SULOCHANA COTTON SPINNING MILLS (P) LTD.,TIRUPPUR V. DCIT, CIRCLE-1, TIRUPPUR

ITTPA 41/CHNY/2024

AI Insights

The case involves M/s. Sulochana Cotton Spinning Mills (P) Ltd., which appealed against the final assessment order for the assessment year 2020-21. The primary contention was that the AO did not adhere to the DRP's directions while finalizing the assessment, as required under Section 144C(13) of the Income Tax Act. The Tribunal examined the procedural compliance of the AO with the statutory requirements and the implications of non-compliance, referencing several judicial precedents that underscored the binding nature of DRP directions on the AO.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 792508 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 3 month(s) 7 day(s)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 04-12-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2020-2021
• Appeal Filed On: 27-08-2024
• Other Referred Cases: ESPN Star Sports Mauritius S.N.C. ET Compagnie v. UoI [2016] 388 ITR 383 (Delhi), CIT v. Sanmina SCI India (P) Ltd., [2017] 398 ITR 645 (Mad), Hitachi Astemo Haryana (P.) Ltd v. DCIT dated November 23, 2023 [(2024) 158 taxmann.com 25 (Delhi - Trib.)], Ariba Technologies India (P.) Ltd v. DCIT dated March 07, 2025 [(2025) 172 taxmann.com 304 (Bangalore - Trib.)], CIT v Jindal Steel & Power Ltd. [2024] 460 ITR 162 (SC), Comparex India (P.) Ltd. v. ITO [2024] 166 taxmann.com 720 (Delhi-Trib.)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ARV SREENIVASAN
• Assessee Lawyers: T. BANUSEKAR
• Keywords: Set aside; Business income; Opportunity of being heard; Transfer pricing; Rectification of order
• Section: 143(3)

Judgement Text

"आयकर अपीलीय अिधकरण, ’डी’ \u0001यायपीठ, चे ई। IN THE INCOME TAX APPELLATE TRIBUNAL ‘D’ BENCH: CHENNAI \u0001ी एबी टी. वक , ाियक सद\u0011 एवं एवं एवं एवं \u0001ी अिमताभ शु\u0018ा, लेखा सद क े सम\u001b BEFORE SHRI ABY T. VARKEY, JUDICIAL MEMBER AND SHRI AMITABH SHUKLA, ACCOUNTANT MEMBER IT (TP) A No.41/Chny/2024 िनधा\u000eरण वष\u000e/Assessment Year: 2020-21 M/s. Sulochana Cotton – Spinning Mills (P) Ltd., 426 & 424 Kamaraj Road, T.C. Market S.O., Tiruppur -641 604. v. The DCIT, Circle-1, Tiruppur. [PAN: AADCS 8189 G] (अपीलाथ\u0016/Appellant) (\u0017\u0018यथ\u0016/Respondent) अपीलाथ\u0016 क\u001a ओर से/ Appellant by : Mr.T. Banusekar, Advocate \u0017\u0018यथ\u0016 क\u001a ओर से /Respondent by : Mr. ARV Sreenivasan, CIT सुनवाईक\u001aतारीख/Date of Hearing : 22.09.2025 घोषणाक\u001aतारीख /Date of Pronouncement : 04.12.2025 आदेश / O R D E R PER ABY T. VARKEY, JM: This is an appeal preferred by the assessee against the assessment order dated 08.07.2024 vide DIN No. ITBA/AST/S/143(3)/2024- 25/1066543844(1) for AY 2020-21. 2. The assessee has, inter-alia, raised the legal ground assailing the final assessment order framed u/s.143(3) r.w.s.144C(3) r.w.s.144B of the Income Tax Act, 1961 (hereinafter referred to as \"the Act”) on the ground that the same was not passed in conformity with the directions of the Printed from counselvise.com IT (TP) A No.41/Chny/2024 (AY 2020-21) M/s. Sulochana Cotton Spinning Mills (P) Ltd. :: 2 :: Dispute Resolution Panel (hereinafter referred to as ‘DRP‘) as envisaged u/s.144C(13) of the Act. In order to appreciate the legal issue raised by the assessee, it would be gainful to refer to the relevant date of events in this matter: Sl.No. Date Event 1 ITR filed on 31.01.2021 29.06.2021 notice issued u/s.143 (2) of the Act 2 12.11.2021 Reference received by the TPO from the AO, Technical Unit u/s.92CA of the Act 3 31.03.2023 TP order u/s.92CA(3) of the Act 4 28.09.2023 Draft assessment order u/s.144C(1) of the Act 5 26.10.2023 Objections raised before the DRP 6 28.06.2024 DRP directions 7 08.07.2024 Final assessment order 8 12.07.2024 TPO giving effect to the DRP directions 9 27.08.2024 Assessee filed appeal before the Tribunal 10 19.03.2025 Rectification/154 order passed by the AO incorporating the TPO giving effect order 3. The main grievance of the assessee