DINA MAHABIR RE-ROLLERS PVT LTD, PATNA V. PR. CIT -1, PATNA

ITA 31/PAT/2021

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 0595 (ITAT-PATNA)
• Duration Of Justice: 8 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-01-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2015-2016
• Appeal Filed On: 26-04-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: AJAY RASTOGI
• Keywords: Transfer pricing; Set aside
• Section: 263; 143(3); 144C; 153

Judgement Text

1 ITA No.115/Pat/2020 & ITA No.31/Pat/2021 Dina Mahabir Re-Rollers Pvt. Ltd., AY: 2015-16 IN THE INCOME TAX APPELLATE TRIBUNAL PATNA BENCH, (VIRTUAL HEARING AT KOLKATA) [Before Shri A. T. Varkey, JM & Shri Rajesh Kumar, AM] I.T.A. No. 115/Pat/2020 Assessment Year: 2015-16 Deputy Commissioner of Income-tax, Circle-1, Patna Vs. Dina Mahabir Re-Rollers Pvt. Ltd. (PAN: AAACD9668E) Appellant Respondent & I.T.A. No. 31/Pat/2021 Assessment Year: 2015-16 Dina Mahabir Re-Rollers Pvt. Ltd. Vs. Principal Commissioner of Income-tax- 1, Patna Appellant Respondent Date of Hearing 23.12.2021 Date of Pronouncement 05.01.2022 For the Assessee Shri Ajay Rastogi, Senior Advocate For the Department Shri Sanjay Mukherjee, CIT, DR ORDER Per Shri A.T.Varkey, JM ITA No. 115/Pat/2020 is against the order of Ld. CIT(A), Patna-1 dated 09.09.2020 for AY 2015-16 and ITA No. 31/Pat/2021 is against the order of Ld. Pr. CIT, Patna-1 dated 24.03.2021 for AY 2015-16 2. At the outset, it has been brought to our notice that the issues involved in these two appeals are common; therefore, both the appeals have been heard together and disposed of by a consolidated order for the sake of convenience. 3. First of all we will take up ITA No.115/Pat/2020 which is a departmental appeal against the action of the Ld. CIT(A), Patna-1 and thereafter ITA No.31/Pat/2021 which is assessee’s appeal against the order of the Ld. Pr. CIT, Patna-1 passed u/s. 263 of the Income-tax Act, 1961 (hereinafter referred to as the “Act”). The grounds of appeal raised 2 ITA No.115/Pat/2020 & ITA No.31/Pat/2021 Dina Mahabir Re-Rollers Pvt. Ltd., AY: 2015-16 by the revenue is against the action of the Ld. CIT(A) in holding that the AO could not have passed the final assessment order u/s. 143(3) of the Act without passing the draft assessment order u/s. 144(1) of the Act pursuant to the TPO’s order. Let us examine this action of Ld. CIT(A). 4. Brief facts of the case are that the assessee is a private limited company engaged in the manufacturing business of TMT Bars. The assessee had filed its return of income for the AY 2015-16 on 29.09.2015 and had declared total income of Rs.91,66,620/-. The case was selected for scrutiny through CASS and the statutory notices u/s. 143(2)/142(1) of the Act was issued by the AO. Later the AO referred the assessee’s specified domestic transaction to TPO u/s. 92CA(1) of the Act. Pursuant to the reference made by the AO, the TPO passed an order u/s. 92CA(3) of the Act dated 31.10.2018 by making adjustment of Rs.5,30,80,102/-. Thereafter, the AO has passed the assessment order u/s. 143(3) of the Act on 23.12.2018 by making an addition of Rs.5,30,80,102/-. Aggrieved by the aforesaid action of the AO, the assessee preferred an appeal before the Ld. CIT(A) who was pleased to hold vide the impugned order dated 09.09.2020 that the AO could not have passed the final assessment order u/s. 143(3) of the Act without first passing a draft assessment order u/s. 144C(1) of the Act and the failure to pass the draft assessment order is in violation of section 144C(1) of the Act and is not a curable defect and would vitiate entire assessment order. Aggrieved by the aforesaid action of the Ld. CIT(A) the revenue has preferred this appeal (ITA No. 115/Pat/2020) before us. 5. We have heard rival submissions and gone through the facts and circumstances of the case. We note that the question to be adjudicated is what would be the fate of an assessment order (final) made by an AO without complying with the provisions of section 144C(1) of the Act by not framing the draft assessment order and in that process in not providing the assessee’s discretion to file objection before the Dispute Resolution Panel (DRP) within the statutory prescribed time provided therein. We note that this issue is no longer res integra as held by the Hon’ble Madras High court in the case of M/s. Vijay Television Vs. DRP (2014) 225 Taxman 35 (Mad) and the Hon’ble High Court of Andhra Pradesh in M/s. Zuari Cements Ltd. Vs. ACIT (Petition CC No. 16694/2013 dated 27.09.2013) and the department’s appeal (SLP) in the case of M/s. Zuari Cements Ltd. has 3 ITA No.115/Pat/2020 & ITA No.31/Pat/2021 Dina Mahabir