LORD INDIA P.LTD, MUMBAI V. ASST CIT 10(2)(1), MUMBAI

ITA 424/MUM/2016

AI Insights

The case involves Lord India Pvt. Ltd., which appealed against the order of the Assistant Commissioner of Income-tax regarding transfer pricing adjustments and other disallowances for the assessment year 2011-12. The primary contention was the improper issuance of a demand notice and penalty notice along with the draft assessment order, which was argued to be in violation of Section 144C of the Income Tax Act. The Tribunal examined the procedural adherence in issuing the draft and final assessment orders and found significant deviations from the statutory requirements, leading to the quashing of the assessment order.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 130189 (ITAT-MUMBAI)
• Duration Of Justice: 7 year(s) 2 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-04-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Next Hearing Date: 28-03-2023
• Assessment Year: 2011-2012
• Appeal Filed On: 27-01-2016
• Other Referred Cases: M/s Surtex Prophylactics (India) Ltd [IT(TP)A No. 430/Bang/2016], National Thermal Power Company Ltd. Vs. CIT, 229 ITR 383 (SC), Joot Corporation of India Ltd. 187 ITR 688 (SC), Aker Powergas P Ltd v. Dy. CIT (140 taxmann.com 599) (Mum-Trib), Inteva Products India Automotive Pvt Ltd v. Dy CIT (ITA No. 2722 & 2723/Bang/2018, dated 24 November 2020), Nikon India Pvt Ltd v DCIT (ITA No. 8752 & 8753/Del/2019, dated 27 May 2020), Nokia India (P) Ltd v. ADIT (WP(C) No. 3629 of 2017), Zuari Cement Ltd v. ACIT (Writ Petition No. 5557 of 2012), Vijay Television Private Limited v. DRP (369 ITR 113)(Madras HC), Lionbridge Technologies (P) Ltd v Dy CIT (171 TTJ 684) (Mumbai), Gigabyte Technology (India) (P) Ltd v. CIT (121 taxmann.com 301) (Bombay), Jazzy Creation Pvt Ltd v ITO (ITA No 4560/Mum/2014, order dated 4 January 2016), SHL (India) (P) Ltd v. DCIT (438 ITR 317) (Bom), International Air Transport v. DCIT (290 CTR 46) (Bom), Apache Footware India Private Limited v. ACIT (ITA- TP No 385/Hyd/2021, dated 11 January 2023), Atlas Copco India Ltd versus DCIT (ITA number 649/PU 1/2013 and 1726/UN/2014), Preffetti van Millee India private limited versus ACIT ITA number 9116/del/2019, Suretex profilatyics India private limited versus ACIT ITA number 430/bang /2016, DCIT versus Rehau polymers private limited (2017) 85 taxmann.com 23, Skottas India private limited versus ACIT (2017) 77 taxman.com 19, Mavenir India private limited versus DCIT ITA number 203/del/2010, Skoda auto India private limited versus ACIT 2344/PU and/2012, Jazzy creations private limited versus ITO 83 taxmann.com 24, PCIT versus Lion bridge technologies private limited 100 taxmann.com 413, Kalyan Kumar Ray (1991) 191 ITR 634 (SC), Auto and Metal Engineers vs. UOI (1998) 229 ITR 399 (SC), Aker Powergas P Ltd vs. Dy. CIT, Inteva Products India Automotive Pvt Ltd vs. Dy CIT, Nikon India Pvt Ltd vs. DCIT, Nokia India (P) Ltd vs. ADIT, Zuari Cement Ltd vs. ACIT, Vijay Television Private Limited vs. DRP, Lionbridge Technologies (P) Ltd vs. Dy CIT, Gigabyte Technology (India) (P) Ltd vs. CIT, Jazzy Creation Pvt Ltd vs. ITO, SHL (India) (P) Ltd vs. DCIT, International Air Transport vs. DCIT, Apache Footware India Private Limited vs. ACIT, Atlas Copco India Ltd vs. DCIT, Preffetti van Millee India private limited vs. ACIT, Suretex profilatyics India private limited vs. ACIT, DCIT vs. Rehau polymers private limited, Skottas India private limited vs. ACIT, Mavenir India private limited vs. DCIT, Skoda auto India private limited vs. ACIT, Jazzy creations private limited vs. ITO, PCIT vs. Lion bridge technologies private limited, Kalyan Kumar Ray vs. CIT, Auto and Metal Engineers vs. UOI
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; International transaction; Initiation of penalty proceedings; Validity of assessment; Procedural lapse; Set aside
• Section: 271(1)(c); 139; 143(3); 142(1); 40(a)(ia); 144C; 274; 191; 113; 13; 92CA

Judgement Text

P a g e | 1 ITA No.424/Mum/2016 Lord India Pvt. Ltd. vs. ACIT, Circle 10(2)(1) IN THE INCOME TAX APPELLATE TRIBUNAL “K” BENCH, MUMBAI BEFORE SHRI AMARJIT SINGH, ACCOUNTANT MEMBER & SHRI SANDEEP SINGH KARHAIL, JUDICIAL MEMBER ITA No. 424/Mum/2016 (A.Y.2011-12) Lord India Private Limited ( f o r m e r l y k n o w n a s L o r d I n d i a C h e m i c a l P r o d u c t s P v t . L t d . ) A/401-404, 215 – Atrium Chakala, Andheri – Kurla Road Andheri (East) Mumbai - 400093 Vs. Assistant Commissioner of Income-tax, Circle- 10(2)(1), Room No. 509, Aayakar Bhavan, M.K. Road, Mumbai - 400020 स्थायी लेखा सं./जीआइआर सं./PAN/GIR No: AAACU0785H Appellant .. Respondent Appellant by : M.P. Lohia Respondent by : Dr. Samual Pitta Date of Hearing 29.03.2023 Date of Pronouncement 24.04.2023 आदेश / O R D E R Per Amarjit Singh (AM): The present appeal filed by the assesse is directed against the order passed by the DRP-1, Mumbai dated 26.02.2015 for A.Y. 2011- 12. The assesse has raised the following grounds before us: “1. Transfer pricing - Availing of intra-group services 1.1 On the facts and circumstances of the case and in law, the Learned ACIT/ DRP erred in determining the arm's length price in relation to the international transaction relating to the availing of group benefit services/ technical service management