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TMI Blog2019 (8) TMI 1157X X X X Extracts X X X X X X X X Extracts X X X X ..... ld adjudicate the issues raised in ITA No.714/PUN/2011 and CO. No.41/PUN/2011 in respect of assessment year 2005-06. ITA No.714/PUN/2011 (By Revenue) CO. No.41/PUN/2011 (By Assessee) A.Y.2005-06 3. At the time of hearing, the Ld. AR of the assessee appraised the Bench that in the Revenue's appeal in ITA No.714/PUN/2011 and Cross Objection No.41/PUN/2011 by the assessee relates to mainly two grounds. First one is regarding "Capacity Utilization Adjustment" and second relates to the "Comparables". 3.1 That with regard to the issue of "Capacity Utilization Adjustment", the Ld. AR of the assessee submitted that the Ld. Commissioner of Income Tax(Appeals) has allowed such "Capacity Utilization Adjustment". However, the Ld. AR prayed for suitable directions from the Bench that this "Capacity Utilization Adjustment" should be done in accordance with the directions given by the Co-ordinate Bench of the Tribunal, Pune in assessee's own case in ITA No.154/PUN/2011 for assessment year 2004-05 decided on 10.06.2019. If this is done then with respect to the issue "Comparables" even if the Revenue's appeal is allowed meaning thereby upholding the Transfer Pricing Officer's (TPO) order that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... comparables should be made to the extent of 33.33%. This is also in accordance with the provisions of Rule 10B92) which states that condition prevailing in the market in the tested party and comparables operates have to be considered while judging comparability of an international transaction with an uncontrolled transaction." 10.4 Further, the Hon‟ble ITAT in the above case confirmed the findings of the CIT(A) in Para 19 of the said ruling which reads as under: "....Since both the parties have not been able to controvert the findings recorded by the Ld. CIT(A) or point out any material to enable us to take a view other than view taken by the Ld. CIT(A), we are inclined to uphold the order of ld. CIT(A) on the point of determination of Arms Length Price in respect of the transactions entered into by the assessee with its associate enterprises, namely RCS Centre Corp. Therefore, the order of Ld. CIT(A) is upheld and the grounds raised by the assessee as well as by the Revenue on this issue are rejected........" 10.5 The aforesaid view has also reaffirmed the views of the Hon‟ble Pune ITAT in the case of E-Gain Communications Pvt. Ltd. 118 TTJ 354 wherein i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n with an uncontrolled transaction and suitable adjustments have to be made to eliminate the material effects of such differences. In view of the above discussion, I believe that adjustments have to be carried out for the purpose of comparability analysis and accordingly, this ground of appeal is allowed." 8. We have perused the case records and heard the rival contentions. On analysis of the facts on records specially the findings of the Ld. Commissioner of Income Tax(Appeals), it is observed that this ground has been allowed to the assessee. That further as referred before us by the Ld. AR of the assessee in ITA No.154/PUN/2011 & CO No.34/PUN/2011 in assessee's own case for the assessment year 2004-05 on the same issue, the Revenue has contested this ground against the order of the Ld. Commissioner of Income Tax (Appeals) directing the Assessing Officer/TPO to allow "Capacity Utilization Adjustment" to which the Co-ordinate Bench of the Tribunal, Pune has held as under: "19............... The assessee is in second year of operation and has pointed out that it has only utilized 33% of the total capacity whereas the comparables have on an average utilized 50 to 70% of the tota ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch were excluded by the TPO. 10. We have perused the case records and heard the rival contentions. We observe that the TPO in his order has given detailed reasoning why he has excluded the three comparables i.e. Force Motors Limited, Hindustan Motors Limited and Kerala Automobiles Limited from the final list of comparables with that of the assessee. Similarly, the Ld. Commissioner of Income Tax(Appeals) in his order has given detailed findings with regard to the inclusion of these three comparables to the set of final comparables with that of the assessee. However, the submissions of the Ld. AR at the very outset that regarding "Capacity Utilization Adjustment", if the directions of the assessee's own case is followed by the Assessing Officer/ TPO while making such adjustment then even if the three comparables that have been included by the Ld. Commissioner of Income Tax(Appeals), is excluded and if only two comparables are taken Mahindra & Mahindra Limited and Tata Motors Limited then also there will be no impact on the assessee. We have already examined and directed regarding issue of capacity utilization to be done by the TPO/AO after following the decision of the Co-ordinate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng with this draft assessment order, the Assessing Officer had issued notice of demand u/s.156 of the Act and penalty notice u/s.274 r.w.s.271(1)(c) of the Act and therefore, procedure laid down in Section 144C of the Act has not been followed. The provision of Section 144C spells out that on receipt of the draft order, the eligible assessee shall within thirty days of the receipt by him of the draft assessment order, file his acceptance of the variations to the Assessing Officer or file his objections, if any, to such variation with the DRP. Thereafter, the Assessing Officer shall complete the assessment order on the basis of draft order. 