is that the AO has not given effect to the directions issued by the Ld.DRP while passing the final assessment order as envisaged u/s.144C(13) of the Act, which reads as under: Section 144C [ Reference to dispute resolution panel] (1) ….. (2) ….. (3) ….. (4) ….. (5) ….. (6) ….. (7) ….. Printed from counselvise.com IT (TP) A No.41/Chny/2024 (AY 2020-21) M/s. Sulochana Cotton Spinning Mills (P) Ltd. :: 3 :: (8) ….. (9) ….. (10) ….. (11) ….. (12) ….. (13) Upon receipt of the directions issued under sub-section (5), the Assessing Officer shall, in conformity with the directions, complete, notwithstanding anything to the contrary contained in section 153, the assessment without providing any further opportunity of being heard to the assessee, within one month from the end of the month in which such direction is received. 4. According to the Ld.AR, if the AO doesn’t pass the final assessment order in conformity with the directions passed by the DRP, the impugned action of the AO passing the final assessment order which in this case is dated 08.07.2024 is void; and for such a proposition cited the decision of the Hon’ble Delhi High Court in the case of ESPN Star Sports Mauritius S.N.C. ET Compagnie v. UoI [2016] 388 ITR 383 (Delhi), and also referred to the decision of the jurisdictional High Court in the case of CIT v. Sanmina SCI India (P) Ltd., [2017] 398 ITR 645 (Mad) and several other Tribunal decisions placed in Paper Book-I & II. 5. Per contra, the Ld.DR submitted that there was a mistake apparent on the face of the record while passing the final assessment order dated 08.07.2024 and the AO realizing the same has passed the rectification order dated 19.03.2025 u/s.154 of the Act incorporating the order giving effect given by the TPO dated 12.07.2024. Therefore, the action of the AO shouldn’t be interfered with and for such a proposition cited the decision of this Tribunal in the case of Hitachi Astemo Haryana (P.) Ltd v. DCIT dated November 23, 2023 [(2024) 158 taxmann.com 25 (Delhi - Printed from counselvise.com IT (TP) A No.41/Chny/2024 (AY 2020-21) M/s. Sulochana Cotton Spinning Mills (P) Ltd. :: 4 :: Trib.)] and also in the case of Ariba Technologies India (P.) Ltd v. DCIT dated March 07, 2025 [(2025) 172 taxmann.com 304 (Bangalore - Trib.)]. 6. In order to appreciate the legal issue that has been raised before us, we note the relevant facts pertaining to legal issue are that the assessee is a company engaged in the business of manufacturing of yarn using cotton and polyester fibers, manufacture of polyester fibers and readymade garments. The assessee is also engaged in the generation of power using solar and wind energy (wind mills) which is used for captive consumption and is assessed to tax by the Assessment Unit, Income Tax Department. For AY 2020-21, the assessee is noted to have filed its return of income (RoI) on 31.01.2021 declaring a total income of ₹6,34,11,170/- after claiming deduction u/s.80-A of ₹16,15,51,433/- and deduction u/s.80G of ₹4,54,653/-. The return was processed u/s.143(1) of the Act by the Central Processing Centre, Bengaluru and subsequently, the case was selected for scrutiny under CASS. The case of the assessee was referred to the Transfer Pricing Officer (TPO) by the Assessing Officer, Technical Unit, Income Tax Department vide reference u/s.92CA(1) of the Act for determination of Arm's Length Price (ALP) with reference to all the Specified Domestic Transactions reported in Form No.3CEB filed for the relevant AY 2020-21. The TPO is noted to have Printed from counselvise.com IT (TP) A No.41/Chny/2024 (AY 2020-21) M/s. Sulochana Cotton Spinning Mills (P) Ltd. :: 5 :: passed the order u/s.92CA(3) of the Act on 31.03.2023 proposing the following downward adjustments on the basis of the ALP for the purposes of section 801A(8): 1. Downward adjustment of ₹12,48,29,179/- in the segment of Wind Energy to the transaction of inter unit transfer of power and adopt the Arm's Length Price in this regard at ₹17,96,85,918/- instead of ₹30,45,15,096/- as reported by the assessee and 2. Downward adjustment of ₹68,32,541/- in the segment of Solar Energy to the transaction of inter unit transfer of power and adopt the Arm's Length Price in this regard at ₹2,59,20,002/- instead of ₹3,27,52,543/- as reported by the assessee. 