Registered Address as per the incorporation

Certificate is PO Box 50592, Hamriya FZ, Sharja, UAE. A search

and seizure operation U/s. 132 of the Act was conducted on M/s.

Polisetty Somasundaram Group, Guntur, Andhra Pradesh on

28/01/2020. As a part of search operations conducted U/s. 132

of the Act, the business premises and residence of Shri Polisetty

Sham Sundarwas also covered and search was conducted. The

case was centralized to DCIT, Central Circle-1, Guntur vide order

U/s. 127 of the Act issued by the CIT (International Taxation &

Transfer Pricing), Hyderabad vide F.No. CIT(IT &

TP)/40/127/2020-21 on 12/03/2021. Consequently, a notice

U/s. 153C was issued on 21/12/2021 and served on the assessee

on 23/12/2021. In response, the assessee-company filed its

return of income declaring Rs. 5,73,66,823/- on 27/1/2022

3 admitting that Place of Effective Management [POEM] is applicable

for the current Assessment Year 2018-19. Subsequently, notices

U/s. 143(2) and 142(1) were issued and served on the assessee.

The assessee filed its reply on 4/2/2022 and also filed part of the

information on 21/2/2022 and 26/2/2022. Another notice U/s.

142(1) of the Act was issued on 28/03/2022. In response, the

Assessee’s Representative appeared and filed certain submissions

before the Ld. AO. Thereafter, another notice U/s. 143(2) was

issued on 28/03/2022 for which the assessee filed its reply on

28/03/2022. The Ld. AO finally issued a show cause notice on

29/03/2022 for which the assessee filed its reply on

30/03/2022. Considering the replies and the statements

recorded U/s. 132 of the Act, the Ld. AO, rejecting the

explanation and submissions of the assessee, considered Rs.

34,02,29,806/- as income in the hands of M/s. Polisetty

Somasundaram Global Limited on protective basis. Aggrieved by

the addition of the Ld. AO, the assessee filed an appeal before the

Ld. CIT(A). The Ld. CIT(A), after examining the submissions

made by the Assessee’s Representative, dismissed the appeal of

the assessee. Aggrieved by the order of the Ld. CIT(A), the

4 assessee is in appeal before the Tribunal and raised 17 grounds

on various issues.

admission of legal ground as follows:

“On the facts and circumstances of the case whether the final assessment order passed by the Assessing Officer in the case of the appellant which is a foreign company without issuing a draft assessment order as mandated under section 144C of the Act is null and void and unsustainable in law?”

Before we proceed to adjudicate the original grounds of appeal

raised by the assessee, we deem it fit to adjudicate the legal

ground raised by the assessee.

the outset, the Ld. Authorized Representative [AR] argued that

the assessee being a Foreign Company is covered by the

provisions of section 144C(15)(b)(ii) of the Act. It was also

further submitted that it is mandatory for the Ld. AO to first pass

a draft Assessment Order enabling the assessee to file its

objections before the Ld. Dispute Resolution Panel [DRP]. The

Ld. AR vehemently opposed to the fact that the Ld. AO has failed

to pass a Draft Assessment Order thereby denying the right to

5 the assessee to raise its objections. The Ld. AR heavily relied on

the judgment of the Hon’ble jurisdictional High Court of Andhra

Pradesh in the case of M/s. Zuari Cement Ltd., vs. Assistant

Commissioner of Income Tax, Circle-2(1), Tirupathi in W.P. No.

5557 of 2012, order dated 21/02/2013 wherein the Hon’ble High

Court of Andhra Pradesh has categorically held that as per the

provisions of section 144C(1) of the IT Act, 1961, the

Assessing Officer is mandated to first pass a draft

assessment order, communicate it to the assessee, hear his

objections and then complete the assessment.On the

contrary, passing the final assessment order without

complying this procedure,which is mandatory as per the

provisions of section 144C of the Act, is without jurisdiction,

null and void.The Ld. AR further submitted that the decision of

the Hon’ble jurisdictional High Court (supra) was challenged by

the Revenue before the Hon’ble Supreme Court by way of Special

Leave Petition [SLP] and the Hon’ble Apex Court vide Special

Leave (Civil) CC 16694/2013, dated 27/09/2013 dismissed the

SLP. The Ld. AR also further placed reliance on the decision of

the ITAT, “D” Bench, Chennai in the case of Daewon Kang Up Co.