Re-Rollers Pvt. Ltd., AY: 2015-16 been dismissed by the Hon’ble Supreme Court after hearing the counsel for the department. According to the ratio decidendi of the aforesaid judicial precedents it was laid down that the omission on the part of the AO not to comply with the provisions of section 144(1) & (2) of the Act and thereby not framing the draft assessment order and consequently not providing the assessee the discretion to file objection before the DRP within the statutory prescribed time provided therein, makes the assessment order (final) passed by the AO to be without jurisdiction and so void. 6. It is noted that under the provisions of section 144C of the Act, it is provided that where the Assessing Officer proposes to make, on or after 01.10.2009, any variation in the income or loss returned of the eligible assessee, which is prejudicial to the interest of assessee, then the Assessing Officer shall in the first instance forward the draft of the proposed order of assessment to the eligible assessee. Under sub-section (2) of section 144C of the Act on receipt of the draft order, the eligible assessee shall within 30 days of the receipt, file his acceptance of the variation to the Assessing Officer or file his objections, if any, to such variation with the DRP. And as per sub-section (3) of section 144C of the Act, if the assessee intimates to the Assessing Officer the acceptance of the variation or no objections are received by him within period specified (30 days) in sub- section (2) of section 144C of the Act, then the AO shall complete the assessment on the basis of the draft order within one month from the end of month, in which the acceptance is received or the period of filing objections under sub-section (2) of section 144C of the Act has expired. And in case, if the assessee had opted to file objection before the DRP in exercise of the discretion conferred upon it u/s. 144(2)(b), then the AO shall not pass the final assessment order and await for the DRP direction as contemplated under sub-section (5) of section 144C of the Act, which empowers the DRP to issue such directions as it thinks fit for the guidance of the Assessing Officer to enable him to complete the assessment. Upon receipt of the DRP directions, the AO shall complete the assessment as per sub-section (3) to section 144C of the Act, in conformity with the directions of the DRP, without providing any further opportunity of hearing to the assessee within one month from the end of the month in which such direction is received by him, notwithstanding anything to the contrary contained in section 153 or 153B of the Act. In 4 ITA No.115/Pat/2020 & ITA No.31/Pat/2021 Dina Mahabir Re-Rollers Pvt. Ltd., AY: 2015-16 view of the aforesaid provisions of section 144C of the Act it can be seen that where the TPO proposes any variation in the income or loss returned by the eligible assessee, which is prejudicial to the interest of assessee, the Assessing Officer shall in the first instance forward the draft of the proposed assessment order to the assessee and thereafter, if no objections are received and/or the assessee files his acceptance to the variation to the Assessing Officer, then the Assessing Officer is empowered to complete the assessment within one month from the end of the month thereof. However, in the event the assessee exercises his discretion as per section 144C(2)(b) of the Act and files his objection before the DRP, then the AO cannot pass the final order and has to await for the directions of the DRP; and thereafter the DRP on the objection raised by the assessee gives directions to the AO, then the Assessing Officer on receipt of such directions shall complete the assessment (final) in conformity with such directions of the DRP. Therefore, in view of the aforesaid provisions of the Act, we note that the compliance of the aforesaid exercise as contemplated under section 144C of the Act is mandatory in the event where the TPO proposes variation in the income or loss returned in the case of an eligible assessee to the prejudice of the assessee. Only after complying with the exercise as laid down in section 144C of the Act, the Assessing Officer is empowered to pass the assessment order under section 143(3) r.w.s. 144C of the Act by completing the assessment on such enhanced income or variation in the loss returned by the assessee. Any failure to comply with the procedure laid down as per section 144C(2)(b) of the Act as discussed, vitiates the final assessment order passed by the AO. So, if an AO issues final assessment order without framing the draft assessment order is bad in law and is void in the eyes of law since it is not a curable defect. 