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TMI Blog2022 (6) TMI 1118X X X X Extracts X X X X X X X X Extracts X X X X ..... d Shri Rahul Chaudhary, JM For the Assessee : Shri Ketan Ved, Ms. Shraddha Jain, ARs For the Revenue : Shri Vivek A Perampurna, DR ORDER PER PRASHANT MAHARISHI, AM: 01. This appeal is filed by Aker Power gas private limited [ the Assessee/Appellant] for assessment year 2013 14 against the order passed u/s 143 (3) read with Section 14C (13) of The Income Tax Act 1961, (The Act) dated 27th of October 2017 passed by The Deputy Commissioner Of Income Tax, Range 15 (1) (1), Mumbai (The Learned Assessing Officer/ AO) raising following grounds of appeal:- The appellant objects to the order under section 143(3) r.w.s. 144C(13) of the Income-tax Act, 1961 dated 27 October 2017 (received on 02 November 2017) passed by the Deputy Commissioner of Income-tax, Range 15(1)(1), Mumbai - (DCIT) for the aforesaid assessment year on the following among other grounds: 1. Transfer pricing adjustment under section 92CA (3) 1.1 The learned DCIT/ Dispute Resolution Panel ('DRP') has erred on facts and in law in completing assessment under section 144C/143(3) of the Income-tax Act, 1961 ('the Act') at an income of Rs.14,14,21,940 as against the inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 2017. 4. Initiation of penalty proceedings The learned DCIT erred in initiating penalty proceedings under section 271(1)(c) against the appellant. 5. Each one of the above grounds of appeal is without prejudice to the other. 02. At the time of hearing assessee moved an application for admission of additional ground on 29th of July 2021 by which it has challenged the validity of order as Under:- i. The assessing officer has erred in passing the draft assessment order dated 21st of December 2016 without following the procedures laid down in Section 144C of The Income Tax Act 1961 (The Act), and therefore the said order is to be held as void ab initio, and consequently the entire assessment proceedings ought to be quashed. ii. The appellant submits that the assessing officer has erred in issuing the notice of demand dated 21 December 2016 u/s 156 of the act and a penalty notice dated 21 December 2016 u/s 274 read with Section 271 (1) (C) of the act along with the draft assessment order thereby not following the procedures laid down u/s 144C of the act. iii. The appellant submits that the draft assessment order passed u/s 143 (3) read with Section 144C (1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 44,3403/- , b. payment for implementation of SNAP software of Rs 4, 81,44,289/ , c. management services availed of Rs 4,90,39,998/ , d. payment towards use of software and link rental amounting to ₹ 210,315,510, e. reimbursement of expenses of Rs 2,64,59,887/ and f. recovery of expenditure of Rs 2, 63,52,035/ 010. In its transfer pricing study report assessee used Internal Transactional Net Margin Method (TNMM) as the most appropriate method. Assessee selected return on total cost i.e. OP/OC as the profit level indicator, it computed its PLI on transactions with associated parties at 22.41%. It also bifurcated transactions with unrelated parties and stated that its gross profit margin with third party transaction is 24.53% and therefore as the operating margin earned by the assessee on transactions with its associated enterprises is more than the margin earned from third parties the international transactions are at arm s-length. 011. The learned transfer pricing officer examined the transfer pricing study report of the assessee and found that assessee has adopted internal transactional net margin method as the most appropriate method. He found that rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment order is placed. He also submitted that notice of demand u/s 156 of The Income Tax Act along with the income tax computation form and showcause notice u/s 274 read with Section 271 (1) of the income tax act of the same date. 016. To support his contention that the assessment order passed by the learned assessing officer is void ab initio and deserves to be quashed, he referred to the several judicial precedents as Under:- i. Atlas Copco India Ltd versus DCIT (ITA number 649/PU 1/2013 and 1726/UN/2014 ii. Preffetti van Millee India private limited versus ACIT ITA number 9116/del/2019 iii. Suretex profilatyics India private limited versus ACIT ITA number 430/bang /2016 iv. DCIT versus Rehau polymers private limited (2017) 85 taxmann.com 23 v. Skottas India private limited versus ACIT (2017) 77 taxman.com 19 vi. Mavenir India private limited versus DCIT ITA number 203/del/2010 vii. Skoda auto India private limited versus ACIT 2344/PU and/2012 viii. Jazzy creations private limited versus ITO 83 taxmann.com 244 ix. PCIT versus Lion bridge technologies private limited 100 taxmann.com 413 017. He referred to all those decision to show that on ide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s. 92CA(3) of the