7. Pursuant to the TPO’s order dated 31.03.2023, the deduction allowable u/s.801A was recomputed at ₹2,98,89,713/- as against the assessee’s original claim of ₹16,15,51,433/-. Subsequently, a draft order u/s.144C(1) of the Act was passed by the AO [Assessment Unit, Income Tax Department on 28.09.2023] and the income of the assessee was determined at ₹20,70,53,361/-. In doing so, the AO has made the following additions/variations to the returned income of the assessee: 1. Recomputed the deduction allowable u/s.80IA of the Act at ₹2,98,89,713/- as determined by the TPO in the order passed u/s.92CA(3) of the Act against the original claim of ₹16,15,51,433/- by: a) Adopting the Arm's Length Price in respect of the segment of Wind Energy to the transaction of inter unit transfer of power at ₹17,96,85,918/- instead of ₹30,45,15,096/- as reported by the assessee and b) Adopting the Arm's Length Price in respect of the segment of Solar Energy to the transaction of inter unit transfer of power at ₹2,59,20,002/- instead of ₹3,27,52,543/- as reported by the assessee. 2. Added a sum of ₹1,19,80,471/- being \"Loss on sale of machinery\" claimed by the assessee during the impugned assessment year since the AO is of the view that the said loss is a transaction in the nature of capital field and not revenue field. Printed from counselvise.com IT (TP) A No.41/Chny/2024 (AY 2020-21) M/s. Sulochana Cotton Spinning Mills (P) Ltd. :: 6 :: 8. Aggrieved by the draft assessment order on all the above adjustments / additions, the assessee filed its objections before the Ld. Dispute Resolution Panel (DRP) on 26.10.2023. The DRP vide its directions u/s.144C(5) of the Act dated 28.06.2024 had adjudicated the objections raised by the assessee by giving part-relief to the assessee as noted under: a) Deleted the downward adjustment made by the TPO in respect of inter unit transfer of power generated from the wind and solar energy segment by relying on the decision of the Hon'ble Supreme Court in the case of CIT v Jindal Steel & Power Ltd. [2024] 460 ITR 162 (SC) and b) Out of total revenue of ₹3,27,52,543/- generated from the solar segment, a sum of ₹92,56,800/- which represents income from sale of REC certificates was considered by the DRP to not form part of business income of the eligible units (i.e., the 80IA undertaking) and was treated as revenue receipt which was directed to be taxed as \"Other Income\" in the hands of the assessee. c) Upheld the addition made by the AO of ₹1,19,80,471/- being \"Loss on sale of machinery\" claimed by the assessee during the impugned assessment year since the assessee had not submitted certain details in this regard. 9. Thereafter, the AO completed the final assessment vide order passed u/s.143(3) r.w.s.144C(3) r.w.s.144B of the Act dated 08.07.2024 assessing the total income of the assessee at ₹20,70,53,361/- and raised a demand of ₹6,61,34,710/- . Returned Income of the assessee Rs. 6,34,11,170/- Add: Transfer Pricing adjustment made u/s 92CA(3) as per TPO's order dated 31.03.2023 Rs. 13,16,61,720/- Total Rs. 19,50,72,890/- Add: As per para 4.1 above Rs. 1,19,80,471/- Total Rs. 20,70,53,361/- Printed from counselvise.com IT (TP) A No.41/Chny/2024 (AY 2020-21) M/s. Sulochana Cotton Spinning Mills (P) Ltd. :: 7 :: From a perusal of the above, the AO is noted to have confirmed the additions / disallowances made in the draft assessment order u/s.144C(1) as mentioned above without giving effect to the directions of the DRP wherein the assessee was provided partial relief (supra). 10. Aggrieved by the same, the assessee has filed the present appeal before this Tribunal on 27.08.2024. 