Limited vs. Deputy Director of Income Tax, International Taxation-1,

6 Chennai in ITA No. 818/Mds/2015 (AY 2010-11), dated 30.12.2016. The

Ld. AR also relied on the decision of the Hon’ble Delhi High Court in the

case of Sinogas Management PTE Ltd vs. DCIT &Anr in W.P. (C)

1879/2023, dated 18/10/2023. Further, the Ld. AR also relied on the

judgment of the Hon’ble Bombay High Court in the case of M/s. CWT

India Private Limited vs. ACIT in W.P. No. 1784 of 2022, dated 4th

September, 2023. It is the prayer of the Ld. AR that in all the above cited

decisions, it was categorically held that failure to adhere to the

mandatory requirement of section 144C(1) of the Act and failure to

pass a draft assessment order, would result in invalidation of the

final assessment order and the consequent demand notice and

penalty proceedings. The Ld. AR also relied on the following case laws

viz., (i) Judgment of the Hon’ble Delhi High Court in the case of Control

Risks India Pvt Ltd vs. DCIT , dated 27/07/2017 (ii) Judgment of the

Hon’ble Delhi High Court in the case of JCB India Ltd vs. DCIT, dated

7/9/2017; (iii) Judgment of the Hon’ble Gujarat High Court in the case

of CIT Vs. C-Sam (India) Pvt Ltd [2017] 398 ITR 182 (Guj.), dated

31/07/2017 in support of his arguments. The Ld. AR therefore pleaded

that since the Draft Assessment Order was not passed by the Ld. AO in

the case of the assessee violating the provisions of section 144C(1) of the

Act, the Final Assessment Order passed by the Ld. AO is non-est in law

and deserves to be quashed.

Per contra, the Ld. Departmental Representative [DR] fully

supported the orders of the Ld. Revenue Authorities. Further, the Ld.

DR heavily relied on the judgment of the Hon’ble High Court of

Madras(Single Bench) in the case of Volex Interconnect (India) (P.) Ltd

vs. Assistant Commissioner of Income Tax, Corporate Circle-3(2),

Chennai reported in [2022] 442 ITR 425 (Madras). It is the argument of

the Ld. DR that in the case of Volex Interconnect (India) (P.) Ltd (supra),

the Hon’ble High Court of Madras has remitted the matter back to the

Ld. AO to pass a Draft Assessment Order. Therefore, following the same

ratio, the case of the assessee may also be remitted back to the file of Ld.

AO to pass a draft assessment order. He strongly relied on the decision of

the Ld. Revenue Authorities and argued in support of the same.

available on record as well as the orders of the Ld. Revenue Authorities.

It is an admitted fact that the assessee-company is a Foreign Company

within the meaning of the provisions of section 144C(15)(b)(ii) of

the Act. Further, the assessee-company is also an “eligible

assessee” as defined in section 144C(15) of the Act. It is the case

of the Ld. AO that the Place of Effective Management [POEM] lies in India

and hence the assessee shall be subjected to tax in India as per the

Indian Income Tax provisions. However, while making the assessment,

the Ld. AO has not followed the procedure mandated U/s. 144C of the

Act in the case of the assessee. For the sake convenience and immediate

reference, we hereby extract below the provisions of section 144C of the

Act:

“Reference to dispute resolution panel.

