TaxTMI 
TaxTMI 
2019 (10) TMI 394
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....ice to above and in the alternate; 2 On the facts and in the circumstances of the case and in law, ld. CIT(A) has grossly erred in confirming the disallowance of interest paid of Rs. 1,31,425/- made by 1d.A0 without considering the submissions/ explanations filed in respect of Associates Enterprises, merely on the basis of the order of TPO passed u/s 92C(3) of the Act. 2.2 That the Id. CIT(A) has further erred in not considering the fact that the assessee had paid interest @ 13% on funds borrowed from banks, and thus a payment of interest @15%, which is 2% plus bankrate, was an acceptable parameter to establish arm's-length rate being considered by the assessee, for paying interest on funds borrowed from Associated enterprises, thus the addition of Rs. 1,31,425/- deserves to be deleted. 3. On the facts and in the circumstances of the case and in law, ld. CIT(A) has grossly erred in confirming disallowance of Rs. 2,00,000/- out of lump sum disallowance of Rs. 5,00,000/- made by ld.AO out of various expenses like general, office, travelling etc. claimed by assessee by ignoring that complete details in respect of the expenses claimed by assessee were sub....
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....re, as against the returned income of Rs. 3,89,66,220/-, the assessed income was determined at Rs. 3,89,66,220/- by passing an order u/s 143(3) read with section 144C of the Act dated 15.12.2017. Along with the assessment order, a notice of demand was issued u/s 156 raising a demand of Rs. 7,76,010. Separately, penalty proceedings u/s 271(1)(c) were also initiated for furnishing of inaccurate particulars of income. 4. Being aggrieved, the assessee carried the matter in appeal before the ld. CIT(A) and one of the ground raised was relating to passing the impugned order u/s 143(3)/143C directly without passing the draft proposed order ignoring the provisions of section 144C of the Act and submissions were made. However, the ld. CIT(A) did not accept the contentions so advanced by the assessee and the relevant findings of the ld CIT(A) are contained at para 3.1.2(iii) of his order which reads as under:- "(iii) Thus, as per the above section, draft order is to be forwarded to the appellant before making any additions on account of transfer pricing adjustment. The appellant relied on a number of judgments in support of its claim. However, it is seen that the procedure lap....
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....se notice to explain the difference in the interest so claimed and then directly passed the final order u/s 144C of the Act by making addition of the amount of adjustment made by the ld. TPO in the order passed u/s 92CA of the Act. 7. It was submitted by the ld AR that the order so passed is absolutely bad in law as the same was not made in accordance with provisions of clause (1) of sec 144C, which requires that AO should pass a draft assessment order, proposing the adjustments (if any) sought to be made to the returned income of the assessee to give effect the adjustment made by the Id. TPO as per its order. It was submitted that section 144C, providing for reference to Dispute Resolution Panel (DRP), was inserted in the Incometax Act, 1961 by Finance (No.2) Act, 2009. Subsection (1) of section 144C reads as under: "The Assessing Officer shall, notwithstanding anything to the contrary contained in this Act, in the first instance, forward a draft of the proposed order of assessment (hereinafter in this section referred to as the draft order) to the eligible assessee if he proposes to make, on or after the 1st day of October, 2009, any variation in the income or loss re....
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....ner of Income Tax' -WP(C) No. 5537/2012, DB of AP High Court. * Vijay Television Private Limited vs. DRP-2014 (6) TMI 540-Madras High Court * Turner International India Private Limited vs. Deputy Commissioner of Income Tax'-2017 (5) TMI 991- Delhi High Court * Capsugel Healthcare Ltd vs. ACIT ([2014] 50 taxmann.com 324 (Delhi- Trib.) * CIT vs. C-Sam (India) Private Limited-2017 (8) TMI 291- Gujarat High Court 11. It was finally submitted that the assessment order passed u/s 143 r.w.s. 144C, without affording opportunity to the assessee to object to the additions referred by ld. TPO, by passing a draft order in accordance with provisions of sec 144C(1) of the Act, is against principles of natural justice, un-enforceable, void ab-initio and deserves to be annulled and the assessee prays accordingly. 12. The ld. DR is heard who has relied on the findings of the lower authorities and submitted that adequate opportunity has been provided to assessee to submit objections against the ALP adjustments by the TPO as well as by the Assessing Officer. Accordingly, it is not a case where the rights of the assessee have been prejudiced in any manner by n....
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....rein an amount of Rs. 38,98,400/- was determined as payable by the assessee. Separately, the penalty proceedings u/s 271(1)(c) were also initiated for furnishing of inaccurate particulars of income and a notice u/s 274 read with section 271 dated 18.02.2015 was issued to the assessee company. It is therefore a case where not only that income has been finally determined by the AO computed, the tax payable thereon has also been computed and demand entries are made on the basis of this order in the D&CR register and even penalty proceedings are initiated. Such an exercise could not have been done if the assessment order was indeed a draft assessment order. Undoubtedly, if draft of assessment order is wrongly titled an assessment order, section 292B should have come to the rescue of the Assessing Officer. However given the fact that resultant tax demand and penalty proceedings have been initiated, it is a final assessment order which has been passed by the Assessing Officer in substance and in effect. 18. Now, coming to the contention of the ld DR that adequate opportunity has been provided to assessee to submit objections against the ALP adjustments by the TPO as wel....
