TOYOTA KIRLOSKAR MOTOR PVT LTD,BENGALURU V. DCIT, CENTRAL CIRCLE-2(1), BENGALURU

ITTPA 1266/BANG/2025

AI Insights

The case involves a dispute between the Deputy Commissioner of Income Tax and M/s. Toyota Kirloskar Motor Pvt. Ltd. concerning the assessment order for the year 2003-04. The primary issue was the validity of the Final Assessment Order passed by the Assessing Officer without first issuing a Draft Assessment Order, as required under section 144C(1) of the Income Tax Act. The Tribunal referenced decisions from the Karnataka, Delhi, and Bombay High Courts, which supported the necessity of a Draft Assessment Order in such circumstances. The Tribunal's decision emphasized adherence to procedural requirements in tax assessments, particularly in cases involving adjustments directed by higher appellate authorities.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 840505 (ITAT-BANGALORE)
• Duration Of Justice: 8 month(s) 26 day(s)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 24-02-2026
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2003-2004
• Appeal Filed On: 29-05-2025
• Other Referred Cases: CIT Vs. Cisco Systems Services B.V, Alpha Elsec Defence and Aerospace Systems Pvt. Ltd. vs. CIT, Principal Commissioner of Income-tax vs. Sumitomo Corporation India (P.) Ltd., Deputy Commissioner of Income-tax vs. Dimension Data Asia Pacific PTE Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PADAM CHAND KINCHA
• Keywords: Set aside; Transfer pricing; Depreciation; Unabsorbed depreciation
• Section: 143(3)

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH : BANGALORE BEFORE SHRI PRASHANT MAHARISHI, VICE PRESIDENT AND SHRI SOUNDARARAJAN K, JUDICIAL MEMBER IT(TP)A No.1295/Bang/2025 Assessment Year : 2003-04 The Deputy Commissioner of Income Tax, Circle – 2(1), Bangalore. Vs. M/s. Toyota Kirloskar Motor Pvt. Ltd., Plot No.01, Toyota Kirloskar Motor Pvt. Ltd., Bidadi S.O., Bidadi Industrial Area, Ramanagaram, Bangalore – 562 109. PAN : AAACT 5415 B APPELLANT RESPONDENT IT(TP)A No.1266/Bang/2025 Assessment Year : 2003-04 M/s. Toyota Kirloskar Motor Pvt. Ltd., Bangalore – 562 109. PAN : AAACT 5415 B Vs. The Deputy Commissioner of Income Tax, Circle – 2(1), Bangalore. APPELLANT RESPONDENT Appellant by : Shri. Padam Chand Kincha, CA Respondent by : Dr. Divya K. J, CIT(DR)(ITAT), Bangalore. Date of hearing : 13.01.2026 Date of Pronouncement : 24.02.2026 O R D E R Per Prashant Maharishi, Vice President : 1. IT(TP)A No.1295/Bangalore/2025 is filed by the The Deputy Commissioner of Income Tax, Circle – 2(1), Bangalore ( the learned AO) in the case of M/s. Toyota Kirloskar Motor Pvt. Ltd., (the Printed from counselvise.com IT(TP) A Nos.1295, 1266/Bang/2025 Page 2 of 7 assessee/appellant) and IT(TP)A No.1266/Bangalore/2025 is filed by assessee. Both the appeals pertain to Assessment Year 2003 – 04. 2. The brief facts of the case show that learned CIT-(A), Bangalore – 12 [learned CIT(A)] for Assessment Year 2003 – 04, passed an appellate order on 25.03.2025 wherein the appeal filed by the assessee against the Assessment Order passed under section 143(3) r.w.s. 254 of the Income Tax Act, 1961 (The Act), dated 29/09/2014, by the DCIT, LTU, Bangalore, was partly allowed. Both the parties are aggrieved before us and therefore are in appeal before us. 3. The main ground of appeal raised by the assessee in ITA No.1266/Bang/2025 is that the learned AO has passed his Final Assessment Order without first passing the draft assessment order u/s 144C (1) as per the provisions of section 144C of the Act. 4. Briefly stated, the timeline show that assessee is engaged in manufacturing and trading of automobile, filed its return of income on 27.11.2003 at a total loss of Rs. 6,21,90,733/-. The return was picked up for scrutiny and a notice under section 143(2) of the Act was issued on 11.10.2004 which culminated into an Assessment Order based on the Order under section 92CA(3) of