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TMI Blog2017 (2) TMI 1001X X X X Extracts X X X X X X X X Extracts X X X X ..... vided in the Statute and has passed final assessment order without passing draft assessment order which is against the provisions of the Act and hence, the same is invalid in law - Decided in favour of assessee - ITA No. 206/PN/2015 - - - Dated:- 9-12-2016 - Ms. Sushma Chowla, JM And Shri Anil Chaturvedi, AM Appellant by : Shri Sharad Shah Respondent by : Shri Subhash Chandra ORDER Per Sushma Chowla, JM This appeal filed by the assessee is against order of ACIT, Circle 1, Kolhapur, dated 28.02.2014 relating to assessment year 2010-11 passed under section 143(3) r.w.s. 92C(4) and 144C of the Income Tax Act, 19 61 (in short the Act ). 2. The assessee has raised the following grounds of appeal:- Grounds of Appeal, on the facts and in law, without prejudice to each other, A) Grounds related validity of assessment proceedings - 1) The learned AO failed, in consequence to the directions by DRP to pass appropriate final order of assessment when his predecessor has clearly stated in the covering letter that the said order is draft assessment order. 1.1 The learned AO erred in concluding that In this regard, DRP has clearly mentioned that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The interest cost deducted twice 2 GTN Industries Ltd Loss on sale of Fixed asset deducted twice 3 Eurotex Ind. Exports Ltd Wrong computation of notional depreciation 6) The Ld. AO/TPO has erred in making the TP adjustments on total turnover of the assessee instead of making the adjustment on relevant International transactions only. 7) The Ld. TPO has erred by not giving adjustment for i) Non-payment of royalty / fee for technical knowhow provided by the AE. ii) Corporate guarantee given by AE without any guarantee commission. iii) Working capital provided by the AE with whom all of the International transactions have taken place. 8) The Ld. AO/TPO has erred in not considering the fact that the segment in which AE transactions take place is having better profitability (lesser loss) and the higher loss has been incurred in the segment where the sales are to the non related party/ non associated enterprises. 9) The Ld. AO/TPO has erred in adopting the method of depreciation adjustment, in h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r and the same should be adjudicated first before addressing the issue on merits. 4. The learned Authorized Representative for the assessee pointed out that after the Transfer Pricing Officer (in short the TPO ) proposed the adjustment to arm's length price vide order passed under section 92CA(3) of the Act dated 28.01.2014, the Assessing Officer had passed the order under section 143(3) r.w.s. 92C(4) and 144C of the Act. The learned Authorized Representative for the assessee further pointed out that along with the said order, the Assessing Officer had issued a letter dated 28.02.2014, wherein the subject was draft order under section 144(1) of the Act for assessment year 2010-11. The learned Authorized Representative for the assessee pointed out that the draft order was being forwarded for necessary action at the end of assessee. It was also stated in the said letter that on receipt of draft order, the assessee may within 30 days of receipt of the order either file acceptance of variation as proposed in the order or file objections to the variation to the Dispute Resolution Panel (in short DRP ) and the Assessing Officer. The assessee in view thereof, filed objections to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said letter that on receipt of draft order, the assessee may within 30 days of the receipt of draft order either file acceptance of variation as proposed in the order or file objections to the variation to the DRP or to the undersigned. However, the Assessing Officer also issued demand notice under section 156 of the Act dated 28.02.2014 and also issued notice under section 274 r.w.s. 271 of the Act. The assessee on understanding that it was draft assessment order filed objections before the DRP on 07.04.2014 i.e. within the time allowed under the Statute. However, the said objections of assessee were not considered by the DRP and the same were rejected on the surmise that the order passed by the Assessing Officer was final assessment order since the Assessing Officer had also issued demand notice under section 156 of the Act and show cause notice under section 274 r.w.s. 271 of the Act for levy of penalty. The DRP observed that since the assessment order passed by the Assessing Officer was final assessment order, it did not have any jurisdiction to issue any directions on such final assessment order. After receiving the DRP s order, the assessee filed an application before the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere the TPO proposes any variation in the income or loss returned by the