2019 (5) TMI 532 - AT - Income Tax

Validity of order passed u/s 143(3) r.w.s. 92CA without passing draft order of assessment - eligibility of assessee - effect of provisions of section 144C - whether once the AO had issued the order of assessment u/s 143(3) r.w.s. 92CA it is open to Revenue to contend that the said assessment order already issued is only a draft assessment order? - HELD THAT - There has been an order u/s 92CA of the Act passed by the TPO and therefore it is amply clear that the assessee is an eligible assessee entitled to receive a draft order of assessment. In these circumstances, the issuance of a draft order of assessment is a sine-qua-non before the AO can pass the regular / final order of assessment u/s 143(3) r.w.s. 144C . Once a regular order of assessment dated 24.03.2016 for Assessment Year 2012-13 was passed, passing of one more order on 24.05.2016 is legally not tenable. In view of the above factual matrix of the case, we have no hesitation in holding that the order of assessment dated 24.03.2016 is the regular / final order of assessment for Assessment Year 2012-13, in form and substance and shall be treated as such. In regard to the question of what is the impact of an assessment order being directly issued in a situation in which the assessee is an eligible assessee who ought to have been issued / served with a draft order of assessment, as per the requirements of the provisions of section 144C(1) r.w.s. 144C(15)(b), we find that this issue has been considered and decided in several judicial pronouncements cited by the assessee. Where there is an omission on the part of the AO to follow the mandatory procedures laid down and prescribed by the Act, such an omission cannot be termed as a mere procedural irregularity and is not curable. The principles enunciated in the above judicial pronouncements have been followed by Tribunals in decisions cited by the assessee. We are also of the considered view that the above principles apply squarely to the facts of the case on hand. In the case on hand, the assessee was entitled to receive a draft order of assessment, but it is absolutely clear from the unimpeachable facts on record that the AO did not follow the procedure mandated in the Act, thereby rendering the impugned order dated 24.03.2016 for Assessment Year 2012-13 invalid. Issue of the subsequent order dated 24.05.2016 cannot cure the violation of the statutory mandate laid down in the Act in this regard. See VIJAY TELEVISION (P.) LTD. VERSUS DISPUTE RESOLUTION PANEL, CHENNAI 2014 (6) TMI 540 - MADRAS HIGH COURT and ASSTT. COMMNR. OF INCOME TAX VERSUS M/S. ZUARI CEMENT LTD. 2013 (9) TMI 1167 - SC ORDER . Thus we quash the impugned order of assessment dated 24.03.2016 for Assessment Year 2012-13 by holding it to be a legal nullity. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the assessment order dated 24.03.2016.
2. Compliance with Section 144C of the Income Tax Act, 1961.
3. Transfer pricing adjustments and methodology.
4. Levy of interest under Section 234B.

Issue-wise Detailed Analysis:

1. Validity of the Assessment Order Dated 24.03.2016:
The primary contention was whether the assessment order dated 24.03.2016 was a draft or a final assessment order. The Tribunal found that the order was in form and substance a regular assessment order. The Tribunal noted that the order included the computation of income, determination of tax payable, and issuance of a demand notice under Section 156 of the Act, which are characteristics of a final assessment order. The Tribunal rejected the Revenue's plea that the order was a draft assessment order, stating that the subsequent order dated 24.05.2016 was a cover-up attempt and legally untenable.

2. Compliance with Section 144C of the Income Tax Act, 1961:
The Tribunal examined whether the AO followed the mandatory procedure under Section 144C, which requires issuing a draft assessment order to the eligible assessee before passing a final assessment order. The Tribunal held that the assessee, being an "eligible assessee" under Section 144C(15)(b), was entitled to a draft assessment order. The Tribunal referred to several judicial pronouncements, including the Hon’ble Andhra Pradesh High Court in Zuari Cement Ltd. and Hon’ble Madras High Court in Vijay Television (P) Ltd., which clarified that failure to follow the mandatory procedure renders the assessment order null and void. Consequently, the Tribunal quashed the assessment order dated 24.03.2016, declaring it a legal nullity.

3. Transfer Pricing Adjustments and Methodology:
The Tribunal did not adjudicate on the merits of the transfer pricing adjustments because the assessment order itself was quashed. The grounds raised by the assessee included objections to the rejection of the Comparable Uncontrolled Price (CUP) method in favor of the Transactional Net Margin Method (TNMM), and issues regarding economic adjustments, foreign exchange gains, working capital adjustments, segmental results, and the inclusion of functionally dissimilar companies. However, these were rendered academic due to the quashing of the assessment order.

4. Levy of Interest under Section 234B:
The Tribunal noted that the issue of interest under Section 234B was consequential to the additions made in the assessment order. Since the assessment order was quashed, this ground was also rendered academic and did not require adjudication.

Conclusion:
The Tribunal allowed the assessee's appeal, quashing the assessment order dated 24.03.2016 and holding it to be a legal nullity. Consequently, the grounds related to the merits of the additions and the levy of interest were rendered academic and not adjudicated. The decision emphasized the importance of following the mandatory procedures under Section 144C, and any deviation from these procedures renders the assessment order invalid.