TaxTMI 
TaxTMI 
2024 (2) TMI 879
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....td. Vs. The ACIT, 12(2)(2) transaction of provision of guarantee by the Appellant on behalf of its Associated Enterprise ("AE") is not at arm's length. 1.2. The learned TPO/AO/ DRP erred in not appreciating that considering the facts and circumstances of its case and the law prevailing on the subject, provision of corporate guarantee and performance guarantee cannot be considered as an "international transaction" and therefore the same is not required to be benchmarked. 1.3. The learned TPO/AO/ DRP erred in alleging that guarantees extended by the Appellant should be compensated by way of guarantee commission and thereby erred in alleging a guarantee fee @ 3.3% for both provision for corporate guarantee and performance guarantee, by relying on the average of the generic guarantee fee rates collected from various banks under section 133(6) of the Income-tax Act, 1961 ('the Act) and further adding an adhoc mark-up of 200 basis points to the same. 1.4. The learned TPO/AO/ DRP erred in completely disregarding the submissions of the Appellant providing the benchmarking methodology adopted by the Appellant on a without prejudice basis. 1.5. The learned TPO/AO/DRP erre....
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....terest received by it from its AEs on the loans granted by it is at arm's length and hence no adjustment in respect thereof was called for. 3.4. The learned AO/DRP erred in alleging the arm's length interest rate on loans granted at LIBOR plus 400 basis points on an adhoc basis. 4.0 Re: Adjustment of Rs. 57,86,224/- relating to notional interest on overdue receivables: 4.1. The learned TPO/AO/DRP erred in making an upward adjustment of Rs. 57,86,224/ to the total income of the Appellant by holding that international transaction relating to receivables is not at arm's length and alleging that a notional interest ought to have been charged on by the Appellant by considering the transaction of receivable as a transaction of intra-group loan. 4.2. The learned TPO/AO/DRP erred in not appreciating that considering the facts and circumstances of the case and the law prevailing on the subject, outstanding receivables cannot be considered as an "international transaction" and therefore the same is not required to be benchmarked 4.3 The learned AO/DRP erred in alleging the arm's length interest rate on overdue receivables at LIBOR plus 400 basis points on an ad....
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....ubmits that the Assessing Officer has erred in issuing a Notice of Demand dated 23 March 2016 u/s. 156 of the Act and a penalty Notice dated 23 March 2016 u/s 274 r.w.s.271 (1)(c) of the Act alongwith the Draft Assessment Order thereby not following the procedure laid down u/s. 144C of the Act. 1:3 The Appellant submits that the draft assessment order passed u/s.143(3) r.ws. 144C(1) of 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 loss of Rs. 55,92,45,705/- was filed on 30.11.2012. The case was subject to scrutiny assessment and notice u/s 143(2) of the Act was issued on 07.03.2013. The assessee company is a leading business process service provider in India. During the year under consideration M/s Intelenet Global Services Pvt. Ltd. was merged with M/s Serco BPO Pvt. Ltd. from 06.07.2011. The assessee company has fully owned Tele....
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....23.03.2016 without following the procedure laid down in Sec. 144C of the Act consequently the entire assessment proceedings is bad in law and not valid. In support of their contention the ld. Counsel has referred the decision of Hon'ble Madras High Court in the case of Vijay Television P. Ltd. Vs. DRP Chennai (2014) 46 taxman.com 100 (Madras) and decision of Hon'ble Karnataka High Court in the case of CIT(IT) v/s. Cisco Systems Services B.V. reported in (2023) [149 taxmann.com 486] and decision of the Pune Bench of the Tribunal in the case of Skoda Auto India Private Ltd v/s. ACIT (ITA No. 2344/Pun/2012) dated 03 June 2019 and decision of the Mumbai Bench of the Tribunal in the case of Brightstar Infrastructure Private Limited v/s. NFAC (ITA No. 746/Mum/2022) dated 30 June 2023 and decision of the Mumbai Bench of the Tribunal in the case of Marriott International Licensing Company BVV v/s. DCIT(IT) - 3(2)(1) (ITA No. 1621/Mum/2021) dated 03 February 2023 and decision of the Pune Bench of the Tribunal in the case of DCIT - Circle 8 v/s. Atlas Copco (India) Limited (ITA No. 649/Pun/2013) & (ΙΤΑ No 1726/Pun/2014) dated 29 August 2019 and decision of the Mumbai Bench of ....
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....ITNS 150A which forms part of this Order. Issue Notice of Demand u/s. 156 of the Act accordingly. Penalty proceedings u/s. 271(1)(c) (Explanation 7) of the I.T. Act are being initiated separately." 8. The ld. Counsel further submitted that the Hon'ble Karnataka High Court in the case of Cisco Systems Services B.V Vs. CIT(IT) as supra has clearly held that at the stage of passing the draft assessment order the issuance of notice of demand and penalty notice was contrary to the mandatory procedure laid down in Sec. 144C of the Act and same could not be cured u/s 292B of the Act. The ld. Counsel has also submitted that decision of Hon'ble Bombay High Court in the case of Rasiklal Amritlal Doshi Vs. A. Nundy, Addl. ITO (1961) 42 ITR 35 (Bom) as referred supra by the ld. D.R. is not applicable to the case of the assessee since in that case the assessing officer has issued notice of demand without issuing of order. In respect of decision of ITAT, Bangalore in the case of Himalaya Drug Company Services (Supra) referred by the ld. D.R the ld. Counsel submitted that decision is misplaced as now the same has been reversed by its jurisdictional Karnataka High Court in the case of Cisco Syst....
