TaxTMI 
TaxTMI 
2024 (12) TMI 548
X X X X Extracts X X X X
X X X X Extracts X X X X
....der section 143(3) read with section 144C(13) of the Act, in pursuance of the directions issued by Dispute Resolution Panel-1, Mumbai (hereinafter referred to as 'learned DRP'), on the following grounds, which are independent of and without prejudice to each other. On the facts and in the circumstances of the case and in law, the learned Assessing Officer (hereinafter referred to as the 'learned AO')/ learned Transfer Pricing Officer (hereinafter referred to as the 'learned TPO) erred and Hon'ble DRP further erred: Validity of final assessment order 1. In directly passing the final assessment order under section 143(3) of the Act, without passing the draft assessment order as applicable in case of Appellant being 'eligible Assessee' as per section 144C(1) of the Act, thereby entire order which not in consonance of the Act should be quashed. In upholding the validity of corrigendum order in spite of the fact that the corrigendum cannot be resorted to cure an error of jurisdictional nature and in cases where the order proposed to be rectified by the corrigendum is in itself void ab initio on account of violation of the c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....(BPO Segment) merely on account of different financial year (FY); e) Rejecting Allsec Technologies Ltd and Jintal Intelicom Private Limited, by applying export turnover filter; f) Rejecting Sundaram Business Services Limited by on account of persistent losses in the past three years, despite in FY 2015-16 the company has earned profits; g) Rejecting Hartron Communications Limited (Segmental), on account of negative margin earned by the comparable company: h) Accepting following companies as comparables to the Appellant, despite the same not being comparable to that of the Appellant due to following factors such as functional dissimilarity, insufficient segmental informing, super normal profits, etc. * MPS Limited * Thirdware Solutions Limited Corporate tax grounds 5. In disallowing the amortization cost in respect of employee stock option plans (ESOP) granted to its employees [hereinafter collectively referred as ESOP cost] amounting to INR 8,95,03,698 incurred by the Appellant, on the basis that the ESOP costs are notional/contingent in nature. In disregarding the order of Hon'ble ITAT in the appe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ft assessment order dt. 28/12/2019 and also legality and validity of subsequent DRP and final assessment order. 4. Representatives of both the sides were heard at length. Case records carefully perused and judicial decision relied on have been carefully considered. 5. The quarrel revolves around the provisions of Section 144C of the Act and the same reads as under:- "11. Provisions of section 144C read as under: "144C. (1) 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 (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." 12. Most relevant clauses pertinent for adjudication of the quarrel reads as under: "(3) The Assessing Officer shall complete the assessment on the basis of the draft order, if- (a) the assessee intimates to the Assessing Officer the acceptance of the variation; or (b) no objections are receiv....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d serving demand notice u/s 156 of the Act. In our considered opinion, this action of the AO has brought the proceedings to an end and the proceedings initiated u/s 144C of the Act stands concluded. 7.1. In our considered view, the provisions of Section 144C of the Act triggers a series of steps prescribed in sub-Section (2) to Section 12 of the Act and as can be seen from the most relevant sub-Sections (3) and (13) (extracted supra), the assessment is completed either under sub- Section (3) or (13). A perusal of Section 144C of the Act shows that the AO shall, at the first instance forward the draft order of the proposed assessment and on receiving the said order, the assessee may approach the Dispute Resolution Panel (DRP), by raising objections. If the assesse accepts the variations, then the AO shall proceed by framing the final assessment order and if the objections are raised by the DRP, then, upon receipt of the directions issued by the DPR, the AO shall complete the assessment. However, we find that while drafting the said draft assessment order, the AO not only issued and served demand notice but has also initiated the penalty proceedings. Vide order dt. 10/01/2020, fra....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ith indications of the deductions, rebates, reliefs and adjustments available to the assessee, the calculation of the net tax payable is a process which is mostly arithmetical but generally time- consuming. If, therefore, the Income-tax Officer first draws up an order assessing the total income and, indicating the adjustments to be made, directs the office to compute the tax payable on that basis and then approves of it, either immediately or sometime later, no fault can be found with the process, though it is only when both the computation sheets are signed or initialled by the Income-tax Officer that the process described in section 143(3) will be complete." In our opinion, this decision, far from helping the Revenue, goes against it. The Supreme Court has in terms stated that assessment is one integrated process involving not only the assessment of the total income but also the determination of the tax. It has further observed that the latter is as crucial as the former. Therefore, unless the total income is determined and the determination of tax is also done, it cannot be said that the process of assessment is complete. What section 153 requires is that the assessment should b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ticular manner, it must be done in that way and none other. State cannot ignore the policy intent and procedure contemplated by the statute. 