services (hereinafter referred to as "intra-group services") of Rs.1,14,87,092 to be Rs. 22,97,418/-, thus making an adjustment of Rs.91,89,674/- and thereby disregarding the fact that the Appellant had received the services for the purposes of its business. In doing so, the learned ACIT/ DRP grossly erred by not appreciating the commercial wisdom/ expediency of the Appellant P a g e | 2 ITA No.424/Mum/2016 Lord India Pvt. Ltd. vs. ACIT, Circle 10(2)(1) 1.2 The learned ACIT/ DRP failed to understand and appreciate the business model of the Appellant and in rejecting the Appellant's economic analysis of benchmarking closely interlinked transactions using Transactional Net Margin Method ("TNMM") 1.3 On the facts and circumstances of the case and in law, the learned ACIT/ DRP erred in not appreciating the fact that the Appellant has received the services and benefitted therefrom for the purposes of its business operations. 1.4 The learned ACIT DRP erred in concluding that the Appellant has failed to provide sufficient documentary evidence to demonstrate that the Appellant has availed the services and derived commercial benefits from such services in spite of the detailed documentary evidences supporting the benefit test submitted before the Transfer Pricing Officer ("TPO") and the learned DRP. 1.5 The learned ACIT/ DRP erred in ignoring evidences provided by the Appellant and in concluding that the services availed by the Appellant from its Associated Enterprise ("AE") were in nature of 'duplicate' and 'shareholder services which have not conferred any commercial benefit upon the Appellant. 1.6 The learned ACIT/DRP failed to appreciate that the cost allocation was based on scientific allocation key and as per the intercompany agreement. 1.7 The learned ACIT/DRP erred in concluding that the Appellant has submitted insufficient details in relation to the allocation of cost in spite of the fact that the Appellant has submitted details of the nature of the cost incurred, total cost incurred for Asia region and the corresponding allocation of cost to India region viz. LIPL. 1.8 The learned ACIT/ DRP erred in holding that the arm's length price of the international transaction relating to receipt of intra-group services by the Appellant is only 20% of the value of such transaction. 1.9 The learned ACIT DRP erred in not appreciating the fact that the AE has incurred an amount of Rs. 19,98,768 towards travel hotel cost in relation to its employees visiting India for providing intra-group services to the Appellant, the cost of which is completely borne by the AE, without recharging it to the Appellant. 1.10 The learned ACIT/ DRP erred in not considering the submissions placed on record by the Appellant with respect to reliance on Indian and international jurisprudence for justification of payment made for availing intra-group services 1.11 It is prayed that it be held that the aforesaid international transaction was at arm's length and accordingly the adjustment of Rs. 91,89,674/- be deleted. 2. Disallowance of expense of Rs.3,78,940/- (net of VAT and service tax) incurred towards food and other charges for business meeting at hotel. 2.1 The learned ACIT erred in disallowing the above expense of Rs.3,78,940/- (net of VAT and service tax) under section 40(a)(ia) of the P a g e | 3 ITA No.424/Mum/2016 Lord India Pvt. Ltd. vs. ACIT, Circle 10(2)(1) Act on the ground that no tax had been deducted at source on the same. The learned DRP erred in confirming the same. 2.2 The learned DRP erred in holding that payment of the above expense was a composite payment for a business conference and not a payment merely for food in a restaurant or for hiring a hall. 2.3 The learned DRP erred in not appreciating that the above expense comprised of i) food expenses of Rs.3,34,950/- ii) business centre conference room charges and banquet meeting hall rental of Rs 81,622/- and iii) travel desk service charges of Rs.11,828/- (all expenses inclusive of VAT and service tax). 2.4 The learned ACIT/DRP erred in not appreciating that no tax was required to be deducted at source on the above expense and hence the question of disallowing the same under section 40(a)(ia) of the Act did not arise. 2.5 The learned ACIT/DRP erred in not considering the submissions of the appellant in the correct perspective. 3. Disallowance of display and other charges at exhibition and sponsorship charges aggregating to Rs.5,45,614/- 3.1 The learned ACIT erred in disallowing the above charges aggregating to Rs.5,45,614/- under section 40(a)(ia) of the Act on the ground that no tax had been deducted at source on the same. The learned DRP erred in confirming the same. 3.2 The learned ACIT/ DRP erred in not appreciating that no tax was required to be deducted at source on the above charges and hence the question of disallowing the same under section 40(a)(a) of the Act did not arise. 3.3 The learned DRP erred in not appreciating that- a. the above charges comprised of i) charges of Rs.5,11,200/- for space taken on hire ii) sponsorship charges of Rs.15,000 in) conference registration fees of Rs.8.383/- and iv) additional service charges at conference of Rs.11,031/-; b. tax of Rs.10,224/- had already been deducted on the charges of Rs.5,11,200/- incurred towards space taken on hire, and c. even if it was held that tax was required to be deducted at source on the entire amount i.e Rs.5,45,614/- and consequently it was held to be a case of short deduction of tax at source, no disallowance could be made under section 40(a)(ia) of the Act as the said provisions do not apply to cases of short deduction of tax at source. 