7. For the aforesaid view of ours, we rely on the decision in the case of M/s. Vijay Television vs. DRP [2014] 225 Taxman 35 (Mad) passed by the Hon’ble Madras High Court wherein, it was held in para 12 that non-passing of draft assessment order after adjustment made by the TPO renders proceedings null & void by observing as under:- “Under Section 144C(1) of the Act, with effect from 1st October 2009, the Assessing Officer has to mandatorily issue a draft assessment order if there is a proposed variation to the return which are prejudicial to the eligible assessee. The fact that the petitioner is an eligible assessee is not in dispute. While so, under section 144C(2) of the Act, the eligible assessee has the option, either to accept the variation or to file their objections before the DRP and such option has to be exercised within 30 days. 5 ITA No.115/Pat/2020 & ITA No.31/Pat/2021 Dina Mahabir Re-Rollers Pvt. Ltd., AY: 2015-16 On such objections filed by the assessee, the DRP shall issue appropriate direction for the guidance of the Assessing Officer under section 144C(5) of the Act. It is only thereafter, the AO is bound to pass a final order of assessment in compliance with the directions issued by the DRP under section 144C(3) of the Act. In the present case, without following above mandatory procedure, the AO has passed the order of assessment on 26.03.2013 and subsequently issued a corrigendum on 15.04.2014 to rectify the mistake committed in passing the final order of assessment inter alia to treat it as a draft assessment order. This course of action adopted by the second respondent is contrary to the mandatory provisions contained in the Act and the corrigendum issued by the AO could not cure the defect. The very fact that the Assessing Officer has signed the order of assessment and also assessed the amount payable by the assessee has become complete and it cannot be simply treated as a draft assessment order or it can be rectified by issuing the corrigendum. In fact, pursuant to the order of assessment under section 143(3), demand was also made for payment of the amount and such demand has not been withdrawn by the second respondent even after issuing the corrigendum. Even as per the website of the department, the demand made to the petitioner company continues till date and therefore, the final order as well as the corrigendum issued by the second respondent are vitiated by errors apparent on the face of the record and they are legally not sustainable .” 8. Further we note that the Hon’ble High Court of Andhra Pradesh in M/s. Zuari Cements Ltd. Vs. ACIT (Petition CC NO. 16694/2013 dated 27.09.2013) on similar issue where after receipt of the order passed by the TPO under section 92CA(3) of the Act, the Assessing Officer had passed the assessment order under section 143(3) of the Act raising a demand of Rs.27,40,71,913/- without giving an opportunity/discretion to the assessee under section 144C of the Act as to whether it prefers to file objection before the DRP i.e. the AO without passing the draft assessment order as contemplated u/s. 144C(1) of the Act having passed the final assessment order, the Hon’ble High Court observed that where the Assessing Officer proposes to make on or after 01.10.2009, any variation in the income or loss returned by the eligible assessee, then notwithstanding anything to the contrary contained in the Act, he shall first pass the draft assessment order, and then forward the same to the assessee and give the assessee opportunity/discretion to file his objections if any before the DRP; and in the event if the assessee has no objection then the Assessing Officer shall complete the assessment within one month as per section 144C(4) of the Act. The Hon’ble High Court further observed that in case if the assessee had filed an objection before the DRP, then based on the directions issued by the DRP to Assessing Officer he has to complete the final assessment. Thus according to the Hon’ble High Court where the Assessing Officer accepted the variation submitted by the TPO without giving the assessee any opportunity to object to it and pass the assessment order, then in such an event the impugned order of assessment was contrary to section 144C of the Act and was without jurisdiction, null and void and thus unenforceable. The Hon’ble High Court (Andhra Pradesh) held as under:- 6 ITA No.115/Pat/2020 & ITA No.31/Pat/2021 Dina Mahabir Re-Rollers Pvt. Ltd., AY: 2015-16 “In this view of the matter we are of the view that the impugned order of assessment dt. 23.12.2011 passed by the respondent is contrary to the mandatory provisions of S.144C of the Act and is passed in violation thereof. Therefore, it is declared as one without jurisdiction, null and void and unenforceable. Consequently, the demand notice dated 23.12.2011 issued by the respondent is set aside.” 