MAVENIR INDIA PVT. LTD. (earlier known as Comverse Network System India Pvt. Ltd.), GURGAON V. DCIT, CIRCLE- 3(1), GURGOAN

ITA 203/DEL/2020

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 5922 (ITAT-DELHI)
• Duration Of Justice: 8 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-09-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I1
• Assessment Year: 2015-2016
• Appeal Filed On: 10-01-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: RECOMPUTING ALP PROVISION OF SOFTWARE DEVELOPMENT SERVICES
• Keywords: Transfer pricing; Set aside
• Section: 12; 144; 15; 143(3); 10AA; 144C; 274; 191; 113; 13; 153; 22; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI I-1 B ENCH, NEW DELHI [THROUGH VIDEO CONFERENCE] BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER, AND SHRI KULDIP SINGH, JUDICIAL MEM BER ITA NO. 203/DEL/2020 [ASSESSMENT YEAR: 2015-16] M/S MAVENIR INDIA PVT LTD VS THE DY.C.I.T [PREVIOUSLY KNOWN AS M/S COMVERSE CIRCLE - 2(1 ) NETWORK SYSTEMS INDIA PVT LTD NEW DELHI. 14 TH FLOOR, TOWER B, BUILDING NO. 5 DLF CYBER CITY, NEW DELHI. PAN : AABCC 3425 B [APPELLANT] [RESPONDENT] DATE OF HEARING : 24.09.2020 DATE OF PRONOUNCEMENT : 28.09.2020 ASSESSEE BY : SHRI RAVI SHARMA, ADV SHRI RISHAB MALHOTRA, ADV REVENUE BY : SHRI SUKESH KUMAR JAIN, CIT-DR ORDER PER N.K. BILLAIYA, ACCOUNTANT MEMBER, WITH THIS APPEAL, THE ASSESSEE HAS CHALLENGED THE VALIDITY OF THE ORDER DATED 06.12.2019 FRAMED U/S 143(3) R.W.S 144C OF THE 2 [HEREINAFTER REFERRED TO AS 'THE ACT' FOR SHORT] PE RTAINING TO ASSESSMENT YEAR 2015-16. 2. THE CHALLENGE OF THE ASSESSEE IS TWO-FOLD: A) FIRSTLY, THE ASSESSEE HAS CHALLENGED THE LEGALITY O F THE ORDER DATED 21.12.2018 BY FRAMING THE SO-CALLED DRAFT ASS ESSMENT ORDER. THE ASSESSING OFFICER HAS COMPLETED PROCEED INGS BY ISSUING DEMAND NOTICE AND INITIATING PENALTY PROCEE DINGS. B) SECOND CHALLENGE IS ON MERITS OF THE ADDITION, BEI NG UPWARD ADJUSTMENT ON TP MATTE,R AND ADDITIONS ON CORPORATE TAX MATTER. 4. REPRESENTATIVES OF BOTH THE SIDES WERE HEARD AT LENGTH. SOFT COPIES OF THE CASE RECORDS CAREFULLY PERUSED AND WI TH THE ASSISTANCE OF THE LD. COUNSEL, WE HAVE CONSIDERED THE DOCUMENTARY EVIDENCES BROUGHT ON RECORD IN THE FORM OF PAPER BOOK IN LIGH T OF RULE 18(6) OF ITAT RULES AND HAVE ALSO PERUSED THE JUDICIAL DECIS IONS RELIED UPON BY BOTH THE SIDES. 3 5. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE APPELLANT COMPANY IS ENGAGED IN THE PROVISION OF SOFTWARE DEV ELOPMENT SERVICES, PROVISION OF PROFESSIONAL SERVICES, PROVISION OF MA INTENANCE SERVICES, AND PROVISION OF SALES AND POST SALES SUPPORT SERVI CES TO ITS ASSOCIATED ENTERPRISES [AE] AND THIRD PARTIES. IN ORDER TO RE NDER SERVICES TO ITS CUSTOMERS, THE APPELLANT HAS AVAILED CERTAIN SUPPOR T AND MANAGEMENT SERVICES FROM ITS AES DURING THE YEAR. 6. THE RETURN OF INCOME WAS FILED DECLARING TOTAL I NCOME OF RS. 29.29 CRORES. THE RETURN WAS SELECTED FOR SCRUTINY ASSESSMENT AND ACCORDINGLY, STATUTORY NOTICES WERE ISSUED AND SERV ED UPON THE ASSESSEE. THE MATTER WAS REFERRED TO THE TPO WHO P ROPOSED TP ADJUSTMENT OF RS. 16.99 CRORES TO THE INCOME OF THE APPELLANT BY RECOMPUTING ALP FOR PROVISION OF SOFTWARE DEVELOPME NT SERVICES, PROVISION OF SALES AND POST SALES SUPPORT SERVICES AND MANAGEMENT SERVICES. 7. ON THE BASIS OF PROPOSED ADJUSTMENT, THE ASSESSI NG OFFICER FURTHER MADE DISALLOWANCE OF DEDUCTION CLAIMED BY T HE ASSESSEE U/S 10AA OF THE ACT AMOUNTING TO RS. 3.17 CRORES AND FR AMED AN ORDER DATED 21.02.2018, WHICH WAS CAPTIONED AS DRAFT ASS ESSMENT ORDER 4 BUT WAS ACCOMPANIED BY NOTICE OF DEMAND U/S 156 OF THE ACT. THE ASSESSING OFFICER ALSO INITIATED PENALTY PROCEEDING S. 8. IN OUR CONSIDERED OPINION, ASSESSMENT PROCEEDING S CONCLUDED ON 21.12.2018 AND, THEREFORE, ANY ORDERS PASSED THEREA FTER ARE NON-EST. IN OUR CONSIDERED VIEW, PROVISIONS OF SECTION 144C OF THE ACT TRIGGERS A SERIES OF STEPS PRESCRIBED IN SUB-SECTION (2) TO SE CTION 12 AND AS CAN BE SEEN FROM THE MOST RELEVANT SUB-SECTIONS (3) AND (1 3) THE ASSESSMENT IS COMPLETE EITHER UNDER SUBSECTION (3) OR SUB SECTION (13). 