Earlier By An Order Dated 24.8.2016, The Income Taxappellate Tribunal Had Allowed The Appeal Filed By Therespondent In I.t.a.nos 952/Mds Of 2015 And I.t.a v. Acit Vide Order Dated 31.10.2012,Wherein Held That

IN THE HIGH COURT OF JUDICATURE AT MADRAS CORAM W.P.Nos.25583 and 25584 of 2017 &W.M.P.Nos.26975 and 26976 of 2017 & 20188 of 2019 M/s Volex Interconnect (India) Private LimitedNo.22/1-A, First Street, Kazura Gardens,Neelankarai Chennai – 600 041, TN. r.. Petitioner in both the W.P's. The Office of the Assistant Commissioner of Income TaxCorporate Circle 3(2), Chennai – 34.IV Floor, New Block, 121, MG Road Nungambakkam, Chennai – 600 034, TN. .. Respondent in Common Prayer: Writ petition filed under Article 226 of theConstitution of India praying for issuance of a writ ofCertiorari to call for the records of the respondent and quashthe impugned order/proceeding of the respondent herein bearingP.A. AAACW4483G/2010-11 and 2011-12 dated 06.03.2017 with regardto the petitioner company on the file of the respondent herein. A short point that arises for consideration in these writpetitions is whether the respondent Assessing Officer wasjustified in passing the impugned orders dated 6.3.2017 beforepassing a Draft Assessment Order under section 143(3) readwith Section 92CA (4) and Section 144C (1) of the Income TaxAct, 1961. https://hcservices.ecourts.gov.in/hcservices/ 2.Earlier by an order dated 24.8.2016, the Income TaxAppellate Tribunal had allowed the appeal filed by therespondent in I.T.A.Nos 952/Mds of 2015 and I.T.A.No740/Mds 2016 for the Assessment Years years2010-11 and 2011-12 with thefollowing observations:- “7.We have heard both the parties and perusedthe material on record. The main issue forconsideration is whether the CUP method to befollowed or TNMM to be followed to determind theALP of assessee's case. This was considered bythe Tribunal in the case of M/s Knorr Bremsc IndiaPvt. Ltd. Vs. ACIT vide order dated 31.10.2012,wherein held that:- “9.The appellant has also assailed theaddition made on account of internationaltransactions(Rs.1,52,07,206/-towardsprofessional consultancy and Rs.1,40,56,800/-towards management fee for support services), bydetermining Nil value as the ALP. The TPO foundthat these services provided by the AE are verygeneral in nature and such a support is expectedfrom AU even without payment of any such charge.The assessee argued that the authorities below arestated to have acted beyond their jurisdiction intouching upon the commercial expediency of thetransactions. The DRP, however, has found thatEmails brought on record merely justify presenceof Ms.Rita Ricken as team leader of saleslogistics, which is only an effort to justify herpresence. She in fact is safeguarding groupinterest shareholder interest. The TPO hasanalysed each service and benefit received byassessee in detail. No cost allocation key hasbeen furnished to the DRP either which confirmedthe addition made for both such services claimedby the assessee. 9.1.The appellant's contention that TPO is noauthority to judge the allowability of thebusiness expenditure is a correct proposition oflaw in view of the decision rendered by theHon'ble Delhi High Court in its order dated 29[th]March 2012 in the case of EKL Appliances Ltd.,(ITA Nos.1068/2011 & 1070/2011). The Hon'ble HighCourt in para judgment has ruled as under:-“Whether or not to enter into the transactionis for the assessee to decide. The quantum ofexpenditure can no doubt be examined by the TPO asper law but in judging the allowability thereof asbusiness expenditure, he has no authority todisallow the entire expenditure or a part thereof 9.1.The appellant's contention that TPO is noauthority to judge the allowability of thebusiness expenditure is a correct proposition oflaw in view of the decision rendered by theHon'ble Delhi High Court in its order dated 29[th]March 2012 in the case of EKL Appliances Ltd.,(ITA Nos.1068/2011 & 1070/2011). The Hon'ble HighCourt in para judgment has ruled as under:-“Whether or not to enter into the transactionis for the assessee to decide. The quantum ofexpenditure can no doubt be examined by the TPO asper law but in judging the allowability thereof asbusiness expenditure, he has no authority todisallow the entire expenditure or a part thereof on the ground that the assessee has sufferedcontinuous losses. The financial health ofassessee can never be a criterion to judgeallowability of an expense; there is certainly noauthority for that. What the TPO has done in thepresent case is to hold that the assessee oughtnot to have entered into the agreement to payroyalty/brand fee, because it has