144C. (1) 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 section referred to as the draft order) to the eligible assesseeif he proposes to make, on or after the 1st day of October, 2009, any variation 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 variations 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) ……. (4) ……. (5) The Dispute Resolution Panel shall, in a case where any objection 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. (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 assessee; (c) to (g)…… (7) to (14C) ….. (15) ……. (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

9 Pricing Officer passed under sub-section (3) of section 92CA; and (ii) any non-resident not being a company, or any foreign company.”

assessee”. The term “eligible assessee” includes “any non-

resident not being a company, or any foreign company” which

was substituted by the Finance Act, 2020 w.e.f. 1/4/2020.

Even prior to its substitution, the term “eligible assessee”

includes “foreign company”. It is a fact that the assessee is a

foreign company. Therefore, as per section 144C(1) of the Act,

the Ld. AO is duty bound to pass the Draft or Proposed

Assessment Order and shall forward the same to the ‘eligible

assessee’ to enable the assessee to file the objections, if any,

before the Dispute Resolution Panel. However, in the instant

case, the Ld. AO has not passed the Draft Assessment Order, as

mandated U/s. 144C(1) of the Act, before making the assessment

and passed the Final Assessment Order. Therefore, in our

considered view, the Ld. AO has not followed the procedure laid

down U/s. 144C(1) of the Act and passed the final assessment

order. It was incumbent on the part of the Ld. AO to have passed

a Draft Assessment Order to adhere to the mandatory

requirement of section 144C(1) of the Act otherwise it would

result in invalidation of the final assessment order and the

consequent demand and penalty also. As discussed above the

Hon’ble Jurisdictional High Court in the case of M/s. Zuari

Cement Ltd vs. ACIT, Circle-2(1), Tirupati (supra), the Hon’ble

jurisdictional High Court of Andhra Pradesh has held as follows:

“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 section 144C of the Actand 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.”

We also find from the submissions made by the Ld. AR that the

SLP filed by the Revenue against the order of the Hon’ble High

Court of Andhra Pradesh (supra) has been dismissed by the

Hon’ble Supreme Court vide the judgment in Special Leave (Civil)

CC 16694/2013, dated 27/09/2013. Further, the reliance placed

by the Ld. AR in the case of M/s. CWT India Private Limited vs.

ACIT (supra) the Hon’ble High Court of Bombayhas observed as

follows:

“7. It is clear that the AO shall, in the first instance, forward a draft of the proposed order of assessment to the eligible assessee if he proposes to make any variation is prejudicial to the interest of such assessee. Certainly there is a variation in the assessment order different from what was filed in the return of income and since it is by way of an addition made, the variation is prejudicial to the interest of Petitioner. In Andrew Telecommunications Private Limited (Supra) also the facts were identical. The Court relying on the judgments in the case of International Air Transport Association v. Deputy Commissioner of Income-tax 3 of

this Court and in the case of Zuari Cement Ltd v ACIT 4 of the Division Bench of the Hon'ble Andra Pradesh High Court has held that 'the failure to pass a draft assessment order under Section 144C(1) of the Act would result in rendering the final assessment as one without jurisdiction." Paragraphs 9,14,17 and 20 of Andrew Telecommunications (Supra) read as under:

"9. The matter was sent back to the Transfer Pricing Officer who gave hearing to the Assessee and passed a fresh order on 30th January 2014. Thereafter, the Assessing Officer, withoutissuing any draft assessment order, proceeded to pass an order on 2nd February 2015. The Assessee challenged the said order before the Commissioner of Income Tax (Appeals) and the appeal was partly allowed by the commissioner of Income Tax (Appeals) by order dated 13th March 2015. As against this order, the Revenue filed the Income Tax Appeal No. 271/2015 before the Income Tax Appellate Tribunal and the Assessee filed a Cross Objection No. 62/2015. xxxxxxxxxxxx

12 xxxxxxxxxx 20. In the case of JCB India Ltd. (supra) the Division Bench of the Delhi High Court in identical circumstances has held that after the remand on facts, the draft assessment order was necessary.” (emphasis supplied)

Further, the Hon’ble Delhi High Court in the case of Sinogas

Management PTE Ltd (supra) has held as under:

“11. For the foregoing reasons, we hold that failure by Respondent No.1 to adhere to the mandatory requirement of section 144C(1) of the Act and pass a draft assessment order, would result in invalidation of the final assessment order and the consequent demand and penalty proceedings.”