3.4 The learned ACIT/ DRP erred in not considering the submissions of the appellant in the correct perspective. 4. Incorrect computation of Dividend Distribution tax (DDT) and related interest and credit for DDT paid not granted P a g e | 4 ITA No.424/Mum/2016 Lord India Pvt. Ltd. vs. ACIT, Circle 10(2)(1) 4.1 The learned ACIT erred in computing the total DDT and interest payable by the appellant at Rs.1,48,25,035/- as against at the correct amount of Rs.1,43,41,550/-. 4.2 The learned ACIT erred in not granting credit for DDT of Rs.37,17,656/- paid by the appellant. 5. Initiation of penalty proceedings under section 271(1)(c) of the Act 5.1 The learned ACIT erred in initiating penalty proceedings under section 271(1)(c) of the Act. 5.2 The learned ACIT/DRP erred in not appreciating that there was no concealment of income or furnishing of inaccurate particulars of income by the appellant for penalty proceedings to be initiated in this regard. 6. The Appellant submits that each grounds of appeal is without prejudice to one another. 7. The Appellant craves leave to add, alter, vary, omit, substitute or amend of the above ground of appeal, at any time before or at, the time of the appeal, so as to enable the Hon’ble Income-tax Appellate Tribunal to decide this appeal according to law and facts.” 2. Fact in brief is that assesse has filed return of income for assessment year 2011-12 on 09.11.2011 declaring total income of Rs.25,97,17,520/-. The assesse company was engaged in the business of manufacture and sale of industrial adhesives for construction automotive and electronic industries. The assesse has furnished audit report in form no. 3CEB in respect of its international transaction with associated enterprises. The A.O has referred the matter to the Transfer Pricing Officer in accordance with the provisions of Sec. 92CA(1) of the Act for determination of arm’s length price in respect of assesse’s international transactions with associated enterprises. The TPO vide order u/s 92CA(3) dated 19.01.2015 has recommended adjustment of Rs.91,89,674/- in the arm’s length price of its international transaction with respect to technical services. Thereafter the A.O has passed draft assessment order on 26.02.2015 after making disallowance of Rs.91,89,674/- u/s 92CA(3) on account of adjustment in arm’s length price of international transaction and disallowance of Rs.9,24,554/- P a g e | 5 ITA No.424/Mum/2016 Lord India Pvt. Ltd. vs. ACIT, Circle 10(2)(1) u/s 40(a)(ia) and Rs.3,810/- on account of mismatch of 26AS. The total income was assessed at Rs.26,98,35,560/-. 3. Thereafter the assessee has filed objection against the draft assessment order before the Dispute Resolution Panel-1, Mumbai. The DRP vide direction u/s 144C(5) of the Income Tax Act, 1961 dated 16.10.2015 has upheld the adjustment made by the TPO. The DRP has also upheld the disallowance of expenses of Rs.3,78,940/- incurred towards food and other charges for business meeting at hotel and disallowance of Rs.5,45,614/- pertaining to exhibition and sponsorship charges. 4. Thereafter the A.O has passed final assessment order on 30.11.2015 and assessed the total income at Rs.26,98,31,750/- 5. During the course of appellate proceedings before us the assessee has filed additional ground of appeal on 11.10.2022 as under: “In continuance to the grounds raised in the captioned appeal, we wish to challenge the validity of assessment on following aspects  It is to be noted that draft reassessment order dated February 26, 2015, has been passed along with the notice of demand under Section 156 of the Act. which is not in accordance with the provisions of section 144C of the Act. Since, the draft assessment order has been passed without complying with the relevant provision of the Act read with the Rules, the Appellant wishes to challenge the same by way of additional ground in view of decision passed by the Hon'ble Bangalore Tribunal in case of M/s Surtex Prophylactics (India) Ltd [IT(TP)A No. 430/Bang/2016], wherein the draft assessment order issued along with demand notice u/s 156 and penalty notice u/s 274 r.w.s.271(1)(c), was quashed and set aside stating that such orders passed by the Ld. AO without following due process prescribed u/s 144C are liable to be set aside.” 