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TMI Blog2019 (5) TMI 532X X X X Extracts X X X X X X X X Extracts X X X X ..... filed its return of income for Assessment Year 2012-13 on 28.11.2012 declaring total income of Rs. 4,89,920/-. The case was selected for scrutiny for this Assessment Year. Since the assessee had reported that it had entered into international transactions in the year under consideration, the Assessing Officer (AO) made a reference to the Transfer Pricing Officer (TPO) for determining the arms length price (ALP) of the international transactions. The TPO vide order under section 92CA of the Act dated 19.01.2016 has proposed TP Adjustment of Rs. 6,31,12,225/- in respect of software development services rendered by the assessee. Thereafter, the AO passed an assessment order for Assessment Year 2012-13 under section 143(3) r.w.s. 92CA of the Act dated 24.03.2016 wherein the assessee's income was determined at Rs. 6,36,02,040/-; which included the transfer pricing adjustment of Rs. 6,31,12,225/-. The AO also determined the tax payable by the assessee at Rs. 2,95,37,104/-. This order of the AO was titled as "Draft Assessment Order". This order dated 24.03.2016 was sent to the assessee by registered post, with an acknowledgment slip (copy placed on record), which also mentioned "draft or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t can be considered as final order of assessment. 3. Aggrieved by the order of CIT(A)-3, Bangalore dated 23.011.2017 for Assessment Year 2012-13, the assessee has preferred this appeal before the Tribunal, wherein it has raised the following grounds:- 1. The assessment order is erroneous and prejudicial to the interest of the Appellant and against the facts of the case. 2. Invalid order a. The learned Assessing Officer (AO) has erred in passing order under section 143(3) of the act without invoking the provisions of section 144C of the Act which is mandatory. b. The learned AO has erred in not complying with the provisions of Section 144C of the Act wherein it is stated that "The Assessing Officer shall, notwithstanding anything to the contrary contained in this Act, in the first instance, forward a draft of the proposed order of assessment (hereafter in this section referred to as the draft order) to the eligible assessee if he proposes to make, any variation in the income or loss returned which is prejudicial to the interest of such assessee". c. The learned AO has erred in passing order under Section 143(3) of the Act along with notice of demand under section 156 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the arm's length price for the international transactions of the Company. * Without prejudice to the argument of the Company against the application of TNMM as the most appropriate method ("MAM"), the learned AO/learned TPO erred in: I. Not appreciating that appropriate economic adjustments should have been performed while applying TNMM as the MAM to eliminate the material difference between the Assesse and the comparable companies. II. Not appreciating that the foreign exchange gain of the Company should be treated as an operating income for the purpose of the transfer pricing analysis. III. Carrying out erroneous working capital adjustment while undertaking the transfer pricing analysis. IV. Erroneously considering the segmental results of AE and Non AE operations while proposing the transfer pricing adjustment. V. Erroneously considering the service revenue from AE while proposing the transfer pricing adjustment. VI. Not applying multiple year/prior year data for comparable companies while determining arm's length price. VII. Applying a threshold of 75% for the export earning filter against a more rationale threshold of 25% VIII. Considering 25 percent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d under section 156 of the Act raising tax demand of Rs. 2,95,37,100/- consequent to the passing of regular order of assessment is issued to the assessee; penalty proceedings under section 271(1)(C) of the Act have been initiated by simultaneously issue of notice under section 274 r.w.s. 271(1)(C) of the Act dated 24.03.2016, but also when the order of assessment so issued is in form and substance a regular assessment order. Therefore, the issue which is to be decided by us is whether the order of assessment for Assessment Year 2012-13 passed on 24.03.2016 in the case on hand is only a draft assessment order or a final / regular order of assessment. 