9. FACTS ON RECORD SHOW THAT ON 21.12.2018, THE AS SESSING OFFICER QUANTIFIED THE TAXABLE INCOME AND DETERMINED TAX PA YABLE BY ISSUING AND SERVING DEMAND NOTICE U/S 156 OF THE ACT. IN OU R CONSIDERED OPINION, THIS ACTION OF THE ASSESSING OFFICER HAS B ROUGHT THE PROCEEDINGS TO AN END AND THE PROCEEDINGS INITIATED U/S 144C OF THE ACT STAND CONCLUDED. 10. A PERUSAL OF SECTION 144C OF THE ACT SHOWS THAT THE ASSESSING OFFICER SHALL, AT THE FIRST INSTANCE, FORWARD A DRA FT OF THE PROPOSED ORDER OF ASSESSMENT AND ON RECEIVING SUCH ORDER, TH E ASSESSEE MAY APPROACH THE DRP BY RAISING OBJECTIONS. IF THE ASSE SSEE ACCEPTS THE 5 VARIATION, THEN THE ASSESSING OFFICER SHALL PROCEED BY FRAMING THE FINAL ASSESSMENT ORDER AND IF THE OBJECTIONS ARE RAISED B EFORE THE DRP, THEN, UPON RECEIPT OF DIRECTIONS ISSUED BY THE DRP, THE ASSESSEE SHALL COMPLETE THE ASSESSMENT. HOWEVER, WE FIND THAT WHIL E FRAMING THE SAID DRAFT ASSESSMENT ORDER, THE ASSESSING OFFICER NOT ONLY ISSUED AND SERVED DEMAND NOTICE, BUT HAS ALSO INITIATED THE PE NALTY PROCEEDINGS. 11. ON IDENTICAL FACTS, THE TRIBUNAL IN THE CASE OF PERFETTI VAN MELLE INDIA PVT LTD IN ITA 9116/DEL/2019 VIDE ORDER DATED 11.08.2020, HAD THE OCCASION TO DECIDE AN IDENTICAL ISSUE WHEREIN I T HAS BEEN HELD AS UNDER: 18. THE QUESTION WHETHER DEMAND NOTICE IS AN INTEG RAL PART OF THE ASSESSMENT ORDER HAS BEEN ANSWERED BY THE HON'B LE HIGH COURT OF GUJARAT IN THE CASE OF CIT VS. PURSHOTTAM DAS T PATEL 209 ITR 52 WHEREIN THE HON'BLE HIGH COURT HAS RELIED ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF KALYAN KUMAR RAY VS. CIT 191 ITR 634. THE RELEVANT FINDINGS OF HON'BLE HIGH COURT READ AS UNDER: ''ASSESSMENT IS ONE INTEGRATED PROCESS INVOLVING N OT ONLY THE ASSESSMENT OF THE TOTAL INCOME BUT ALSO THE DETERMI NATION OF THE TAX. THE LATTER IS AS CRUCIAL AS THE FORMER. THE IN COME TAX OFFICER HAS TO DETERMINE, BY AN ORDER IN WRITING, NOT ONLY THE TOTAL INCOME 6 BUT ALSO THE NET SUM WHICH WILL BE PAYABLE BY THE A SSESSEE FOR THE ASSESSMENT YEAR IN QUESTION AND THE DEMAND NOTICE H AS TO BE ISSUED UNDER SECTION 156 OF THE INCOMETAX ACT, 1961, IN CO NSEQUENCE OF SUCH AN ORDER. THE OF THE TAX. THE LATTER IS AS CRU CIAL AS THE FORMER. THE INCOME TAX OFFICER HAS TO DETERMINE, BY AN ORDER IN WRITING, NOT ONLY THE TOTAL INCOME BUT ALSO THE NET SUM WHICH WILL BE PAYABLE BY THE ASSESSEE FOR THE ASSESSMENT YEAR IN QUESTION AND THE DEMAND NOTICE HAS TO BE ISSUED UNDER SECTION 15 6 OF THE INCOMETAX ACT, 1961, IN CONSEQUENCE OF SUCH AN ORDE R. THE STATUTE DOES NOT, PAGE NO : 55 HOWEVER, REQUIRE THAT BOTH T HE COMPUTATIONS (I.E., OF THE TOTAL INCOME AS WELL AS OF THE SUM PAYABLE) SHOULD BE DONE ON THE SAME SHEET OF PAPER, THE SHEET THAT IS SUPERSCRIBED 'ASSESSMENT ORDER'. IT DOES NOT PRE SCRIBE ANY FORM FOR THE PURPOSE. ONCE THE ASSESSMENT OF THE TOTAL I NCOME IS COMPLETE WITH INDICATIONS OF THE DEDUCTIONS, REBATE S, RELIEFS AND ADJUSTMENTS AVAILABLE TO THE ASSESSEE, THE CALCULAT ION OF THE NET TAX PAYABLE IS A PROCESS WHICH IS MOSTLY ARITHMETIC AL BUT GENERALLY TIME-CONSUMING. IF THEREFORE, THE INCOME-TAX OFFIC ER FIRST DRAWS UP AN ORDER ASSESSING THE TOTAL INCOME AND, INDICAT ING THE ADJUSTMENTS TO BE MADE, DIRECTS THE OFFICE TO COMPU TE COMPANY LAW INSTITUTE OF INDIA PVT. LTD. - 4 - THE TAX PAYA BLE ON THAT BASIS AND