6. In respect of additional ground filed by the assesse the ld. Counsel submitted that AO had passed the draft assessment order on 26.02.2015 and also issued demand notice u/s 156 and penalty notice u/s 274 r.w.s 271(1)(c) of the Act, therefore the impugned order was passed P a g e | 6 ITA No.424/Mum/2016 Lord India Pvt. Ltd. vs. ACIT, Circle 10(2)(1) in violation of Sec. 144C of the Act. The ld. Counsel also placed reliance on the decision of Hon’ble Supreme Court in the case of National Thermal Power Company Ltd. Vs. CIT, 229 ITR 383 (SC) wherein held that assessee should not be prevented from raising a question of law before the ITAT for the first time. The ld. Counsel has also placed reliance on the decision of Hon’ble Supreme Court in the case of Joot Corporation of India Ltd. 187 ITR 688 (SC). The ld. Counsel further submitted that the additional grounds was a purely legal ground arises from the draft assessment order and it goes to the root of the matter and is required to be adjudicated in order to determine the correct liability of the assessee. The ld. Counsel has also submitted the copy of notice of payment u/s 156 of the Act dated 26.02.2015 issued by the A.O along with the draft assessment order. On the other hand, the ld. D.R submitted that the draft assessment order u/s 143(3) r.w.s 144C(1) of the Act was passed on 26.02.2015 proposing to assess the total income of the assesse at Rs.26,98,35,560/- under normal provision of the Act and the final assessment order was passed on 30.11.2015. The demand notice was not enforceable till the passing of the final assessment order. The. Ld. D.R also submitted that no such objection was raised by the assessee before the DRP. 7. After hearing the rival contention with respect to the additional ground raised by the assesse we consider that assessee has raised purely a legal ground in view of the decision of Hon’ble Supreme Court as referred supra, we admit the additional ground and adjudicated the same as follows. 8. In the additional ground the assessee submitted that A.O has passed the draft assessment order on 26.02.2015 accompanied with a notice of demand u/s 156 of the Act dated 26.02.2015 also a show P a g e | 7 ITA No.424/Mum/2016 Lord India Pvt. Ltd. vs. ACIT, Circle 10(2)(1) cause notice of penalty u/s 274 r.w.s 271(1)(c) of the Act dated 26.02.2015 which was not in accordance with the provisions of Sec. 144C of the Act and placed reliance on the following judicial pronouncements: “1. Aker Powergas P Ltd v. Dy. CIT (140 taxmann.com 599) (Mum-Trib) 2. Inteva Products India Automotive Pvt Ltd v. Dy CIT (ITA No. 2722 & 2723/Bang/2018, dated 24 November 2020) 3. Nikon India Pvt Ltd v DCIT (ITA No. 8752 & 8753/Del/2019, dated 27 May 2020) 4. Nokia India (P) Ltd v. ADIT (WP(C) No. 3629 of 2017) Affirmed by Hon'ble Supreme Court in ACIT v. Nokia India (P) Ltd[2018] 259 Taxman 91 (SC) 5. Zuari Cement Ltd v. ACIT (Writ Petition No. 5557 of 2012) (Mad HC) And affirmed by the Hon'ble SC in No. 16694/2013, order dated 27th September, 2013 6. Vijay Television Private Limited v. DRP (369 ITR 113)(Madras HC) 7. Lionbridge Technologies (P) Ltd v Dy CIT (171 TTJ 684) (Mumbai) Affirmed by Bombay HC in PCIT v Lionbridge Technologies (P) Ltd 100 Taxmann.com 413 (Bombay) 8. Gigabyte Technology (India) (P) Ltd v. CIT (121 taxmann.com 301) (Bombay) 9. Jazzy Creation Pvt Ltd v ITO (ITA No 4560/Mum/2014, order dated 4 January 2016) 10. SHL (India) (P) Ltd v. DCIT (438 ITR 317) (Bom) 11. International Air Transport v. DCIT (290 CTR 46) (Bom) 12. Apache Footware India Private Limited v. ACIT (ITA- TP No 385/Hyd/2021, dated 11 January 2023) (Hyd Tribunal).” The ld. Counsel has also laid emphasis on the decision of SHL (India) (P) ltd. Vs. DCIT (2021) 128 taxmann.com 426 (Bombay) wherein the Hon’ble jurisdictional High Court held that by not following procedure laid down in Sec. 144C(1) is not a mere procedural or inadvertent error, but a breach of mandatory provisions which is incurable. By referring the aforesaid judicial pronouncements the ld. Counsel vehemently contended that AO has failed to follow procedure prescribed for passing a draft assessment order and passing of order accompanied with demand notice and show cause notice of penalty is void-ab-initio and deserves to be quash. The ld. Counsel has referred P a g e | 8 ITA No.424/Mum/2016 Lord India Pvt. Ltd. vs. ACIT, Circle 10(2)(1) the different paras of the decision of ITAT, Mumbai in the case of Aker Powergas P Ltd. Vs. Dy. CIT dated 23.06.2022 based on identical facts and similar issue. It is submitted that in this order the ITAT has also referred decisions of Supreme Courts and High Courts. With the assistance of the ld. Representative we have gone through the above referred decision the relevant part of the decision is reproduced as under: “8. With the assistance the ld. Representative we have gone through the above referred decision. The relevant part of the decision is reproduced as under: 06. We have carefully considered the rival contentions with respect to the additional ground raised by the assessee. We find that the assessee can raised legal ground at any time during the pendency of appeal. In the grounds raised by the assessee no fresh facts are required to be investigated and further it goes to the root of the matter as it is jurisdictional ground. In view of this, we admit the additional ground and proceed to adjudicate the same first. 07. The facts of the case shows that assessee company is engaged in the business of engineering consultancy services. It is part of a leading global oil service company specialising in oil and gains. The assessee provides engineering design services to the entities of the whole group. 08. Assessee filed its return of income on 29/11/2013 declaring a total income of ₹ 72,005,269. The case of the assessee was picked up for scrutiny. The learned assessing officer found that assessee has entered into an international transactions with its associated enterprises and therefore these international transactions are required to be tested on arm’s-length principle, therefore the matter was referred to the learned transfer pricing officer. 