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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 ..... in the circumstances of the case and in law, ld. CIT(A) has grossly erred in confirming the disallowance of interest paid of Rs. 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. 2.2 That the Id. CIT(A) has further erred in not considering the fact that the assessee had paid interest @ 13% on funds borrowed from banks, and thus a payment of interest @15%, which is 2% plus bankrate, was an acceptable parameter to establish arm's-length rate being considered by the assessee, for paying interest on funds borrowed from Associated enterprises, thus the addition of Rs. 1,31,425/- deserves to be deleted. 3. On the facts and in the circumstances of the case and in law, ld. CIT(A) has grossly erred in confirming disallowance of Rs. 2,00,000/- out of lump sum disallowance of Rs. 5,00,000/- made by ld.AO out of various expenses like general, office, travelling etc. claimed by assessee by ignoring that complete details in respect of the expenses claimed by assessee were submitted before the Ld. AO. Thus, the disallowance of Rs. 2,00,000/-sustained b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 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 raising a demand of Rs. 7,76,010. Separately, penalty proceedings u/s 271(1)(c) were also initiated for furnishing of inaccurate particulars of income. 4. Being aggrieved, the assessee carried the matter in appeal before the ld. CIT(A) and one of the ground raised was relating to passing the impugned order u/s 143(3)/143C directly without passing the draft proposed order ignoring the provisions of section 144C of the Act and submissions were made. However, the ld. CIT(A) did not accept the contentions so advanced by the assessee and the relevant findings of the ld CIT(A) are contained at para 3.1.2(iii) of his order which reads as under:- "(iii) Thus, as per the above section, draft order is to be forwarded to the appellant before making any additions on account of transfer pricing adjustment. The appellant relied on a number of judgments in support of its claim. However, it is seen that the procedure lapse has not caused any prejudice to the appellant. The AO gave the opportunity to the appellant by issuing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4C of the Act by making addition of the amount of adjustment made by the ld. TPO in the order passed u/s 92CA of the Act. 7. It was submitted by the ld AR that the order so passed is absolutely bad in law as the same was not made in accordance with provisions of clause (1) of sec 144C, which requires that AO should pass a draft assessment order, proposing the adjustments (if any) sought to be made to the returned income of the assessee to give effect the adjustment made by the Id. TPO as per its order. It was submitted that section 144C, providing for reference to Dispute Resolution Panel (DRP), was inserted in the Incometax Act, 1961 by Finance (No.2) Act, 2009. Subsection (1) of section 144C 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 returned which is prejudicial to the interest of such assessee." 8. In view of above provisions, before a final order, p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court * Turner International India Private Limited vs. Deputy Commissioner of Income Tax'-2017 (5) TMI 991- Delhi High Court * Capsugel Healthcare Ltd vs. ACIT ([2014] 50 taxmann.com 324 (Delhi- Trib.) * CIT vs. C-Sam (India) Private Limited-2017 (8) TMI 291- Gujarat High Court 11. It was finally submitted that the assessment order passed u/s 143 r.w.s. 144C, without affording opportunity to the assessee to object to the additions referred by ld. TPO, by passing a draft order in accordance with provisions of sec 144C(1) of the Act, is against principles of natural justice, un-enforceable, void ab-initio and deserves to be annulled and the assessee prays accordingly. 12. The ld. DR is heard who has relied on the findings of the lower authorities and submitted that adequate opportunity has been provided to assessee to submit objections against the ALP adjustments by the TPO as well as by the Assessing Officer. Accordingly, it is not a case where the rights of the assessee have been prejudiced in any manner by not passing a draft order and against the assessment order so passed by the Assessing officer, the assessee had a right to file an appeal before the ld CIT(A) and su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome and a notice u/s 274 read with section 271 dated 18.02.2015 was issued to the assessee company. It is therefore a case where not only that income has been finally determined by the AO computed, the tax payable thereon has also been computed and demand entries are made on the basis of this order in the D&CR register and even penalty proceedings are initiated. Such an exercise could not have been done if the assessment order was indeed a draft assessment order. Undoubtedly, if draft of assessment order is wrongly titled an assessment order, section 292B should have come to the rescue of the Assessing Officer. However given the fact that resultant tax demand and penalty proceedings have been initiated, it is a final assessment order which has been passed by the Assessing Officer in substance and in effect. 