assessee, which is prejudicial to the interest of assessee, the Assessing Officer shall in the first instance forward the draft of the proposed assessment order to the assessee and thereafter, if no objections are received and / or the assessee files his acceptance to the variation to the Assessing Officer, then the Assessing Officer is empowered to complete the assessment within one month from the end of the month thereof. In case, the assessee files his objection before the DRP and where the said Panel issues directions as it thinks fit, then the Assessing Officer on receipt of such directions shall complete the assessment in conformity with such directions. In view of the said provisions of the Act, the compliance to section 144C of the Act is mandatory in all such cases, where the TPO proposes variation in the income or loss returned, which is prejudicial to the interests of assessee. Only after complying with the conditions laid down in section 144C of the Act, the Assessing Officer is empowered to pass the order under section 143(3) r.w.s. 144C of the Act completing the assessment on such enhanced income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legally not sustainable. 9. The similar issue had arisen before the Pune Bench of Tribunal in Agfa India Pvt. Ltd. Vs. ACIT in ITA Nos.341/PN/2014 and 1072/PN/2014, relating to assessment year 2008-09, order dated 28.10.2015 and reference was made to the decision of the Hon ble High Court of Andhra Pradesh at Hyderabad in M/s. Zuari Cements Ltd. Vs. ACIT in WP No.5557/2012, vide judgment dated 21.02.2013 and the Hon ble Supreme Court in ACIT Vs. M/s. Zuari Cement Ltd. vide Special Leave Petition CC No.16694/2013, judgment dated 27.09.2013 and it was held as under:- 20. The Hon ble High Court of Andhra Pradesh at Hyderabad in M/s. Zuari Cements Ltd. Vs. ACIT (supra) on similar issue where after receipt of the order passed by the TPO under section 92CA(3) of the Act, the Assessing Officer had passed the assessment order under section 143(3) of the Act raising a demand of ₹ 27,40,71,913/- without giving an opportunity to the assessee under section 144C of the Act, observed that where the Assessing Officer proposes to make on or after 01.10.2009, any variation in the income or loss returned by the assessee, then notwithstanding to the contrary contained in the Act, he s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts Ltd. (supra) had dismissed the Special Leave Petition filed by the Department upon hearing the Counsel. The learned Authorized Representative for the assessee contended that since the said Special Leave Petition was dismissed after hearing the Counsel and the view taken by the Hon ble High Court of Andhra Pradesh at Hyderabad has been approved by the Apex Court and any order contradicting the conditions laid down in section 144C of the Act is null and void and unenforceable in law. 22. Further, the Delhi Bench of Tribunal in the case of Capsugel Healthcare Limited in ITA No.1356/Del/2012, vide order dated 30.09.2014 have upheld the similar view that Failure to pass draft assessment order after TPO s order renders proceedings void. Show cause notice cannot be quoted with draft assessment order . 10. Further, the Hon ble Bombay High Court in International Air Transport Association Vs. DCIT (supra) have also down the similar proposition and held as under:- 4. The Petitioner had consequent to the assessment order dated 23rd March 2015 filed its objection in terms of Section 144C(2) of the Act to the Dispute Resolution Panel ( DRP ). By an order dated 7th October, 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 M.P. Nos.1 and 1 of 2014 vis- -vis. Whereas the learned Departmental Representative for the Revenue strongly opposed and pointed out that the Assessing Officer has sent the draft assessment order wherein the letter clearly says that it is draft assessment order. He pointed out that the DRP had mis-interpreted and the issue may be sent back to the file of DRP. He also pointed out that the facts before the Hon ble Bombay High Court were different and the said proposition is not applicable. We find no merit in the plea of learned Departmental Representative for the Revenue. The Assessing Officer passed the order on 28.02.2014 along with which it also issued the demand notice and show cause notice for levy of penalty. In other words, the Assessing Officer has crystallized the demand in the case of assessee. Whereas, as per the provisions of the Act where the Assessing Officer proposes to vary the income in the hands of assessee, there was requirement to issue show cause notice to the assessee to the said additions, by way of draft assessment order. The demand does not get crystallized in draft assessment order. Undoubtedly, the Assessing Officer had issued covering letter where it ..... X X X X Extracts X X X X X X X X Extracts X X X X
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