THEN APPROVES OF IT, EITHER IMMEDIATELY OR SOME TIME LATER, NO FAULT CAN BE FOUND WITH THE PROCESS, THOUGH IT IS O NLY 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 7 ASSESSMENT OF THE TOTAL INCOME BUT ALSO THE DETERMI NATION OF THE TAX. IT HAS FURTHER OBSERVED THAT THE LATTER IS AS CRUCIAL AS THE FORMER. THEREFORE, UNLESS THE TOTAL INCOME IS DETER MINED AND THE DETERMINATION OF TAX IS ALSO DONE, IT CANNOT BE SAI D THAT THE PROCESS OF ASSESSMENT IS COMPLETE. WHAT SECTION 153 REQUIRES IS THAT THE ASSESSMENT SHOULD BE COMPLETED WITHIN THE PRESCRIBED TIME-LIMIT. THE WORDS 'ORDER OF ASSESSMENT' CANNOT BE CONSTRUED TO MEAN ASSESSMENT OF TOTAL INCOME ONLY. THOSE WORD S WOULD MEAN AN ORDER IN WRITING WHEREBY THE TOTAL INCOME OF THE ASSESSEE IS ASSESSED AND THE TAX PAYABLE BY HIM IS DETERMINED. WHEN AN ORDER IN WRITING IN RESPECT OF BOTH THESE THINGS IS PASSE D, IT CAN BE SAID THAT THERE IS A COMPLETE ORDER OF ASSESSMENT. THESE TWO STEPS MAY BE TAKEN SIMULTANEOUSLY OR SEPARATELY BUT IT CANNOT BE GAINSAID THAT BOTH OF THEM WILL HAVE TO BE TAKEN WITHIN THE TIME PRESCRIBED BY THE ACT. ADMITTEDLY, IN THIS CASE THE SECOND STE P WAS NOT TAKEN WITHIN THE PRESCRIBED TIME. AFTER DETERMINING THE T OTAL INCOME, THE INCOME-TAX OFFICER POSSIBLY LEFT THE MATTER TO HIS SUBORDINATES FOR THE PURPOSE OF CALCULATING THE TAX PAYABLE BY THE ASSESSEE ON THE BASIS OF THE ASSESSED TOTAL INCOME. EVEN IF WE ASSUME IN FAVOUR OF THE ASSESSING OFFICER THAT HE A PPROVED THE SAID CALCULATION WHEN THE PAPERS WERE PUT BEFORE HI M FOR SIGNING THE DEMAND NOTICE, AND THAT HE SIGNED THE SAME, THE FACT REMAINS THAT THAT STEP WAS TAKEN BY HIM AFTER THE PRESCRIBE D PERIOD WAS OVER. THE TRIBUNAL WAS, THEREFORE, RIGHT IN HOLDING THAT THE ASSESSMENT IN THIS RESPECT WAS TIME-BARRED. PAGE NO : 56 WE, THEREFORE, ANSWER THE QUESTION IN THE AFFIRMATIVE, I.E., AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE. NO ORDER AS TO COSTS 8 19. THROUGH HIS WRITTEN SUBMISSIONS DATED 07.08.202 0, THE LD. DR STRONGLY STATED THAT THERE SHOULD BE NO CONFUSIO N IN RELATION TO THE ORDER DATED 27.12.2019 IN AS MUCH A S IT WAS A DRAFT OF PROPOSED ORDER OF ASSESSMENT. THE LD. DR F URTHER STATED THAT NOTICE OF DEMAND MENTIONS PROPOSED\DRAF T NOTICE OF DEMAND AND REFERRING TO THE COMMUNICATION WITH T HE DCIT, CIRCLE 3(1), GURGAON, THE LD. DR POINTED OUT THAT E VEN THE ASSESSING OFFICER HAS MENTIONED THAT NO ENTRY HAS B EEN MADE IN THE DEMAND AND COLLECTION REGISTER AND ORDER WAS NOT UPLOADED ON ITD. 20. REFERRING TO THE DECISION OF THE HON'BLE HIGH C OURT OF GUJARAT IN THE CASE OF PURSHOTTAM DAS [SUPRA], THE LD. DR STATED THAT THE SAME HAS TO BE CONSIDERED IN THE LI GHT OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F SUN ENGINEERING WORKS PVT LTD 198 ITR 297 WHEREIN THE H ON'BLE SUPREME COURT HAS HELD AS UNDER: IT IS NEITHER DESIRABLE NOR PERMISSIBLE TO PICK OU T A WORD OR A SENTENCE FROM THE JUDGMENT OF THIS COURT, DIVORCED FROM THE CONTEXT OF THE QUESTION UNDER CONSIDERATION AND TRE AT IT TO BE THE COMPLETE 'LAW' DECLARED BY THIS COURT. THE JUDGMENT MUST BE READ AS A WHOLE AND THE OBSERVATIONS FROM THE JUDGMENT H AVE TO BE CONSIDERED IN THE LIGHT OF THE QUESTIONS WHICH WERE BEFORE THIS COURT. A DECISION OF THIS COURT TAKES ITS COLOUR FR OM THE QUESTIONS INVOLVED IN THE CASE IN WHICH IT IS RENDERED AND WH ILE APPLYING THE 9 DECISION TO A LATER CASE, THE COURTS MUST CAREFULLY TRY TO ASCERTAIN THE TRUE PRINCIPLE LAID DOWN BY THE DECISION OF THI S COURT AND NOT TO PICK OUT WORDS OR SENTENCES FROM THE JUDGMENT, DIVO RCED FROM THE CONTEXT OF THE QUESTIONS UNDER CONSIDERATION BY THI S COURT, TO SUPPORT THEIR REASONINGS. IN MADHAV RAO JIWAJI RAO SCINDIA BAHADUR AND ORS. V. UNION OF INDIA THIS COURT CAUTIONED: IT IS NOT PROPER TO REGARD A WORD, A CLAUSE OR A SE NTENCE OCCURRING IN A JUDGMENT OF THE SUPREME COURT, DIVORCED FROM I TS CONTEXT, AS CONTAINING A FULL EXPOSITION OF THE LAW ON A QUESTI ON WHEN THE QUESTION DID NOT EVEN FALL TO BE ANSWERED IN THAT J UDGMENT. 