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TMI Blog2023 (10) TMI 1310X X X X Extracts X X X X X X X X Extracts X X X X ..... R SHRI AMARJIT SINGH, ACCOUNTANT MEMBER For the Appellant : Ketan Ved/Ms. Urvi Mehta/Abdulkadir Jawadwala For the Respondent : Aditya M Rai ORDER Per Amarjit Singh (AM): This appeal filed by the assessee and directed against the order passed by the AO: NFAC, dated 23.02.2022 for A.Y. 2017-18 as per the direction of the DRP issued u/s 144C(5) of the Act. The assessee has raised the following grounds before us: The Id Assessing Officer [AD], Ld. Transfer Pricing Officer [TPO ] and Hon'ble Dispute Resolution Panel (DRP) erred in law and in fact in assessing the total income of INR 4,50,34,428 as against returned income of INR 2,55,74,350 as computed by the Appellant in its return of income Transfer Pricing adjustment on account of payment of interest on Fully Compulsory Convertible Debentures ( FCCDs ) - INR 2,02,60,078 1. On the facts and circumstances of the case and in law, the order passed under section 143(3) r.w.s. 144C of the Income Tax Act, 1961 (the Act ) by the Ld. AO is erroneous and bad in law; 2. The Ld AO/TPO/Hon'ble DRP has erred in upholding transfer pricing addition of INR 2,02,60,078 on account of an adjus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act be struck down as void-ab-initio and bad in law and consequently the entire assessment proceedings ought to be quashed 2:0 Re: General: 2:1 The Appellant craves leave to add, alter, amend, substitute and/or modify in any manner whatsoever all or any of the foregoing grounds of appeal at or before the hearing of the appeal. 2. Fact in brief is that return of income declaring total income at Rs. 255,74,350/- was filed on 28.10.2017. The case was subject to scrutiny assessment and notice u/s 143(2) of the Act was issued on 22.08.2018. The assessee company Brightstar Infrastructure Private Limited incorporated on 26.07.2005. The company is a joint venture between Ruchi Reality Holding Limited and Shubham S.A. Investment LLC, holding 55% and 45% stake respectively in the company. The company was engaged in the business of real estate development. 3. In the case reference u/s 92CA(1) of the Act was made to Transfer Pricing Officer vide letter dated 18.09.2019 by the assessing officer. The reference has been made for determination of arm s length price in respect of the transaction entered into by the assessee with its associated enterprise as reported in F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Power Company Vs. CIT (229 ITR 386) these ground of appeal are admitted and are taken up for adjudication. On the other hand, the ld. D.R supported the order of lower authorities. 7. Heard both the parties and perused the material on record. The assessing officer has passed the draft assessment order u/s 144C of the Income Tax Act 1961 on 17.03.2021. In the draft assessment order AO has ma de TP adjustment of Rs. 202,60,078/ - and total income was assessed at Rs. 458,34,428/-. On perusal of the draft assessment order it is also noticed that assessing officer has also mentioned that the assessment of income is done as per computation sheet and the sum payable is determined as per the demand notice. We have further noticed from the copy of notice of demand u/s 156 of the Income Tax filed by the ld. Counsel that the assessing officer has issued this notice of demand to the assessee company along with draft assessment order on 17.03.2021 directing the assessee that for the assessment year 2017-18 a sum of Rs. 101,06,120/ - has been determined to be payable by the assessee. The relevant part of the notice of demand is reproduced as under: 8. The ld. Counsel has also filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f ₹ 1,44,59,01,250/-. Certain international transactions were reported by the assessee. The Assessing Officer (AO) made a reference to the Transfer Pricing Officer (TPO) for determining the arm s length price (ALP) of the international transactions. The TPO passed the order u/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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve order which does not fasten any tax liability on the assessee. In case variations to the income in the draft order are accepted by the assessee or no objections are received within 30 days, the AO completes the assessment under section 144C(3) on the basis of draft order and the matter ends. In 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, wheth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was confronted with a situation in which the AO, pursuant to the order of the TPO, passed a final assessment order instead of a draft order. A question arose as to whether the order so passed could be treated as a valid order. Accepting the contention of the assessee, the Hon ble High Court set aside 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. Ltd. (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the stage of passing the final order, thereby assigning the finality to the assessment at the stage of draft order itself, we hold that the resultant final assessment order got vitiated in the eyes of law and hence cannot stand. 17. Before parting, we would like to clarify that for the assessment year 2006-07 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Apex Court and the Hon'ble High Court decision in the case of Sun Engineering Works and various other decisions. The Tribunal has also held that the participation in subsequent proceedings does not prevent the assessee from challenging the validity of the order by relying on the decision of the Hon'ble Apex Court in the case of CIT vs. V. MR. P. Firm, Mura 56 ITR 67 (SC) and the assessment proceeding culminated on the issue of demand notice and the penalty notice u/s. 274 of the Act, thereby is making subsequent proceedings to be non-est in law. The said decision of the tribunal has also stated that section 156 of the Act does not state a draft demand notice thereby buttressing the contention of the ld. DR that the impugned demand notice was only a draft demand notice. We would also place our reliance on the decision of the co- ordinate bench in the case of Atlas Copco (India) Limited (supra), which held that the issuance of notice of demand at the stage of draft order has brought a finality to the assessment at the stage of the draft order itself and the resultant final assessment is vitiated in law and is unsustainable. 12. From the above observation, we are of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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