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2024 (9) TMI 959 - AT - Income TaxAssessment completed u/s 143(3)/144C - Impugned assessment order passed by JAO instead of NFAC - HELD THAT - Historically two types of assessee are assessed to tax, viz, regular assessee who are falling under the regular assessment proceedings viz., section 143(3), 144, 147 and another category falling under section 144C (eligible assessee whose cases are referred to Transfer pricing officer and non-resident not being a company or any foreign company). The procedure for assessment for assessee falling u/s 144C are already coded in the section 144C itself prior to introduction of faceless assessment regime. When newly scheme of faceless assessment proceedings were announced, it was new to all the stake holders and the procedure was specifically designed to make assessment falling under section 143(3), 144 and 147 of the cases. The set procedure u/s 144B was codified to facilitate the process of completing the assessments. In the same codification of process of assessment, the procedure laid down for special category falling u/s 144C was also codified u/s 144B of the Act. The procedure laid out in such a way that after the initial assessment by the assessment units, they will forward the same to the NFAC, NFAC will send the draft assessment order, if required after the review of the same in special cases, to the respective assessee. After giving opportunity of being heard to the assessee or by allowing them to submit relevant information through the e-portal, the final assessment orders are being finalized and forwarded to the respective assessee. The process of one more opportunity at the stage of draft assessment order to the assessee are duplicate in nature, even if there is violation it is only curative in nature since the assessment is not complete. Whereas in the case of other assessment like assessments u/s 143(3), 144 and 147 once the draft assessment are issued and after granting opportunity or non granting of opportunity to the assessee, the outcome is the final assessment order. The courts have held that the passing of FAO without granting opportunity of being heard is bad in law and held that the relevant assessment is deserves to be quashed. Whereas in the case of assessment u/s 144C is different, the final outcome of assessment from the NFAC is the draft assessment order, even there is violation, there is no prejudice caused to the assessee. Assessee gets one more opportunity before the Dispute Resolution Panel (DRP). The issue raised by the assessee that the draft assessment order passed without giving opportunity of being heard to the assessee at the stage of DAO is beyond comprehension and there is if at all violation of section 144B(1)(xiv) in the case of assessments falling u/s 144C of the Act, the same can be rectified at the stage of DRP by filing the relevant objections, this will fall under the category of rectifiable mistake. Therefore this is issue accordingly dismissed. Passing of FAO by the JAO beyond the jurisdiction of section 144B - In our considered view, assessment procedure laid down in section 144B is common and the assessment once initiated u/s 144B, it has to be completed in the same way. But this involves administration interference to smooth functioning of the assessment process. We are aware that at the time of introduction of faceless assessment scheme, there were several confusions and were several administrative constrains. In order to cope up with the administrative constrains, the relevant administrative heads were given several directions to ease the assessment process and take corrective measures. One of them, in our view, is to transfer certain cases to JAO. There is no illegality involved in the finalizing the FAO, Ld DR has brought to our notice that the respective administrative heads/NFAC were given suitable permission to transfer the cases to JAO. Therefore, as far as assessee is concerned, the FAO has to be completed within the statutory period. In this case, the assessment was completed within the time and the assessment was completed by the JAO and not any other officer. As per system, the jurisdiction always lies with the JAO. In our view, there is no prejudicial caused to the assessee by this FAO. JAO not followed the directions of DRP - We observed that Ld DRP has directed the AO to verify and spell out the reasons on breaching the provisions of section 144B - We observed that no doubt Ld DRP has given direction with regard to spell out the reasons for breaching the provisions of section 144B, we noticed that the FAO was passed by JAO and has no authority to give reasons on the issues of NFAC. Beyond his capacity, therefore, we do not see any violation on the part of JAO. Ld DRP gave direction to the NFAC and ultimately the assessment was completed by the JAO. Hence, we do not see any reason to make the assessment bad in law. FAO passed without considering the submissions and evidences before the AO, is a serious issue and needs to be addressed - This issue can be resolved by remitting the issue back to the file of AO. However, we observed that the issue relating to section 68 is issue of share capital to its AE s and this issue was already considered in the TP stage itself and TPO has not passed any adverse comments and accepted that there is no variation. Instead of remitting the issue back to the file of AO, we are inclined to adjudicate the issue on merit. Addition u/s 68 - Share capital subscribed by a non resident and received through proper banking channel, the same cannot be disallowed invoking the provisions of section 68. In this case, the assessee has already proved the identity of the share holders since the same shareholders have invested in the previous assessment year and relevant documents submitted to prove the identity before the authorities. With regard to credit worthiness, the same was invested by the AE s of the same group and the same was also approved by the RBI as well as funds have come thru inward remittances. With regard to genuineness, we observed that the assessee has properly received the share capital alongwith the share premium and invested the same in the business. This is part of capital transactions, therefore, all the ingredients of the section 68 are already satisfied and invoking the deemed provision after verification once by the TPO and again the JAO has made addition without proper verification after all the relevant documents before him. Further he has not considered the voluminous documents submitted before him shows that recklessness in which the FAO was passed by the JAO. Therefore, we are inclined to direct the AO to delete the addition made u/s 68 - In the result, the ground no 4 raised by the assessee is allowed. Other addition of ESI/PF - We observed that the assessee has remitted the employee shares of ESI/PF belatedly but before filing the return of income. The same was disallowed by the JAO. We observed that the assessee has raised ground against the above disallowance, however, after the decision of Checkmate Services Private Limited 2022 (10) TMI 617 - SUPREME COURT which has rested all the controversy of deduction of belated remittance of employee shares of ESI/PF and distinguished the various decisions relied by the assessee before us. Therefore, the relevant ground raised by the assessee is accordingly dismissed.
