Brintons Carpets Asia Private Ltd., Pune V. Deputy Commissioner of Income-tax,

ITA 261/PUN/2015

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 5516 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 10 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-01-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 15-01-2019
• Assessment Year: 2006-2007
• Appeal Filed On: 13-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHOK BABU
• Keywords: Transfer pricing; International transaction; Validity of assessment
• Section: 6; 144

Judgement Text

] IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI VIKAS AWASTHY, JM . / ITA NO.261/PUN/2015 / ASSESSMENT YEAR : 2006-07 BRINTONS CARPETS ASIA PRIVATE LIMITED, GAT NO.414/415/416, VILLAGE URAWADE, TAL. MULSHI, PUNE 412108. PAN : AAACB7059H. ..APP ELLANT. V/S THE DY. CO MMISSIONER OF INCOME TAX , CIRCLE 1(1), PUNE. .. RESPONDENT . ASSESSEE BY : SHRI NIKHIL PATHAK. REVENUE BY : SHRI ASHOK BABU, JCIT. / ORDER PER VIKAS AWASTHY, JM : THIS APPEAL BY ASSESSEE IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-13, PUNE DATED 31.12.2 014 FOR THE ASSESSMENT YEAR 2006-07. 2. THE BRIEF FACTS OF THE CASE AS EMANATING FROM RECORD S ARE : THE ASSESSEE IS A SUBSIDIARY OF BRINTONS CARPETS ASIA PRIV ATE LIMITED, U.K. AND IS ENGAGED IN MANUFACTURING AND EXPORTING OF MAC HINE MADE WOOLLEN AND NYLON CARPETS. DURING THE PERIOD RELEV ANT TO THE / DATE OF HEARING : 16.01.2019 / DATE OF PRONOUNCEMENT: 28.01.2019. 2 ITA NO.261/PUN/2015 ASSESSMENT YEAR UNDER APPEAL, THE ASSESSEE HAD ENTER ED INTO INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISES (A.ES.). CONSEQUENTLY, REFERENCE U/S 92CA(1) OF THE INCOME TAX A CT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) WAS MADE TO THE TRANSFER PRICING OFFICER (TPO). THE TPO VIDE ORDER DATED 19.10.2009 MADE ADJUSTMENTS TO THE TUNE OF RS.16,19,83,910/-. THE ASSE SSING OFFICER PASSED DRAFT ASSESSMENT ORDER, ACCORDINGLY. 3. AGAINST THE DRAFT ASSESSMENT ORDER, THE ASSESSEE FILED OBJECTIONS BEFORE THE DISPUTE RESOLUTION PANEL (DRP). THE D RP VIDE DIRECTIONS DATED 30.07.2010 UPHELD THE TRANSFER PRICING ADJ USTMENTS PROPOSED BY THE TPO. IN ACCORDANCE WITH THE DIRECTION S OF DRP, FINAL ASSESSMENT ORDER DATED 27.09.2010 WAS PASSED BY THE A O. THE ASSESSEE ASSAILED THE ADDITIONS IN APPEAL BEFORE THE TRIBUN AL IN ITA NO.1296/PN/2010. THE TRIBUNAL VIDE ORDER DT.15.06.2011 RES TORED THE ISSUES BACK TO THE TPO WITH SPECIFIC DIRECTIONS QUA COMPARABLES TO BE ADOPTED FOR MAKING TRANSFER PRICING ADJUSTMENTS, TR ANSACTIONAL NET MARGINAL METHOD (TNMM) TO BE CONSIDERED AS THE MOS T APPROPRIATE METHOD TO DETERMINE ARMS LENGTH PRICE (ALP ), TO ALLOW ADJUSTMENT FOR LABOUR UNREST, ETC., WHILE DETERMINING THE A LP OF THE EXPORTS TO A.ES. IN SECOND ROUND, THE TPO IN HIS ORDER DATED 31.10.2012 WHILE GIVING EFFECT TO THE ORDER OF THE TRIBUNAL MA DE ADJUSTMENTS TO THE TUNE OF RS.3,22,68,500/- IN RESPECT O F INTERNATIONAL TRANSACTIONS. THE ASSESSING OFFICER PASSED ASS ESSMENT ORDER DATED 30.11.2012 IN LINE WITH THE ADDITIONS PROPOSED BY THE TPO. AGGRIEVED WITH THE ASSESSMENT ORDER DT.30.11.2012, THE ASSESSEE FILED APPEAL BEFORE THE CIT(A). THE CIT(A) VIDE IMP UGNED 3 ITA NO.261/PUN/2015 ORDER PARTLY ACCEPTED THE APPEAL OF ASSESSEE. STILL AGGR IEVED, THE ASSESSEE IS IN SECOND APPEAL BEFORE THE TRIBUNAL. 