the Act by the learned TPO. The learned TPO purposed an adjustment of Rs. 196 Crores. After certain corporate disallowance, the total income of the assessee was computed at Rs. 1,89,96,53,095/- but on set off of Unabsorbed depreciation and brought forward losses, it was determined at Rs. Nil. 5. The assessee filed appeal before the learned CIT(A) and who passed an appellate Order on 31.03.2010 giving certain relief to the assessee. Printed from counselvise.com IT(TP) A Nos.1295, 1266/Bang/2025 Page 3 of 7 Against that appellate order, the assessee preferred an appeal before the ITAT in ITA No.828/Bang/2010 which came to be decided on 22.11.2012. The Tribunal gave certain adjustments to be carried out. Based on the order of the ITAT, the learned TPO made an adjustment on 29.09.2014 at Rs. 86.29 Crores. Based on the Order of the learned TPO, the learned AO passed an Assessment Order under section 254 r.w.s. 92CA of the Act order giving effect to the ITAT wherein the total income of the assessee was assessed at Rs. Nil. 6. The assessee challenged the same before the learned CIT(A). The learned CIT(A) further gave certain relief to the assessee and therefore the AO as well as assessee are in appeal before us. 7. The learned Authorized Representative (learned AR) Shri. Padam Chand Kincha, CA, submitted that in this case the whole issue does not survive for the reason that the learned AO has passed the Final Assessment Order pursuant to the direction of the ITAT incorporating therein the adjustment reworked out by the learned TPO. He submits that the Assessment Order passed by the learned AO without giving any opportunity of hearing to the assessee on 29.09.2014 is not valid. According to him, the learned AO should have passed the Draft Assessment Order and should have given assessee an opportunity to contest before the learned DRP by filing the objection. 8. He submitted that this issue is squarely covered in favour of the assessee by the decision of Hon’ble Karnataka High Court in the case of CIT Vs. Cisco Systems Services B.V (TS-145 HC-2023Kar-TP). He further submitted that the decision of the Hon’ble Karnataka High Court in the case of Alpha Elsec Defence and Aerospace Systems Pvt. Ltd., also covers Printed from counselvise.com IT(TP) A Nos.1295, 1266/Bang/2025 Page 4 of 7 this issue. The Hon’ble High Court in those cases upheld the Order of the ITAT quashing such final Assessment Order passed without first passing the draft assessment order. 9. The learned CIT DR vehemently submitted that in this case the ld AO has passed only an order giving effect to the order of the ITAT . When the Tribunal have given a direction and the AO passes Assessment Order based on those directions, should not go once again to the learned DRP. It was submitted the DRP is merely an advisory authority to correct the errors of the AO. It is not within the purview of the DRP to go against the Order of the ITAT. It was further submitted that when the DRP is also duty bound to confirm whatever is stated by the Tribunal it is merely a futile exercise for the AO to pass Draft Assessment Order. It was therefore submitted that the AO has not passed Assessment Order but merely passed order giving effect to the order of the ITAT. She further submitted that draft assessment order is required to be passed only at the ' First instance' and not thereafter. She Further Referred to the provision of section 144C of the act and submitted that there is no such provision in the law to pass draft assessment order at every stage whenever the higher authorities direct the ld AO to do some adjustment or reexamination of facts, as ld Ao is directed at the instance of the ITAT or Higher appellate Forums such as Honourable High courts and ld. AO does not need to seek advice of ld DRP in such cases. She further submitted that it is not the adjustments / variation proposed by the ld AO but it is made by the ld AO at the direction