18. Now, coming to the contention of the ld DR that adequate opportunity has been provided to assessee to submit objections against the ALP adjustments by the TPO as well as by the Assessing Officer. Accordingly, it is not a case where the rights of the assessee have been prejudiced in any manner. In other words, the contentions of the ld DR is that where show-cause notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch objections within 30 days before the DRP and the Assessing Officer. However, since the assessee had not filed any objections before the DRP and the Assessing Officer his contentions in this regard were not tenable. On appeal, the Coordinate Bench held as under: "7. We find that the issue is covered is now covered in favour in of the assessee by judgment of Hon'ble Madras High Court, in the case of Vijay Television (P.) Ltd v. Dispute Resolution Panel, wherein Hon'ble High Court has, inter alia, observed as follows: 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtue of the corrigendum dated 15.04.2013, that the order dated 26.03.2013 is only a final order and it was directed 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 the 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 in the light of its afore-extracted 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad High Court in the case of Shital Prasad Kharag Prasad (supra) wherein the Division Bench of the Allahabad High Court held that a notice contemplated under Section 148 of the Income Tax Act is a jurisdictional notice and it is not curable by issuing a notice under Section 292 B of the Act, if it was not served in accordance with the provisions of the Act. 27. Similarly, the Division Bench of this Court in the decision in the case of V. Ramaiah (supra) Madras held that when an order is passed under Section 158BC of the Act instead of Section 158BD, it is not valid since it is not a defect curable under Section 292B of the Act. It was also held that an order passed after the period of limitation laid down in Section 158BC is not a valid order. It was further held that when there is a prescribed procedure contemplated under the Act or in a particular section and it is violated, then it cannot be cured. In the present case, certain procedure has been contemplated under Section 144C of the Act and they have been violated by the second respondent by passing final order of assessment and therefore such order passed by the second respondent has got no jurisdiction or it can be cured by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2) should be issued within one year from the date of filing of the block return. Omission on the part of the assessing officer to issue notice under Section 143(2) cannot be a procedural irregularity and is not curable." 30. It is evident from the above decision of the Division Bench of this Court that where there is an omission on the part of the assessing officer to follow the mandatory procedures prescribed in the Act, such an omission cannot be termed as a mere procedural irregularity and it cannot be cured. 31. In identical case as that of the case on hand, the Division Bench of the Andhra Pradesh High Court, in an unreported decision, had an occasion to consider the scope of the validity of the demand notice issued by the assessing officer in the case of Zuari Cement Ltd. (supra), wherein it was held as under:- "A reading of the above section shows that if the assessing officer proposes to make, on or after 01.10.2009, any variation in the income or loss returned by an assessee, then, notwithstanding anything to the contrary contained in the Act, he shall first pass a draft assessment order, forward it to the assessee and after the assessee files his objections, if any, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the CBDT stating that S.144C(1) would apply only from the assessment year 2010-2011 and subsequent years and not for the assessment year 2008-09 is contrary to the express language in S.144C(1) and the said view of the Revenue is unacceptable. The circular may represent only the understanding of the Board/Central Government of the statutory provisions, but it will not bind this Court or the Supreme Court. It cannot interfere with the jurisdiction and power of this Court to declare what the legislature says and take a view contrary to that declared in the circular of the CBDT (Ratan Melting and Wire Industries Case (1 Supra), Indra Industries (2 supra). The Revenue has not been able to pursuade us to take a contra view by citing any authority. In this view of the matter, we are of the view that the impugned order of assessment dated 23.12.2011 passed by the respondent is contrary to the mandatory provisions of S.144C of the Act and is passed in violation thereof. Therefore, it is declared as one without jurisdiction, null and void and unenforceable. Consequently, the demand notice dated 23.12.2011 issued by the respondent is set aside." 32. As against this order of the Divis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing Officer is at best a procedural lapse and the matter should, therefore, be restored to the file of the Assessing Officer for adjudication de novo. 9. We are, however, unable to see any legally sustainable merits in the stand so taken by the learned Departmental Representative. Hon'ble High Court's esteemed views, as extracted above, bind us and we have to respectfully follow the same. Accordingly, in due deference to this binding judicial precedent, and other binding judicial precedents referred to therein, we quash the impugned assessment order. It is a legal nullity. As for the show cause notice issued by the Assessing Officer, before making the ALP adjustment, this cannot be treated as a draft assessment order nor the assessee could have approached the DRP against the same. Learned CIT(A) was thus clearly in error in equating the show cause notice with a draft assessment order against, and thus rationalizing the impugned assessment order. The stand of the CIT(A) cannot be upheld. In a case in which no draft assessment order is furnished to the assessee, to which assessee is entitled under section 144C (15), the assessment order passed by the AO is to be held ..... X X X X Extracts X X X X X X X X Extracts X X X X
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