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TMI Blog2019 (10) TMI 394X X X X Extracts X X X X X X X X Extracts X X X X ..... This is an appeal filed by the assessee against the order of ld. CIT(A)-1, Jaipur dated 14.12.2018 wherein the assessee has taken the following grounds of appeal:- 1. On the facts and in the circumstances of the case, ld.CIT has grossly erred in confirming the action of ld.AO in passing the impugned order u/s 143 r.w.s.144C of the Income Tax Act, 1961 directly without passing a draft proposed order of assessment by ignoring the provision of clause (1) to sec 144C. Appellant prays that the assessment order so passed without making a draft order and without affording opportunity to the assessee to file objections if any, is in violation of specific provisions of law, deserves to be held bad in law and is liable to be quashed. Without prejudice to above and in the alternate; 2 On the facts and in the circumstances of the case and in law, ld. CIT(A) has grossly erred in confirming the disallowance of interest paid of ₹ 1,31,425/- made by 1d.A0 without considering the submissions/ explanations filed in respect of Associates Enterprises, merely on the basis of the order of TPO passed u/s 92C(3) of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns with Associated Enterprises during the Financial Year 2013-14 relevant to impugned assessment year 2014-15. 3. The TPO passed the order u/s 92CA(3) on 30.06.2017 wherein he has proposed an adjustment of ₹ 1,31,425/- to the income of the assessee being the excess interest paid to related parties above the arms length price. On receipt of the TPO s order, the AO vide letter 20.07.2017 issued a show cause notice to the assessee as to why adjustment so proposed by the TPO should not be made. However, no reply was furnished by the assessee company in this regard. The AO accordingly made an addition of ₹ 1,31,425/- to the returned income as proposed by the TOP in his order u/s 92CA(3) of the Act. Further, the AO disallowed certain expenses amounting to ₹ 5 lacs and also disallowed the additional depreciation claimed by the assessee amounting to ₹ 8,42,792/- and therefore, as against the returned income of ₹ 3,89,66,220/-, the assessed income was determined at ₹ 3,89,66,220/- by passing an order u/s 143(3) read with section 144C of the Act dated 15.12.2017. Along with the assessment order, a notice of demand was issued u/s 156 raisin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. Against the aforesaid findings of the ld. CIT(A), the assessee is in appeal and in ground No. 1 has challenged the legality of the assessment order passed by the AO without providing the draft of the proposed order of an assessment in terms of section 144C of the Act. 6. In this regard, the ld. AR submitted that since the assessee had transactions with Associated Enterprise ( AE ) within the meaning of section 92A of the Act during the year, a reference was made by ld. AO to ld. TPO for determination of Arm's Length Price of such transactions. Order of ld. TPO was received by the ld.AO, wherein interest payable by the assessee to its AE's was determined at ₹ 7,77,043/- as against ₹ 9,08,468/- claimed in the profit and loss account. However, ld. AO did not pass the draft assessment order incorporating the adjustments made in the income as per the order u/s 92CA of the TPO as required u/s 144C. The AO during the assessment proceedings issued a show cause notice to explain the difference in the interest so claimed and then directly passed the final order u/s 144C of the Act by making addition of the amount of adjustment made by the ld. TPO in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld.TPO merely by stating that the assessee did not filed any reply to the show cause notice issued which view is further concurred by Ld. CIT(A) while holding the assessment order as valid. 10. It was further submitted by ld AR that passing a draft order is not merely a procedural requirement, which is curable u/s 292BB of the Act, the statute requires the AO to pass a draft order, as the requirement is mandatory and give substantive rights to the assessee to object to any adjustments made by TPO before they are incorporated in the final order. Further the Assessing officer is expected to pass the order of assessment in terms of such directions issued by the DRP (Dispute Resolution Panel) without giving any further hearing to the assessee. Thus at the level of Assessing Officer, the directions of the DRP would bind even the assessee. Such opportunity cannot be taken away by treating it as purely procedural in nature. This contention of the assessee derives support from the following: Zuari Cement Limited vs. Assistant Commissioner of Income Tax WP(C) No. 5537/2012, DB of AP High Court. Vijay Television Private Limited vs. DRP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judicial to the interest of such assessee. 16. During the course of hearing, in order to determine whether draft assessment order was prepared and furnished to the assessee by the AO or not, the assessment records were called for. Thereafter, at the hearing scheduled on 12.04.2018, the assessment records were produced by the ld DR and on perusal of the same, it is noted that there is nothing on record in terms of draft assessment order which was prepared and furnished to the assessee and further, there is no entry which has been recorded in the order sheet to this effect that draft assessment order was prepared and furnished to the assessee. Therefore, it is a undisputed fact that in the instant case, there was no draft assessment order which was prepared and furnished to the assessee as contemplated under section 144C(1) of the Act. 17. We have also carefully perused the assessment order passed under section 143(3) of the Act dated 18.02.2015. It is a regular assessment order in form and in substance. Along with assessment order, a notice of demand u/s 156 vide entry in D CR No. 104/20 dated 18.02.2015 was raised wherein an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 19. In this regard, we refer to the decision of the Co-ordinate Bench in the case of Capsugel Healthcare Ltd vs. ACIT (supra) wherein the facts of the case are identical and ratio thereof equally applies in the instant case. In that case, certain transfer pricing adjustment under section 92CA(1) was made to the income of the assessee. However, the Assessing Officer did not furnish to the assessee a draft assessment order, before passing a final assessment order. On appeal before the ld CIT(A), the assessee raised its grievance of not