From the above judgments of the Hon’ble High Court of Bombay

(supra) and Hon’ble High Court of Delhi (supra), it is clear and

settled law that the failure on the part of the Ld. AO to pass a

draft assessment order U/s. 144C(1) of the Act would vitiate the

final assessment order as one without jurisdiction. Therefore, in

our considered view, the assessment order passed by the Ld. AO

is without jurisdiction and in violation of the mandatory

provisions of section 144C(1) of the Act and therefore null and

void and cannot be enforceable.

Volex Interconnect (India) Private Limited (supra) is a Single

Judge decision. We are not inclined to grant the request of the Ld. DR

13 to remand the matter for fresh consideration and to pass a draft

assessment order because in the case of Ms.Volex Interconnect (Supra),

the Hon’ble Madras High Court has rendered the decision on the facts

and circumstances of that case which are different from that of the

assessee’s case and failure on the part of the Ld. AO to pass draft

assessment order Section 144C(1) of the Act has rendered the

assessment as one without jurisdiction. Where as the Division Bench

of the Hon’ble Jurisdictional High Court in the case of M/s. Zuari

Cement Limited (supra); Hon’ble High Court of Delhi in the case

of Sinogas Management PTE Limited (supra) have held that the

provisions of section 144C(15) has to be mandatorily followed

with respect to the Foreign Companies.

we are of the considered view that the ratio laid down by the

Hon’ble jurisdictional High Court of Andhra Pradesh (supra)

which is affirmed by the Hon’ble Supreme Court by dismissing

the SLP are binding on us. The facts in the case of M/s. Zurai

Cement Ltd (supra) are identical to the issue in the case of the

assessee as well as the judgments of the various High Courts

cited supra. Thus, we have no hesitation to come to the

conclusion that the assessment order passed by the Ld. AO in the

14 case of the assessee is without jurisdiction and in violation of the

mandatory provisions of section 144C(1) of the Act and therefore

the assessment order passed U/s. 153C of the Act is null and

void and unsustainable in law. Accordingly, the legal ground

raised by the assessee deserves to be allowed thereby warranting

quashing of the assessment order passed by the Ld.AO. It is

ordered accordingly.

153C of the Act, dated 31/03/2022 has been quashed

considering the legal ground raised by the assessee in foregoing

paragraphs of this order, the original grounds of appeal raised by

the assessee on merits need no separate adjudication.

Accordingly, the original grounds of appeal raised by the assessee

have become infructuous.

Pronounced in the open Court on 15th December, 2023.

Sd/- Sd/- (दु�वू�आर.एलरे�डी) (एसबालाकृ�णन) (DUVVURU RL REDDY) (S.BALAKRISHNAN) �या�यकसद�य/JUDICIAL MEMBER लेखासद�य/ACCOUNTANT MEMBER

Dated :15.12.2023

OKK - SPS

आदेशक���त�ल�पअ�े�षत/Copy of the order forwarded to:- �नधा�रती/ The Assessee–M/s. Polisetty Somasundaram Global 1. Limited C/o. CA M.V. Prasad, D.No. 60-7-13, Ground Floor, Siddhartha Nagar, 4th Lane, Vijayawada, Andhra Pradesh – 520010. राज�व/The Revenue – The Deputy Commissioner of Income Tax, 2. Central Circle-1, 3rd Floor, Raj Kamal Complex, Lakshmipuram Main Road, Guntur, Andhra Pradesh – 520002. 3. The Principal Commissioner of Income Tax, आयकरआयु�त (अपील)/ The Commissioner of Income Tax 4. �वभागीय��त�न�ध, आयकरअपील�यअ�धकरण, �वशाखापटणम/ 5. DR,ITAT, Visakhapatnam गाड�फ़ाईल / Guard file 6. आदेशानुसार / BY ORDER

Sr. Private Secretary ITAT, Visakhapatnam