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TMI Blog2024 (2) TMI 879X X X X Extracts X X X X X X X X Extracts X X X X ..... draft assessment order along with demand notice and penalty notice in the case of the assessee. We have perused the decision of Teleperformance Global Services pvt. Ltd. [ 2022 (12) TMI 223 - ITAT MUMBAI] and Cisco Systems Services B.V. [ 2023 (3) TMI 416 - KARNATAKA HIGH COURT] wherein held that at stage of passing draft assessment order when the ACIT also issued a demand notice procedure followed by the ACIT was contrary to law and said mistake could not be cured u/s 292B of the Act. In the various decisions of the coordinate benches of the ITAT Mumbai on identical issue on similar facts held that in case assessing officer has failed to follow the mandatory procedure laid down u/s 144C of the Act at the stage of passing draft assessment order, then final assessment order passed is null and void as the mistake committed in the draft assessment order is not curable u/s 292B of the Act. Thus we find merit in the submission of the assessee, therefore, we allow the additional ground raised by the assessee and quash the assessment order. - SHRI VIKAS AWASTHY, JUDICIAL MEMBER SHRI AMARJIT SINGH, ACCOUNTANT MEMBER For the Appellant : J.D. Mistri a/w Madhur Agrawal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /AO/DRP erred in making an upward adjustment of Rs. 35,34,81,542/- to the total income of the Appellant by holding that international transaction relating to provision of back office services by the Appellant to its AEs is not at arm's length. 2.2. The learned TPO/AO/DRP erred in rejecting application of the internal Transactional Net Margin Method ( TNMM ) submitted by the Appellant during the course of the assessment proceedings on a without prejudice basis. 2.3. Without prejudice to the other contentions, the learned AO/DRP erred in rejecting certified segmental profitability statement submitted by the Appellant during the course of the assessment proceedings. 2.4. The learned TPO/AO/DRP has erred in computing the adjustment by combining the transaction of provision of back office services, provision of IT enabled services, contracts entered by AE's on behalf of the Appellant and recovery of expenses for the purpose of benchmarking under provision of IT enabled services. 2.5. The learned AO/DRP erred in confirming the acceptance of alleged comparable companies selected by the learned TPO. 3.0 Re: Adjustment of Rs. 27,37,607/- relating to In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,978/- on the basis that no specific fixed assets has been acquired by the appellant. 5.2. The learned AO/DRP erred in considering the amount paid for acquisition of commercial rights under the contracts as non-compete fees. 5.3. The learned AO/DRP erred in not appreciating that section 32(1)(n) of the Income-tax Act 1961, includes depreciation on know-how, patents, copyrights, trade marks, licenses, franchises or any other business or commercial right of similar nature The expression 'any other business or commercial rights of similar nature' should mean to include all kinds of commercial rights. 5.4. The Appellant submits that the AO be directed to delete the disallowance of depreciation Rs. 7,272,978/- made by him to the Appellant's total income and to re-compute its total income and tax liability accordingly. Teleperformance Global Services pvt. Ltd. Vs. The ACIT, 12(2)(2) 5.5. Without prejudice, even if the payment for acquisition of commercial rights are considered as non-compete fees and for the purpose of business, the same ought to be deductible as business expenditure. 6.0 General 6.1. The AO erred in levying interest unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer by the assessing officer for determination of arm s length price in respect of transactions entered into by the assessee with its associate enterprise as reported in Form 3CEB filed by the assessee. The Transfer Pricing Officer vide order dated 29.01.2016 passed u/s 92CA(3) of the Act has made total adjustment amounting to Rs. 57,14,16,402/- to the value of the international transaction with the associate enterprise with regard to the arm s length price. Thereafter, the assessing officer vide Draft Assessment order u/s 143(3) r.w.s 144C of the Act dated 22.03.2016 proposed addition of Rs. 57,14,16,401/- in accordance with provision of Sec. 92CA(4) of the Act. 4. The assesse has filed objection before the Dispute Resolution Panel against the variation proposed by the assessing officer in the draft assessment order as a transfer pricing adjustment. The DRP vide direction u/s 144C(5) of the Act dated 23.12.2016 rejected the objections filed by the assessee. The assessing officer has passed final assessment order u/s 143(3) r.w.s 144C(13) of the Act on 31.01.2017 and total loss was assessed at Rs. 294,76,58,590/- after including the Transfer Pricing Adjustment as referred above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stated on the heading of the order that same was draft assessment order. The ld. D.R also submitted that there is no legal or Teleperformance Global Services pvt. Ltd. Vs. The ACIT, 12(2)(2) factual basis for deciding that a draft assessment order takes the form of final assessment order just because a notice of demand is sent along with it. The ld. D.R also mentioned that in the case of Vijay Television Pvt. Ltd. Vs. DRP as referred by the ld. Counsel final assessment order was passed instead of the draft assessment order in that case and is factually different. The ld. D.R also referred the case of Rasiklal Amritlal Doshi Vs. A. Nundy Addl. Income Tax Officer (1961) 42 ITR 35 (Bom) on the proposition that no notice of demand can be issued in the absence of order passed under or in pursuance of the Act. He also referred the decision of ITAT Bangalore in the case of Himalaya Drug Company Vs. ACIT (2014) 123 taxman.com 302 (Bang Trib) on the proposition that issuance of notice of demand along with draft assessment order could not vitiate assessment proceedings. 7. In rejoinder the ld. Counsel submitted that the case of the assessee squarely covered by the decision of Hon ble Karn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. 9. Heard both the sides at length and perused the material on record in respect of the additional ground of appeal filed by the assessee. The assessing officer has passed a draft assessment order u/s 144C of the Act on 23.03.2016 after making the TP adjustment of Rs. 57,14,16,402/- and total loss was assessed at Rs. 283,17,36,510/-. On perusal of the draft assessment order it is noticed that assessing officer has categorically mentioned assessed u/s 143(3) r.w.s 144C(1) of the Act and also stated give credit for the taxes paid if any as per system after due verification and tax and interest are as per ITNS 150A with which forms part of the draft assessment order. It is also mentioned to issue demand notice u/s 156 of the Act and penalty proceedings u/s 271(1)(c) of the Act are being initiated separately. We have also perused the copy of notice of demand u/s 156 of the Income Tax Act filed by the counsel in the paper book at page no. 1 which was issued along with draft assessment order on 23.03.2016. The relevant part of the notice of demand is reproduced as under: The ld. Counsel has also filed copy of penalty notice issued u/s 274 r.w.s 271(1)(c) of the Act and copy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7.03.2021. In the draft assessment order AO has made TP adjustment of Rs. 202,60,078/ - Teleperformance Global Services pvt. Ltd. Vs. The ACIT, 12(2)(2) 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 copy of computation sheet dated 17.03.2021 as per which the total demand payable of Rs. 101,06,122/- was determined on the basis of draft assessment order for which the impugned demand notice as referred above was issued to the assessee. It is evident from the above that assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment 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 Teleperformance Global Services pvt. Ltd. Vs. The ACIT, 12(2)(2) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment 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. 18. To sum up, we set-aside the assessment order by declaring it to be null and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eering 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 the considered view that the assessment order passed subsequent to the issue of d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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