been sufferinglosses continuously. So long as the expenditureor payment has been demonstrated to have beenincurred or laid out for the purposes of business,it is no concern of the TPO to disallow the sameon any extraneous reasoning. As provided in theOECD guidelines, he is expected to examine theinternational transaction as he actually finds thesame and then makes suitable adjustment but awholesale disallowance of the expenditure,particularly on the grouns which have been givenby the TPO is not contemplated or authorized.”9.2.After hearing the parties with referenceto material on record, we find that theauthorities below have not conclusively held thatthe assessee could not enter into such atransaction nor had they disallowed the same byholding that such an expenditure is not assessee'sbusiness expenditure. The DRP as well as theauthorities below have merely elucidated that thepayments are reimbursement in respect of Ms.RitaRicken and other personnel's case to serve theinterest of share holders. By saying so they haveonly described the circumstance under which theinternational transaction has been entered by theappellant, so as to test the benefit that can besaid to have reached the assessee. It, therefore,cannot be said to have questioned the commercialexpediency of such transactions entered by theappellant. The I.T. Rules contain exhaustivedetail regarding nature of information anddocuments which are required to be maintained bythe assessee. Rule 10D(1) of the I.T.Rules, 1962also mandates the maintainability of record ofuncontrolled transactions to be taken into accountinanalysing thecomparabilityoftheinternational functions entered into by theassessee. It, therefore, is obligatory on part ofthe appellant to maintain such record and producethe same before the TPO to show that it hasbenchmarked the international transaction at ALP.This obligation, however, has not been dischargedby the assessee. 9.3.The appellant in the present case is alsonot shown to be willing to pay any amount for suchservices, if it were, so provided by anindependent enterprise or if the same would havebeen performed in house. The DRP is found to haveconsidered these services as non-beneficial forthe recipient and did not take it as chargeableservices. The perusal of e-mails and othercontemporaneous record onlyl goes to reveal thatincidental and passive association benefit hasbeen provided by the associate enterprise. Inthis view of the matter there could neither be anycost contribution or cost reimbursement norpayment for such services to the AE. The TPO,therefore, has rightly adopted Nil value forbenchmarking the arm's length price in respect ofboth these services. We, therefore, do not findany reason to interfere with the well reasonedconclusion reached by the AO on this count. Thegrounds raised in appeal in this respect,therefore, stand rejected.”7.1.However, this was the subject matter oflitigation before the Hon'ble Delhi High Courtwherein held that:- “54.This brings us to the appeal filed by theRevenue-respondent in ITA No.182 of 2013. TheRevenue is aggrieved by the decision of theTribunal directing the Assessing Officer to deletethe addition with respect to the SAP consultancycharges in the sum of Rs.2,68,93,871/- to theassessee's income. The Tribunal found that theDispute Resolution Panel had recorded a findingthat the SAP licence and MS Office had beenpurchased at a lower rate and to that extent thebenefit test for the recipient is clear and theassessee must be given the benefit. The Tribunalfurther noted that in the same breath the DisputeResolution Panel upheld the conclusion of theTransfer Pricing Officer. The Tribunal held thatsince the Dispute Resolution Panel had reaced afinding that the SAP licence and MS Office hadbeen purchased at a lower rate and had benefitedthe assessee, it was not proper to uphold theconclusion of the Transfer Pricing Officer foradding the said amount to the assessee's income.The Tribunal held that the assessee had dischargedthe onus that the international transactions hadbeen benchmarked at an arm's length price inrespect of the SAP licence and, accordingly,directed the Assessing Officer to delete the addition. 55.Had the matter rested only on the questionof appreciation of facts, we would not have andindeed could not have interfered in appeal.However, in view of our finding on the questionsof law in the assessee's appeal, it would benecessary for the authorities to consider thismatter afresh in the light of those observationsas well. It would be necessary upon remand forthe authorities under the Act to consider whetherthe transactions ought to be separatelybenchmarked or whether the transactional netmargin method ought to be adopted in respect ofthe same as well.” In view of the above findings of the Hon'ble DelhiHigh Court, we remit the issue to the file ofT.P.O. For her consideration in the light of abovejudgment.” 