2019 (12) TMI 503 - AT - Income Tax

Rectification u/s 154 - AO rectified the original assessment order deleting the entire Transfer Pricing adjustment to give effect to the direction of DRP - HELD THAT - In the present case, the assessee filed objections before the DRP after passing the draft assessment order. DRP issued certain directions to the Transfer Pricing Officer. AO was very well aware that the DRP has given certain directions to the Transfer Pricing Officer and it is binding on the Assessing Officer to follow every direction issued by the Dispute Resolution Panel as per as per Section 144C(10) of the Act. Sub-Section (10) of Section 144C is not procedural but a mandatory requirement. If the Transfer Pricing Officer has not passed any order, the AO should have taken into account the DRP s direction and would have taken cognizance in the final assessment order, but the Assessing Officer choose not to follow the DRP s direction. Subsequently, when the Transfer Pricing Officer passed the order giving effect to DRP s directions vide order dated 21.02.2014, the Assessing Officer on suo moto basis has rectified the assessment order u/s 154 thereby giving effect to directions of the DRP. As per Section 143(3), the Assessing Officer has to pass the assessment order within the prescribed period otherwise the assessment becomes time barred. Assessing Officer has followed the statutory provisions of Section 143(3) thereby passing assessment order. But as per the binding section i.e. Section 144C(10) of the Act, the mandatory provision was not followed by the Assessing Officer, thereby it is binding on the Assessing Officer to follow the directions of the DRP. Therefore, the assessment becomes null and void. As regards rectification, there is no mistake committed on part of Assessing Officer, in fact Assessing Officer was very well aware that the DRP has given certain directions so it could not be termed that there is a mistake apparent on record. When the Assessing Officer has deliberately chosen not to follow a binding provisions u/s 144C of the Act while passing the final assessment order, the Assessment Order, itself becomes null and void. The case laws referred by the Ld. AR are categorically highlighting the same position of law. The submissions of the Ld. DR that after passing assessment order, the Transfer Pricing Officer has given final effect to the DRP direction and thereafter the Assessing Officer u/s 154 has rectified the original assessment order well within time thereby deleting the entire Transfer Pricing adjustment, does not hold the test of legal sanctity as per the provisions of Section 144C(10) of the Act. Thus, assessment order itself is quashed. Therefore, Ground Nos. 1 and 2 of the Assessee s appeal are allowed.

Summary

Issues:
1. Validity of assessment order passed by the Assessing Officer under section 143(3) read with section 144C of the Income Tax Act, 1961.
2. Timeliness of final assessment order and consideration of Transfer Pricing Officer's order.
3. Addition of INR 80,746,954 to total income by Assessing Officer.
4. Disallowance of INR 256,014,415 as income chargeable to tax under section 41(1) of the Act.
5. Disallowance of INR 201,134,971 by treating advances received from customers as income chargeable to tax under section 41(1) of the Act.
6. Disallowance of INR 10,932,472 on account of advances written off.
7. Deduction under section 80-IA(4) of the Act.
8. Non-granting of credit of taxes deducted at source.
9. Calculation of interest under section 234 B of the Act.
10. Initiation of penalty proceedings under section 271(1)(c) of the Act.

Analysis:

Issue 1:
The appeal challenged the assessment order passed by the Assessing Officer under section 143(3) read with section 144C of the Income Tax Act, 1961. The appellant argued that the order was bad in law and void ab-initio as it did not comply with the directions of the Dispute Resolution Panel (DRP). The Tribunal held that the assessment order was null and void as the Assessing Officer failed to follow the DRP's directions, making the assessment invalid.

Issue 2:
The timeliness of the final assessment order and consideration of the Transfer Pricing Officer's order were questioned. The Tribunal noted that the Assessing Officer passed the final assessment order before the Transfer Pricing Officer's order, which was against the mandatory provisions of the Act. The assessment order was deemed null and void due to non-compliance with the DRP's directions.

Issue 3:
An addition of INR 80,746,954 to the total income by the Assessing Officer was disputed. However, this issue did not survive as the assessment order was invalidated.

Issue 4:
The disallowance of INR 256,014,415 as income chargeable to tax under section 41(1) of the Act was challenged. This issue was not addressed as the assessment order was quashed.

Issue 5:
Disallowance of INR 201,134,971 by treating advances received from customers as income chargeable to tax under section 41(1) of the Act was raised. This issue was not discussed further due to the invalidation of the assessment order.

Issue 6:
Disallowance of INR 10,932,472 on account of advances written off was disputed. However, this issue did not proceed as the assessment order was declared null and void.

Issue 7:
The deduction under section 80-IA(4) of the Act was claimed but not allowed. The Tribunal did not delve into this issue as the assessment order was invalidated.

Issue 8:
Non-granting of credit of taxes deducted at source to the extent of INR 449,488 was contested. This issue was not addressed due to the quashing of the assessment order.

Issue 9:
Calculation of interest under section 234 B of the Act was raised. However, this issue was not discussed further as the assessment order was invalidated.

Issue 10:
Initiation of penalty proceedings under section 271(1)(c) of the Act was disputed. This issue was not examined as the assessment order was declared null and void.