2019 (8) TMI 1011 - AT - Income Tax

Non following the mandate as laid down u/s 144C - TP adjustment - contention of the assessee is that the impugned assessment order should be set aside because the statutorily prescribed procedure was not followed in as much as the AO issued final assessment order in place of draft assessment order followed by issuing notice of demand and also initiating penalty proceedings u/s.271(1)(c) - HELD THAT - it is found as an admitted position that the AO, on receipt of an order from the TPO, did not pass any draft order u/s 144C(1) of the Act. He directly proceeded to pass an Assessment order u/s. 144C(3) of the Act on 27.12.2011 determining the total income at ₹ 17.82 crore. Not only that, he also issued demand notice on the same date, namely, 27-12-2011 Moreover, in our considered opinion, the real issue is whether the statutorily laid down procedure was followed or not. Any lapse in such a procedure, as is instantly the case, cannot save the final assessment order. The competent authorities of both the countries have resolved the issue concerning international transactions of the assessee with YCJ. A copy of such a Resolution dated 10-09-2015 has been placed on record. It states the amount of total transfer pricing adjustment as per the rectification order dated 21-03-2013 at ₹ 16.43 crore, having transfer pricing adjustment relating to YCJ at ₹ 9,85,89,000/- and the remaining amount of ₹ 6,57,81,925/- on account of transactions with non-YCJ AEs. As per the Resolution, the amount of transfer pricing adjustment corresponding to transactions with YCJ has been reduced to ₹ 5,78,23,800/-, thereby giving relief of ₹ 4.07 crore and odd. Such a Resolution has been admittedly accepted by the assessee. Having accepted the MAP order, the assessee cannot agitate such an issue in the appellate proceedings. In the extant case, the assessee admittedly accepted the Resolution under the MAP. Once the assessee has accepted such a Resolution as per which the amount of transfer pricing adjustment, corresponding to transactions with YCJ, has been restricted to ₹ 5,78,23,800/-, the assessee now cannot resile from such Resolution and is bound by the same. AR fairly admitted that the Resolution has been accepted by the assessee. In that view of the matter, the amount of transfer pricing addition sustained under the MAP proceedings will be considered as a part of total income returned by the assessee, which cannot be assailed in any appellate proceedings. However, all other remaining additions, including the balance of transfer pricing addition in respect of transactions with non-YCJ AEs would stand deleted because of the illegality occurring due to not following the statutorily prescribed procedure u/s 144C of the Act. We, therefore, overturn the impugned order on this legal issue itself but direct to adopt total income at ₹ 5,78,23,800/-, being, the amount of Nil income originally returned as added by the amount of transfer pricing adjustment accepted by the assessee under MAP.

Summary

Issues Involved:
1. Validity of the draft assessment order and the final assessment order.
2. Issuance of notice of demand and initiation of penalty proceedings.
3. Compliance with the statutory procedure under Section 144C of the Income-tax Act, 1961.
4. Impact of Mutual Agreement Procedure (MAP) on the assessment order.

Issue-wise Detailed Analysis:

1. Validity of the Draft Assessment Order and the Final Assessment Order:
The assessee contended that the draft assessment order dated 27 December 2011 was not in compliance with Section 144C of the Income-tax Act, 1961, and should be declared void-ab-initio. The Tribunal noted that the Assessing Officer (AO) issued a final assessment order instead of a draft assessment order, which was a procedural lapse. The Tribunal referenced the Supreme Court's decision in National Thermal Power Company Ltd. Vs. CIT, which allows raising new legal questions if relevant facts are on record. The Tribunal admitted the additional grounds raised by the assessee, emphasizing that no fresh investigation of facts was necessary.

2. Issuance of Notice of Demand and Initiation of Penalty Proceedings:
The AO issued a notice of demand under Section 156 and initiated penalty proceedings under Section 271(1)(c) along with the draft assessment order. The Tribunal observed that the AO described the order as an 'Assessment order' and issued a demand notice, which should not have been done until the final assessment order was passed. The Tribunal held that issuing the demand notice and initiating penalty proceedings at the draft order stage was a procedural irregularity.

3. Compliance with the Statutory Procedure under Section 144C:
The Tribunal analyzed the statutory procedure under Section 144C, which mandates that the AO first issue a draft assessment order, followed by either acceptance by the assessee or objections to the Dispute Resolution Panel (DRP). The AO failed to follow this procedure, directly issuing a final assessment order and a demand notice. The Tribunal cited the Hon’ble Madras High Court in Vijay Television (P) Ltd. Vs. DRP, which quashed an assessment order for not following the mandatory procedure. The Tribunal concluded that the AO's procedural lapses vitiated the assessment order.

4. Impact of Mutual Agreement Procedure (MAP) on the Assessment Order:
The assessee accepted the MAP resolution concerning transfer pricing adjustments with its Associated Enterprise (AE), Yazaki Corporation, Japan. The Tribunal noted that under Rule 44H(4) of the Income-tax Rules, 1962, an accepted MAP resolution binds the assessee and substitutes the originally returned income with the additional income as per the resolution. The Tribunal directed that the total income should be adopted at ?5,78,23,800/-, being the amount of Nil income originally returned plus the transfer pricing adjustment accepted under MAP. Other additions, including those related to non-YCJ AEs, were deleted due to the procedural irregularity.

Conclusion:
The Tribunal partly allowed the appeal, holding that the AO's assessment order was vitiated due to procedural lapses under Section 144C. However, the transfer pricing adjustment accepted by the assessee under MAP was sustained, and the total income was directed to be adopted accordingly. The order was pronounced in the Open Court on 12th July 2019.