4. SHRI NIKHIL PATHAK APPEARING ON BEHALF OF ASSESSEE SUBMIT TED AT THE OUTSET THAT ASSESSMENT ORDER DATED 30.11.2012 HAS BEEN PASSED IN VIOLATION OF THE PROVISIONS OF SEC.144C OF THE ACT AND HENCE, IS BAD IN LAW AND VOID AB INITIO. 5. THE LD.A.R. FILED ADDITIONAL GROUND OF APPEAL CHALLENGING THE VALIDITY OF THE ASSESSMENT ORDER. THE LD.A.R. SUBMITTED THA T AS PER THE PROVISIONS OF SEC.144C OF THE ACT, THE ASSESSING OFFICER IN THE FIRST PLACE IS DUTY BOUND TO PASS DRAFT ASSESSMENT ORDER. HOWEVER, IN THE INSTANT CASE, THE ASSESSING OFFICER PASSED FINAL ASSESSM ENT ORDER AFTER THE ORDER OF TPO AND HAS ALSO ISSUED DEMAND NOTIC E U/S 156 OF THE ACT. THE LD.A.R. SUBMITTED THAT HONBLE BOMBAY HIGH C OURT IN A RECENT DECISION IN THE CASE OF PCIT VS. LIONBRIDGE TECHNOL OGIES PVT. LTD., IN INCOME TAX APPEAL NO.622 OF 2016 DECIDED ON 03.12 .2018 HAS HELD THAT FINAL ASSESSMENT ORDER PASSED WITHOUT PAS SING DRAFT ASSESSMENT ORDER IS IN VIOLATION OF THE PROVISIONS OF SEC.144C (1) OF THE ACT, AND SUCH ORDER IS WITHOUT JURISDICTION. TO FURTHER BU TTRESS HIS SUBMISSIONS, THE LD.A.R. PLACED RELIANCE ON VARIOUS DECISIONS. SOME OF THEM ARE AS UNDER : 1. INTERNATIONAL AIR TRANSPORT ASSOCIATION VS. DCIT W.P. (L) NO.351 OF 2016 [68 TAXMAN.COM 246] [HONBLE BOMBAY HIGH COURT]. 2. ACIT VS. VIJAY TELEVISION PVT. LTD. [W.P.NOS.1526 & 1527 OF 2014] [46 TAXMAN.COM 100]. 4 ITA NO.261/PUN/2015 3. DCIT VS. REHAU POLYMERS PVT. LTD. [ITA NO.566/PN/2015] [8 5 TAXMANN.COM 23] [PUNE ITAT]. 4. SOKTAS INDIA PVT. LTD. VS. ACIT [ITA NO.206/PN/2015] [77 TAXMAN.COM 19] [PUNE ITAT]. 6. ON THE OTHER HAND, SHRI ASHOK BABU REPRESENTING TH E DEPARTMENT VEHEMENTLY DEFENDED THE VALIDITY OF ASSESSMEN T ORDER. THE LD.D.R. SUBMITTED THAT IN THE FIRST ROUND OF LITIGATION, TH E ASSESSING OFFICER HAD PASSED DRAFT ASSESSMENT ORDER AND AFTER THE DIRECTIONS OF THE DRP, FINAL ASSESSMENT ORDER WAS PASSED B Y THE ASSESSING OFFICER. NOW, IN THE SECOND ROUND OF LITIGATION, WHER E THE TPO HAS PASSED ORDER IN PROCEEDINGS GIVING EFFECT TO TH E ORDER OF THE TRIBUNAL, THERE IS NO NEED TO PASS DRAFT ASSESSMENT ORDER. 7. WE HAVE HEARD THE SUBMISSIONS OF RIVAL SIDES AND HAVE EXAMINED THE ORDERS OF THE AUTHORITIES BELOW. THE ASSESS EE HAS RAISED GROUNDS / ADDITIONAL GROUNDS CHALLENGING THE ADDITION S ON MERITS. THE ASSESSEE HAS ALSO FILED ADDITIONAL GROUNDS OF AP PEAL CHALLENGING THE VALIDITY OF ASSESSMENT ORDER ON THE GROUN D THAT THE FINAL ASSESSMENT ORDER HAS BEEN PASSED WITHOUT PASSING DRAFT ASSESSMENT ORDER IN VIOLATION OF THE PROVISIONS OF SEC.144C (1) OF THE ACT. 8. FIRST WE WILL TAKE UP THE ADDITIONAL GROUND OF APPEAL CHALLENGING THE VALIDITY OF ASSESSMENT ORDER. IT IS NO MOR E RES INTEGRA THAT PASSING OF DRAFT ASSESSMENT ORDER