5.1.2 The legal position in respect of the passing of a draft order of assessment is covered / laid out in section 144C of the Act. Section 144C(1) of the Act reads as under: "The Assessing Officer shall, notwithstanding anything to the contrary contained in this Act, in the first instance, forward a draft of the proposed order of assessment (hereinafter in this section referred to as the draft order) to the eligible assessee if he proposes to make, on or after the 1st day of October, 2009, any variation in the income or loss returne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the website / records of the Department (copy placed at page 205 of Paper Book). Therefore, in our view, Revenue's plea that the order dated 24.03.2006 is a 'Draft Assessment Order', as mentioned therein, and the issuance of the Notice of Demand under section 156 of the Act is a curable mistake cannot be accepted. Further, it is seen from the order dated 24.03.2016 that notice initiating penalty proceedings under section 271(1)(c) of the Act was also issued to the assessee, which ought not to be issued if the said order was a draft order of assessment. It has also been pointed out by the learned AR for the assessee that, if the impugned order dated 24.03.2016 was intended to be a draft order of assessment, the AO would have forwarded the same to the assessee with a covering letter informing the assessee of the same and requiring the assessee to file its objections thereto, if any, before the DRP; as was done in the assessee's own case for the subsequent Assessment Year 2013-14 (copy of the Draft order of assessment for Assessment Year 2013-14 dated 28.12.2016 passed under section 143(3) r.w.s. 144C of the Act placed on record). For the Assessment Year under consideration i.e., A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b) of the Act, we find that this issue has been considered and decided in several judicial pronouncements cited by the assessee. We find that in an identical case, the Division Bench of the Hon'ble Andhra Pradesh High Court, in the case of Zuari Cement Ltd., Vs. ACIT in W.P. No.5517 of 2012 dated 21.02.2013, has explained the scope of the validity of the demand notice issued by the AO, as under:- "We have noted the contentions of the respective parties. S.144C of the Act was introduced by the Finance (No.2) Act, 2009 and sub-sections (1) to (8) thereof states: 144C. Reference to Dispute Resolution Pane.- (1) The Assessing Officer shall, notwithstanding anything to the contrary contained in this Act, in the first instance, forwarded a draft of the proposed order of assessment (hereafter in this section referred to as the draft order) to the eligible assessee if he proposes to make, on or after the day of October, 2009, any variation in the income or loss returned which is prejudicial to the interest of such assessee. (2) On receipt of the draft order, the eligible assessee shall, within thirty days of the receipt by him of the draft order, - (a) file his acceptance of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent within one month. The assessee is also given an option to file objections-before the Dispute-Resolution Panel in which event the latter can issue directions for the guidance of the Assessing Officer to enable him to complete the assessment. In the case of the petitioner, admittedly the TPO suggested an adjustment of Rs. 52.14 crores u/s.92CA of the Act on 20.09.2011 and forwarded it to the Assessing Officer and to the assessee under sub-section (3) thereof. The Assessing Officer accepted the variation submitted by the TPO without giving the petitioner any opportunity to object to it and-passed the impugned assessment order. As this has occurred after 01.10.2009, the cut off date prescribed in sub-section (1) of S.144C, the Assessing Officer is mandated to first pass a draft assessment order, communicate it to the assessee, hear his objections and then complete assessment. Admittedly this has not been done and the respondent has passed a final assessment order dt.23.12.2011 straight away. Therefore, the impugned order of assessment is clearly contrary to 5.144C of the Act and is without jurisdiction, null and void. The contention of the Revenue that the circular No.5/2010 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sh High Court in the case of Zuari Cements Ltd., (supra), before the Hon'ble Apex Court was dismissed vide order CC 16694/2013 dated 27.09.2013. 5.3.2 We also find that this issue has been decided in the case of Vijay Television (Pvt.) Ltd., Vs. Dispute Resolution Panel, Chennai (2014) 369 ITR 113 (Mad), wherein the Hon'ble Madras High Court has, inter alia, at paras 20 to 24 thereof has held / observed as under: "20. Under Section 144 (C) of the Act, it is evident that the assessing officer is required to pass only a draft assessment order on the basis of the recommendations made by the TPO after giving an opportunity to the assessee to file their objections and then the assessing officer shall pass a final order. According to the learned senior counsel for the petitioners, this procedure has not been followed by the second respondent inasmuch as a final order has been straightaway passed without passing a draft assessment order. 