MARRIOTT INTERNATIONAL INC., MUMBAI V. DY, CIT (INTERNATIONAL TAX) 3(2)(1), MUMBAI

ITA 1784/MUM/2022

AI Insights

Marriott International Inc. appealed against the order of the Commissioner of Income Tax (Appeals)-57, Mumbai, which upheld the assessment treating receipts from international sales and marketing as royalty/fee for technical services. The Tribunal's earlier directions required the Assessing Officer to pass a draft assessment order, which was not done in the final assessment order dated 31/12/2019. The Tribunal, referencing its own previous decisions and the principles laid down by the Supreme Court and High Courts, found the final assessment order to be without jurisdiction and thus invalid.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 132758 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-06-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 30-05-2023
• Assessment Year: 2010-2011
• Appeal Filed On: 06-07-2022
• Other Referred Cases: NTPC Ltd. vs. CIT, Dimension Data Asia Pacific PTE Ltd. Vs. DCIT, Exxon Mobil Company (P.) Ltd. Vs. DCIT, Turner International India (P.) Ltd. Vs. DCIT
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S PARAS SAVLA
• Keywords: Transfer pricing; Opportunity of being heard; Set aside
• Section: 143(3); 144C

Judgement Text

आयकर य कर म ु ंबई ठ “आई ”, म ु ंबई ठ क , य यक य ए ं गगन गोय , ेख क र य के म$ IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “I ”, MUMBAI BEFORE SHRI VIKAS AWASTHY, JUDICIAL MEMBER & SHRI GAGAN GOYAL, ACCOUNTANT MEMBER आ ं.1784/म ु ं/ 2022 ( न. .2010-11) ITA NO. 1784/MUM/2022(A.Y. 2010-11) Marriott International Inc C/o.Marriott Hotels India Private Limited 303A, 304, Fulcrum, B Wing, Hiranandani Business Park, Sahar Road, Andheri(E), Mumbai 400 099 PAN: AAECM-8040-K ...... * /Appellant बन म Vs. Deputy Commissioner of Income-tax (International Tax)-3(2)(1), Mumbai, 16 th Floor, Air India Building, Nariman Point,Mumbai 400 007. ..... + , /Respondent * - र / Appellant by : S/Shri Paras Savla & Pratik Poddar + , - र /Respondent by : Shri Soumendu Kumar Dash ु न ई क. , / Date of hearing : 31/05/2023 /ो0 क. , / Date of pronouncement : 12/06/2023 आदेश/ ORDER PER VIKAS AWASTHY, JM: This appeal by the assessee is directed against the order of Commissioner of Income Tax(Appeals)-57, Mumbai [ in short ‘the CIT(A)’] dated 05/05/2022, for the Assessment Year 2010-11. 2 ITA NO. 1784/MUM/2022(A.Y. 2010-11) 2. The assessee in appeal has assailed the assessment order on two grounds: (i) In holding that the amounts received under the International Sales and Marketing Agreement is taxable; (ii) In holding that the Appellant is not entitled to the benefit of ‘Principle of Mutuality’. The assessee vide letter dated 14/03/2023 has raised an additional ground, the same reads as under: “3. On the facts and circumstances of the case and in law, the assessment order dated December, 31, 2019 passed by the assessing officer without passing draft assessment order, 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.” 3. Shri Paras Savla appearing on behalf of the assessee submitted at the outset that the assessee is in third round of litigation for Assessment Year 2010-11 before the Tribunal. The assessment u/s. 143(3) R.W.S.144C(13) of the Income Tax Act, 1961 [ in short ‘the Act] was framed by the Assessing Officer vide order dated 17/05/2013 treating receipts from international sales and marketing as Royalty/Fee for Technical Services (FTS). The assessee carried the issue in appeal before the CIT(A). The CIT(A) vide order dated 30/11/2015 upheld the findings of Assessing Officer characterizing the receipts as royalty and directed the Assessing Officer to follow the Tribunal order dated 14/01/2015 for the Assessment Year 2006-07 to 2009-10 i.e. to tax receipts in the hands of the assessee as representative assessee or any other group company, who owes the brand. Against the said order of CIT(A), the assessee in first round filed appeal before the Tribunal in ITA NO.2217/Mum/2016. In the meantime, the Assessing Officer in pursuance to 3 ITA NO. 1784/MUM/2022(A.Y. 2010-11) the direction of CIT(A) vide order dated 30/11/2015 passed the final assessment order on 29/12/2016 without passing the draft assessment order. Against the said assessment order, the