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2023 (1) TMI 923 - AT - Income TaxAssessment u/s 144C - Reference to Dispute Resolution Panel - AO passed the draft assessment order by designating it as the 'Assessment Order' under section 143(3) of the Act and also issued demand notice u/s 156 and initiated penalty proceedings - As argued AO had not passed any assessment order pursuant to the order of the DRP - As per assessee AO failed to follow the procedures prescribed under section 144C for passing draft assessment order and passed a draft assessment order along with demand notice and initiated penalty proceedings and issued penalty notice - HELD THAT - In the present case, instead of passing the draft assessment order under section 144C(1) Assessing Officer had passed the assessment order, in derogation of the mandatory provisions of the Act. Assessing Officer in his communication had acknowledged that the Assessing Officer was to pass the draft assessment order instead of the assessment order passed by him. In our view the law with respect to the passing of the assessment order pursuant to the direction of the ld.DRP is fairly settled and is no more res integra. Section 144C(10) r.w.s. 144(13) mandates the AO to pass the assessment order after receiving a direction. Further, in our opinion, the law mandates that if an Act is required to be done in the particular manner, it should be done in that manner or not. Further, during the course of argument, it was submitted that the draft assessment order/assessment order dated 26.02.2021 was passed by NFAC and window was not opening for passing the final assessment order and thereby giving effect to the directions of the DRP. In our view, it is for the revenue to devise its own means and ways to correct the software and pass the final assessment order in accordance with the law. In the present case, the AO had straight way passed the assessment order instead of passing the draft assessment order as per section 144C(1) of the Act and further, the Assessing Officer has not passed the final order as per section 144C(10) of the Act. In view of the above, we find that the assessee has made out a case on quashing the entire assessment order being passed in violation of the mandatory provisions of the law. See Aker Powergas Pvt.Ltd 2022 (6) TMI 1118 - ITAT MUMBAI - Decided in favour of assessee.
Issues Involved:
1. Validity of the order passed by the Dispute Resolution Panel (DRP). 2. Consideration of excess credit period allowed to the Associate Enterprise (AE). 3. Justification for charging notional interest on delayed realization of receivables. 4. Application of the Transactional Net Margin Method (TNMM). 5. Requirement for separate benchmarking for export dues realized beyond 60 days. 6. Association of interest income with the lending or borrowing of money. 7. Non-passing of the final order by the Assessing Officer (AO) after DRP's directions. 8. Procedural errors in passing the draft assessment order as a final assessment order. Detailed Analysis: 1. Validity of the order passed by the DRP: The Assessee contended that the DRP dismissed their objection against the draft assessment order without considering the jurisdictional tribunal decision and other judicial precedents. The Tribunal found that the DRP failed to appreciate the facts and judicial pronouncements cited by the Assessee, leading to a flawed decision. 2. Consideration of excess credit period allowed to the AE: The Assessee argued that the delay in realization of invoices was due to technical reasons or clarifications sought by the AE, and not because of any excess credit period allowed. The Tribunal noted that out of 3,910 invoices, only 335 were delayed, which is less than 10% and cannot be considered as extending an interest-free loan to the AE. 3. Justification for charging notional interest on delayed realization of receivables: The Assessee claimed that it is a debt-free company and has not incurred interest expenses, thus there is no justification for charging notional interest. The Tribunal referenced decisions from other cases, including Mis Value Labs Technologies and Optum Global Solutions, which supported the Assessee's position that notional interest should not be charged. 4. Application of the TNMM: The Assessee argued that the TNMM method, being the most appropriate method, takes care of all notional interest costs, and there should be no separate upward adjustment for delayed realization of export receivables. The Tribunal agreed, citing the decision in Mis Gimpex Pvt Ltd, which supports the Assessee's claim. 5. Requirement for separate benchmarking for export dues realized beyond 60 days: The Assessee contended that no separate benchmarking is required for export dues realized beyond 60 days as receivables are ingrained in the sale. The Tribunal found merit in this argument, referencing the Hon'ble Income Tax Appellate Tribunal's decision in similar cases. 6. Association of interest income with the lending or borrowing of money: The Assessee argued that interest income is associated only with lending or borrowing of money, not with sales, as concluded by the Hon'ble Delhi Tribunal in M/s Corbus India Pvt Ltd and Hon'ble Mumbai Tribunal in Mis Indo American Jewellery Limited. The Tribunal upheld this view, stating that early or late realization of sales proceeds is incidental to the sale transaction. 7. Non-passing of the final order by the AO after DRP's directions: The Assessee raised additional grounds stating that the AO failed to pass a final order after receiving directions from the DRP, which is mandatory under subsection 13 of Section 144C of the Income Tax Act, 1961. The Tribunal noted that the AO's failure to pass the final order within the stipulated time frame invalidated the assessment proceedings. 8. Procedural errors in passing the draft assessment order as a final assessment order: The Tribunal observed that the AO passed the draft assessment order as a final assessment order, which included a demand notice and initiated penalty proceedings. This procedural error was admitted by the AO in an email communication, acknowledging that the assessment window was closed due to technical difficulties on the ITBA portal. The Tribunal cited multiple judicial precedents, including the Hon'ble ITAT Delhi in Perfetti Van Melle India Pvt Ltd and the Hon'ble Madras High Court in Vijay Television Pvt Ltd, which held that such procedural errors render the assessment order null and void. Conclusion: The Tribunal concluded that the AO's procedural errors and failure to follow the mandatory provisions of the law rendered the assessment order invalid. The appeal filed by the Assessee was allowed, and the entire assessment order was quashed. The Tribunal emphasized that the revenue must correct its software and pass the final assessment order in accordance with the law.
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