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TMI Blog2019 (9) TMI 262X X X X Extracts X X X X X X X X Extracts X X X X ..... exercise of benchmarking by the TPO and directed to determine the ALP altogether afresh, the earlier round of the proceedings came to an end and a fresh round of proceedings started with the AO making a reference to the TPO for fresh benchmarking on 7.10.2016. The entire procedure was once again required to be adhered to starting with the passing of the order by the TPO; passing of the draft order; objections to be raised by the assessee before the DRP; and passing of a final assessment order. AO in the second round, on receipt of the order from the TPO, proceeded to pass a final assessment order, thereby omitting to pass a draft order and eventually denying the assessee an opportunity to raise objections before the DRP as enshrined under sub-section (4) of section 144C of the Act. Statutorily mandated procedure must be adhered to by the authorities, non-observance of which renders the assessment order null and void. As statutorily mandated procedure has not been followed in the instant case in as much as neither any draft order was passed in the second round nor the assessee could raise objection before the DRP, the edifice of the final assessment order, being devoid of a l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n addition, the DRP also gave certain specific directions qua few comparables as objected to before it. Pursuant to the direction given by the DRP, the AO vide his reference dated 07-10-2016 required the TPO to do a fresh benchmarking. The TPO vide his order dated 21-11-2016 proposed a fresh transfer pricing adjustment of ₹ 5,21,84,250/-. The AO in his final order dated 28-11-2016 has made transfer pricing addition of ₹ 5.21 crore and odd, against which the assessee has come up in appeal before the Tribunal. 4. We have heard both the sides and gone through the relevant material on record. The legal argument put forth on behalf of the assessee is that the procedure adopted by the authorities below in not passing draft order pursuant to the direction given by the DRP has vitiated the assessment. This argument can be better appreciated by having an insight into the provisions of section 144C of the Act with the caption Reference to Dispute Resolution Panel . Subsection (1) of section 144C states 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Appeals) and after making such further inquiry as may be necessary, and the Assessing Officer shall thereupon proceed to make such fresh assessment and determine, where necessary, the amount of tax payable on the basis of such fresh assessment . The hitherto power given to the CIT(A) referring the case back to the AO for making fresh assessment has been taken away by the Finance Act, 2001. The effect of this amendment is that now the CIT(A) can only confirm, reduce, enhance or annul the assessment but cannot restore the matter to the AO for a fresh determination. In the pre-amendment era when the CIT(A) could restore the matter to the AO, the AO was obliged to pass a separate order which was further appealable to the first appellate authority before moving the Tribunal. In the post-amendment period, the power of the CIT(A) to restore has been taken away and now the assessee or the Revenue can directly approach the Tribunal. The reason for the amendment is to erode delay in the process of completion of assessment. 7. When we closely examine the provisions of section 144C(8) in juxtaposition to section 251(1), it can be easily ascertained that there is a great sim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee is a KPO service provider. Due to this error committed, most of the comparables identified by the assessee as well as the TPO are very likely to be rejected by this Panel on grounds of functionality........... The TPO is, therefore, directed to carry out a fresh search for comparable companies who are KPO service providers of the financial sector . The final list of comparables should be formalized by the TPO after using appropriate filters, but only after giving a reasonable opportunity of being heard to the assessee . It is manifest from the above that the DRP transgressed its power given under sub-section (8) by restoring the matter to the AO/TPO for carrying out a fresh benchmarking exercise of the international transaction changing the very foundation of the assessee, being, a KPO service provider as against the BPO service provider treated by the TPO in the first round. It is not a case of a limited direction given by the DRP to exclude or include particular comparable(s) after first adjudicating itself on the comparability or carry out some amendment in the calculation of the PLI as per its own version. Au contraire, it is a case of direction of the D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all part of any benchmarking in the first round. The TPO considered this company as comparable for the first time and included it in the final tally. The last comparable, namely, Caliber Point Business Solutions Ltd. was dealt with by the DRP in its order by holding that; the assessee as well as the TPO have wrongly classified the assessee as a ITeS provider, instead of KPO service provider. Therefore, the TPO has been directed to carry out a fresh search. If sufficient number of comparables upto 5 or more are available after this fresh search, the TPO should not include this company as a comparable . It is thus palpable that the TPO in the second round carried out the benchmarking exercise all afresh treating the assessee as KPO service provider as against his earlier view of a BPO service provider in the first round. After passing of the order by the TPO on 21.11.2016, the AO proceeded to straightaway pass the final assessment order u/s.143(3) r.w.s. 144C(13) of the Act on 28-11-2016. It is, ergo, overt that pursuant to the fresh benchmarking done by the TPO in his second order, the AO omitted to pass a draft order which could have been challenged by the assessee before the D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... came to be disapproved by the Hon ble High Court. 12. It, therefore, follows that the statutorily mandated procedure must be adhered to by the authorities, non-observance of which renders the assessment order null and void. In view of the fact that the statutorily mandated procedure has not been followed in the instant case in as much as neither any draft order was passed in the second round nor the assessee could raise objection before the DRP, the edifice of the final assessment order, being devoid of a legal bedrock, stands shaked, thereby frustrating the legality of the order. 13. To sum up, the instant assessment is a nullity for two reasons, viz., first for the DRP exceeding its jurisdiction in restoring the matter to the AO/TPO for undertaking a fresh benchmarking altogether afresh; and two, the AO not following the statutorily prescribed procedure of first passing a draft order and snatching away a forum from the assessee for assailing the variation in the income pursuant to the order of the TPO before approaching the Tribunal. Ex consequenti, we set aside the impugned order as null and void. 14. In view of our decision i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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