assessee filed appeal before the CIT(A). The CIT(A) affirmed the findings of Assessing Officer vide order dated 12/08/2021. The assessee in second round before the Tribunal filed appeal against the order of CIT(A) dated 12/08/2023. The appeal of the assessee in ITA No.1830/Mum/2021 was decided vide order dated 20/02/2023. The Tribunal held the final assessment order sans draft assessment order is invalid. Parallelly, the Assessing Officer pursuant to the directions of the Tribunal vide order dated 09/03/2018 in ITA No.2217/Mum/2016 passed the assessment order on 31/12/2019. The said assessment order was again passed by the Assessing Officer without passing draft assessment order. The assessee filed first appeal before the CIT(A) assailing the findings of Assessing Officer on merits. The CIT(A) dismissed the appeal of assessee vide order dated 05/05/2022. The assessee in third round filed present appeal inter-alia assailing the validity of assessment order without passing draft assessment order. 3.1 In the second round of litigation before the Tribunal in ITA No.1830/Mum/2021 the assessee raised additional grounds of appeal challenging the validity of assessment order on the ground that the final assessment order has been passed without passing draft assessment order in violation of the provision of section 144C of the Act. The Tribunal vide order dated 20/02/2023 allowed the legal ground of the assessee and held that where the final assessment order has been passed without draft assessment order, such final assessment order is invalid. Now, in the third round of 4 ITA NO. 1784/MUM/2022(A.Y. 2010-11) litigation before the Tribunal the assessee has raised identical additional ground of appeal assailing validity of assessment order dated 31/12/2019 stating that the final assessment order has been passed without passing draft assessment order. Thus, the impugned assessment order has been passed in violation of the provisions of section 144C of the Act. He further submitted that no additional documents are required to be filed for deciding additional ground of appeal. The ld. Authorized Representative of the assessee placed reliance on the decision of Tribunal in ITA No.1830/Mum/2021 in support of additional grounds of appeal raised by the assessee. 3.2 The ld. Authorized Representative of the assessee submitted that the Tribunal in the first round of litigation remanded the issue to the file of Assessing Officer to adjudicate the issue of ‘mutuality’ raised by the assessee. Thus, it was not simplicitor remand to reconsider the issue that have already been decided by the Assessing Officer in the first round of assessment order. The assessee had raised an argument on ‘principle of mutuality’, which was not earlier considered by the Assessing Officer or the CIT(A) though a specific ground was raised before the CIT(A). The ld. Authorized Representative of the assessee submitted that final assessment order without passing draft assessment order under the provisions of section 144C of the Act is unsustainable. 4. Per contra, Shri Soumendu Kumar Dash representing the Department vehemently defended the impugned order and the assessment order. The ld. Departmental Representative submitted that the assessment order was passed consequent to the directions of the Tribunal, hence, there was no requirement 5 ITA NO. 1784/MUM/2022(A.Y. 2010-11) to pass draft assessment order. The Assessing Officer has rightly passed the assessment order. The ld. Departmental Representative also placed on record copy of objections raised by the Assessing Officer in respect of additional grounds raised in appeal. The relevant extract of the same reads as under: “ 2. In the additional grounds before the Hon'ble ITAT, the assessee has raised the ground that the assessment order dated December 31, 2019 passed by the assessing officer, without passing draft assessment order, is bad in law and void ab-initio as the same has been passed in violation of section 144C of the Act. The additional grounds raised by the assessee are not acceptable. The said assessment order was passed by the A.O. to give effect to the directions given by Ld. CIT(A) who in turn had relied upon the order passed by the Hon'ble ITAT in the case of the assessee for earlier years. Assessing