2023 (10) TMI 1310 - AT - Income Tax

Assessment u/s 144C - demand payable was determined on the basis of draft assessment order for which the impugned demand notice as referred above was issued to the assessee - whether curable defect u/s 292B? - HELD THAT - As perused the decision of Cisco Systems Services B.V. ( 2023 (3) TMI 416 - KARNATAKA HIGH COURT ) wherein held that at stage of passing draft assessment order, the ACIT also issued a demand notice, procedure followed by ACIT was contrary to law and said mistake could not be cured u/s 292B We find that assessing officer has failed to follow the mandatory procedure laid down u/s 144C of the Act at the stage of passing draft assessment order, therefore, we are of the considered view that final assessment order passed is null and void as the mistake committed in passing the draft assessment order is not curable us/ 292B of the Act - Decided in favour of assesse.

Summary

Issues Involved:

1. Validity of the assessment order under section 144C of the Income Tax Act, 1961.
2. Transfer Pricing adjustment on account of payment of interest on Fully Compulsory Convertible Debentures (FCCDs).
3. Rejection of benchmarking approach and comparability analysis.
4. Procedural errors and penalty proceedings.

Summary:

1. Validity of the Assessment Order:

The appellant contested the validity of the draft assessment order dated 17 March 2021, arguing that it was issued without following the procedure laid down in section 144C of the Income-tax Act, 1961. The draft assessment order was accompanied by a Notice of Demand under section 156 and a computation sheet, which the appellant claimed rendered the order void ab initio. The Tribunal, referencing the Hon'ble High Court of Karnataka in CIT(IT) Vs. Cisco Systems Services B.V. (2023) and other ITAT decisions, agreed that the procedure followed by the Assessing Officer (AO) was contrary to law and could not be cured under section 292B of the Act. Consequently, the final assessment order was declared null and void.

2. Transfer Pricing Adjustment:

The AO, Transfer Pricing Officer (TPO), and Dispute Resolution Panel (DRP) upheld a transfer pricing addition of INR 2,02,60,078 on account of an adjustment to the Arms Length Price (ALP) for the international transaction pertaining to the payment of interest on FCCDs by the appellant to its associated enterprise (AE). The appellant argued that the AO and DRP erred in considering the issue of FCCDs as quasi-equity and in rejecting the benchmarking approach as per the transfer pricing documentation. The Tribunal did not adjudicate on these grounds due to the nullification of the assessment order.

3. Rejection of Benchmarking Approach and Comparability Analysis:

The appellant contended that the AO and DRP disregarded judicial precedents and rejected the additional analysis submitted for benchmarking the international transaction related to the payment of interest on FCCDs. The Tribunal, due to the primary issue of the validity of the assessment order, did not delve into these arguments.

4. Procedural Errors and Penalty Proceedings:

The appellant highlighted procedural errors, including the AO not mentioning the date of receiving directions from the DRP and issuing the impugned order beyond the prescribed period. Additionally, the appellant argued that the AO failed to examine the validity of initiation of penalty proceedings under section 270A and incorrectly charged interest under sections 234B and 234C. The Tribunal, focusing on the primary issue of the invalid assessment order, did not address these procedural errors in detail.

Conclusion:

The Tribunal allowed the appeal, declaring the final assessment order null and void due to the procedural irregularities in issuing the draft assessment order. All other grounds of appeal were left open for future adjudication if required. The order was pronounced in the open court on 30.06.2023.