3.These appeals were filed by the respondent against FinalAssessment Orders dated 25.2.2015 for the assessment years2010-11 and 2011-12 passed by the respondent. 4.Earlier, Transfer Pricing Order dated 28.01.2014 waspassed by the Transfer Pricing Officer, pursuant to a referenceunder Section 92 CA (1) of the Income Tax Act, 1961.for theassessment year 2010-11. Pursuant to the aforesaid orders ofthe Transfer Pricing Officer, the respondent herein passed aDraft Assessment Orders dated 13.03.2014 for the aforesaidassessment years 2010-11 under Section 144 C (1) of the IT Act,1961. In view of the above findings of the Hon'ble DelhiHigh Court, we remit the issue to the file ofT.P.O. For her consideration in the light of abovejudgment.” 3.These appeals were filed by the respondent against FinalAssessment Orders dated 25.2.2015 for the assessment years2010-11 and 2011-12 passed by the respondent. 4.Earlier, Transfer Pricing Order dated 28.01.2014 waspassed by the Transfer Pricing Officer, pursuant to a referenceunder Section 92 CA (1) of the Income Tax Act, 1961.for theassessment year 2010-11. Pursuant to the aforesaid orders ofthe Transfer Pricing Officer, the respondent herein passed aDraft Assessment Orders dated 13.03.2014 for the aforesaidassessment years 2010-11 under Section 144 C (1) of the IT Act,1961. 5.Under these circumstances, the petitioner approached theDispute Resolution Panel under section 144C of the Income TaxAct, 1961 with its objection. The Dispute Resolution Panelthereafter passed an order/direction dated 24.12.2014 underSection 144C of the IT Act, 1961. 6.Pursuant to the aforesaid order of the Dispute ResolutionPanel, an order to give effect to the aforesaid order waspassed by the respondent on 5.2.2015 and an Assessment Order25.02.2015 by the respondents herein. 7.Aggrieved by the Assessment Orders dated 25.02.2015 ofthe respondent herein, the respondent filed I.T.A.Nos 952/Mdsof 2015 and I.T.A.No740/Mds 2016 which came to be disposed by anorder dated 24.8.2016, for the three Assessment years theoperative of which has been reproduced above. In pursuant tothe above order, the respondent has passed the impugned orderdated 06.03.2017 for AY 2010-11 and A Y 2011-12 without passingDraft Assessment Orders. 8.On behalf of the petitioner, the submitted that therespondent erred in passing the impugned order without passingDraft Assessment Orders as is contemplated under section 143(3)read with Section 92 CA (4) and 144 C (1) of the Income Tax Act,1961. 9.It is submitted that by directly passing the impugnedassessment orders before passing a Draft Assessment Order, therespondent has attempted to deny the right of the petitionerapproach the Dispute Resolution Panel under section 144C of theIncome Tax Act, 1961. 10.The learned counsel for the petitioner submits that theissue is squarely covered by the decision of the Division Benchof this Court in the Assistant Commissioner of Income Tax andAnother Vs. Vijay Television Private Limited and Another, inW.P.Nos.1327 to 1329 of 2014, dated 23.04.2018.The learned counsel for the petitioner further submits thatthis issue is also covered by the following decisions:-i. Turner International India Private Limited Vs.Deputy Commissioner of Income Tax Circle 25(2),2017 SCC OnLine Del 8441 : (2017) 297 CTR 460.ii.JCB India Ltd. Vs. Deputy Commissioner of IncomeTax and Another, 2017 SCC OnLine Del 10424 :(2017) 398 ITR 189.iii.Nokia India Private Limited Vs. AdditionalCommissioner of Income Tax, Judgment dated07.09.2017, passed by the Delhi High Court in W.P.(C) No.3629 of 2017. iv.Additional Commissioner of Income Tax Vs. M/s.Nokia India Private Ltd., Order dated 14.05.2018,passed by the Hon'ble Supreme Court in S.L.P.(Civil) Diary No.7302 of 2018.v. Deputy Commissioner of Income Tax Vs. JCB IndiaLtd., Order dated 12.10.2018, passed by theHon'ble Supreme Court in S.P.L.(Civil) DiaryNo.24312 of 2018. 11.Defending impugned order, learned counsel for therespondent, Income Tax Department submits that the Income TaxAppellate Tribunal had allowed appeals for statistical purposeas per the decision of the Punjab and Haryana High Court in KnoreBremses India private vs AICT (2015) 6 Taxmann.com therefore submitted the writ petition was therefore, withoutmerits. The order was in compliance of the order of the tribunal– ITAT. iv.Additional Commissioner of Income Tax Vs. M/s.Nokia India Private Ltd., Order dated 14.05.2018,passed by the Hon'ble Supreme Court in S.L.P.