09. The learned TPO found that assessee has entered into six different kind of international transactions. All these transactions are related to a. provision of engineering and design services amounting to ₹ 147,444,3403/- , b. payment for implementation of SNAP software of Rs 4, 81,44,289/–, c. management services availed of Rs 4,90,39,998/–, d. payment towards use of software and link rental amounting to ₹ 210,315,510, e. reimbursement of expenses of Rs 2,64,59,887/– and f. recovery of expenditure of Rs 2, 63,52,035/– 010. In its transfer pricing study report assessee used Internal Transactional Net Margin Method (TNMM) as the most appropriate method. Assessee selected return on total cost i.e. OP/OC as the profit level indicator, it computed its PLI on transactions with associated parties at 22.41%. It also bifurcated transactions with unrelated parties and stated that its gross profit margin with third party transaction is 24.53% and therefore as the operating margin earned by the assessee on transactions with its associated enterprises is more than the margin earned from third parties the international transactions are at arm’s-length. 011. The learned transfer pricing officer examined the transfer pricing study report of the assessee and found that assessee has adopted internal P a g e | 9 ITA No.424/Mum/2016 Lord India Pvt. Ltd. vs. ACIT, Circle 10(2)(1) transactional net margin method as the most appropriate method. He found that revenue from engineering design services from associated enterprise segment is 57% whereas from non- AE segment is 43%. He accepted the internal transactional net margin method, however, he examined the profitability segment and found that assessee has applied internal transactional net margin method using the domestic segment also in comparison. According to him the domestic segment cannot be compared with export segment. Therefore he held that it is appropriate to compare the related party export as well as third-party exports Under the internal transactional net margin method analysis. According to that, he found that related party export transactions resulted into profit level of 21.88% compared to transactions with other parties of 27.62%. Therefore adjustment of ₹ 69,416,669/– was made towards Arms’ length price of international transactions. The learned transfer pricing officer passed an order u/s 92CA (3) of the act on 31/10/2016. 012. Based on this, the learned assessing officer passed a draft assessment order on 21/12/2016 wherein the total income returned of the assessee of ₹ 72,005,269/– was assessed at ₹ 141,821,938/– and transfer pricing adjustment of ₹ 69,416,669/- was made. 013. Assessee preferred an objection before the Dispute Resolution Panel – I, Mumbai [ the Ld DRP] who passed direction on 05/9/2017 and rejected the objections of the assessee. Consequently, on 27/10/2017, the learned assessing officer passed a final assessment order u/s 143 (3) read with Section 144C (13 ) of the Act wherein the total income of the assessee was assessed at ₹ 141,421,940. 014. The learned authorised representative , in the additional ground stated that the assessment order passed on 21 December 2016 is accompanied with a notice of demand u/s 156 of the act and also a show cause notice of penalty u/s 274 read with Section 271 (1) (C) of the act along with the draft assessment order and therefore the procedure of passing the draft assessment order has not been followed and instead of that the assessing officer has passed the final assessment order. Therefore, it was stated that the draft assessment order passed by the learned assessing officer is void ab initio and deserves to be quashed. 015. For this proposition he referred to the paper book and took us to page number 203 – 216 of the paper book wherein the draft assessment order is placed. He also submitted that notice of demand u/s 156 of The Income Tax Act along with the income tax computation form and showcause notice u/s 274 read with Section 271 (1) © of the income tax act of the same date. 016. To support his contention that the assessment order passed by the learned assessing officer is void ab initio and deserves to be quashed, he referred to the several judicial precedents as Under:- i. Atlas Copco India Ltd versus DCIT (ITA number 649/PU 1/2013 and 1726/UN/2014 ii. Preffetti van Millee India private limited versus ACIT ITA number 9116/del/2019 iii. Suretex profilatyics India private limited versus ACIT ITA number 430/bang /2016 iv. DCIT versus Rehau polymers private limited (2017) 85 taxmann.com 23 iv. Skottas India private limited versus ACIT (2017) 77 taxman.com 19 v. Mavenir India private limited versus DCIT ITA number 203/del/2010 vi. Skoda auto India private limited versus ACIT 2344/PU and/2012 vii. Jazzy creations private limited versus ITO 83 taxmann.com 24 P a g e | 10 ITA No.424/Mum/2016 Lord India Pvt. Ltd. vs. ACIT, Circle 10(2)(1) ix. PCIT versus Lion bridge technologies private limited 100 taxmann.com 413 017. He referred to all those decision to show that on identical facts and circumstances the assessment orders have been quashed where the learned assessing officer has failed to follow the procedures prescribed for passing a draft assessment order but instead of that passed draft assessment order along with the notice of demand and show cause notice for penalty. 