11. While the appeal of assessee was listed for hearing, the Ld.DR brought to our notice that the AO has passed rectification order u/s.154 of the Act dated 19.03.2025 [incorporating the order giving effect given by the TPO dated 12.07.2024, whereby the AO has rectified the final assessment order passed on 08.07.2024], wherein, he held as under: Returned Income of the assessee Rs. 6,34,11,170/- Add: Transfer Pricing adjustment made u/s 92CA(3) as per TPO's order dated 31.03.2023 Rs. 92,56,800/- Total Rs. 7,26,67,970/- Add:- As per para 3.5 in the assessment order dt 08.07.2024 Rs. 1,19,80,471/- Total Rs.8,46,48,441/- Printed from counselvise.com IT (TP) A No.41/Chny/2024 (AY 2020-21) M/s. Sulochana Cotton Spinning Mills (P) Ltd. :: 8 :: 12. From a perusal of the above action, it is clear that the AO while passing the final assessment order dated 08.07.2024 didn’t pass the order in consonance with the directions given by the DRP and therefore, had to pass the rectified assessment order (supra). 13. From the aforesaid computation, we note that the AO restricted u/s.80IA of the Act to the tune of ₹15,23,00,633/- against the original claim of ₹16,15,51,433/-. [It may be noted sum of ₹92,56,800/- which represents value of REC Certificate sold by the assessee was not accepted by the DRP as forming part of the business income since according to the DRP, it was not generated from the solar power generation but rather an income generated on account of environmental concern and statutory provision aimed at addressing international bodies. And therefore, the DRP directed that income from REC Certificate should be treated as “income from other sources” and not forming part of claim u/s.80IA of the Act]. 14. From the aforesaid facts discussed, it is observed that the AO framed the draft assessment order as per the provisions of Sec.144C r.w.s.144B of the Act, on 28.09.2023; and pursuant to the same, the assessee as per the provisions of Sec.144C(2) of the Act, filed objections against the draft order before the DRP on 26.10.2023. The DRP gave direction to grant part relief to the assessee on the objections filed by the assessee by passing order dated 28.06.2024 u/s.144C(5) of the Act. And Printed from counselvise.com IT (TP) A No.41/Chny/2024 (AY 2020-21) M/s. Sulochana Cotton Spinning Mills (P) Ltd. :: 9 :: upon receipt of the directions issued under sub-section (5), the AO was duty bound to complete the assessment in conformity with the directions of the DRP. In other words, the AO had to give effect in consonance with the findings and directions given by the DRP in terms of the provisions of sub-section 144C(13) of the Act. Whereas the AO in utter disregard and in defiance to the mandate given under sub-section (13) of Section 144C, had passed the final assessment order ignoring the directions of the Ld.DRP, which fact is discernable from perusal of the rectification order later passed on 19.03.2025, which clearly shows that the TP adjustment inter-alia [TPO giving effect order of the DRP u/s.92CA(3) dated 12.07.2022] has been substantially reduced, and the TPO is noted to have deleted ₹12,48,29,179/- and advised the AO to adopt ALP inter-unit transfer of wind power at ₹30,45,15,096/- as reported by the assessee. Therefore, the action of the AO passing the final assessment order is noted to be not in conformity with the directions given by the DRP which is found to have been passed in violation of sub-section 13 of Section 144C of the Act, which omission vitiates the final assessment order dated 08.07.2024 and is held to be void in eyes of law. For such a proposition, we rely on the decision of the Hon’ble Delhi High Court in the case of ESPN Star Sports Mauritius S.N.C. ET Compagnie v. UoI [2016] 388 ITR 383 (Del.) and by the Hon’ble Madras High Court in the case of CIT v. Sanmina SCI India (P.) Ltd. [2017] 398 ITR 645 (Mad.) and also in the Printed from counselvise.com IT (TP) A No.41/Chny/2024 (AY 2020-21) M/s. Sulochana Cotton Spinning Mills (P) Ltd. :: 10 :: case of Comparex India (P.) Ltd. v. ITO [2024] 166 taxmann.com 720 (Delhi-Trib.) 15. In