12. In light of the above ratio laid down by the Hon'ble Supreme Court, we are of the considered opinion that by issuing the demand notice on 28/12/2019 itself the Assessing Officer has by passed all the mandatory sub-sections of section 144C of the Act. 13. The question whether participation in subsequent proceedings would estop the assessee from challenging the validity of the order dated 28/12/2019 has been answered by the Hon'ble Supreme Court in the case of V Mr. T.P. Firm MUAR in 56 ITR 67 wherein the Hon'ble Supreme Court has laid down the ratio :- "Approbate and Reprobate" is only species of estoppel. It applies only to conduct of parties as in the case of estoppel, it cannot operate against the provisions of a statute. IF particular income is taxable under the I.T. Act, it cannot be taxed on the basis of estoppel or any other equal document. Equity is out of placed in tax place. A particular income is either exigible under the Income tax under taxing statute or not. If it is not, the ITO Has no power to tax the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rtain the objections filed on behalf of the petitioner company. 22. As mentioned 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 reported in (Deepak Agro Foods vs. State of Rajasthan and others) reported in (2008) 16 VST 454 (SC) 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 n....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... final order and it had jurisdiction to entertain objections only if it is a draft assessment order. While so, the order dated 26.03.2013 of the second respondent can only be termed as a final order and in such event it is contrary to Section 144C of the Act. As mentioned supra, in and by the order dated 26.03.2013, the second respondent determined the taxable amount and also imposed penalty payable by the petitioner. According to the learned senior counsel for the petitioners, even as on this date, the website of the department indicate the amount determined by the second respondent payable by the company inspite of issuance of the corrigendum on 15.04.2013 as a tax due amount. Thus, while issuing the corrigendum, the second respondent did not even withdraw the taxable amount determined by him or updated the status in the website. In any event, such an order dated 26.03.2013 passed by the second respondent can only be construed as a final order passed in violation of the statutory provisions of the Act. The corrigendum dated 15.04.2013 is also beyond the period prescribed for limitation. Such a defect or failure on the part of the second respondent to adhere to the statutory provi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ions, complete the assessment within one month from the end of the month in which such direction is received. A notice of demand under section 156 may be issued after completion of the assessment under section 144C(13). 17. In Vijay Television (P.) Ltd.'s case (supra), it is held as follows: "21. As rightly pointed out by the learned senior counsel for the petitioners, in the order passed on 26-3-2013, the second respondent even raised a demand as also imposed penalty. Such demand has to be raised only after a final order has been passed determining the tax liability. The very fact that the taxable amount has been determined itself would show that it was passed as a final order. In fact, a notice for demand under section 156 of the Act was issued pursuant to such order dated 26-3-2013 of the second respondent. Both the order dated 26-3-2013 and the notice for demand thereof have been served simultaneously on the petitioner. Therefore, not only the assessment is complete, but also a notice dated 28-3-2013 was issued thereon calling upon the petitioner to pay the tax amount as also penalty under section 271 of the Act." (Emphasis Supplied) 18. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Act, the Assessing Officer is to first pass a draft Assessment Order which is subject to challenge, by way of representation to the DRP. It is only after the DRP disposes of the representation, that the Assessing Officer passes a final order in terms of the directions of the DRP and such final order is appellable to the Tribunal. In this case, it is undisputed that on 12th March, 2014, the Assessing Officer passed a final Assessment Order in terms of the directions made by the DRP in the earlier round. The time to pass any such order, would expire in the present facts on 31st March, 2014, however, in case a Draft Assessment Order is issued, then the time to pass a final Assessment Order gets extended to one month after the passing of the directions by the DRP in terms of Section 144C(13) of the Act. Nevertheless, the Draft Assessment Order should have in the present facts been passed before 31st March, 2014 in terms of Section 153A(2A) of the Act. In this case, undisputedly, a final order was passed on 12th March, 2014 and is being sought to be corrected by issue of corrigendum on 16th April, 2014 i.e. after the time to pass the Draft Assessment Order has expired. In fact, the Tri....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... light of the decisions discussed hereinabove, we have no hesitation to hold that the proceedings culminated on 28/12/2019, when the demand notice was issued and served upon the assessee along with the penalty notice u/s 274 of the Act and, therefore, all the subsequent proceedings and orders become non-est. Ground No. 1 is accordingly allowed. 18. Since we have held that the order of the DRP and final assessment orders are non-est, therefore, we do not find it necessary to dwell with the grounds raised in the appeal memo. Before closing, it would be pertinent to refer to the following application for withdrawal of Transfer Pricing grounds on account of signing of Advance Pricing Agreement (APA):- "We refer to the appeal preferred in the case of Goldman Sachs (India) Securities Private Limited (GSISPL' or Company) against the order dated 30 June 2021 issued under section 143(3) read with section 144C(13) of the Income Tax Act, 1961 (the 'Act') passed by the Assistant Commissioner of Income Tax, Circle 7(1)(1), Mumbai (learned 'Ao) in pursuance of the directions issued by the Dispute Resolution Panel - 1, Mumbai In this connection, we wish to state as und....