21. As rightly pointed out by the learned senior counsel for the petitioners, in the order passed on 26.03.2013, the second respondent even raised a demand as also imposed penalty. Such demand has to be raised only after a final order has been passed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to be treated as a draft assessment order. In this context, it is worthwhile to refer to the decision of the Honourable Supreme Court in decision Deepak Agro Foods (supra) wherein in Para No.10, the Honourable Supreme Court discussed as to when an order could be construed as a final order:- "10. Shri Rajiv Dutta, learned senior counsel appearing on behalf of the appellant, submitted that the light of its aforeextracted observations and a clear finding that the assessment order for the assessment year 1995-96 had been anti-dated, the order was null and void. It was urged that assessment proceedings after the expiry of the period of limitation being a nullity in law, the High Court should have annulled the assessment and there was no question of a fresh assessment. Thus, the nub of the grievance of the appellant is that in remanding the matter back to the Assessing Officer, the High Court has not only extended the statutory period prescribed for completion of assessment, it has also conferred jurisdiction upon the Assessing Officer, which he otherwise lacked on the expiry of the said period." 23. It is evident from the above decision of the Honourable Supreme Court that if an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o file objections before the Dispute Resolution Panel in which event the latter can issue directions for the guidance of the Assessing Officer to enable him to complete the assessment. In the case of the petitioner, admittedly the TPO suggested an adjustment of Rs. 52.14 crores u/s.92CA of the Act on 20.09.2011 and forwarded it to the Assessing Officer and to the assessee under subsection (3) thereof The assessing officer accepted the variation submitted by the TPO without giving the petitioner any opportunity to object to it and passed the impugned assessment order. As this has occurred after 01.10.2009, the cut off date prescribed in sub-section (1) of S. 144C, the Assessing Officer is mandated to first pass a draft assessment order, communicate it to assessee, hear his objections and then complete assessment. Admittedly, this has not been done and the respondent has passed a final assessment order dated 22.12.2011 straight away. Therefore, the impugned order of assessment is clearly contrary to S.144C of the Act and is without jurisdiction, null and void. The contention of the Revenue that the circular No.5/2010 of the CBDT has clarified that the provisions of S.144C shall n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt. The record of proceedings of the Supreme Court indicate that he Special Leave Petition was dismissed on 27.09.2013. 33. The decision of the Division Bench of the Andhra Pradesh High Court deals with an identical issue as that of the present case. In this case, against the order passed by the second respondent on 26.03.2013, the petitioner filed objections before the DRP, the first respondent herein and the first respondent refused to entertain it by stating that the order passed by the second respondent is a final order and it had jurisdiction to entertain objections only if it is a draft assessment order. While so, the order dated 26.03.2013 of the second respondent can only be termed as a final order and in such event it is contrary to Section 144C of the Act. As mentioned supra, in and by the order dated 26.03 2013, the second respondent determined the taxable amount and also imposed penalty payable by the petitioner. According to the learned senior counsel for the petitioners, even as on this date, the website of the department indicate the amount determined by the second respondent payable by the company inspite of issuance of the corrigendum on 15.04.2013 as a tax due ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to the decision of the Hon'ble Karnataka High Court in the case of Rinki Chakraborty (2012) 20 taxmann.com 609 (Kar. HC). On a careful perusal thereof, we find that the above case referred to by the learned DR was rendered the issue of re-opening of assessment under section 147 of the Act. It was also brought to our notice that the Hon'ble High Court, in a subsequent case, has disagreed with the decision cited by the learned DR and referred the matter to a larger Bench. However in view of the decision of the Hon'ble Apex Court in the case of Zuari Cements Ltd., (supra) dismissing Revenue's SLP and upholding the order of the Hon'ble Andhra Pradesh High Court (supra) which is exactly on the issue before us in the case on hand, we are of the view that the submissions of the learned DR are devoid of any merit. 5.5 In view of the facts and circumstances of the case and the factual and legal matrix prevailing, as discussed above, from para 5 to 5.4 of this order, we quash the impugned order of assessment dated 24.03.2016 for Assessment Year 2012-13 by holding it to be a legal nullity. Consequently, ground No.2 of assessee's appeal is allowed. 6. Ground No.3 Since ground No.2 has be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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