TaxTMI 
TaxTMI 
TaxTMI 
2018 (4) TMI 864
X X X X Extracts X X X X
X X X X Extracts X X X X
....o the additional grounds of appeal raised by the assessee, which read as under:- 1. That on the facts and circumstances of the case and in law, the assessment order dated March 26, 2013 issued by the Assessing Officer ("AO") is bad in law and void ab initio as the same has been passed in violation of section 144C of the Income-tax Act, 1961 ("Act"). 2. That on the facts and circumstances of the case and in law, the AO erred in violating the procedure laid down under section 144C of the Act by issuing notice of demand and penalty notice under section 274 read with section 271(1)(c) of the Act along with the assessment order dated March 26, 2013 instead of issuing a draft assessment order. 4. The grounds of appeal raised by the assessee are against draft assessment order passed by the Assessing Officer, under which it has not only crystallized the demand but also initiated penalty proceedings under section 271(1)(c) of the Act. The said issue raised by the assessee by way of additional grounds of appeal is purely legal issue and does not require any adjudication of facts, hence the same is admitted for adjudication. The learned Authorized Representative for the assessee also p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t the same or file objections before the Dispute Resolution Panel (DRP). He further pointed out that objections were raised before the DRP on merits but no such preliminary issue was raised and the said objections were dismissed. The Assessing Officer thereafter, passed order under section 143(3) r.w.s. 144C(13) of the Act, dated 31.12.2013, wherein the said adjustment on account of arm's length price of international transactions was made in the hands of assessee. He pointed out that draft assessment order passed by the Assessing Officer, wherein the demand notice was issued along with notice for initiation of penalty proceedings is in fact assessment order passed by the Assessing Officer determining the demand payable. He stated that jurisdictional issue raised in the present appeal is squarely covered by various orders of Tribunal. 8. The learned Departmental Representative for the Revenue on the other hand, placed reliance on the orders of authorities below and also pointed out that demand notice issued as per information received from the Assessing Officer has not been served upon the assessee and hence, no merit in the plea of learned Authorized Representative for the as....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed to issue draft assessment order proposing to make the addition. However, the Assessing Officer called the said order to be draft assessment order but assessed income in the hands of assessee and further issued demand notice along ITNS-150, after charging interest under sections 234A, 234B & 234C, etc. He also initiated penalty proceedings under section 271(1)(c) of the Act. Undoubtedly, the assessee on understanding that the same was draft assessment order, made objections to the DRP, who gave certain directions and thereafter, the Assessing Officer passed an order under section 143(3) r.w.s. 144C(13) of the Act. However, in order to adjudicate the issue raised, we need to make reference to the provisions of section 144C of the Act. 11. We find that similar issue of assessment to be framed under section 143(3) r.w.s. 144C of the Act arose before the Pune Bench of Tribunal in Soktas India (P) Ltd. Vs. ACIT (supra). 12. The Tribunal after noting the facts that the Assessing Officer had passed the order under section 143(3) r.w.s 92CA(3) and 144C of the Act and had also issued demand notice under section 156 of the Act and had also issued notice under section 274 r.w.s. 271(1....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e assessment order passed by the Assessing Officer was final assessment order, it did not have any jurisdiction to issue any directions on such final assessment order. After receiving the DRP's order, the assessee filed an application before the Assessing Officer for necessary action. The Assessing Officer in reply, vide letter dated 30.01.2015 stated that the DRP had clearly mentioned that the order passed on 28.02.2014 was final order and not draft order, so the Assessing Officer does not have any jurisdiction over the case. 7. In order to adjudicate the issue, reference needs to be made to the provisions of section 144C of the Act. Under the provisions of section 144C of the Act, it is provided that where the Assessing Officer proposes to make, on or after 01.10.2009, any variation in the income or loss returned, which is prejudicial to the interest of assessee, then the Assessing Officer shall in the first instance forward the draft of the proposed order of assessment to the eligible assessee. Under sub-section (2) of section 144C of the Act on receipt of the draft order, the eligible assessee shall within 30 days of the receipt, file his acceptance of the variation to the A....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... interests of assessee. Only after complying with the conditions laid down in section 144C of the Act, the Assessing Officer is empowered to pass the order under section 143(3) r.w.s. 144C of the Act completing the assessment on such enhanced income or variation in the loss returned by the assessee. 