officer while passing the assessment order has clearly mentioned the above facts and has passed the order u/s 143(3) r.w.s. 254. This was not a regular assessment order u/s 143(3), but merely in the nature of giving effect to the directions of higher authorities. Therefore, no Draft Assessment Order u/s 144C(1) was passed by the A.O. 3. Further, it is noticed that the assessee has not raised this ground of appeal before the Ld. CIT(A) even though the same was available at the appellate stage before CIT(A). The contention of the assessee that the additional ground arises out of a legal position is also not tenable. The issue in consideration is purely procedural and assessee had failed to file any objection before the A.O. or Ld. CIT(A), Therefore, the assessment order cannot be said to be invalid.” 5. We have heard the submissions made by rival sides and have examined the orders of authorities below. The assessee has filed an application for admission of additional ground of appeal. We find that the additional ground raised by the assessee is purely legal and goes to the root of validity of assessment order. No additional documentary evidences are required to be adduced to adjudicate the additional ground raised by the assessee. In light of decision in the case of NTPC Ltd. vs. CIT, 229 ITR 383(SC), the additional ground raised by the assessee is admitted for adjudication. 6 ITA NO. 1784/MUM/2022(A.Y. 2010-11) 6. In so far as factual matrix of the case, repeated appeals and sequence of events narrated by the ld. Authorized Representative of the assessee, are not in dispute. The present appeal emanates from the assessment order dated 31/12/2019 passed in pursuance to the directions of the Tribunal vide order dated 09/03/2018. For the sake of completeness the relevant extract of the Tribunal order in ITA No.2217/Mum/2016 dated 09/03/2018 (supra) is reproduced herein below: “ 5. A perusal of the orders of the Assessing Officer as well as that of CIT(A) reveal that the impugned sums have been held to be taxable as Royalty income. In fact, the CIT(A) has noted in para 5 of the impugned order that similar issues have been decided by the Tribunal in assessee’s own case vide order dated 14.01.2015 (supra) and directed the Assessing Officer to follow the directions of the Tribunal in this year too. Before us, it is pointed out in the aforesaid precedent, assessee’s plea based on the principle of mutuality has not been adjudicated, whereas in the instant year, specific Ground has been raised, i.e. Ground of appeal no. 9 (before the ITAT) as also by way of Ground of appeal ‘B’ raised before the CIT(A). 6. The aforesaid factual matrix has not been controverted by the ld. CITDR, while he has placed reliance on the orders of the authorities below. 7. We have carefully considered the rival submissions. The action of the CIT(A) in directing the Assessing Officer to apply the order of the Tribunal dated 14.01.2015 (supra) is justified to the extent it deals with the nature of the payments received by the assessee from the two hotels stated aforesaid. So, however, the point which is sought to be raised is the non-consideratoin of the defence set-up by the assessee based on the principles of mutuality. The order of the Tribunal dated 14.01.2015 (supra) has not addressed that issue and so far as the instant year is concerned, the same was very much raised by the assessee before the lower authorities, which has also remained to be addressed. Considering the entirety of circumstances, we, therefore, deem it fit and proper to affirm the ultimate decision of the CIT(A) to remand the matter back to the file of Assessing Officer, but with directions that apart from considering the order of the Tribunal dated 14.01.2015 (supra), the Assessing Officer shall also address the issue raised by the assessee of mutuality or any other issue which the assessee may seek to raise in defence of its return of income. The Assessing Officer shall allow the assessee due opportunity of being heard and only thereafter pass an order afresh, as per law. 8. In the result, appeal of the assessee is treated as partly allowed for statistical purpose” 7 ITA NO. 1784/MUM/2022(A.Y. 2010-11) From perusal of the above direction by Co-ordinate Bench it clearly emanates