being furnished a draft assessment order. The ld CIT(A) rejected this grievance and observed that in the instant case, after receipt of the order passed by TPO, the Assessing Officer issued a show cause notice proposing to make additions as per the adjustments made by the TPO. In response to this, the assessee instead of filing objections, if any, with the DRP and the Assessing Officer had simply filed a brief note before the Assessing Officer giving a gist of the basis of adjustments made by the TPO with the remark that the explanation may be put on record for further reference. The show cause notice issued by the Assessing Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment order which resulted in issuing a corrigendum on 15.04.2013. In the corrigendum it was only stated that the order passed on 26.03.2013 under Section 143C of the Act has to be read and treated as a draft assessment order as per Section 143C read with Section 93CA (4) read with Section 143 (3) of the Act. In and by the order dated 15.04.2013, the second respondent granted thirty days time to enable the assessee to file their objections. On receipt of the corrigendum dated 15.04.2013, the petitioner company approached the first respondent, but the first respondent declined to issue any direction to the assessment officer on the ground that the first respondent has got jurisdiction only to entertain such an appeal if the order passed by the second respondent is a pre-assessment order. Therefore, it is evident that the first respondent declined to entertain the objections raised by the petitioner company on the ground that the order passed by the second respondent is not a draft assessment order, rather it is a final order. Thus, the first respondent had treated the order dated 26.03.2013 of the second respondent as a final order and therefore it refused to entertain the object ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n an order which is a nullity and an order which is irregular and illegal. Where an authority making order lacks inherent jurisdiction, such an order will be null and void ab initio, as the defect of jurisdiction goes to the root of the matter and strikes at his very authority to pass any order and such a defect cannot be cured even by consent of the parties. 24. This decision squarely applies to the facts of this case. In this case, the order passed by the second respondent lacks jurisdiction especially when it is beyond the period of limitation prescribed by the statute. When there is a statutory violation in not following the procedures prescribed, such an order cannot be cured by merely issuing a corrigendum. 25. In the decision rendered by the Honourable Supreme Court of India in the case of (L. Hazari Mal Kuthiala (supra), which was relied on by the learned standing counsel for the respondents, it was held that the mistake or defect on the part of the Commissioner to consult the Central Board of Revenue did not render his order invalid since the provision about consultation in terms of Section 5 (3) of Patiala Act was merely directory and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of V. Ramaiah (supra) is extracted hereunder:- Certainly passing an order of assessment under Section 158BC instead of Section 158BD (inspite of clear terminology used in both the sections) would not amount to a mistake, a defect or an omission, much less a curable one. When different contingencies are dealt with under different sections of the Act, allowing an illegality to be perpetrated and then taking a plea by the Revenue that such an action adopted on their part would not nullify the proceedings, cannot be appreciated since by virtue of such actions, the Revenue has attempted to nullify the scheme of things of limitations legally propounded under the Act.... 29. In yet another decision of the Division Bench of this Court in the case of Smt. R.V. Sarojini Devi (supra), which was relied on by the learned senior counsel for the petitioners, it was held as follows:- Under Section 158BC of the Act empowers the assessing officer to determine the undisclosed income of the block period in the manner laid down in Section 158BB and 'the provisions of Section 142, subsections (2) and (3) of Section 143, Section 144 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etitioner 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 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 not apply for the assessment year 2008-09 and would apply only from the assessment year 2010-2011 and later years is not tenable in as much as the language of Sub-section (1) of Section 144C referring to the cut off date of 01.10.2009 indicates an intention of the legislature to make it applicable, if there is a proposal by the Assessing Officer to make a variation in the income or loss returned by the assessee which is prejudicial to the assessee, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 amount. Thus, while issuing the corrigendum, the second respondent did not even withdraw the taxable amount determined by him or updated the status in the website. In any event, such an order dated 26.03.2013 passed by the second respondent can only be construed as a final order passed in violation of the statutory provisions of the Act. The corrigendum dated 15.04.2013 is also beyond the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment order passed by the Assessing Officer u/s 143(3) is without jurisdiction. Further, the issuance of a show-cause notice cannot be equated and treated as a draft assessment order as the same would make the provisions of section 144C redundant. Accordingly, we quash and set aside the impugned assessment order. The ground of assessee s appeal is thus allowed. 14. Following the aforesaid decision of the Coordinate Bench, in the instant case, since the AO has failed to follow the mandate of the provisions of section 144C of the Act whereby he was required to pass a draft assessment order which is mandatory and is prescribed by the statute, the final assessment order passed by the Assessing Officer u/s 143(3) r/w 144C is without jurisdiction. Further, the issuance of a show-cause notice cannot be equated and treated as a draft assessment order as the same would make the provisions of section 144C redundant. Accordingly, we quash and set aside the impugned assessment order. The ground no. 1 of assessee s appeal is thus allowed. 15. Since we have quashed the assessment order, there is no necessity to address the ot ..... X X X X Extracts X X X X X X X X Extracts X X X X
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