13.1 In the present case, the contention of the Ld. AR is that along with draft order itself, notice of demand and penalty notice being issued is therefore in contravention to this provision. The Ld. AR has placed reliance on the order of the Co-ordinate Bench of the Tribunal, Pune in ITA No.566/PUN/2015 for assessment year 2010-11 in the case of DCIT, Circle-10, Pune Vs. Rehau Polymers (P) Ltd., 85 taxmann.com 23 ( Pune-Trib.) wherein the facts were as follows: "7. Briefly, in the facts of the case, the assessee had filed the return of incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer had in the said order said that it is a proposed / draft assessment order but in actual fact, it was assessment order passed by the Assessing Officer determining the demand payable in the case of assessee and has also initiated penalty proceedings under section 271(1)(c) of the Act by issue of notice under section 274 of the Act. The learned Authorized Representative for the assessee pointed out that the issue raised in the present appeal is squarely covered by the order of Tribunal in Soktas India (P) Ltd. Vs. ACIT (2017) 77 taxmann.com 19 (Pune - Trib.)" 15. The Ld. DR on the other hand, referred to the noting of the Assessing Officer and relied on the same. 16. That on the issue, the Co-ordinate Bench of the Tribunal, Pune has held as follows: "10. We have heard the rival contentions and perused the record. The issue which arises in the present appeal is in relation to the draft assessment order passed by the Assessing Officer under section 143(3) r.w.s. 144C(1) of the Act. After receipt of the order under section 92CA(3) of the Act from the TPO, the Assessing Officer was supposed to issue draft assessment order proposing to make the addition. Howeve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rein the Assessing Officer categorically said that the draft assessment order was being forwarded for necessary action at the end of assessee. It was clearly mentioned in the 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 or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to the contrary contained in section 153 or 153B of the Act, as per sub-section (13) to section 144C of the Act. In view of the provisions of section 144C of the Act impliedly where 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontinues till date and therefore, the final order as well as the the corrigendum issued by the second respondent are vitiated by errors apparent on the face of the record and they are 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 Rs. 27,40,71,913/- without giving an opportunity to the assessee under section 144C of the Act, observed that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as one without jurisdiction, null and void and unenforceable. Consequently, the demand notice dated 23.12.2011 issued by the respondent is set aside." 21. The Hon‟ble Supreme Court (supra) in ACIT Vs. Zuari Cements 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive for the assessee has placed reliance on the ratio laid down by the International Air Transport Association Vs. DCIT (supra) and 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 vis-à-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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 143(3) r.w.s. 144C of the Act. Accordingly, we hold that draft assessment order passed in the case is invalid in law. Thus, the Cross Objection No.2 raised by the assessee is allowed. Since we hold the assessment order to be invalid in law, then all the other issues become academic in nature...." 17. We have perused the case records and heard the rival contentions. We have also considered the judicial pronouncement placed before us. The issue is clearly identifiable and is covered in favour of the assessee by the decision of the Co-ordinate Bench of the Tribunal, Pune as herein above referred. Respectfully, following the same, we hold the draft assessment order to be bad in law and void ab initio and thereby allow the additional ground of appeal. 18. Since the legal ground has been answered in favour of the assessee, all other grounds in this appeal becomes academic in nature. 19. In the result, appeal of the assessee in ITA No.546/PUN/2014 for the assessment year 2009-10 is allowed. 20. In combined result, appeal of the Revenue in ITA No.714/PUN/2011 is partly allowed for statistical purpose and cross objection of the assessee in CO. No.41/PUN/2011 becomes academic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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