21. WE FAIL TO PERSUADE OURSELVES TO AGREE WITH THE SUBMISSIONS OF THE LD. DR. IN OUR UNDERSTANDING OF THE LAW, THERE IS NO PROVISION IN THE I.T> ACT WHICH PROVIDE S FOR PROPOSED/DRAFT NOTICE OF DEMAND AND SECONDLY, WHETH ER THE DEMAND HAS BEEN ENTERED IN DEMAND AND COLLECTION RE GISTER OR THE ORDER UPLOADED IN THE ITD IS AND INTERNAL MATTER/PROCEDURE OF THE REVENUE AND CANNOT BE TAKEN INTO CONSIDERATION TO DECIDE WHETHER THE DEMAND NOTICE I SSUED ALONGWITH ORDER DATED 27.12.2018 COMPLETE THE PROCE EDINGS. 22. IN SO FAR AS THE DECISION OF THE HON'BLE SUPREM E COURT IN THE CASE OF SUN ENGINEERING WORKS IS CONCERNED, THE DECISION OF THE HON'BLE HIGH COURT OF GUJARAT HAS BEEN IN TH E CONTEXT OF WHETHER NOTICE OF DEMAND IS AN INTEGRAL PART OF ASSESSMENT OR NOT AND WHILE DECIDING THE ISSUE, THE HON'BLE HI GH COURT 10 HAS CONSIDERED THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF KALYAN KUMAR RAY [SUPRA] AND, THEREFORE , THE DECISIONS REFERRED TO HEREINABOVE ARE IN THE SAME C ONTEXT IN WHICH THE FACTS OF THE CASE IN HAND ARE CONSIDERED. 23. IN LIGHT OF THE AFORESAID DECISION, WE ARE OF T HE CONSIDERED OPINION THAT THE ASSESSING OFFICER HAS B Y-PASSED THE RELEVANT SUBSECTIONS I.E. SUB-SECTION (3) AND ( 13) TO SECTION 144C OF THE ACT MENTIONED ELSEWHERE. 24. WH ETHER BY BY-PASSING MANDATORY PROVISIONS OF THE ACT CAN A SSESSMENT SURVIVE? THE ANSWER HAS BEEN GIVEN BY THE HONBLE S UPREME COURT IN THE CASE OF DIPAK BABARIA 3SCC 502 WHEREIN THEHONBLE SUPREME COURT HAS HELD AS UNDER: IF THE LAW REQUIRES THAT A PARTICULAR THING SHOULD BE DONE IN A PARTICULAR MANNER, IT MUST BE DONE IN THAT WAY AND NONE OTHER. STATE CANNOT IGNORE THE POLICY INTENT AND PROCEDURE CONTEMPLATED BY THE STATUTE . 25. IN LIGHT OF THE ABOVE RATIO LAID DOWN BY THE HO NBLE SUPREME COURT, WE ARE OF THE CONSIDERED OPINION THA T BY ISSUING THE DEMAND NOTICE ON 27.12.2018 ITSELF THE ASSESSING OFFICER HAS BY PASSED ALL THE MANDATORY SUB-SECTION S OF SECTION 144C OF THE ACT. 11 26. THE LD. DR HAS PLACED RELIANCE ON THE DECISION OF THE CO- ORDINATE BENCH IN THE CASE OF PRICE WATER HOUSE COM PANY 117 TAXMANN.COM 276 IN ITA NO. 2298/KOL/2016. IT IS THE SAY OF THE LD. DR THAT UNDER SIMILAR CIRCUMSTANCES, THE TRIBUNAL HAS UPHELD THE ASSESSMENT ORDER. THE LD. DR VEHEMEN TLY STATED THAT BY PARTICIPATING IN SUBSEQUENT PROCEEDI NGS, THE ASSESSEE WAS WELL AWARE THAT THE ORDER DATED 27.12. 2018 IS MERELY A DRAFT ASSESSMENT ORDER AND NOT A FINAL ASS ESSMENT ORDER. THE LD. DR CONCLUDED BY SAYING THAT THE ASSE SSEE CANNOT APPROBATE AND REPROBATE. 14 27. THE QUESTION WHETHER PARTICIPATION IN SUBSEQUEN T PROCEEDINGS WOULD ESTOP THE ASSESSEE FROM CHALLENGI NG THE VALIDITY OF THE ORDER DATED 27.12.2018 HAS BEEN ANS WERED 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 DOCUMEN T. 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 SAID INCOME. 12 28. WITH OUR UTMOST RESPECT TO THE CO-ORDINATE BENC H [KOLKATTA], WE FAIL TO PERSUADE OURSELVES TO FOLLOW THE SAME AS THE SAID DECISION OF THE TRIBUNAL HAS NOT CONSIDERE D THE DECISION OF THE HONBLE SUPREME COURT DISCUSSED HER EINABOVE AND THE DECISION IS PER INCURIUM. 29. THE LD. DR HAS TRIED TO DISTINGUISH THE DECISIO NS RELIED UPON BY THE LD. COUNSEL FOR THE ASSESSEE IN HIS WRI TTEN SUBMISSIONS. 