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.... order as no other additions had been made by the Assessing Officer apart from the adjustments made by the TPO. If the assessee had any objections on the proposed additions by the Assessing Officer, it should have filed such objections within 30 days before the DRP and the Assessing Officer. However, since the assessee had not filed any objections before the DRP and the Assessing Officer his contentions in this regard were not tenable. On appeal, the Coordinate Bench held as under: "7. We find that the issue is covered is now covered in favour in of the assessee by judgment of Hon'ble Madras High Court, in the case of Vijay Television (P.) Ltd v. Dispute Resolution Panel, wherein Hon'ble High Court has, inter alia, observed as follows: 20. Under Section 144 (C) of the Act, it is evident that the assessing officer is required to pass only a draft assessment order on the basis of the recommendations made by the TPO after giving an opportunity to the assessee to file their objections and then the assessing officer shall pass a final order. According to the learned senior counsel for the petitioners, this procedure has not been followed by the second responden....
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....ntioned supra, as per Section 144C (1) of the Act, the second respondent-assessing officer has no right to pass a final order pursuant to the recommendations made by the TPO. In fact, the second respondent-assessing officer himself has admitted by virtue of the corrigendum dated 15.04.2013, that the order dated 26.03.2013 is only a final order and it was directed to be treated as a draft assessment order. In this context, it is worthwhile to refer to the decision of the Honourable Supreme Court in the decision Deepak Agro Foods (supra) wherein in Para No.10, the Honourable Supreme Court discussed as to when an order could be construed as a final order:- "10. Shri Rajiv Dutta, learned senior counsel appearing on behalf of the appellant, submitted that in the light of its afore-extracted observations and a clear finding that the assessment order for the assessment year 1995-96 had been anti-dated, the order was null and void. It was urged that assessment proceedings after the expiry of the period of limitation being a nullity in law, the High Court should have annulled the assessment and there was no question of a fresh assessment. Thus, the nub of the grievance of the appel....
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....ssessment order is mandatory and it is prescribed by the statute. Therefore, this decision relied on by the learned standing counsel for the respondents cannot be made applicable to this case. 26. The learned senior counsel for the petitioners relied on the decision of the Allahabad High Court in the case of Shital Prasad Kharag Prasad (supra) wherein the Division Bench of the Allahabad High Court held that a notice contemplated under Section 148 of the Income Tax Act is a jurisdictional notice and it is not curable by issuing a notice under Section 292 B of the Act, if it was not served in accordance with the provisions of the Act. 27. Similarly, the Division Bench of this Court in the decision in the case of V. Ramaiah (supra) Madras held that when an order is passed under Section 158BC of the Act instead of Section 158BD, it is not valid since it is not a defect curable under Section 292B of the Act. It was also held that an order passed after the period of limitation laid down in Section 158BC is not a valid order. It was further held that when there is a prescribed procedure contemplated under the Act or in a particular section and it is violated, th....
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....ing the procedure like issue of notice under Section 143 (2)/142. This does not provide accepting the return as provided under Section 143 (1) (a). The Officer has to complete the assessment order under Section 143 (3) only. If an assessment is to be completed under Section 143 (3) read with Section 158BC, notice under Section 143 (2) should be issued within one year from the date of filing of the block return. Omission on the part of the assessing officer to issue notice under Section 143(2) cannot be a procedural irregularity and is not curable." 30. It is evident from the above decision of the Division Bench of this Court that where there is an omission on the part of the assessing officer to follow the mandatory procedures prescribed in the Act, such an omission cannot be termed as a mere procedural irregularity and it cannot be cured. 31. In identical case as that of the case on hand, the Division Bench of the Andhra Pradesh High Court, in an unreported decision, had an occasion to consider the scope of the validity of the demand notice issued by the assessing officer in the case of Zuari Cement Ltd. (supra), wherein it was held as under:- "A reading....
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....t, would apply from 01.04.2009 i.e., from the assessment year 2010-2011. It is not disputed that the memorandum explaining the Finance Bill and the Notes and clauses accompanying the Finance Bill which preceded the Finance (No.2) Act, 2009 clearly indicated that the amendments relating to S.144C would take effect from 01.10.2009. In our view, the circular No.5/2010 issued by the CBDT stating that S.144C(1) would apply only from the assessment year 2010-2011 and subsequent years and not for the assessment year 2008-09 is contrary to the express language in S.144C(1) and the said view of the Revenue is unacceptable. The circular may represent only the understanding of the Board/Central Government of the statutory provisions, but it will not bind this Court or the Supreme Court. It cannot interfere with the jurisdiction and power of this Court to declare what the legislature says and take a view contrary to that declared in the circular of the CBDT (Ratan Melting and Wire Industries Case (1 Supra), Indra Industries (2 supra). The Revenue has not been able to pursuade us to take a contra view by citing any authority. In this view of the matter, we are of the view that....
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....ore, following the order passed by the Division Bench of the Andhra Pradesh High Court, which was also affirmed by the Honourable Supreme Court by dismissing the Special Leave Petition filed thereof, on 27.09.2013, the orders, which are impugned in these writ petitions are liable to be set aside.' 8. Learned Departmental Representative, on the other hand, submits that this lapse on the part of the Assessing Officer is at best a procedural lapse and the matter should, therefore, be restored to the file of the Assessing Officer for adjudication de novo. 9. We are, however, unable to see any legally sustainable merits in the stand so taken by the learned Departmental Representative. Hon'ble High Court's esteemed views, as extracted above, bind us and we have to respectfully follow the same. Accordingly, in due deference to this binding judicial precedent, and other binding judicial precedents referred to therein, we quash the impugned assessment order. It is a legal nullity. As for the show cause notice issued by the Assessing Officer, before making the ALP adjustment, this cannot be treated as a draft assessment order nor the assessee could have app....