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2017 (2) TMI 1001 - AT - Income TaxValidity of assessment order u/s 143(3) r.w.s. 92C(4) and 144C - non passing draft assessment order - DRP jurisdiction - Held that - We find no merit in the plea of learned Departmental Representative for the Revenue. The Assessing Officer passed the order on 28.02.2014 along with which it also issued the demand notice and show cause notice for levy of penalty. In other words, the Assessing Officer has crystallized the demand in the case of assessee. Whereas, as per the provisions of the Act where the Assessing Officer proposes to vary the income in the hands of assessee, there was requirement to issue show cause notice to the assessee to the said additions, by way of draft assessment order. The demand does not get crystallized in draft assessment order. Undoubtedly, the Assessing Officer had issued covering letter where it says that it is draft assessment order but in spirit, it had finalized the assessment, wherein the demand was crystallized and demand notice was issued to the assessee. The Assessing Officer has not followed the correct procedure as provided in the Statute and has passed final assessment order without passing draft assessment order which is against the provisions of the Act and hence, the same is invalid in law - Decided in favour of assessee
Issues Involved:
1. Validity of assessment proceedings. 2. Transfer Pricing adjustments. 3. Other corporate tax issues. Issue-wise Detailed Analysis: 1. Validity of Assessment Proceedings: The primary contention raised by the assessee was the validity of the assessment proceedings. The assessee argued that the Assessing Officer (AO) failed to pass an appropriate final order of assessment following the directions of the Dispute Resolution Panel (DRP). The AO had issued a draft assessment order on 28.02.2014, but the DRP treated it as a final assessment order, thereby claiming no jurisdiction over the case. The Tribunal referenced section 144C of the Income Tax Act, which mandates that the AO must forward a draft assessment order to the assessee if there is a proposed variation in income or loss. The Tribunal cited several precedents, including the Hon’ble Bombay High Court in International Air Transport Association Vs. DCIT, the Hon’ble Madras High Court in Vijay Television Pvt. Ltd. Vs. DRP & Others, and the Hon’ble High Court of Andhra Pradesh in M/s. Zuari Cements Ltd. Vs. ACIT, to assert that non-compliance with section 144C renders the proceedings null and void. The Tribunal concluded that the AO's issuance of a demand notice and show cause notice for penalty, along with the draft order, indicated a final assessment, which was against the statutory provisions. Thus, the assessment order was declared invalid. 2. Transfer Pricing Adjustments: The assessee contested several transfer pricing adjustments made by the AO/TPO, totaling ?5,52,83,918/-. Key points of contention included: - The AO/TPO's failure to consider lower capacity utilization adjustment, especially since it was the first full year of operation. - The rejection of Profit before Depreciation, Interest, and Tax (PBDIT) as an appropriate Profit Level Indicator (PLI). - Incorrect conclusions about the outsourcing of activities by the assessee. - Errors in the calculation of operating profits for comparable companies. - Adjustments made on the total turnover instead of relevant international transactions. - Lack of adjustments for non-payment of royalty, corporate guarantees, and working capital provided by the AE. - The Tribunal did not delve into these issues in detail as the preliminary issue of the validity of assessment proceedings was decided in favor of the assessee, rendering these grounds academic. 3. Other Corporate Tax Issues: The assessee also raised issues related to other corporate tax disallowances, including: - Exchange fluctuation gain on IFC loan reinstatement. - Bank guarantee charges considered as a prior period item. - Professional/legal services payments treated as prior period items. - Short provision of bonus considered as a prior period item. - Addition on account of gross sale value of fixed assets. Similar to the transfer pricing issues, these grounds were not addressed in detail due to the preliminary ruling on the invalidity of the assessment order. Conclusion: The Tribunal held that the assessment order passed by the AO was invalid due to non-compliance with the mandatory provisions of section 144C of the Income Tax Act. Consequently, the appeal of the assessee was allowed, and the other grounds of appeal were dismissed as academic. The order pronounced on 9th December 2016 concluded the matter in favor of the assessee.
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