30. WE HAVE CAREFULLY PERUSED THE WRITTEN SUBMISSIO NS OF THE LD. DR. WE ARE OF THE CONSIDERED VIEW THAT THE DECI SIONS RELIED UPON BY US EXTRACTED HEREINABOVE ARE DIRECTL Y RELATED TO THE UNDERLYING FACTS IN ISSUE BEFORE US. 31. ANOTHER ARGUMENT OF THE LD. DR THAT MERELY ISSU E OF NOTICE OF DEMAND AND PENALTY NOTICE WILL NOT CONVER T DRAFT ASSESSMENT ORDER INTO FINAL ASSESSMENT ORDER, DOES NOT HOLD ANY WATER, IN AS MUCH AS THE MANDATORY PROVISIONS O F THE ACT HAVE TO BE FOLLOWED AND THE ASSESSING OFFICER DOES NOT GET ANY LEVERAGE FOR BYPASSING THE MANDATORY PROVISIONS OF THE ACT. 32. WE FIND THAT THERE ARE SERIES OF DECISIONS OF T HE TRIBUNAL WHEREIN IN THE SET ASIDE PROCEEDINGS, IF THE ASSESS ING OFFICER HAS NOT FOLLOWED THE MANDATORY STEPS MENTIONED IN S ECTION 144C OF THE ACT, ASSESSMENT ORDER HAS BEEN TREATED AS VOID. 13 TO NAME A FEW SUCH DECISIONS, NIKON INDIA PVT LTD I TA NOS. 8752 & 8753/DE/2019. THE PRINCIPLES LAID DOWN BY TH E CO- ORDINATE BENCH IN THIS DECISION WERE APPROVED BY DE CISIONS BY VARIOUS HIGH COURTS LIKE THE HONBLE HIGH COURT OF DELHI IN THE CASE OF TURNER INTERNATIONAL PVT LTD 398 ITR 177 AN D JCB INDIA LTD WPC 3399/2016. 33. THE LD. DR HAS ALSO DRAWN STRONG SUPPORT FROM T HE PROVISIONS OF SECTION 292B OF THE ACT STATING THAT THE SUBSEQUENT PARTICIPATION OF THE ASSESSEE WOULD DEBA R THE ASSESSEE TO RAISE THIS ISSUE BEFORE THE APPELLATE A UTHORITY. THE ANSWER TO THIS HAS BEEN GIVEN BY THE HON'BLE HI GH COURT OF DELHI IN THE CASE OF JCB INDIA LTD [SUPRA]. THE RELEVANT FINDINGS READ AS UNDER: 14. THE SHORT QUESTION THAT ARISES FOR CONSIDERATI ON IS WHETHER, AFTER THE REMAND PROCEEDINGS, THE AO COULD HAVE, WI THOUT ISSUING A DRAFT ASSESSMENT ORDER UNDER SECTION 144 C OF THE A CT, STRAIGHTWAY ISSUED THE FINAL ASSESSMENT ORDER. 15. MR SYALI, LEARNED SENIOR COUNSEL FOR THE ASSES SEE, REFERRED TO THE DECISION OF THIS COURT DATED 17TH MAY 2017 PASS ED IN W.P. (C) NO. 4260/2015 (TURNER INTERNATIONAL INDIA PVT. LTD. V. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 25(2), NEW DELHI ) TO URGE THAT THE AO COULD NOT HAVE PASSED THE FINAL ASSESSMENT O RDER WITHOUT COMPLYING WITH THE MANDATORY REQUIREMENT UNDER SECT ION 144C OF 14 THE ACT WHEREBY FIRST A DRAFT ORDER HAD TO BE ISSUE D IN RESPECT OF WHICH AN OBJECTION CAN BE FILED BY THE ASSESSEE BEF ORE THE DRP. THE FAILURE TO DO SO, ACCORDING TO MR. SYALI, WAS N OT A MERE IRREGULARITY. HE FURTHER REFERRED TO A DECISION OF THE GUJARAT HIGH COURT DATED 31ST JULY 2017 IN TAX APPEAL NO. 542 OF 2017 (COMMISSIONER OF INCOME TAX, VADODARA-2 V. C-SAM (I NDIA) PVT. LTD.) W.P.(C) NOS. 3399/2016, 3429/2016 & 3431/2016 PAGE 7 OF 12 16. IN RESPONSE, MR. SANJAY JAIN, LEARNED ADDITIONA L SOLICITOR GENERAL OF INDIA APPEARING FOR THE REVENUE, SUBMITT ED THAT THERE WAS AN EFFICACIOUS ALTERNATIVE REMEDY AVAILABLE TO THE PETITIONER TO FILE APPEALS AGAINST THE IMPUGNED FINAL ASSESSMENT ORDERS PASSED BY THE AO. IT IS DENIED THAT IT WAS MANDATORY ON TH E PART OF THE AO TO PASS A DRAFT ASSESSMENT ORDER SINCE THIS WAS A SECOND ROUND BEFORE THE TPO PURSUANT TO REMAND BY THE ITAT. MORE OVER, IT WAS NOT AS IF THE ITAT HAD SET ASIDE THE ENTIRE ASSESSM ENT ORDER OF THE AO. THE SETTING ASIDE WAS ONLY IN RESPECT OF TH E TRANSFER PRICING ADJUSTMENT AND THAT TOO WITH A SPECIFIC DIR ECTION TO THE AO FOR DETERMINING THE ARMS LENGTH PRICE AFTER CONSID ERING FRESH COMPARABLES. SINCE THE ASSESSMENT ITSELF WAS NOT C ANCELLED BY THE ITAT OR COMPLETELY SET ASIDE, IT IS THE PROVISIONS OF SECTION 153 (3) (II) OF THE ACT WHICH WOULD APPLY. MR JAIN SUBM ITTED THAT THE REQUIREMENT OF PASSING A DRAFT ASSESSMENT ORDER UND ER SECTION 144C WAS ONLY IN THE FIRST INSTANCE AND NOT AFTER T HE REMAND BY THE ITAT. 15 17. THE COURT IS UNABLE TO AGREE WITH THE SUBMISSIO NS MADE ON BEHALF OF THE REVENUE BY MR. JAIN. SECTION 144C (1) OF THE ACT IS UNAMBIGUOUS. IT REQUIRES THE AO TO PASS A DRAFT ASS ESSMENT ORDER AFTER RECEIPT OF THE REPORT FROM THE TPO. THERE IS NOTHING IN THE WORDING OF SECTION 144C (1) WHICH WOULD INDICATE TH AT THIS REQUIREMENT OF PASSING A DRAFT ASSESSMENT ORDER DOE S NOT ARISE WHERE THE EXERCISE HAD BEEN UNDERTAKEN BY THE TPO O N REMAND TO IT, OF THE SAID ISSUE, BY THE ITAT. 18. IT WAS THEN CONTENDED BY MR. JAIN THAT THE ASSE SSMENT ORDER PASSED BY THE AO SHOULD NOT BE DECLARED TO BE INVAL ID BECAUSE OF THE FAILURE TO FIRST W.P.