018. The learned departmental representative vehemently stated that it is merely an irregularity and not an invalidity of the assessment order. He further stated that assessee has already taken the objection route before the learned dispute resolution panel and therefore assessee is not aggrieved with that and therefore the above additional ground raised by the assessee deserves to be dismissed on the merits. He further stated that the notice of demand issued by the learned assessing officer did not have any demand as demand was Rs Nil. Even the show cause notice has not been replied by the assessee with respect to penalty and therefore no prejudices caused to the assessee. 019. We have carefully considered the rival contentions and perused the orders of the lower authorities. Admittedly the draft assessment order passed by the learned assessing officer on 21/12/2016 is accompanied with the notice of demand as well as show cause notice u/s 274 read with Section 271 (1) ( c) of the act of the even date. Issue that arises is Whether draft assessment order accompanied with [1] Notice of Demand, [2] tax Computation sheet and [3] Show Cause Notice for penalty u/s 271 (1) (C) of the act, can it be considered as draft assessment order or a final assessment order. If it is a final assessment order then naturally the procedure laid down under the act has not been followed by the ld AO. In such circumstances, the assessment order passed by the ld AO becomes void ab intio and to be quashed. 020. We find that identical issue has been considered by the coordinate bench in 649/ Pun / 2013 in case of Atlas corpo India Ltd vide order dated 29/8/2019 wherein it has been held as Under:- “7. Briefly stated, the facts of the case are that the assessee filed its return declaring income of ₹ 1,44,59,01,250/-. Certain international transactions were reported by the assessee. The Assessing Officer (AO) made a reference to the Transfer Pricing Officer (TPO) for determining the arm’s length price (ALP) of the international transactions. The TPO passed the order u/s. 92CA(3) of the Act proposing transfer pricing adjustments. Then, the AO passed the order u/s.143(3) of the Act on 29-12-2011 marking it as “Assessment order’’. At the end of this order, the AO remarked that: `This is the proposed order of assessment passed u/s.143(3) r.w.s.144C(1) of the Income Tax Act, 1961’ determining the total income at ₹ 1,56,72,76,785/-. The assessee was also made aware that: `within 30 days of the receipt of this draft order’, it should either file acceptance to the variations or file objections to such variations before the Dispute Resolution Panel. Thereafter, the AO proceeded to calculate tax in the same order directing to “Issue demand notice and challan accordingly after giving credit to prepaid taxes, if any’ and further directing to `Issue notice u/s.274 r.w.s. 271(1)(c) of the I.T. Act, 1961”. A demand notice dated 29-12- 2011 was also simultaneously issued, a copy of which has been placed on record by the ld. AR. Then, the AO issued penalty notice u/s.274 r.w.s. 271(1)(c) of the Act, again, on 29-12-2012, whose copy has also been placed on record. Thereafter, the AO passed the final assessment order P a g e | 11 ITA No.424/Mum/2016 Lord India Pvt. Ltd. vs. ACIT, Circle 10(2)(1) dated 27-02-2012 u/s.143(3) r.w.s. 144C of the Act determining total income at ₹ 156.73 crore. 8. From the above factual matrix, it is seen that the AO passed the draft order by designating it as the “Assessment order” u/s 143(3) of the Act on 29-12- 2011 and also issued notice of demand u/s.156 along with initiation of the penalty proceedings. Thereafter, he passed the final assessment order again characterizing it as `Assessment order’ on 27- 2-2012. Under such circumstances, the assessee has raised the issue that the final assessment order lacked validity and hence should be quashed as the AO/TPO failed to follow the statutorily prescribed procedure u/s.144C of the Act. 9. Section 144C of the Act with the marginal note “Reference to Dispute Resolution Panel” provides through sub-section (1) of section 144C that: “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.’ Subsection (2) of section 144C states that the assessee shall either file his acceptance to the AO on the variations proposed in the draft order or file his objections, if any, with the DRP. In case, the assessee accepts the variation in the draft order or no objections are received within 30 days, then subsection (3) states that: `The Assessing Officer shall complete the assessment on the basis of the draft order’. In case, the assessee does not agree with the draft order, it can, inter alia, raise objections before the DRP, which shall issue directions under subsection (5) of section 144C. Upon receipt of the directions from the DRP, the AO completes the assessment under sub- section (13) in conformity with the directions given by the DRP. 10. An overview of section 144C of the Act deciphers that a draft order passed