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....ase of CIT(IT) v/s. Cisco Systems Services B.V. reported in (2023) [149 taxmann.com 486] 2. Decision of the Pune Bench of the Tribunal in the case of Skoda Auto India Private Ltd v/s. ACIT (ITA No. 2344/Pun/2012) dated 03 June 2019 3. Decision of the Mumbai Bench of the Tribunal in the case of Brightstar Infrastructure Private Limited v/s. NFAC (ITA No. 746/Mum/2022) dated 30 June 2023." 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 290B of the Act. After taking into consideration the decision of Karnataka High Court in the case of CIT (IT) Vs. Cisco Systems Services B.V. (2023) 456 ITR 50 as referred supra we don't find any merit in the proposition made by the ld. D.R after referring the decision of the ITAT Bangalore as discussed. We have also perused the decision of ITAT Mumbai in the case of Brightstar Infrastructure Pvt. Ltd. vide....
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....d the decision of coordinate bench of ITAT in the case of Aker Powerg as P. Ltd. Vs. The DCIT, Circle 15(1)(1). The relevant part of the decision is reproduced as under: "019. We have carefully considered the rival contentions and perused the orders of the lower authorities. Admittedly the draft assessment order passed by the learned assessing officer on 21/12/2016 is accompanied with the notice of demand as well as show cause notice u/s 274 read with Section 271(1)(c) of the act of the even date. Issue that arises is Whether draft assessment order accompanied with [1] Notice of Demand, [2] tax Computation sheet and [3] Show Cause Notice for penalty u/s 271(1)(C) of the act, can it be considered as draft assessment order or a final assessment order. If it is a final assessment order then naturally the procedure laid down under the act has not been followed by the ld AO. In such circumstances, the assessment order passed by the ld AO becomes void ab intio and to be quashed. 020. We find that identical issue has been considered by the coordinate bench in 649/ Pun / 2013 in case of Atlas corpo India Ltd vide order dated 29/8/2019 wherein it has been held as Under:- "7. Briefl....
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....ithstanding anything to the contrary contained in this Act, in the first instance, forward a draft of the proposed order of assessment (hereafter 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 returned which is prejudicial to the interest of such assessee.' Subsection (2) of section 144C states that the assessee shall either file his acceptance to the AO on the variations proposed in the draft order or file his objections, if any, with the DRP. In case, the assessee accepts the variation in the draft order or no objections are received within 30 days, then subsection (3) states that: 'The Assessing Officer shall complete the assessment on the basis of the draft order'. In case, the assessee does not agree with the draft order, it can, inter alia, raise objections before the DRP, which shall issue directions under subsection (5) of section 144C. Upon receipt of the directions from the DRP, the AO completes the assessment under sub-section (13) in conformity with the directions given by the DRP. 10. An overview of section 144C of the Act deciphers tha....
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.... of the notice of demand under s. 156 on the basis of the order of assessment. The process of assessment thus commences with the filing of the return or where the return is not filed, by the issuance by the AO of notice to file the return under s. 142(1) and it culminates with the issuance of the notice of demand under s. 156. On going through the above precedents, it is manifested that the assessment proceedings come to an end on the issue of notice of demand u/s 156 of the Act. Once a notice of demand is issued, the AO becomes functus officio in so far as the completion of assessment is concerned. It consequently follows that issue of notice of demand marks the completion of the assessment. 12. Turning to the facts of the instant case, it turns out that the AO issued notice of demand on 29.12.2011 tantamounting to legally finalizing the assessment, which was just the stage of draft order. As against that, it was incumbent upon him to statutorily pass the final assessment order after the draft order and then issue notice of demand. Issue of notice of demand brings down the curtain on the process of assessment. Until notice of demand is issued, the assessment cannot be said t....
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....bad-Trib.) in which it has been held that the issuance of demand notice along with the draft order is only a procedural mistake. In our considered opinion, this case does not advance the Departmental stand. Unlike the assessee in the instant case not raising objections before the DRP and pursuing the appeal straight away before the ld. CIT(A), the assessee in that case adopted the route of the DRP. Be that as it may, it is found that similar issue came up for consideration before the Pune Benches of the Tribunal in series of cases including Eaton Fluid Power Ltd. Vs. DCIT (2018) 96 taxmann.com 512 (Pune Trib.). In that case also, the AO passed the draft order u/s.143(3) r.w.s. 144C(1) of the Act. Thereafter, he issued notice of demand u/s.156 and initiated penalty proceedings u/s.271(1)(c) of the Act. When this infirmity in not following the statutorily mandated procedure was pointed out, the Tribunal declared the assessment order to be without jurisdiction and hence, null and void. 16. It is observed that the facts and circumstances of the instant case are similar to those considered by the Pune Benches of the Tribunal in the case of Skoda Auto India Ltd. Vs. ACIT (supra) and E....
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....ssessee to be an eligible assessee. It is observed that the A.O. has issued the draft assessment order along with the notice of demand u/s. 156 and also notice u/s. 271(1)(c) of the Act dated 29.12.2016. The moot question here is whether the A.O.'s action in issuing the demand notice along with the draft assessment order is only a procedural defect or it makes the assessment order bad in law, thereby making it null and void. For this proposition, we would like to place our reliance on some of the decisions cited by the assessee which are as follows: 11. The assessee has relied on the decision of the Hon'ble Madras High Court in the case of Vijay Television (P.) Ltd. (supra), which has held that when there is an omission by the A.O. in following the mandatory procedure prescribed by the law, then the said omission cannot be considered as a mere procedural irregularity and the same cannot be cured. The ld. AR also placed reliance on the decision of the co-ordinate bench in the case of Aker Powergas P. Ltd. (supra), which has held that the issuing of draft assessment order along with the demand notice is said to be not following the mandatory provisions of the Act as per section 14....