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TMI Blog2017 (8) TMI 1294X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee was also at liberty to file the objections before the DRP or accept the same, but in actual fact, the order passed by the Assessing Officer was complete assessment order which is not envisaged under section 143(3) r.w.s. 144C of the Act. Accordingly, we hold that draft assessment order passed in the case is invalid in law. - Decided in favour of assessee. - ITA No.566/PUN/2015, CO No.27/PUN/2017 - - - Dated:- 14-6-2017 - Ms. Sushma Chowla, JM And Shri Anil Chaturvedi, AM Assessee by : Shri Nikhil Pathak Revenue by : Shri Rajeev Kumar, CIT ORDER Per Sushma Chowla, JM The appeal filed by the Revenue is against order of DCIT, Circle-10, Pune, dated 27.02.2015 relating to assessment year 2010-11 passed under section 143(3) r.w.s. 144C(13) of the Income-tax Act, 1961 (in short the Act ). The assessee has filed Cross Objections against the appeal of Revenue. 2. The appeal filed by the Revenue and Cross Objections filed by the assessee were heard together and are being disposed of by this consolidated order for the sake of convenience. 3. The Revenue in ITA No.566/PUN/2015 has raised the following grounds of appeal:- 1. Whether on the facts and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t order was invalid in law. 7. Briefly, in the facts of the case, the assessee had filed the return of income declaring total income of ₹ 1,77,77,012/-. The case of assessee was selected for scrutiny. The first issue which arises in the present appeal is against notice issued under section 143(2) of the Act. However, without going into the merits of the said issue, we find that the Assessing Officer had made reference under section 92CA(1) of the Act to the Transfer Pricing Officer (TPO) to determine the arm's length price of international transactions undertaken by the assessee. The TPO vide order passed under section 92CA(3) of the Act dated 24.01.2014 applied CUP method and determined the arm's length price of international transactions of payment of service fees at Nil as against ₹ 3,45,55,434/- determined by the assessee. The Assessing Officer passed the draft assessment order under section 143(3) r.w.s. 144C(1) of the Act dated 22.03.2014 and assessed the income at ₹ 9,65,31,058/- on account of adjustment made as per order under section 92CA(3) of the Act and various other additions. The Assessing Officer vide para 11 observed that the income was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wever, the Assessing Officer called the said order to be draft assessment order but assessed income in the hands of assessee and further issued demand notice along ITNS-150, after charging interest under sections 234A, 234B 234C, etc. He also initiated penalty proceedings under section 271(1)(c) of the Act. Undoubtedly, the assessee on understanding that the same was draft assessment order, made objections to the DRP, who gave certain directions and thereafter, the Assessing Officer passed an order under section 143(3) r.w.s. 144C(13) of the Act. However, in order to adjudicate the issue raised, we need to make reference to the provisions of section 144C of the Act. 11. We find that similar issue of assessment to be framed under section 143(3) r.w.s. 144C of the Act arose before the Pune Bench of Tribunal in Soktas India (P) Ltd. Vs. ACIT (supra). 12. The Tribunal after noting the facts that the Assessing Officer had passed the order under section 143(3) r.w.s 92CA(3) and 144C of the Act and had also issued demand notice under section 156 of the Act and had also issued notice under section 274 r.w.s. 271(1)(c) of the Act. However, the covering letter said that it was draft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, 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 Assessing Officer for necessary action. The Assessing Officer in reply, vide letter dated 30.01.2015 stated that the DRP had clearly mentioned that the order passed on 28.02.2014 was final order and not draft order, so the Assessing Officer does not have any jurisdiction over the case. 7. In order to adjudicate the issue, reference needs to be made to the provisions of section 144C of the Act. Under the provisions of section 144C of the Act, it is provided that where the Assessing Officer proposes to make, on or after 01.10.2009, any variation in the income or loss returned, which is prejudicial to the interest of assessee, then the Assessing Officer shall in the first instance forward the draft of the proposed order of assessment to the eligible assessee. Under sub-section (2) of section 144C of the Act on receipt of the draft order, the eligible assessee shall within 30 days of the receipt, file his acceptance of the variation to the Assessing Officer or file his objections, if any, to such variation with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 or variation in the loss returned by the assessee. 8. The Hon ble Madras High Court in the case of Vijay Television Writ Petition Nos.1526 and 1527 of 2014 M.P. Nos.1 and 1 of 2014, it was held that non-passing of draft assessment order after adjustment made by the TPO renders proceedings null void by observing as under:- Under Section 144C(1) of the Act, with effect from 1st October 2009, the Assessing Officer has to mandatorily issue a draft assessment order if there is a proposed variation to the return which are prejudicial to the eligible assessee. The fact that the petitioner is an eligible assessee is not in dispute. While so, under section 144C(2) of the Act, the eligible assessee has the option, either to accept the variation or to file their objections before the DRP and such option has to be exercised within 30 days. On such objections filed by the assessee, the DRP shall issue appropriate direction for the guidance of the Assessing Officer under section 144C(5) of the Act. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 shall first pass the draft assessment order, forward the same to the assessee and after assessee files his objections, if any, the Assessing Officer shall complete the assessment within one month, in view of the provisions of section 144C of the Act. It was further observed that the assessee is also given an option to file an objection before the DRP, in which the latter can issue directions for the guidance of Assessing Officer to enable him to complete assessment. Where the Assessing Officer accepted the variation submitted by the TPO without giving the petitioner any opportunity to object to it and pass the assessment order, it was held by the Hon ble High Court of A.P that the impugned order of assessment was clearly contrary to section 144C of the Act and was without jurisdiction, null and void. The objection of the Revenue that the Circular No.5/2010 of the CBDT which laid down that the provisions of section 144C of the Act shall not apply for the assessment year 2008-09 and would only apply from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsequent 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, 2015, the DRP refused to pass any direction on the objections because the objections had been filed in respect of a final order under Section 143(3) of the Act and not in respect of the draft assessment order passed under Section 144C(1) of the Act. The order dated 7th October, 2015 of the DRP holds that its jurisdiction is only to entertain objections with regard to draft assessment order passed under Section 144C(1) of the Act. 5. However, it is pertinent to note that the order dated 7th October, 2015 of the DRP in paragraph (3) thereof records that There is no dispute that the assessee is a foreign company . This position is undisputed even before us. Therefore, in view of Section 144C(15) of the Act which defines eligible assessee to whom Section 144C(1) of the Act applies to inter alia mean any foreign company. Therefore, a draft assessment order under Section 144C(1) of the Act is mandated before the Assessing Officer passes a final order under Section 143(3) of the Act in case of eligi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 says that it is draft assessment order but in spirit, it had finalized the assessment, wherein the demand was crystallized and demand notice was issued to the assessee. The Assessing Officer has not followed the correct procedure as provided 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. Reliance is placed on the ratio laid down by the Hon ble Bombay High Court in International Air Transport Association Vs. DCIT (supra) and the Hon ble Madras High Court in Vijay Television Pvt. Ltd. Vs. DRP Others (supra) and the Hon ble High Court of Andhra Pradesh in M/s. Zuari Cements Ltd. Vs. ACIT (supra). We hold that the assessment order passed in the case is invalid and the same is set aside. Since we have decided the preliminary issue in favour of assessee, the other grounds of appeal against the additions made become academic and the same are dismissed. 13. The facts bef ..... X X X X Extracts X X X X X X X X Extracts X X X X
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