Issues Involved:
1. Violation of Section 144B, 144C, and principles of natural justice. 2. Assessment completed in violation of mandatory directions of the Dispute Resolution Panel (DRP). 3. Addition under Section 68 of the Income Tax Act on account of share capital from a non-resident holding company. 4. Disallowance of PF/ESI Contribution. 5. Charging/computing interest under Sections 234C and 234D. 6. Initiation of penalty under Sections 271AAC and 270A. Detailed Analysis: 1. Violation of Section 144B, 144C, and Principles of Natural Justice: The assessee argued that the assessment completed under Section 143(3)/144C of the Act was illegal and bad in law due to gross violations of Sections 144B and 144C, and principles of natural justice. The key points raised were: - The assessment was completed without passing and serving a show cause notice-cum-draft order as mandated by Section 144B(1)(xvi)(b). - No opportunity for personal hearing was provided. - The final assessment order was passed by the jurisdictional assessing officer (JAO) instead of the National Faceless Assessment Centre (NFAC). - The final assessment order was passed in violation of specific directions issued by the DRP. The Tribunal noted that the faceless assessment scheme was newly introduced, and administrative constraints led to the transfer of cases to jurisdictional officers. It was held that the initial assessment by NFAC and subsequent transfer to JAO did not cause prejudice to the assessee. The Tribunal dismissed the issue, noting that the procedure under Section 144C provides an additional opportunity before the DRP, thus rectifying any procedural lapses. 2. Assessment Completed in Violation of Mandatory Directions of the DRP: The assessee contended that the final assessment order was passed without following the binding directions of the DRP, specifically: - The DRP had directed the NFAC to spell out reasons for any breach of Section 144B. - The DRP directed the NFAC to consider material/evidence placed on record before passing the final order. The Tribunal observed that the JAO, who passed the final assessment order, was not in a position to provide reasons for breaches by NFAC. It was also noted that the JAO had not considered the submissions and evidence provided by the assessee, which was a serious issue. However, instead of remitting the issue back to the AO, the Tribunal decided to adjudicate the matter on merits. 3. Addition Under Section 68 on Account of Share Capital from Non-Resident Holding Company: The Tribunal found that the assessee had provided comprehensive details and evidence, including the identity and creditworthiness of the shareholders, and the genuineness of the transaction. The share capital was received from non-resident shareholders through proper banking channels, and the same shareholders had invested in previous years, which was accepted by the Revenue. The Tribunal held that the addition under Section 68 was unwarranted and directed the AO to delete the addition. 4. Disallowance of PF/ESI Contribution: The assessee argued that the employee contributions to PF/ESI were deposited before the due date of filing the return of income under Section 139(1). The Tribunal, however, relied on the Supreme Court decision in Checkmate Services Private Limited, which held that belated remittance of employee shares of ESI/PF is not deductible. Thus, the Tribunal dismissed this ground. 5. Charging/Computing Interest Under Sections 234C and 234D: The Tribunal noted that this ground was consequential in nature and did not require separate adjudication. 6. Initiation of Penalty Under Sections 271AAC and 270A: The Tribunal found this ground to be premature at this stage and dismissed it accordingly. Conclusion: The Tribunal partly allowed the appeal, directing the deletion of the addition under Section 68, while dismissing other grounds raised by the assessee.
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