under sub-section (1) is only a tentative order which does not fasten any tax liability on the assessee. In case variations to the income in the draft order are accepted by the assessee or no objections are received within 30 days, the AO completes the assessment under section 144C(3) on the basis of draft order and the matter ends. In case the assessee objects to the variations in the income as proposed in the draft order and approaches the DRP, the final assessment order is passed by the AO u/s.144C (13) giving effect to the directions given by the DRP under sub-section (5). In case the assessee seeks to take the route of seeking redressal of its grievances through the channel of the CIT(A), in that case, again the AO has to pass a separate assessment order, which is obviously distinct from the draft order. So, it is only on the finalization of the variation in the income as per the draft order, to the extent specified in the provision, that the AO is obliged to pass an assessment order, either under sub-section (3) or (13) of section 144C of the Act, determining the tax liability, pursuant to which a notice of demand is issued. Thus it follows that, irrespective of the course of action followed by the assessee, whether or not accepting the variation in the draft order or choosing the route of the DRP or the CIT(A), a draft order has to be necessarily followed by an assessment order on the basis of which a notice of demand is issued and it is then that the assessment is said to have come to an end. 11. The Hon’ble Apex Court in Kalyan Kumar Ray (1991) 191 ITR 634 (SC) has held that assessment order involves determination of income P a g e | 12 ITA No.424/Mum/2016 Lord India Pvt. Ltd. vs. ACIT, Circle 10(2)(1) and tax. It laid down that: `‘Assessment' is one integrated process involving not only the assessment of the total income but also the determination of the tax. The latter is as crucial for the assessee as the former.’ Again the Hon’ble Summit Court in Auto and Metal Engineers vs. UOI (1998) 229 ITR 399 (SC) has held that the process of assessment involves (i) filing of the return of income under s. 139 or under s. 142 in response to a notice issued under s. 142(1) ; (ii) inquiry by the AO in accordance with the provisions of ss. 142 and 143 ; (iii) making of the order of assessment by the AO under s. 143(3) or s. 144; and (iv) issuing of the notice of demand under s. 156 on the basis of the order of assessment. The process of assessment thus commences with the filing of the return or where the return is not filed, by the issuance by the AO of notice to file the return under s. 142(1) and it culminates with the issuance of the notice of demand under s. 156. On going through the above precedents, it is manifested that the assessment proceedings come to an end on the issue of notice of demand u/s 156 of the Act. Once a notice of demand is issued, the AO becomes functus officio in so far as the completion of assessment is concerned. It consequently follows that issue of notice of demand marks the completion of the assessment. 12. Turning to the facts of the instant case, it turns out that the AO issued notice of demand on 29.12.2011 tantamounting to legally finalizing the assessment, which was just the stage of draft order. As against that, it was incumbent upon him to statutorily pass the final assessment order after the draft order and then issue notice of demand. Issue of notice of demand brings down the curtain on the process of assessment. Until notice of demand is issued, the assessment cannot be said to have concluded. 13. The Hon’ble Madras High Court in Vijay Television (P) Ltd. Vs. DRP (2014) 369 ITR 113 (Mad.) was confronted with a situation in which the AO, pursuant to the order of the TPO, passed a final assessment order instead of a draft order. A question arose as to whether the order so passed could be treated as a valid order. Accepting the contention of the assessee, the Hon’ble High Court set aside the order passed by the AO by observing that: “where there was omission on the part of the AO to follow the mandatory procedures prescribed in the Act, such omission cannot be termed as a mere procedural irregularity and it cannot be cured”. Resultantly, the assessment order was quashed. Almost similar issue came up for consideration before the Hon’ble jurisdictional High Court in Pr. CIT Vs. Lionbridge Technologies Pvt. Lt. (2019) 260 Taxman 273 (Bom.) in which the Tribunal in the first round restored the matter to the AO on the ground that the DRP failed to deal with the assessee’s objections. During the remand proceedings, a reference was made to the TPO. On receipt of the TPO’s order, the AO straightaway passed an order u/s.143(3) r.w.s. 144C(13), which action came to be disapproved by the Hon’ble High Court. It, ergo, follows that the statutorily mandated procedure must be adhered to by the authorities, non-observance of which renders the assessment order null and void. 14. Similar issue came up for consideration before the Pune Benches of the Tribunal in Skoda Auto India Ltd. Vs. ACIT. In that case also the AO passed the draft order and simultaneously issued notice of demand and initiated penalty proceedings by issuing notice u/s 274 of the Act. It was thereafter that the final assessment order was passed. The assessee challenged the legality of the final assessment order. Vide its order dated 02-07-2019, the Tribunal in ITA No.714/PUN/2011 has held that the demand got crystallised on passing of the draft order pursuant to issue P a g e | 13 ITA No.424/Mum/2016 Lord India Pvt. Ltd. vs. ACIT, Circle 10(2)(1) of demand notice which is contrary to the relevant provision of the Act. Ex Consequenti, the draft order was held to be invalid in law and the consequential assessment order void ab-initio. 