that the Tribunal had directed the Assessing Officer to address the issue of mutuality or any other issue which the assessee may seek to raise in defense of his return of income. The principle of mutuality was never addressed by the Assessing Officer in the earlier proceedings, hence, this being a fresh issue require detailed submissions/arguments from the assessee and consideration and decision of Assessing Officer. The Assessing Officer was required to pass the draft assessment order under the provisions of section 144C of the Act before passing the final assessment order. This Bench in assessee’s appeal in second round of litigation in ITA No.1830/Mum/2021 while considering identical ground challenging the validity of final assessment order without there being any draft assessment order held as under:- “ 9. We have heard the submissions made by rival sides on the short legal issue raised by the assessee by way of additional ground of appeal. From the submissions made by rival sides the fact emerges that in the second round, the AO passed final assessment order dated 29/12/2016 without passing the draft assessment order. 10. Provisions of section 144C of the Act lays down the procedure to be followed under special mechanism. The AO is first required to pass draft assessment order u/s 144C (1) of the Act. On receipt of the draft assessment order, the eligible assessee within 30 days either accepts the variations or may file objections, against such variations before the DRP. If no objections are filed against the draft assessment order, the AO shall pass the final assessment order. In case the objections are filed before the DRP, the DRP shall issue the directions and it is only after the directions of the DRP that the AO shall pass the final assessment order after giving effect to the directions of the DRP. 11. In the instant case, the Revenue has pointed that the assessment order dated 29/12/2016 was passed to give effect to the directions of the Tribunal, hence, there was no requirement to pass the draft assessment order. It is evident from the cause title of the assessment order dated 29/12/2016 that the assessment order is passed consequent to the directions of the Tribunal. The learned AR of the assessee has placed reliance on the decision of Hon’ble Bombay High Court in the case of Dimension Data Asia Pacific PTE Ltd. Vs. DCIT (supra). In the said case, the petitioner a foreign company challenged the validity of the assessment order as the final 8 ITA NO. 1784/MUM/2022(A.Y. 2010-11) assessment order was passed without passing the draft assessment order. The said assessment order was also passed consequent to the directions of the Tribunal. The Department had raised similar objections as was raised by the DR in the present case. The Hon’ble High Court rejected the contentions of the Revenue and held that the draft assessment order has mandatorily to be passed u/s 144C of the Act, even in remand proceedings. The relevant findings of the Hon’ble Court are extracted herein below: “8. The contention of the Revenue that the requirement of passing a draft Assessment Order under Section 144C of the Act would only extend to the orders passed in the first round of proceedings or in respect of an order passed by the Assessing Officer in remand proceedings by the Tribunal which has entirely set aside the original assessment order. This distinction which is sought to be drawn by the Revenue is not borne out by Section 144C of the Act. Infact, the Delhi High Court in JCB (India) Ltd. (supra) held that, even in partial remand proceedings from the Tribunal, the Assessing Officer is obliged to pass a draft assessment order under Section 144C(1) of the Act. According to us, the Assessing Officer, is obliged to, in terms of Section 144C of the Act to pass a Draft Assessment Order in all cases where he proposes to assess the Foreign Company under the Act by making a variation in the returned income. In this case, the impugned order dated 31st January, 2018 has been passed in terms of Section 143(3) read with Section 144C read with Section 254 of the Act and it certainly makes a variation to the returned income filed by the petitioner. This even if, one proceeds on the basis that the returned income stands varied by the order of the Tribunal in the first round, to the extent the petitioner accepts it. Therefore, the Assessing Officer correctly invokes Section 144C of the Act in the impugned order. Once having invoked Section 144C of the Act, the Assessing Officer is obliged to comply with it in full and not partly. This impugned order was passed consequent to the order of the Tribunal dated 5th May, 2017 restoring some of the issues before it to the Assessing Officer for fresh adjudication. 