(C) NOS. 3399/2016, 3429/2 016 & 3431/2016 PAGE 8 OF 12 PASS A DRAFT ASSESSMENT ORDE R UNDER SECTION 144C OF THE ACT. IN THIS REGARD, REFERENCE IS MADE TO SECTION 292B OF THE ACT. 19. AS ALREADY NOTED, THE FINAL ASSESSMENT ORDER OF THE ASSESSING OFFICER STOOD VITIATED NOT ON ACCOUNT OF MERE IRREG ULARITY BUT SINCE IT WAS AN INCURABLE ILLEGALITY. SECTION 292B OF THE ACT WOULD NOT PROTECT SUCH AN ORDER. THIS HAS BEEN EXPLAINED BY THIS COURT IN ITS DECISION DATED 17TH JULY 2015 PASSED IN ITA NO. 275/2015 (PR. COMMISSIONER OF INCOME TAX, DELHI-2, NEW DELHI V. C ITI FINANCIAL CONSUMER FINANCE INDIA PVT. LTD.) WHERE IT WAS HELD : SECTION 292B OF THE ACT CANNOT BE READ TO CONFER JURISDICTION ON THE AO WHERE NONE EXISTS. THE SAID SECTION ONLY PROTECTS RETURN OF INCOME, ASSESSMENT, NOTICE, SUMMONS OR OTHER PROCEEDINGS FR OM ANY MISTAKE IN SUCH RETURN OF INCOME, ASSESSMENT NOTICE S, SUMMONS OR 16 OTHER PROCEEDINGS, PROVIDED THE SAME ARE IN SUBSTAN CE AND IN EFFECT IN CONFORMITY WITH THE INTENT OF PURPOSES OF THE ACT. 20. THE COURT FURTHER OBSERVED THAT SECTION 292B OF THE ACT CANNOT SAVE AN ORDER NOT PASSED IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. AS THE COURT EXPLAINED, THE ISSUE INVO LVED IS NOT ABOUT A MISTAKE IN THE SAID ORDER BUT THE POWER OF THE AO TO PASS THE ORDER. 21. IN ALMOST IDENTICAL FACTS, IN TURNER INTERNATI ONAL (SUPRA), THIS COURT HELD IN FAVOUR OF THEASSESSEE ON THE GROUND T HAT IT WAS MANDATORY FOR THE AO TO HAVE PASSED A DRAFT ASSESSM ENT ORDER UNDER SECTION 144C OF THE ACT PRIOR TO ISSUING THE FINAL ASSESSMENT ORDER. THE FOLLOWING PASSAGES FROM SAID DECISION AR E RELEVANT FOR THE PRESENT PURPOSES: 11. THE QUESTION WHETHER THE FINAL ASSESSMENT ORDE R STANDS VITIATED FOR FAILURE TO ADHERE TO THE MANDATORY REQ UIREMENTS OF FIRST PASSING DRAFT ASSESSMENT ORDER IN TERMS OF SE CTION 144C(1) W.P.(C) NOS. 3399/2016, 3429/2016 & 3431/2016 PAGE 9 OF 12 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 ANDHR A PRADESH HIGH COURT CATEGORICALLY HELD THAT THE FAILURE TO P ASS A DRAFT ASSESSMENT ORDER UNDER SECTION 144C (1) OF THE ACT WOULD RESULT IN RENDERING THE FINAL ASSESSMENT ORDER WITHOUT JURIS DICTION, NULL AND VOID AND UNENFORCEABLE. IN THAT CASE, THE CONSEQUE NT DEMAND 17 NOTICE WAS ALSO SET ASIDE. THE DECISION OF THE ANDH RA PRADESH HIGH COURT WAS AFFIRMED BY THE SUPREME COURT BY THE DISM ISSAL OF THE REVENUE'S SLP (C) NO. 16694/2013] ON 27TH SEPTEMBER , 2013. 13. IN VIJAY TELEVISION (P) LTD. V. DISPUTE RESOLUTION PANEL [2014] 369 ITR 113 (MAD.), A SIMILAR QUESTION AROSE. THERE, TH E REVENUE SOUGHT TO RECTIFY A MISTAKE BY ISSUING A CORRIGENDUM AFTER THE FINAL ASSESSMENT ORDER WAS PASSED. CONSEQUENTLY, NOT ONLY THE 20 FINAL ASSESSMENT ORDER BUT ALSO THE CORRIGENDUM ISS UED THEREAFTER WAS CHALLENGED. FOLLOWING THE DECISION O F THE ANDHRA PRADESH HIGH COURT IN ZUARI CEMENT LTD. V. ACIT (SU PRA) AND A NUMBER OF OTHER DECISIONS, THE MADRAS HIGH COURT IN VIJAY TELEVISION (P) LTD. V. DISPUTE RESOLUTION PANEL (SU PRA) QUASHED THE FINAL ORDER OF THE AO AND THE DEMAND NOTICE. INTERE STINGLY, EVEN AS REGARDS THE CORRIGENDUM ISSUED, THE MADRAS HIGH COURT HELD THAT IT