15. The ld. DR buttressed his point of view by relying on an order passed by the Hyderabad Benches in BS Ltd. Vs. ACIT (2018) 94 taxmann.com 346 (Hyderabad-Trib.) in which it has been held that the issuance of demand notice along with the draft order is only a procedural mistake. In our considered opinion, this case does not advance the Departmental stand. Unlike the assessee in the instant case not raising objections before the DRP and pursuing the appeal straight away before the ld. CIT(A), the assessee in that case adopted the route of the DRP. Be that as it may, it is found that similar issue came up for consideration before the Pune Benches of the Tribunal in series of cases including Eaton Fluid Power Ltd. Vs. DCIT (2018) 96 taxmann.com 512 (Pune Trib.). In that case also, the AO passed the draft order u/s.143(3) r.w.s. 144C(1) of the Act. Thereafter, he issued notice of demand u/s.156 and initiated penalty proceedings u/s.271(1)(c) of the Act. When this infirmity in not following the statutorily mandated procedure was pointed out, the Tribunal declared the assessment order to be without jurisdiction and hence, null and void. 16. It is observed that the facts and circumstances of the instant case are similar to those considered by the Pune Benches of the Tribunal in the case of Skoda Auto India Ltd. Vs. ACIT (supra) and Eaton Fluid Power Ltd. Vs. DCIT (supra). As the AO in the extant case issued notice of demand at the stage of the draft order, which, actually ought to have been done at the stage of passing the final order, thereby assigning the finality to the assessment at the stage of draft order itself, we hold that the resultant final assessment order got vitiated in the eyes of law and hence cannot stand. 17. Before parting, we would like to clarify that for the assessment year 2006-07 also, the assessee took similar argument urging that the assessment order be declared null and void. We have noted above that the assessment proceedings get completed on the issue of notice of demand only. On examination of facts, the Tribunal for such earlier year found that even though penalty notice was issued u/s 274 but no notice of demand was issued u/s 156 of the Act pursuant to the draft order. It was under such circumstances that the Tribunal in ITA No. 1470/Pun/2010 vide its order dated 21.08.2019 did not accept the contention of the assessee to the effect that the assessment got concluded on the passing of the draft order and hence the final assessment order was a nullity. It is an altogether different matter that the initiation of penalty through the draft order carried some infirmity, but that would not impinge upon the validity of the assessment order. 18. To sum up, we set-aside the assessment order by declaring it to be null and void. Thus, the income offered in the return becomes total income of the assessee.” 021. We do not find any reason to multiply the several judicial precedents on the facts of the present case. Therefore, respectfully following the decision of the coordinate bench, we also hold that the present assessment order passed is null and void. Thus, the income offered in the return becomes total income of the assessee. 022. In the result we allow the additional ground raised by the assessee and quash the assessment order. 023. In view of our above decision, all other grounds of appeal becomes infructuous and do not deserve any merit. Therefore, they are left unadjudicate. 024. In the result, appeal filed by the assessee is allowed.” P a g e | 14 ITA No.424/Mum/2016 Lord India Pvt. Ltd. vs. ACIT, Circle 10(2)(1) In view of the above referred decision of the ITAT, Mumbai, we find that issue raised before the Tribunal are similar to the issue as adjudicated in the above referred decisions. There is nothing before us on hand to differ from the issue raised in the cases cited supra so as to take a different view of this issue. Since the issue on hand being squarely covered it would not be appropriate for us to deviate from the view taken by the coordinate bench as discussed supra. Accordingly, we allow the additional ground raised by the assessee and quash the assessment order. In view of the above decision, all other ground of appeal left open. 9. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 24.04.2023 Sd/- Sd/- (Sandeep Singh Karhail) (Amarjit Singh) Judicial Member Accountant Member Place: Mumbai Date 24.04.2023 Rohit: PS आदेश की प्रतितिति अग्रेतिि/Copy of the Order forwarded to : 1. अपीलाथी / The Appellant 2. प्रत्यथी / The Respondent. 3. आयकर आयुक्त / CIT 4. विभागीय प्रविविवि, आयकर अपीलीय अविकरण DR, ITAT, Mumbai 5. गार्ड फाईल / Guard file. सत्यावपि प्रवि //True Copy// आदेशानुसार/ BY ORDER, उि/सहायक िंजीकार (Dy./Asstt. Registrar) आयकर अिीिीय अतिकरण/ ITAT, Bench, Mumbai.