(Civil) Diary No.7302 of 2018.v. Deputy Commissioner of Income Tax Vs. JCB IndiaLtd., Order dated 12.10.2018, passed by theHon'ble Supreme Court in S.P.L.(Civil) DiaryNo.24312 of 2018. 11.Defending impugned order, learned counsel for therespondent, Income Tax Department submits that the Income TaxAppellate Tribunal had allowed appeals for statistical purposeas per the decision of the Punjab and Haryana High Court in KnoreBremses India private vs AICT (2015) 6 Taxmann.com therefore submitted the writ petition was therefore, withoutmerits. The order was in compliance of the order of the tribunal– ITAT. 12.It is further submitted that the assessments cannot beprolonged endlessly in as much as the issue has been answered onmerits the Income Tax Appellate Tribunal therefore, it was auseless formality for the respondent to pass a Draft AssessmentOrder to facilitatethe petitioner to one again to re agitate theissue before Dispute Resolution Panel. 13.I have considered the arguments advanced by the learnedcounsel for the petitioner and the learned counsel for therespondent income tax. The issue is no longer res-integra. Infact, today by a separate order inW.P.No. 32751 of 2017, I haveallowed the writ petition, under similar circumstances, thefollowing observations- 19.When the law mandates a particular thingto be done in a particular manner, then it has tobe done in the manner. In this connection,attention is drawn to the decision of the PrivyCounsil in Nazir Ahmed Vs. King Emperor which dictum has been followed by theHonourable Supreme Court in UPSC Vs. Papiah[(1997) 7 SCC 614] and many other cases, TNMedical Officers Association [2020 SCC Online 699]and State of Jharkhand Vs. Amhag Cements [(2005) 1SCC 368]. 20.Therefore, once the case was remittedback to the respondents, it was incumbent on thepart of the 1[st] respondent to have passed a draftAssessment Order under section 143 (3) read withSection 92CA (4) and Section 144C (1) of theIncomeTax Act, 1961. 21.It was not open for the 1[st] respondent tobypass the statutory safeguards prescribed underthe Act and thereby deny the right of thepetitioner to approach the Dispute ResolutionPanel. It is only thereafter, Final assessmentorder can be passed by the 1[st] respondent toAssessing Officer. 22.It would have been different if the appealthat was dismissed by the Income Tax AppellateTribunal in first round of litigation in ITANos. 754/Mds/2014; 972/Mds/2015 and 455/Mds/2016. 23.Therefore, I find sufficient force in thearguments advanced by the learned counsel for thepetitioner. In my view, the impugned order hasbeen passed without jurisdiction. It was passedby bypassing statutory safeguards prescribed under the provisions of theIncome Tax Act, 1961.Therefore, the present Writ Petition deserves tobe allowed. 24.In the result, the impugned order isquashed and case is remitted back to the 1[st]respondent to pass a Draft Assessment Order. Sincethe dispute pertains to the assessment years 2009-10, the 1[st] respondent shall endeavour to passDraft Assessment Order within period of 3 monthsfrom date of receipt of this order. No cost.Miscellaneous Petitions are closed. 14.Following the same, Iam inclined to allow this writpetition also. Thus, the impugned orders dated 06.03.2017 passed by the respondent are quashed. 15.Since the dispute in the present case to the assessmentyears 2010-11 and 2011-12, respondent shall endeavour pass Draft Assessment Order under section 143 (3) read with Section 92 CA(4) and 144 C (1) of the Income Tax TaxAct, 1961 within aperiod of 3 months from the date of receipt of a copy of thisorder. No cost. Consequenlty connected Miscellaneous petitionsare closed. 14.Following the same, Iam inclined to allow this writpetition also. Thus, the impugned orders dated 06.03.2017 passed by the respondent are quashed. 15.Since the dispute in the present case to the assessmentyears 2010-11 and 2011-12, respondent shall endeavour pass Draft Assessment Order under section 143 (3) read with Section 92 CA(4) and 144 C (1) of the Income Tax TaxAct, 1961 within aperiod of 3 months from the date of receipt of a copy of thisorder. No cost. Consequenlty connected Miscellaneous petitionsare closed. Sd/- Assistant Registrar(CS-III) //True Copy// Sub Assistant Registrar Jer To The Office of the Assistant Commissioner of Income TaxCorporate Circle 3(2), Chennai – 34.IV Floor, New Block, 121, MG RoadNungambakkam, Chennai – 600 034, TN. +1cc to Mrs.Hema Muralikrishnan, Advocate, S.R.No.27318 MG(CO)CB(06/08/2021) W.P.Nos.25583 and 25584 of 2017