2020 (2) TMI 717 - AT - Income Tax

TP Adjustment - Non follow procedure u/s.144C - Non referring to TPO - only draft assessment order passed - limitation for passing the assessment order - HELD THAT - It is an undisputed fact that limitation for passing the assessment order if it was not draft assessment order was 31.03.2014. However as noted above the Assessing Officer has passed the draft assessment order and has forwarded the same to the assessee stating that if the assessee does not agree with the transfer pricing adjustment then he can file objection before the DRP within 30 days of the said order. It is only when assessee intimates to the Assessing Officer that he has accepted the variation order he has no objection within 30 days then Assessing Officer has to complete the assessment order on the basis of draft assessment order. Here in this case there was international transaction and deviation arises out of transfer pricing adjustments though without referring to TPO in terms of Section 92CA the Assessing Officer was obliged to follow the procedure u/s.144C which he has not. Draft assessment order dated 31.03.2014 cannot be treated as final assessment order simply by way of issuing corrigendum on 05.05.2014 and since no final assessment order has been passed as on 31.03.2014 and only draft assessment order has been passed therefore the said draft order has no consequence and is null and void. Accordingly on this ground appeal of the assessee is allowed

Issues Involved:

1. Validity of time-barred assessment.
2. Legitimacy of the draft assessment order as a final assessment order.
3. Validity of the draft assessment order served without determining the tax payable.
4. Validity of the corrigendum order issued beyond the limitation period.
5. Validity of the draft assessment order when the Notice of Demand was served with the corrigendum order beyond the limitation period.
6. Validity of the corrigendum order lacking reference to the provision of the Income Tax Act.
7. Denial of deduction under Section 10A of the Income Tax Act.

Detailed Analysis:

1. Validity of Time-Barred Assessment:

The assessee argued that the assessment order was passed beyond the limitation period. The assessment order dated 31.03.2014 was presented as a draft assessment order, and a corrigendum was issued on 05.05.2014, which was beyond the limitation period. The Tribunal noted that the draft assessment order was not accompanied by a notice of demand, and the corrigendum issued after the expiry of the limitation period could not validate the assessment order. The Tribunal concluded that the assessment proceedings were barred by limitation and were thus invalid.

2. Legitimacy of the Draft Assessment Order as a Final Assessment Order:

The Tribunal examined whether the draft assessment order dated 31.03.2014 could be considered a final assessment order. The CIT(A) had held that the draft assessment order was valid as it computed the total income and directed the calculation of tax and interest. However, the Tribunal found that the draft assessment order was explicitly labeled as such and was accompanied by a forwarding letter indicating it was a draft. The corrigendum issued later could not convert the draft assessment order into a final assessment order.

3. Validity of the Draft Assessment Order Served Without Determining the Tax Payable:

The Tribunal noted that the draft assessment order did not include a notice of demand, which is a necessary component of a final assessment order. The absence of a notice of demand indicated that the draft assessment order was not intended to be a final assessment order.

4. Validity of the Corrigendum Order Issued Beyond the Limitation Period:

The Tribunal found that the corrigendum issued on 05.05.2014, beyond the limitation period, could not validate the draft assessment order dated 31.03.2014. The corrigendum attempted to rectify the draft assessment order by treating it as a final assessment order, but such rectification was not permissible beyond the limitation period.

5. Validity of the Draft Assessment Order When the Notice of Demand Was Served with the Corrigendum Order Beyond the Limitation Period:

The Tribunal held that serving the notice of demand along with the corrigendum order on 05.05.2014, beyond the limitation period, did not make the assessment valid. The draft assessment order remained invalid as it was not converted into a final assessment order within the stipulated time frame.

6. Validity of the Corrigendum Order Lacking Reference to the Provision of the Income Tax Act:

The Tribunal observed that the corrigendum order did not mention the specific provision of the Income Tax Act under which it was issued. This omission further invalidated the corrigendum order, as it failed to comply with the necessary legal requirements.

7. Denial of Deduction Under Section 10A of the Income Tax Act:

The Tribunal did not specifically address the issue of denial of deduction under Section 10A, as the primary focus was on the validity of the assessment order. However, the invalidation of the assessment order implied that any additions or disallowances made therein, including the denial of deduction under Section 10A, were also invalid.

Conclusion:

The Tribunal concluded that the draft assessment order dated 31.03.2014 could not be treated as a final assessment order, and the corrigendum issued on 05.05.2014 could not validate it. Consequently, the assessment order was barred by limitation and was null and void. The appeal of the assessee was allowed on this ground.

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