9. This "fresh adjudication" itself would imply that it would be an order which would decide the lis between the parties, may not be entire lis, but the dispute which has been restored to the Assessing Officer. According to us, the order dated 31st January, 2018 is not an order merely giving an effect to the order of the Tribunal, but it is an assessment order which has invoked Section 143(3) of the Act and also Section 144C of the Act. This invocation of Section 144C of the Act has taken place as the Assessing Officer is of the view that it applies, then the requirement of Section 144C(1) of the Act has to be complied with before he can pass the impugned order invoking Section 144C(13) of the Act. In fact, Section 144C(13) of the Act can only be invoked in cases where the assessee has approached the DRP in terms of sub-Section 144(C)(2)(b) of the Act and the DRP gives direction in terms of Section 144C(5) of the Act. In this case, the assessment order has invoked Section 144C(13) of the Act 9 ITA NO. 1784/MUM/2022(A.Y. 2010-11) without having passed the necessary draft Assessment Order under Section 144C(1) of the Act, which alone would make an direction under Section 144C(5) of the Act by the DRP possible. Thus, the impugned order is completely without jurisdiction. 10. Moreover, so far as a Foreign Company is concerned, the Parliament has provided a special procedure for its assessment and appeal in cases where the Assessing Officer does not accept the returned income. In this case, in the working out of the order dated 5th May, 2017 of the Tribunal results in the returned income being varied, then the procedure of passing a draft assessment order under Section 144C(1) of the Act is mandatory and has to be complied with, which has not been done. 11. In the above view, the impugned order is without jurisdiction. Thus, the plea of alternate remedy advanced by the Revenue so as to not entertain this petition, does not merit acceptance in the present facts.” (Emphasized by us) 12. The Hon’ble Bombay High Court in the case of Exxon Mobil Company (P.) Ltd. Vs. DCIT in a recent decision reiterated the legal requirement of passing draft assessment order in proceeding u/s 144C of the Act arising out of remand from the Tribunal. The Hon’ble High Court held that where Tribunal remanded the matter to give effect to transfer pricing issue, assessee’s case would be eligible u/s 144C of the Act and the AO was required to pass draft assessment order before issuance of final assessment order. Similar view was taken by the Hon’ble Delhi High Court in the case of Turner International India (P.) Ltd. Vs. DCIT (supra). The Hon’ble Delhi High Court held that failure of AO to adhere to mandatory requirement of section 144C (1) of the Act, where the final assessment order has been passed without draft assessment order, such final assessment order shall be invalid.” 7. In the instant case, it an undisputed fact that the Assessing Officer has passed the final assessment order on 31/12/2019 without passing draft assessment order. Following the decision of Co-ordinate Bench, on parity of facts and reasons we hold the assessment order dated 31/12/2019 is invalid. Consequently, assessment order is quashed and the appeal of assessee is allowed. 10 ITA NO. 1784/MUM/2022(A.Y. 2010-11) 8. In the result, appeal by the assessee is allowed. Order pronounced in the open court on Monday the 12 th day of June, 2023. Sd/- Sd/- (GAGAN GOYAL) (VIKAS AWASTHY) ेख क र य/ACCOUNTANT MEMBER य यक य/JUDICIAL MEMBER म ु ंबई/ Mumbai, 1 न ंक/Dated 12/06/2023 Vm, Sr. PS(O/S) े Copy of the Order forwarded to : 1. */The Appellant , 2. + , / The Respondent. 3. The PCIT 4.. 2 ग य + , न , आय. . ., म ु बंई/DR, ITAT, Mumbai 5. ग 45 6 7 /Guard file. BY ORDER, //True Copy// (Dy./Asstt. Registrar), ITAT, Mumbai