9. And further it was brought to our notice that the Hon’ble Supreme Court (supra) in ACIT Vs. Zuari Cements Ltd. (supra) had dismissed the Special Leave Petition filed by the Department upon hearing the Counsel. According to the Ld. Senior Advocate Shri A. K. Rastogi since the said Special Leave Petition was dismissed after hearing the Counsel for the department, the view taken by the Hon’ble High Court of Andhra Pradesh has been approved by the Apex Court. In the light of the aforesaid discussion and judicial precedents (supra), we are of the view that AO was bound to follow the mandatory provision of law prescribed in section 144C of the Act especially sub-section (1) and (2) of section 144C of the Act and then only ought to have passed the final assessment order. 10. In view of the aforesaid discussion, we hold that the AO’s omission to frame draft assessment order breached the Rule of Law and consequently, his non-action to frame draft assessment order before passing the final assessment order was in contravention of mandatory provision of law as stipulated in section 144C of the Act. Consequently his action is arbitrary & whimsical and such exercise of power by the AO offends Article 14 & 21 of the Constitution of India and therefore framing of final assessment order without framing draft assessment order is held to be an action without jurisdiction and ergo the assessment order dated 23.12.2018 is null in the eyes of law and, therefore, the impugned action of Ld. CIT(A) in holding that the AO could not have passed the final assessment order without first passing a draft assessment order is in violation of section 144(1) of the Act and is not a curable defect and would vitiate the entire assessment order is upheld. Therefore, we uphold the impugned action of Ld. CIT(A) dated 09.09.2020 on the reasons aforerstated by us and, therefore, we hold that the order of the AO dated 23.12.2018 is null in the eyes of law and so unenforceable. Therefore, the appeal of the revenue stands dismissed. 11. Now, coming to assessee’s appeal (ITA No. 31/Pat/2021). This appeal has been preferred by the assessee against the order of the Ld. Pr. CIT-1, Patna u/s. 263 of the Act dated 24.03.2021 for AY 2015-16. 7 ITA No.115/Pat/2020 & ITA No.31/Pat/2021 Dina Mahabir Re-Rollers Pvt. Ltd., AY: 2015-16 12. Brief facts of the case are that the Ld. Pr. CIT has interfered with the order of the AO dated 23.12.2018 passed u/s. 143(3) of the Act making an addition of Rs.5,30,80,102/- pursuant to the TPO’s order u/s. 92CA(3) of the Act dated 31.10.2018. The Ld. Pr. CIT has interfered with the AO’s order u/s. 143(3) of the Act, and after hearing the assessee has held as under: “6. The contention of the assessee has been examined with reference to the material on record. On perusal of order of JCIT (TP), Range-3, Kolkata dated 31.10.2018 passed u/s. 92CA(3) of the Income Tax Act, 1961, it is observed that for the purpose of determination of ALP and computation of TP adjustment, the TPO has not followed the TP provisions and did not draw any comparable in objective manner. On perusal of record, it is found that the TPO has not followed the prescribed methods i.e. Comparable Uncontrolled Price (CUP) and Transactional Net Margin Method (TNMM) etc. while working out the TP adjustment. The TPO has chosen a random purchase price with its AE, compared the same with other purchase prices of its AE and computed the difference in purchase price of the assessee with reference to random purchase price, to arrive at the TP adjustment to be made at Rs.5,30,80,102/- vide order u/s. 92CA(3) of the I. T. Act, 1961. The Assessing Officer completed the assessment u/s. 143(3) of the I. T. Act, 1961 by adding the TP adjustment of Rs.5,30,80,102/- based on the order u/s. 92CA(3) of the I. T. Act, 1961 without verifying, examining the infirmities and deficiencies in the order of the TPO as stated above. Further, the assessing officer completed the assessment u/s. 143(3) of the I. T. Act, 1961 dated 23.12.2018 without following the prescribed provisions of the I. T. Act, 1961. Accordingly, the assessment order passed u/s. 143(3) of the Income Tax Act, 1961 dated 23.12.2018 for AY 2015-16 was found to be erroneous in so far as it is prejudicial to the interests of the revenue within the meaning of section 263 of the Income Tax Act, 1961. 