the case of ESPN Star Sports Mauritius S.N.C. ET Compagnie (supra), the Hon’ble Delhi High Court held at Para No.29 to 32 as under: 29. The above submissions have been considered. In the first place the Court would like to observe that this is an instance of blatant disregard by the AO of the order of the DRP notwithstanding that the DRP had categorically held that the two Petitioners do not satisfy the conditions of an 'eligible assessee' in terms of Section 144(15)(b)(ll) of the Act. As already noticed under Section 144C(10) of the Act the AO had no option but to comply with the order of the DRP. Even if no direction was issued by the DRP under Section 144C(5) of the Act, the fact that the DRP held that both the Petitioners were not 'eligible Assessees' could not have been ignored by the AO. 30. It appears to the Court that it is plain that under Section 144C, the AO should have proceeded to pass an order under Section 143(3) of the Act. Instead the AO confirmed the draft assessment order passed under Section 144C(1) of the Act. This, therefore, vitiated the entire exercise. The Court has no hesitation in holding that the final assessment order dated 28th January, 2015 is without jurisdiction and null and void. The draft assessment order dated 28th March, 2014, having been passed in respect of entities which were not 'eligible assessees', is also held to be invalid 31. It is a matter of concern that the AO has in the present case has chosen to label the order of the DRP to be invalid and that is the justification for not complying with the said order. As already noticed, the DRP, in terms of Section 144C(15)(a) is a collegium of three Principal Commissioners or the Commissioner of Income Tax. The DRP admittedly is the superior authority in relation to an AO who in this case appears to be Additional CIT. Section 144C(10) read with Section 144C (13) makes it abundantly clear that there is no option with an AO but to be bound by orders and subject to review by the DRP. It is bound by the DRP. A reference may also be made to the decision in Zuari Cement Ltd. (supra) where it was held that an order of assessment which is contrary to the mandatory provisions of Section 144C of the Act was declared as \"one without jurisdiction, null and void and unenforceable.\" It is therefore, for this reason, in the said case, the High Court of Andhra Pradesh set aside the impugned order while allowing the writ petition notwithstanding that the Petitioner had a statutory remedy available to it. 32. The situation as far as the present case is concerned is no different. The said order of the Andhra Pradesh High Court was upheld by the order of the Supreme Court when it dismissed Special Leave Appeal (Civil) 16694 of 2013 by its order dated 27th September, 2013. Printed from counselvise.com IT (TP) A No.41/Chny/2024 (AY 2020-21) M/s. Sulochana Cotton Spinning Mills (P) Ltd. :: 11 :: 16. In the light of the discussion (supra), it is found that the AO in defiance to the binding directions of the DRP has passed the final assessment order dated 08.07.2024, which is in gross violation of Section 144C(13) of the Act, making it arbitrary, which action vitiates the passing of the impugned assessment order dated 08.07.2024 and is therefore held to be passed wholly without jurisdiction and hence is null in the eyes of law. 17. Since legal issue has been answered in favo rof assessee, hence, other grounds raised are academic and so, not adjudicated. 18. In the result, appeal filed by the assessee is allowed. Order pronounced on the 04th day of December, 2025, in Chennai. Sd/- (अिमताभ शु\u0018ा) (AMITABH SHUKLA) लेखा सद\u0003य/ACCOUNTANT MEMBER Sd/- (एबी टी. वक ) (ABY T. VARKEY) \u0005याियक सद\u0003य/JUDICIAL MEMBER चे ई/Chennai, !दनांक/Dated: 04th December, 2025. TLN आदेश क\u001a \u0017ितिलिप अ$ेिषत/Copy to: 1. अपीलाथ /Appellant 2. \u000e\u000fथ /Respondent 3. आयकरआयु\u0015/CIT, Chennai / Madurai / Salem / Coimbatore. 4. िवभागीय\u000eितिनिध/DR 5. गाड फाईल/GF Printed from counselvise.com "