WAS BEYOND THE TIME PERMISSIBLE FOR ISSUANC E OF SUCH CORRIGENDUM AND, THEREFORE, IT COULD NOT BE SUSTAIN ED IN LAW. 14. RECENTLY, THIS COURT IN ESPN STAR SPORTS MAURITIUS S.N.C. ET COMPAGNIE V. UNION OF INDIA [2016] 388 ITR 383 (DEL .), FOLLOWING THE DECISION OF THE ANDHRA PRADESH HIGH COURT IN ZU ARI CEMENT LTD. V. ACIT (SUPRA), THE MADRAS HIGH COURT IN VIJA Y TELEVISION (P) LTD. V. DISPUTE RESOLUTION PANEL, CHENNAI (SUPRA) A S WELL AS THE BOMBAY HIGH COURT IN INTERNATIONAL AIR TRANSPORT AS SOCIATION V. DCIT (2016) 290 CTR (BOM) 46, CAME TO THE SAME CONC LUSION. W.P.(C) NOS. 3399/2016, 3429/2016 & 3431/2016 PAGE 10 OF 12 22. IN THE DECISION OF THE GUJARAT HIGH COURT IN C- SAM (INDIA) (SUPRA), THE COURT NEGATED THE PLEA THAT NONCOMPLIA NCE WITH THE TERMS OF SECTION 144C OF THE ACT IS MERELY AN IRRE GULARITY. THE 18 GUJARAT HIGH COURT HELD THAT IT WAS OF GREAT IMPOR TANCE AND MANDATORY. THE FOLLOWING PASSAGES OF THE SAID DECI SION OF GUJARAT HIGH COURT ARE RELEVANT FOR THE PRESENT PURPOSES: 6. THESE STATUTORY PROVISIONS MAKE IT ABUNDANTLY CLEAR THAT THE PROCEDURE LAID DOWN UNDER SECTION 144C OF THE ACT IS OF GREAT IMPORTANCE AND IS MANDATORY. BEFORE THE ASSESSING O FFICER CAN MAKE VARIATIONS IN THE RETURNED INCOME OF AN ELIGIB LE ASSESSEE, AS NOTED, SUB-SECTION (1) OF SECTION 144C LAYS DOWN TH E PROCEDURE TO BE FOLLOWED NOTWITHSTANDING ANYTHING TO THE CONTRAR Y CONTAINED IN THE ACT. THIS NON-OBSTANTE CLAUSE THUS GIVES AN OVE RRIDING EFFECT TO THE PROCEDURE 'NOTWITHSTANDING ANYTHING TO THE C ONTRARY CONTAINED IN THE ACT'. SUB-SECTION (5) OF SECTION 1 44C EMPOWERS THE DRP TO ISSUE DIRECTIONS TO THE ASSESSING OFFICE R TO ENABLE HIM TO COMPLETE THE ASSESSMENT. SUB-SECTION (10) OF SEC TION 144C MAKES, SUCH DIRECTIONS BINDING ON THE ASSESSING OFF ICER. AS PER SUB- SECTION 144C, THE ASSESSING OFFICER IS REQUIRE D TO PASS THE ORDER OF ASSESSMENT IN TERMS OF SUCH DIRECTIONS WIT HOUT ANY FURTHER HEARING BEING GRANTED TO THE ASSESSEE. 7. T HE PROCEDURE LAID DOWN UNDER SECTION 144C OF THE ACT IS THUS OF GREAT IMPORTANCE. WHEN AN ASSESSING OFFICER PROPOSES TO M AKE VARIATIONS TO THE RETURNED INCOME DECLARED BY AN EL IGIBLE ASSESSES HE HAS TO FIRST PASS A DRAFT ORDER, PROVIDE A COPY THEREOF TO THE ASSESSEE AND ONLY THEREUPON THE ASSESSEE COULD EXER CISE HIS VALUABLE RIGHT TO RAISE OBJECTIONS BEFORE THE DRP O N ANY OF THE PROPOSED VARIATIONS. IN ADDITION TO GIVING SUCH OPP ORTUNITY TO AN ASSESSEE, DECISION OF THE DRP IS MADE BINDING ON TH E ASSESSING OFFICER. IT IS THEREFORE NOT POSSIBLE TO UPHOLD THE REVENUE'S 19 CONTENTION THAT SUCH REQUIREMENT IS MERELY A PROCED URAL. THE REQUIREMENT IS MANDATORY AND GIVES SUBSTANTIVE RIGH TS TO THE ASSESSEE TO OBJECT TO ANY ADDITIONS BEFORE THEY ARE MADE AND SUCH OBJECTIONS HAVE TO BE CONSIDERED NOT BY THE ASSES SING OFFICER BUT BY THE DRP. INTERESTINGLY, ONCE THE DRP GIVES D IRECTIONS UNDER SUB-SECTION (5) OF SECTION 144C, THE ASSESSING OFFI CER IS EXPECTED TO PASS THE ORDER OF ASSESSMENT IN TERMS OF SUCH DI RECTIONS WITHOUT GIVING ANY FURTHER HEARING TO THE ASSESSEE. THUS, AT THE LEVEL OF THE ASSESSING OFFICER, THE DIRECTIONS OF T HE DRP UNDER SUBSECTION (5) OF SECTION 144C WOULD BIND EVEN THE ASSESSEE. HE MAY OF COURSE CHALLENGE THE ORDER OF THE ASSESSING OFFICER BEFORE THE TRIBUNAL AND TAKE UP ALL CONTENTIONS. NEVERTHEL ESS AT THE STAGE OF ASSESSMENT, HE HAS NO REMEDY AGAINST THE DIRECTI ONS ISSUED BY THE DRP UNDER SUB-SECTION (5). ALL THESE PROVISIONS AMPLY DEMONSTRATE THAT THE LEGISLATURE DESIRED TO GIVE AN IMPORTANT OPPORTUNITY TO AN ASSESSEE WHO IS LIKELY TO BE SUBJ ECTED TO UPWARD REVISION OF INCOME ON THE BASIS OF, TRANSFER PRICIN G MECHANISM. SUCH OPPORTUNITY CANNOT BE TAKEN AWAY BY TREATING I T AS PURELY PROCEDURAL IN NATURE. 