6. For the above referred reasons and the facts on record, I deem it fit to cancel and set aside the assessment order u/s. 143(3) of the I. T. Act, 1961 dated 23.12.2018 passed by the AO for AY 2015-16 without making enquiries and verification which should have been made as discussed above. 7. Accordingly, the assessment order passed u/s. 143(3) of the I. T. Act, 1961 dated 23.12.2018 for AY 2015-16 is cancelled and set aside with direction to the AO to frame the assessment de novo by making fresh enquiries, investigation and verification for determination of Arm’s Length Price in respect of Specified Domestic Transactions entered by the assessee with Associated Enterprises after making fresh reference to the TPOI in the light of deficiencies and infirmities discovered in the order of the TPO u/s. 92CA(3) of the I. T Act, 1961 dated 31.10.2018.” 13. Thus, it is noted that the Ld. Pr. CIT was pleased to cancel and set aside the AO’s assessment order passed u/s. 143(3) dated 23.12.2018 for AY 2015-16 with direction to the AO to frame assessment de novo by making fresh enquiries and verification for determination of Arms Length Price in respect of the Specified Domestic Transaction entered into by the assessee with Associated Enterprises after making fresh reference to the TPO. Aggrieved by the aforesaid action of the Ld. Pr. CIT the assessee is in appeal before 8 ITA No.115/Pat/2020 & ITA No.31/Pat/2021 Dina Mahabir Re-Rollers Pvt. Ltd., AY: 2015-16 us. After hearing both the parties, we find merit in the contention of Ld. Sr. Counsel Shri Ajay Rastogi that the action of the Ld. Pr. CIT is without jurisdiction on two counts: (a) The first reason is that section 263 of the Act does not permit the Ld. Pr. CIT to exercise revisional jurisdiction on issues/subject matter which has been considered and decided by the Ld. CIT(A). Here in this case, the assessment order is dated 23.12.2018 u/s. 143(3) of the Act which order of AO has been held to be void by the Ld CIT(A) by order dated 09.09.2020, therefore, the subject matter on which Ld Pr CIT has found fault with the assessment order and held it as erroneous as well prejudicial to revenue by the impugned order dated 24.03.2021, was therefore considered by the Ld. CIT(A) in his order dated 09.09.2020. Therefore, Explanation (1)(c) of section 263 of the Act does not allow/permit the Ld. Pr. CIT to revise the order of the AO. Explanation (1) (c) of section 263 of the Act reads as under: “(c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal [filed on or before or after the 1 st day of June, 1988], the powers of the [Principal Commissioner or] Commissioner under this sub-section shall extend [and shall be deemed always to have extended] to such matters as had not been considered and decided in such appeal].” Therefore, in this case, we note that since the subject matter of the appeal of the assessee was before the Ld. CIT(A) and the Ld. CIT(A) has held the AO’s assessment order to be void vide order dated 09.09.2020 the question of Ld. Pr. CIT later revising the same by order dated 24.03.2021 does not arise. (b) Moreover, we have adjudicated the appeal of the revenue in ITA No. 115/Pat/2020 for AY 2015-16 wherein the action of the Ld. CIT(A) in holding the AO’s order (final assessment order u/s. 143(3) of the Act) dated 23.12.2018 as void has been upheld. Therefore, the legal consequence is that a void order of AO cannot be revised by the Ld. Pr. CIT since it is non est in the eyes of law. So, when the assessment order dated 23.12.2018 u/s. 143(3) of the Act has been held to be void/non est then noting remain/survives. In other words, when at the first place there is no assessment order dated 23.12.2018 exist, the Ld. Pr. CIT could not have exercised his power u/s. 263 of the Act on a non-est assessment order; and ergo the Ld. Pr. CIT could not have exercised his revisional jurisdiction to 9 ITA No.115/Pat/2020 & ITA No.31/Pat/2021 Dina Mahabir Re-Rollers Pvt. Ltd., AY: 2015-16 interfere with void/null order which is not existing in the eyes of law and, therefore, the impugned order of the Ld. Pr. CIT is also a nullity, therefore, the appeal of the assessee succeeds. 14. In the result, the appeal of the revenue is dismissed and the appeal of the assessee is allowed. Order is pronounced in the open court on 5 th January, 2022. Sd/- Sd/- (Rajesh Kumar) (Aby. T. Varkey) Accountant Member Judicial Member Dated: 05.01.2022 JD(Sr.P.S.) Copy of the order forwarded to: 1. Assessee – M/s. Dina Mahabir Re-Rollers Pvt. Ltd., Agam Kuan, Patna, Bihar- 800007 2. Revenue – DCIT, Circle-1, Patna 3. CIT(A), Patna-1. 4. Pr.CIT,Patna-1. 5. DR, Patna Benches, Patna True Copy By Order Private Secretary/DDO ITAT, Patna Bench, Patna