Act proposing transfer pricing adjustments. Then, the AO passed the order u/s.143(3) of the Act on 29-12-2011 marking it as Assessment order . At the end of this order, the AO remarked that: `This is the proposed order of assessment passed u/s.143(3) r.w.s.144C(1) of the Income Tax Act, 1961 determining the total income at ₹ 1,56,72,76,785/-. The assessee was also made aware that: `within 30 days of the receipt of this draft order , it should either file acceptance to the variations or file objections to such variations before the Dispute Resolution Panel. Thereafter, the AO proceeded to calculate tax in the same order directing to Issue demand notice and challan accordingly after giving credit to prepaid taxes, if any and further directing to `Issue notice u/s.274 r.w.s. 271(1)(c) of the I.T. Act, 1961 . A demand notice dated 29-12- 2011 was also simultaneously issued, a copy of which has been placed on record by the ld. AR. Then, the AO issued penalty notice u/s.274 r.w.s. 271(1)(c) of the Act, again, on 29-12-2012, whose copy has also been placed on record. Thereafter, the AO passed the final assessment order dated 27-02-2012 u/s.143(3) r.w.s. 144C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case the assessee objects to the variations in the income as proposed in the draft order and approaches the DRP, the final assessment order is passed by the AO u/s.144C (13) giving effect to the directions given by the DRP under sub-section (5). In case the assessee seeks to take the route of seeking redressal of its grievances through the channel of the CIT(A), in that case, again the AO has to pass a separate assessment order, which is obviously distinct from the draft order. So, it is only on the finalization of the variation in the income as per the draft order, to the extent specified in the provision, that the AO is obliged to pass an assessment order, either under sub-section (3) or (13) of section 144C of the Act, determining the tax liability, pursuant to which a notice of demand is issued. Thus it follows that, irrespective of the course of action followed by the assessee, whether or not accepting the variation in the draft order or choosing the route of the DRP or the CIT(A), a draft order has to be necessarily followed by an assessment order on the basis of which a notice of demand is issued and it is then that the assessment is said to have come to an end. 11. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the order passed by the AO by observing that: where there was omission on the part of the AO to follow the mandatory procedures prescribed in the Act, such omission cannot be termed as a mere procedural irregularity and it cannot be cured . Resultantly, the assessment order was quashed. Almost similar issue came up for consideration before the Hon ble jurisdictional High Court in Pr. CIT Vs. Lionbridge Technologies Pvt. Lt. (2019) 260 Taxman 273 (Bom.) in which the Tribunal in the first round restored the matter to the AO on the ground that the DRP failed to deal with the assessee s objections. During the remand proceedings, a reference was made to the TPO. On receipt of the TPO s order, the AO straightaway passed an order u/s.143(3) r.w.s. 144C(13), which action came to be disapproved by the Hon ble High Court. It, ergo, follows that the statutorily mandated procedure must be adhered to by the authorities, non-observance of which renders the assessment order null and void. 14. Similar issue came up for consideration before the Pune Benches of the Tribunal in Skoda Auto India Ltd. Vs. ACIT. In that case also the AO passed the draft order and simultaneously issued notic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 006-07 also, the assessee took similar argument urging that the assessment order be declared null and void. We have noted above that the assessment proceedings get completed on the issue of notice of demand only. On examination of facts, the Tribunal for such earlier year found that even though penalty notice was issued u/s 274 but no notice of demand was issued u/s 156 of the Act pursuant to the draft order. It was under such circumstances that the Tribunal in ITA No. 1470/Pun/2010 vide its order dated 21.08.2019 did not accept the contention of the assessee to the effect that the assessment got concluded on the passing of the draft order and hence the final assessment order was a nullity. It is an altogether different matter that the initiation of penalty through the draft order carried some infirmity, but that would not impinge upon the validity of the assessment order. 18. To sum up, we set-aside the assessment order by declaring it to be null and void. Thus, the income offered in the return becomes total income of the assessee. 021. We do not find any reason to multiply the several judicial precedents on the facts of the present case. Therefore, respectfully followin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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