IS MANDATORY UNDER THE PROVISIONS OF SEC.144C(1) OF THE ACT. FINAL ASSESSMENT O RDER PASSED WITHOUT PASSING DRAFT ASSESSMENT ORDER IS BAD-IN -LAW. IN THE 5 ITA NO.261/PUN/2015 PRESENT CASE, IT IS AN UNDISPUTED POSITION THAT THE ASSES SMENT ORDER DATED 30.11.2012 IS THE ONLY ASSESSMENT ORDER PASSED B Y THE AO. THE SAID ASSESSMENT ORDER IS FOLLOWED BY THE NOTICE OF DEM AND U/S 156 OF THE ACT. THE HONBLE JURISDICTIONAL HIGH COURT IN CA TENA OF JUDGMENTS HAS TIME AND AGAIN HELD THAT FINAL ASSESSMENT O RDER PASSED U/S 144C(13) OF THE ACT WITHOUT PASSING A DRAFT AS SESSMENT ORDER U/S 144C(1) OF THE ACT DESERVES TO BE QUASHED BE ING VIOLATIVE OF THE PROVISIONS OF SEC.144C OF THE ACT. 9. THE HONBLE BOMBAY HIGH COURT IN A RECENT DECISION IN THE CASE OF PCIT VS. LIONBRIDGE TECHNOLOGIES PVT. LTD., (SUPRA) HAS R EITERATED THIS LEGAL POSITION. IN THE SAID CASE, THE MATTER WAS REMA NDED TO THE AO BY THE TRIBUNAL. THE AO REFERRED THE INTERNATIONAL T RANSACTIONS TO THE TPO. AFTER THE RECEIPT OF ORDER FROM TPO, THE A O PASSED THE FINAL ASSESSMENT ORDER WITHOUT PASSING THE DRAFT ASSESSME NT ORDER. THE AO TRIED TO RECTIFY THE MISTAKE BY ISSUING CORRIGENDU M. THE ISSUE TRAVELLED TO THE TRIBUNAL. THE TRIBUNAL HELD THE A SSESSMENT ORDER BAD-IN-LAW. THE REVENUE CARRIED THE MATTER IN APP EAL BEFORE THE HON'BLE HIGH COURT. THE HON'BLE HIGH COURT AFTER CON SIDERING THE DECISIONS IN THE CASE OF ACIT VS. VIJAY TELEVISION PVT. LTD. (SUPRA) AND INTERNATIONAL AIR TRANSPORT ASSOCIATION VS. DCIT (SUP RA) CONFIRMED THE FINDINGS OF TRIBUNAL. THE RELEVANT EXTRACT O F THE ORDER AND OBSERVATIONS OF THE HON'BLE HIGH COURT ON THIS ISSUE ARE AS UNDER : 11. IT MUST BE NOTED THAT IN RESPECT OF THE PROCEDURE A ND DETERMINATION OF THE ALP OF INTERNATIONAL TRANSACTI ON BETWEEN RELATED PERSON, THE LAW PROVIDES A SPECIAL DISPENSATION. IN TERMS OF SECTION 6 ITA NO.261/PUN/2015 144C(1) OF THE 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 I S APPEALABLE TO THE TRIBUNAL. IN THIS CASE, IT IS UNDISPUTED THAT ON 12 TH MARCH, 2014, THE ASSESSING OFFICER PASSED A FINAL ASSESSMENT ORDER I N TERMS OF THE DIRECTIONS MADE BY THE DRP IN THE EARLIER ROUND. TH E TIME TO PASS ANY SUCH ORDER, WOULD EXPIRE IN THE PRESENT FACTS ON 31 ST MARCH, 2014, HOWEVER, IN CASE A DRAFT ASSESSMENT ORDER IS ISSUED , THEN THE TIME TO PASS A FINAL ASSESSMENT ORDER GETS EXTE NDED TO ONE MONTH AFTER THE PASSING OF THE DIRECTIONS BY THE DRP IN T ERMS OF SECTION 144C(13) OF THE ACT. NEVERTHELESS, THE DRAFT ASSESSMENT ORDE R SHOULD HAVE IN THE PRESENT FACTS BEEN PASSED BEFORE 31 ST 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 S OUGHT TO BE CORRECTED BY ISSUE OF CORRIGENDUM ON 16 TH APRIL, 2014 I.E. AFTER THE TIME TO PASS THE DRAFT ASSESSMENT ORDER HAS EXPIRED. IN FACT, THE TRIBUNAL PLACED RELIANCE UPON THE DECISION OF A SINGLE JUDGE OF THE MADRAS HIGH COURT IN VIJAY TELEVISION (P) LTD., (SUPRA). THIS, DECISION HAS NOW BEEN UPHELD BY THE DIVISION BENCH OF THE MADRAS HIGH COU RT IN ASSISTANT COMMISSIONER OF INCOME TAX V/S. VIJAY TELEVISION (P ) LTD., 407 ITR 642. IN THE ABOVE CASE, NON ISSUE OF DRAFT ASSESSMENT OR DER COULD NOT BE CORRECTED BY ISSUING A CORRIGENDUM TO A FINA L ASSESSMENT ORDER. JUST AS IN THE FACTS BEFORE THE MADRAS HIGH COURT, HERE ALSO THE DEMAND NOTICE AND INSTITUTION OF PENDING PROCEEDING S WERE NOT WITHDRAWN BY THE CORRIGENDUM. BESIDES, IN INTERNATIONAL AIR TRANSPORT ASSOCIATION V/S. DEPUTY COMMISSIONER OF I NCOME TAX 68 TAXMANN.COM 246 - THIS COURT HAS HELD THAT THE DRAFT ASSESSMENT ORDER IS NECESSARY IN TERMS OF SECTION 1 44 C(1) OF THE ACT BEFORE THE ASSESSING OFFICER CAN PROCEED TO PASS A FINAL ASSESSMENT ORDER. IN THE ABSENCE THEREOF, THE ORDER IS WITHOUT JURISDICTION . SO FAR THE CONTENTION ON BEHALF OF THE REVENUE TH AT THE RESPONDENT WAS ESTOPPED FROM CHALLENGING THE CORRIG ENDUM DATED 16 TH APRIL, 2004, AS IT WAS ACCEPTED BY IT AND A REPRESE NTATION ALSO FILED TO THE DRP. THIS SUBMISSION OVERLOOKS THE FACT THAT TH ERE CAN BE NO ESTOPPEL ON ISSUE OF LAW PERTAINING TO JURISDICTION . THEREFORE, IF THE CORRIGENDUM DATED 16 TH APRIL, 2014 AND THE ORDER DATED 12TH MARCH, 2014 OF THE ASSESSING OFFICER IS WITHOUT JURISDICTI ON, THE SAME CAN BE 7 ITA NO.261/PUN/2015 RAISED AT ANY TIME AND THE PRINCIPLE OF ESTOPPEL WI LL NOT APPLY. MERE CONSENT OF PARTIES DOES NOT BESTOW JURISDICTION, IF THE ORDER IS BEYOND JURISDICTION. THEREFORE, WE DO NOT FIND ANY SUBSTAN CE IN THIS OBJECTION OF THE REVENUE. BESIDES, THE FINDING OF THE TRIBUNAL IN THE IMPUGNED ORDER THAT THE ORDER OF THE ASSESSING OFFICER WAS B EYOND THE SCOPE OF THE REMAND BY ORDER DATED 25 TH JANUARY, 2012 OF THE TRIBUNAL. THIS MORE PARTICULARLY SO AS THE REMAND BY THE TRIB UNAL WAS OCCASIONED ON ACCOUNT OF FAILURE OF THE DRP TO DEAL WITH THE OBJECTIONS OF THE RESPONDENT TO THE DRAFT ASSESSMEN T ORDER. THEREFORE, MAKING A REFERENCE AGAIN TO THE TPO FOR FIXING THE ALP, WAS NOT CALLED FOR. NOTHING HAS BEEN POINTED OUT TO US WHICH WOULD EVEN REMOTELY SUGGEST THAT THE SAME IS NOT CORRECT. THUS, IN VIEW OF THE ABOVE JUDGMENT OF HONBLE BOMBAY HIGH COURT AND VARIOUS OTHER DECISIONS RELIED ON BY THE LD.A.R, WE FIND MERIT IN THE ADDITIONAL GROUND RAISED BY THE ASSESSEE CHA LLENGING VALIDITY OF ASSESSMENT ORDER DT.30.11.2012. THUS, IN VIEW OF THE FACTS OF THE CASE AND THE LAW LAID DOWN BY THE HONBLE BO MBAY HIGH COURT AND HONBLE MADRAS HIGH COURT ON THIS ISSUE, WE H OLD THE ASSESSMENT ORDER VOID AB INITIO, CONSEQUENTLY THE PROCEEDINGS ARISING THERE FROM ARE ALSO VITIATED. THE IMPUGNED ORDER IS SET A SIDE AND THE APPEAL OF ASSESSEE IS ALLOWED. 10. IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON MONDAY, THE 28 TH DAY OF JANUARY, 2019. SD/- SD/- (R.S. SYAL) (VIKA S AWASTHY ) VICE PRESIDENT JUDICIAL MEM BER PUNE; DATED : 28 TH JANUARY, 2019. YAMINI 8 ITA NO.261/PUN/2015 !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. ! / THE RESPONDENT 3. 4. 5 6. CIT(A)-13, PUNE. PR. CIT-5, PUNE. '#$!% %&',)! !&' , / DR, ITAT, A PUNE; $,-./ GUARD FILE. / BY ORDER // TRUE COPY // / 01%2&3 / SR. PRIVATE SECRETARY )! !&' , / ITAT, PUNE.