of the court or Tribunal. She submitted that this mandatory procedure applies broadly, including to assessments under Section 153A/153C and even in remand proceedings where the entire assessment is set aside for fresh consideration. This is not the case here. Further draft assessment order is required to be issued only once and not Printed from counselvise.com IT(TP) A Nos.1295, 1266/Bang/2025 Page 5 of 7 many times for a assessment year. She submitted that where a draft order was already issued and objections considered for a specific issue in the original assessment, and the remand is for a limited re-examination of that specific issue without fresh prejudicial variations, in which case a new draft order is not mandated by the law.. Thus, there is no infirmity in the order passed by the learned AO. 10.We have carefully considered the rival contentions and perused the Orders of the lower authorities. It is correct that in this case, the learned AO has passed an order giving effect on 29.09.2014 consequent to the order of the ITAT. The Transfer Pricing order passed by the learned TPO on 30.01.2014 recomputing the TP adjustment. Based on this, the learned AO modified the order passed under section 143(3) of the Act on 28.03.2006. The Hon’ble Karnataka High Court in the case of Cisco Systems Services B.V. on identical facts recorded in paragraph No.11 where it was argued that in the set aside proceedings when AO passes a fresh Assessment Order on the direction of the ITAT, he has to complete the assessment only after passing the Draft Assessment Order. Considering the above arguments, the Hon’ble High Court in paragraph No. 13 onwards has categorically held that the AO should have passed the Draft Assessment Order and passing the Final Assessment Order is not in accordance with the law. 11.In Principal Commissioner of Income-tax vs. Sumitomo Corporation India (P.) Ltd. [2024] 166 taxmann.com 55 (Delhi)[02-09-2024] honourable Delhi high court has held that passing of such a draft assessment order is mandatory as it violates the right of the assessee and it directly address the issue in set aside proceedings. It quashed the final assessment orders passed without first passing the draft assessment order. Printed from counselvise.com IT(TP) A Nos.1295, 1266/Bang/2025 Page 6 of 7 12.Further Honourable Bombay High Court in Deputy Commissioner of Income-tax vs. Dimension Data Asia Pacific PTE Ltd. [2018] 96 taxmann.com 182 (Bombay) rejected the revenue's argument that the requirement of a draft assessment order would only extend to orders passed in the first round or where the Tribunal entirely set aside the original assessment. It held in para no 7 that even in partial remand proceedings from the Tribunal, the Assessing Officer is obliged to pass a draft assessment order under section 144C(1) of the Act. 13.Respectfully following the decision of the Hon’ble Karnataka High Court, Delhi High court and Honourable Bombay High court we also hold that AO should have passed the Draft Assessment Order instead of Final Assessment Order passed on 29.09.2014. Accordingly, the Order passed by the learned AO on 29.09.2014 is quashed. 14.The appeal of the assessee is allowed on this point itself. Therefore, all other issues are infructuous and hence dismissed. 15.The appeal of the learned AO in ITA No.1295/Bang/2025 also becomes infructuous consequentially, hence, dismissed. Printed from counselvise.com IT(TP) A Nos.1295, 1266/Bang/2025 Page 7 of 7 In the result, appeal of the assessee is allowed and appeal of Revenue is dismissed. Pronounced in the open court on the date mentioned on the caption page. Sd/- Sd/- (SOUNDARARAJAN K) (PRASHANT MAHARISHI) Judicial Member Vice President Bangalore, Dated : 24.02.2026. /NS/* Copy to: 1. Appellants 2. Respondent 3. DRP 4. CIT 5. CIT(A) 6. DR, ITAT, Bangalore. 7. Guard file By order Assistant Registrar, ITAT, Bangalore. Printed from counselvise.com "