2019 (8) TMI 1011 - AT - Income Tax

Appeal partly allowed due to procedural lapses, transfer pricing adjustment accepted under MAP

Yazaki India Private Limited Versus ACIT,   Circle-12, Pune

Yazaki India Private Limited Versus ACIT,   Circle-12, Pune - TMI Issues Involved:1. Validity of the draft assessment order and the final assessment order.2. Issuance of notice of demand and initiation of penalty proceedings.3. Compliance with the statutory procedure under Section 144C of the Income-tax Act, 1961.4. Impact of Mutual Agreement Procedure (MAP) on the assessment order.Issue-wise Detailed Analysis:1. Validity of the Draft Assessment Order and the Final Assessment Order:The assessee contended that the draft assessment order dated 27 December 2011 was not in compliance with Section 144C of the Income-tax Act, 1961, and should be declared void-ab-initio. The Tribunal noted that the Assessing Officer (AO) issued a final assessment order instead of a draft assessment order, which was a procedural lapse. The Tribunal referenced the Supreme Court's decision in National Thermal Power Company Ltd. Vs. CIT, which allows raising new legal questions if relevant facts are on record. The Tribunal admitted the additional grounds raised by the assessee, emphasizing that no fresh investigation of facts was necessary.2. Issuance of Notice of Demand and Initiation of Penalty Proceedings:The AO issued a notice of demand under Section 156 and initiated penalty proceedings under Section 271(1)(c) along with the draft assessment order. The Tribunal observed that the AO described the order as an 'Assessment order' and issued a demand notice, which should not have been done until the final assessment order was passed. The Tribunal held that issuing the demand notice and initiating penalty proceedings at the draft order stage was a procedural irregularity.3. Compliance with the Statutory Procedure under Section 144C:The Tribunal analyzed the statutory procedure under Section 144C, which mandates that the AO first issue a draft assessment order, followed by either acceptance by the assessee or objections to the Dispute Resolution Panel (DRP). The AO failed to follow this procedure, directly issuing a final assessment order and a demand notice. The Tribunal cited the Hon’ble Madras High Court in Vijay Television (P) Ltd. Vs. DRP, which quashed an assessment order for not following the mandatory procedure. The Tribunal concluded that the AO's procedural lapses vitiated the assessment order.4. Impact of Mutual Agreement Procedure (MAP) on the Assessment Order:The assessee accepted the MAP resolution concerning transfer pricing adjustments with its Associated Enterprise (AE), Yazaki Corporation, Japan. The Tribunal noted that under Rule 44H(4) of the Income-tax Rules, 1962, an accepted MAP resolution binds the assessee and substitutes the originally returned income with the additional income as per the resolution. The Tribunal directed that the total income should be adopted at Rs. 5,78,23,800/-, being the amount of Nil income originally returned plus the transfer pricing adjustment accepted under MAP. Other additions, including those related to non-YCJ AEs, were deleted due to the procedural irregularity.Conclusion:The Tribunal partly allowed the appeal, holding that the AO's assessment order was vitiated due to procedural lapses under Section 144C. However, the transfer pricing adjustment accepted by the assessee under MAP was sustained, and the total income was directed to be adopted accordingly. The order was pronounced in the Open Court on 12th July 2019.