8. The Hon'ble Madras High Court in the case of Vijay Television Writ Petition Nos.1526 and 1527 of 2014 & M.P. Nos.1 and 1 of 2014, it was held that non-passing of draft assessment order after adjustment made by the TPO renders proceedings null & void by observing as under:- "Under Section 144C(1) of the Act, with effect from 1st October 2009, the Assessing Officer has to mandatorily issue a draft assessment order if there is a proposed variation to the return which are prejudicial to the eligible assessee. The fact that the petitioner is an eligible assessee is not in dispute. While so, under section 144C(2) of the Act, the eligible assessee has the option, either to accept the variation or to file their objections before the DRP and such option has to be exercised within 30 days. On such objections filed by the assessee, the DRP shall issue appropriate direction for the guidanc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ee under section 144C of the Act, observed that where the Assessing Officer proposes to make on or after 01.10.2009, any variation in the income or loss returned by the assessee, then notwithstanding to the contrary contained in the Act, he shall first pass the draft assessment order, forward the same to the assessee and after assessee files his objections, if any, the Assessing Officer shall complete the assessment within one month, in view of the provisions of section 144C of the Act. It was further observed that the assessee is also given an option to file an objection before the DRP, in which the latter can issue directions for the guidance of Assessing Officer to enable him to complete assessment. Where the Assessing Officer accepted the variation submitted by the TPO without giving the petitioner any opportunity to object to it and pass the assessment order, it was held by the Hon'ble High Court of A.P that the impugned order of assessment was clearly contrary to section 144C of the Act and was without jurisdiction, null and void. The objection of the Revenue that the Circular No.5/2010 of the CBDT which laid down that the provisions of section 144C of the Act shall not apply....
X X X X Extracts X X X X
X X X X Extracts X X X X
....held as under:- "4. The Petitioner had consequent to the assessment order dated 23rd March 2015 filed its objection in terms of Section 144C(2) of the Act to the Dispute Resolution Panel ("DRP"). By an order dated 7th October, 2015, the DRP refused to pass any direction on the objections because the objections had been filed in respect of a final order under Section 143(3) of the Act and not in respect of the draft assessment order passed under Section 144C(1) of the Act. The order dated 7th October, 2015 of the DRP holds that its jurisdiction is only to entertain objections with regard to draft assessment order passed under Section 144C(1) of the Act. 5. However, it is pertinent to note that the order dated 7th October, 2015 of the DRP in paragraph (3) thereof records that "There is no dispute that the assessee is a foreign company". This position is undisputed even before us. Therefore, in view of Section 144C(15) of the Act which defines eligible assessee to whom Section 144C(1) of the Act applies to inter alia mean any foreign company. Therefore, a draft assessment order under Section 144C(1) of the Act is mandated before the Assessing Officer passes a final order under S....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to issue show cause notice to the assessee to the said additions, by way of draft assessment order. The demand does not get crystallized in draft assessment order. Undoubtedly, the Assessing Officer had issued covering letter where it says that it is draft assessment order but in spirit, it had finalized the assessment, wherein the demand was crystallized and demand notice was issued to the assessee. The Assessing Officer has not followed the correct procedure as provided in the Statute and has passed final assessment order without passing draft assessment order which is against the provisions of the Act and hence, the same is invalid in law. Reliance is placed on the ratio laid down by the Hon'ble Bombay High Court in International Air Transport Association Vs. DCIT (supra) and the Hon'ble Madras High Court in Vijay Television Pvt. Ltd. Vs. DRP & Others (supra) and the Hon'ble High Court of Andhra Pradesh in M/s. Zuari Cements Ltd. Vs. ACIT (supra). We hold that the assessment order passed in the case is invalid and the same is set aside. Since we have decided the preliminary issue in favour of assessee, the other grounds of appeal against the additions made become academic and th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....urt are in para 21 which reads as under:- "21. In almost identical facts, in Turner International (supra), this Court held in favour of the Assessee on the ground that it was mandatory for the AO to have passed a draft assessment order under Section 144C of the Act prior to issuing the final assessment order. The following passages from said decision are relevant for the present purposes: "11. The question whether the final assessment order stands vitiated for failure to adhere to the mandatory requirements of first passing draft assessment order in terms of Section 144C(1) of the Act is no longer res intregra. There is a long series of decisions to which reference would be made presently. 12. In Zuari Cement Ltd. v. ACIT (decision dated 21st February, 2013 in WP(C) No.5557/2012), the Division Bench (DB) of the Andhra Pradesh High Court categorically held that the failure to pass a draft assessment order under Section 144C (1) of the Act would result in rendering the final assessment order "without jurisdiction, null and void and unenforceable." In that case, the consequent demand notice was also set aside. The decision of the Andhra Pradesh High Court was affirmed by the S....