23. IN THE PRESENT CASE, JUST AS IN TURNER INTERN ATIONAL (SUPRA), IT IS SUBMITTED THAT, AT THE MOST, FAILURE TO PASS A D RAFT ASSESSMENT ORDER UNDER SECTION 144C OF THE ACT IS A CURABLE DE FECT AND THAT THE COURT SHOULD NOW DELEGATE THE PARTIES TO A STAG E AS IT WAS WHEN THE TPO ISSUED A FRESH ORDER AFTER THE REMAND BY TH E ITAT. 24. THIS VERY ARGUMENT OF THE REVENUE HAS BEEN NEGATED BY THE COURT IN TURNER INTERNATIONAL (SUPRA) WHERE IT WAS OBSERV ED IN PARAS 15 AND 16 AS UNDER: 20 15. MR. DILEEP SHIVPURI, LEARNED COUNSEL FOR THE R EVENUE SOUGHT TO CONTEND THAT THE FAILURE TO ADHERE TO THE MANDATORY REQUIREMENT OF ISSUING A DRAFT ASSESSMENT ORDER UNDER SECTION 1 44C (1) OF THE ACT WOULD, AT BEST, BE A CURABLE DEFECT. ACCORDING TO HIM THE MATTER MUST BE RESTORED TO THE AO TO PASS A DRAFT A SSESSMENT ORDER AND FOR THE PETITIONER, THEREAFTER, TO PURSUE THE MATTER BEFORE THE DRP. THE COURT IS UNABLE TO ACCEPT THE A BOVE SUBMISSION. THE LEGAL POSITION AS EXPLAINED IN THE ABOVE DECISIONS IN UNAMBIGUOUS. THE FAILURE BY THE AO TO ADHERE TO THE MANDATORY REQUIREMENT OF SECTION 144C (1) OF THE ACT AND FIRS T PASS A DRAFT ASSESSMENT ORDER WOULD RESULT IN INVALIDATION OF TH E FINAL ASSESSMENT ORDER AND THE CONSEQUENT DEMAND NOTICES AND PENALTY PROCEEDINGS. 25. FOR ALL OF THE AFOREMENTIONED REA SONS, THE COURT FINDS NO DIFFICULTY IN HOLDING THAT THE IMPUGNED FI NAL ASSESSMENT ORDERS DATED 30TH MARCH 2016 PASSED BY THE AO FOR A YS 2006- 07, 2007-08 AND 2008 -09 ARE WITHOUT JURISDICTION O N ACCOUNT OF THE FAILURE, BY THE AO, TO FIRST PASS A DRAFT ASSE SSMENT ORDER AND THEREAFTER, SUBJECT TO THE OBJECTIONS FILED BEFORE THE DRP AND THE ORDERS OF THE DRP, TO PASS THE FINAL ASSESSMENT ORD ER. THE COURT ALSO SETS ASIDE THE ORDERS OF THE TPO DATED 30 TH MARCH 2016 ISSUED PURSUANT TO THE REMAND BY THE ITAT. 34. CONSIDERING THE FACTS OF THE CASE IN TOTALITY, IN THE LIGHT OF THE DECISIONS DISCUSSED HEREINABOVE, WE HAVE NO HESITATION TO HOLD THAT THE PROCEEDINGS CULMINATED ON 27.12.20 18 WHEN THE DEMAND NOTICE WAS ISSUED AND SERVED UPON THE AS SESSEE 21 ALONG WITH PENALTY NOTICE U/S 274 OF THE ACT AND, T HEREFORE, ALL THE SUBSEQUENT PROCEEDINGS AND ORDERS BECOME NO N EST. THE ADDITIONAL GROUND IS, ACCORDINGLY, ALLOWED. 35. SINCE WE HAVE HELD THAT THE ORDER OF THE DRP AN D FINAL ASSESSMENT ORDERS ARE NON EST, THEREFORE, WE DO NOT FIND IT NECESSARY TO DWELL INTO THE GROUNDS RAISED IN THE A PPEAL MEMO. 12. ON FINDING PARITY IN THE FACTS AND UNDERLYING F ACTS IN ISSUE BEING IDENTICAL, WE HAVE NO HESITATION IN FOLLOWING THE O RDER OF THE CO- ORDINATE BENCH [SUPRA] AND HAVE NO HESITATION TO HO LD THAT THE PROCEEDINGS CULMINATED ON 21.12.2018 WHEN THE DEMAN D NOTICE WAS ISSUED AND SERVED UPON THE ASSESSEE AND PENALTY PRO CEEDINGS WERE SIMULTANEOUSLY INITIATED MAKING ALL SUBSEQUENT PROC EEDINGS AND ORDERS NON-EST. GROUND NO. 1 IS, ACCORDINGLY, ALLOWED. 13. SINCE WE HAVE HELD THAT THE ORDER OF THE DRP AND FI NAL ASSESSMENT ORDERS ARE NON EST, THEREFORE, WE DO NOT FIND IT NECESSARY TO DWELL INTO THE GROUNDS RAISED IN THE APPEAL MEMO . 14. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IN ITA NO. 203/DEL/2020 IS ALLOWED. 22 THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 28.09. 2020. SD/- SD/- [KULDIP SINGH] [N.K. BILLAIYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 28 TH SEPTEMBER, 2020 VL/ COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ` ASST. REGISTRAR, ITAT, NEW DELHI 23 DATE OF DICTATION DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.PS /PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P S/PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER