Ita/248/2019 Of The Principal Commisstioner Of Income Tax v. Appollo Tyres Ltd

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR.JUSTICE VIJU ABRAHAM THURSDAY, THE 23 DAY OF SEPTEMBER 2021 / 1ST ASWINA, 1943 ITA NO. 248 OF 2019 AGAINST THE ORDER IN ITA 336/Coch/2018 & CO No.57/Coch/2018 DATED21.3.2019 OF I.T.A.TRIBUNAL,COCHIN BENCH, ERNAKULAM APPELLANT/Respondent: THE PRINCIPAL COMMISSIONER OF INCOME TAXKOCHI-IBY ADVS.SRI.P.K.RAVINDRANATHA MENON (SR.)JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/Appellant: M/s APPOLLO TYRES LTD3RD FLOOR, AREEKAL MANSION, NEAR MANORAMA JUNCTION, PANAMPILLY NAGAR, KOCHI-682 036BY ADVS.SRI.JOSEPH MARKOSE (SR.)SRI.V.ABRAHAM MARKOSSRI.ABRAHAM JOSEPH MARKOSSRI.ISAAC THOMASSRI.P.G.CHANDAPILLAI ABRAHAMSHRI.VIPIN ANTO H.M.SHRI.ALEXANDER JOSEPH MARKOSSHRI.SHARAD JOSEPH KODANTHARA THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON23.09.2021, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ITA No.248 of 2019 JUDGMENT S.V.Bhatti, J. The Principle Commissioner of Income Tax, Kochi/Revenue is the appellant. M/s Apollo Tyres Ltd.Kochi is the respondent. The revenue being aggrieved by the order dated 21.3.2019 in ITA No.336/Coch/2018 and C.O.No.57/Coch/2018 filed the subject appeal underSection 260A of the Income Tax Act (for short 'the Act'). 2. The issue arises under Sections 143(3) read with Section 144C of the Act. The Department raises thefollowing substantial questions of law. "1. Whether, on the facts and in the circumstancesof the case and in the initial assessment order beingpreceded by draft assessment order is not the finalassessment order without a prior draft assessmentorder legal and with jurisdiction? 2.Whether, on the facts and in the circumstancesof the case and also in the light of the principle laiddown by the Supreme Court in Pooranmmai (96 ITR 394) followed by this Hon'ble Court in 404 ITR 288is not cancellation of the final assessmetn orderagainst law and logic? 2A. Whether the Tribunal is right in law in relyingon an order of the Supreme Court dismissing theSpecial Leave Petition as a binding authority and isnot such an approach vitiated in the light of thejudgment in (2019)(6) SCC 270? 3.Is not the final assessment order legal and withjurisdiction? 3. Let us refer to the dates which have bearing on the legal question canvassed by both the revenue and theassessee. On 29-09-2009, the assessee filed return for theassessment year 2009-2010. The assessment, since has afew implications in considering Arm's Length Price underSection 92CA of the Act, the assessment was referred tothe Transfer Pricing Officer. On 29.12.2011, the AssessingOfficer served on the assessee the draft assessment orderunder Section 144C(1) of the Act. The assessment wasreferred to the Dispute Resolution Panel keeping inperspective the objections raised by the assessee againstthe draft assessment order under Section 144C of the Act ITA No.248 of 2019 4 3.Is not the final assessment order legal and withjurisdiction? 3. Let us refer to the dates which have bearing on the legal question canvassed by both the revenue and theassessee. On 29-09-2009, the assessee filed return for theassessment year 2009-2010. The assessment, since has afew implications in considering Arm's Length Price underSection 92CA of the Act, the assessment was referred tothe Transfer Pricing Officer. On 29.12.2011, the AssessingOfficer served on the assessee the draft assessment orderunder Section 144C(1) of the Act. The assessment wasreferred to the Dispute Resolution Panel keeping inperspective the objections raised by the assessee againstthe draft assessment order under Section 144C of the Act ITA No.248 of 2019 4 dated 29.12.2011. The Dispute Resolution Panel throughAnnexure-B dated 10.12.2013 issued directions to theAssessing Officer. The Assessing Officer throughAnnexure-C dated 31.12.2013 made assessment for theassessment year 2009-2010. The assessee carried theorder Annexure-C dated 31.12.2013 in Appeal IT(TP)ANo.02/Coch/2014 before ITAT, Cochin Bench. Vide orderdated 21.11.2014 ITAT allowed the appeal in part andremitted the matter to the Assessing Officer for statisticalpurposes and fresh assessment on the issues referred toA.O. The Assessing Officer through assessment order inAnnexure-E dated 2.3.2016 made revised final assessmentorder under Section 144C of the Act. The assessee,keeping in perspective the special procedure underSection 144C of the Act, claims that the assssee wascompelled to file appeal before the Commissioner ofIncome Tax (Appeals) against the revised final assessmentorder dated 2.3.2016 made by the Assessing Officer dehors the procedure under Section 144C of the Act. The ITA No.248 of 2019 5 logic being the remedy of appeal to the Tribunal isavailable only if the procedure of Sec.144C was followedby the A.O. CIT (Appeals) allowed the appeal in part andthis resulted in ITA No.336/Coch/2018 at the instance ofthe revenue and C.O.No.57/Coch/2018 by the assessee.The assessee in the Cross Objection questioned thelegality and propriety of revised final assessment orderdated 2.3.2016 of the A.O. The ITAT through the orderunder appeal dismissed ITA No.336/Coch/2018 filed by therevenue and allowed the Cross Objection filed by theassessee vide C.O.No.57/Coch/2018. Hence the appeal atthe instance of revenue. 4. Mr.Christopher Abraham argues that the legal objection raised against the assessment order dated02.03.2016 and canvassed by the assessee with referenceto Section 144C of the Act is not available in thecircumstances of the case. In as much as the assesseeinstead of availing remedy by way of appeal before theTribunal moved the Commissioner of Income Tax ITA No.248 of 2019 6 (Appeals) and in the appeal filed by the revenue againstthe order of CIT (Appeals) in Annexure-H, CrossObjections are filed raising the objection of not followingSec.144C of the Act while issuing assessment order dated2.3.2016. Therefore the assessee, it shall be understood,condoned the omission in not re-doing the assessmentstrictly in accordance with Section 144C of the Act. Theassessee has choice and option to waive this requirement,therefore the case on hand stands singular and the viewtaken by the Tribunal raises a substantial question of lawfor decision by this Court. He in support thereof relies onthe decisions in K.V.Abdul Azeez v Commissioner ofIncome Tax[1], Director of Inspection of Income Tax(Investigation), New Delhi v Pooran Mall and sons[2] and v .Apollo Tyres Ltd., KochiUnion of India[3] 5. Mr.Joseph Markos contends that the assessment procedure under Section 144C of the Act is attracted andadherance becomes necessary having regard to a few 5. Mr.Joseph Markos contends that the assessment procedure under Section 144C of the Act is attracted andadherance becomes necessary having regard to a few 1 [2018] 404 ITR 288 (Ker.)2 [1974] 96 ITR 390 (SC)2 [1974] 96 ITR 390 (SC) 3 Judgment dated 20.4.2010 of Delhi High Court in WP(C) No.13338 of 2009. ITA No.248 of 2019 7 intricacies envisaged by Section 92B; 92CA etc. Section92B;92CA etc., are attracted to the case in relation totransfer prising shown by the assessee. The AssessingOfficer, by issuing draft assessment order (Annexure-Adated 28.3.2013), had also accepted that the assessmentfor the subject assessment year is to be completed only interms of Section 144C(13)of the Act. The DisputeResolution Panel issued directions and they were carriedout by the Assessing Officer in the assessment order madeunder Section 143(3) read with Section 144C(13) of theAct in Annexure-C. The remedy against the assessmentorder in Annexure-C is an appeal before Income TaxAppellate Tribunal. The assessee rightly filed appealbefore ITAT and the Tribunal allowed the appeal in partand rightly so, the Tribunal could remit the issues inwhich the Tribunal, for the limited purpose of remand,accepted the case of assessee. The remand and remittingto the Assessing Officer would mean and pre-suppose thatthe procedure under Section 144C of the Act is defeated ITA No.248 of 2019 8 by the Assessing Officer. There is no escape from therequirement of re-doing the assessment under Sec.144Cof the Act, viz. at the first instance the Assessing Officerunder Section 144C(1) forwards a draft of the proposedorder of assessment known as draft order to the assessee,in the event the Assessing Officer proposing a variation tothe income return which is prejudicial to the assessee.The assessee under Section 144C(2) shall within 30 dayshas the option to accept the variation or file objections tothe proposed draft variation of the Assessing Officer. Theissues at divergence being proposed variation andobjection of the assesseeare made over to DRP underSection 144C(15). DRP follows the procedure stipulatedby Section 144C (5) to (12) and finally issues direction tothe Assessing Officer. The direction of DRP is binding onassessment order and the final assessment order is issuedby the Assessing Officer in terms of DRP directives. Theremedy of the assessee against the final assessment orderof the Assessing Officer made by following the procedure ITA No.248 of 2019 9 of Sec.144C is before Income Tax Appellate Tribunalunder Section 253(1)(d) of the Act. 6. In the first round the assessee followed the legalprocedure and challenged before the Tribunal the finalassessment order dated 31.12.2013 (Annexure-C). TheTribunal remitted a few issues to the Assessing Officerthrough Annexure-D order. The order made by theTribunal to the procedure required to be followed is draftassessment order on the proposed variation and receiveobjections, if any, of the assessee and subject to thedirectives the Dispute Resolution Panel may issue in thisbehalf issue revised final assessment order in matterscovering Section 92B; 92CA etc. Admittedly theassessment is to be made under Section 144C of the Act.The Assessing Officer does not have jurisdiction to makerevised final assessment order without recourse to DRP.The omission in re-doing the procedure under Section144C is not a curable defect. The omission is completelyillegal, without jurisdiction and an incurable defect, and ITA No.248 of 2019 10 ITA No.248 of 2019 10 resultantly there is no waiver of the legal objectionsavailable to the assessee against the order in Annexure Edated 2.3.2016. He explains by arguing that the remedyunder Section 253(1)(d) of appeal before the Tribunal isavailable only when the assessment order is made incompliance with the directions issued by DRT. The filingof appeal before the Commissioner (CIT) Appeals does notbar the grounds raised before the Tribunal inC.O.No.57/Coch/2018. He relies on the following citations:Nokia India v CIT[4], SLP order of Supreme Courtdismissing SLP[5], JCB India Ltd. V Deputy Commissioner ofIncome Tax[6] Asst.Commissioner of Income Tax v VijayTelevision Pvt. Ltd.[7] , Turner International India Pvt. Ltd. VDeputy Commissioner of Income Tax[8] Commissioner ofIncome Tax v C-Sam (India) Pvt. Ltd.[9] He prays for answering the issue in favour of assessee and against revenue. 4(2018) 98 Taxmann.com 373 (Delhi) 5(2018) 295 Taxmann 91 (SC) 6(2017) 398 ITR 189 (Del) 7(2018) 407 ITR 642 (Mad) 8 (2017) 398 ITR 177 (Del) 9(2017) 398 ITR 182 (Guj) ITA No.248 of 2019 11 7. This Court has referred to the admitted dates inthe orders made by the Assessing Officer in the firstround etc.and also the revised final assessment ordermade in Annexure-E for the purpose of appreciating thelegal objection raised by the assessee and now thegrounds canvassed by the revenue. The citations reliedon by the assessee are to the effect that with theinterdiction of assessment order made under Section143(3) read with Section 144C(5) & (13) of the Act by theTribunal, the matter is remitted to A.O. The issues re-visit the table of Assessing Officer for a decision in thesame manner in which the first final assessment orderwas made by the Assessing Officer. In cases to whichSection 92CA is attracted, the assessment could becompleted only by following the procedure under Section144C of the Act. We do not prefer to burden ourjudgment with reproducing all the portions relied on bythe assessee from the decisions cited at the Bar, exceptthe view taken by the Delhi High Court in Nokia India (P) ITA No.248 of 2019 12 Ltd. v Additional Commissioner of Income Tax and theSpecial Leave Petition filed against the said decision inSLP (Civil) Diary No. 7302/2018: i)Nokia India Pvt.Ltd. V Addl.Commissioner of IncomeTax "By the order dated 30[th] August 2013, the Assessee'sappeal was allowed by the Income Tax Appellate Tribunal(ITAT). The matter concerning transfer pricing additionon account of Advertising, Marketing and Promotion('AMP') expenses was remanded to the TPO/AO. The TPOthen passed a fresh order on remand on 28[th] October2016. When the matter went before the AO thereafter, thepetitioner, by the letter dated 7[th] December 2016,informed the AO that the assessment proceedings hadbecome time-barred by virtue of Section 153 (2A) of theAct. However, without disposing of that objection, the AOpassed the impugned final assessment order dated 28[th]March 2017. The principal ground of challenge by the petitioner isthat the impugned final order of the AO has been passedin violation of Section 144C of the Act inasmuch as it wasnto preceded by a draft assessment order as wasmandatory int erms of Section 144C(1) of the Act. Thesecond ground is that the impugned order was passedbeyond the period of limitation. The principal ground of challenge should succeed as it issquarely covered in favour of the Assessee and against theRevenue by the decision dated 17[th] May 2017 passed bythis Court in Turner International India (P) Ltd. V Dy.CIT[2017] 82 Taxmann.com 125 (Delhi). There, the Courtcategorically held that the mandatory requirements underSection 144C(1) of the Act had to be met even where theTPO had passed the order int he second round on remandby the ITAT. The principal ground of challenge should succeed as it issquarely covered in favour of the Assessee and against theRevenue by the decision dated 17[th] May 2017 passed bythis Court in Turner International India (P) Ltd. V Dy.CIT[2017] 82 Taxmann.com 125 (Delhi). There, the Courtcategorically held that the mandatory requirements underSection 144C(1) of the Act had to be met even where theTPO had passed the order int he second round on remandby the ITAT. This is also the view of the Gujarat High Court in CITv C-Sam (India) (P) Ltd. [2017] 84 Taxmann.com 261. By a separate order passed in JCB India Ltd. V Dy.CIT ITA No.248 of 2019 13 [2017] 85 Taxmann.com 155/251 Taxman 143 (Delhi), theCourt followed its decision in Turner International India(P) Ltd. (supra) and quashed the final assessment orderwhich was challenged in those cases. Once there is a clear order of setting aside of anassessment order with the requirement of the AO/TPO toundertake a fresh exercise of determining the arm'slength price, the failure to pass a draft assessmetn order,would violate Section 144C(1) of the Act result. This isnot a curable defect in terms of Section 292B of the Act asheld by this Court in its decision dated 17[th] July, 2015 inITA No.275/2015 Pr.CIT v Citi Financial ConsumerFinance India Pvt.Ltd. In view of the fact that the Court is accepting thefirst ground of challenge raised by the Assessee asregards violation of Section 144C, the Court is notexamining the ground of limitation. For all of the aforementioned reasons, the writpetition is allowed and the impugned final assessmentorder dated 28[th] March 2017 passed by the AO/TPO andthe consequent orders passed thereafter, includinginitiation of penalty proceedings and penalty orders, arehereby set aside. The application is disposed of." ii.Additional Commissioner of Income Tax vNokia India (P) Ltd. "Once there is a clear order of setting aside of anassessment order with the requirement of the AO/TPO toundertake a fresh exercise of determining the arm'slength price, the failure to pass a draft assessment order,would violate Section 144C(1) of the Act result. This isnot a curable defect in terms of Section 292B of the Act asheld by this Court in its decision dated 17[th] July 2015 inITA No.275/2015 Pr.CIT v Citi Financial ConsumerFinance India Pvt.Ltd. In view of the fact that the Court is accepting thefirst ground of challenge raised by the assessee as regardsviolation of Section 144C, the Court is not examinignt heground of limitation. For all of the aforementioned reasons, the writpetition is allowed and the impugned final assessmtn ITA No.248 of 2019 14 order dated 28[th] March 2017 passed by the AO/TPO andthe consequent orders passed thereafter, includinginitiation of penalty proceedings and penalty orders arehereby set aside. The application is disposed of." 8. The decisions relied on by the revenue are completely distinguishable. The nature of objection andthe timing of objection considered in the reporteddecisions are completely distinguishable. 9. On the contrary, the decisions relied on by the assessee deal with circumstances similar to the case onhand and the ratio laid down arises under Section 143(3)read with Section 144C of the Act. Hence we do notpropose to undertake the narrative of explaining how thedecisions relied on by the revenue are distinguishable,both in fact and law. It is suffice to note that the decisionsare nowhere near the point. 10. The requirement of re-doing the same procedure upon remand to the Assessing Officer under Section 144Cis held to be mandatory and omission in following theprocedure is held to be an incurable defect. The revenue ITA No.248 of 2019 15 9. On the contrary, the decisions relied on by the assessee deal with circumstances similar to the case onhand and the ratio laid down arises under Section 143(3)read with Section 144C of the Act. Hence we do notpropose to undertake the narrative of explaining how thedecisions relied on by the revenue are distinguishable,both in fact and law. It is suffice to note that the decisionsare nowhere near the point. 10. The requirement of re-doing the same procedure upon remand to the Assessing Officer under Section 144Cis held to be mandatory and omission in following theprocedure is held to be an incurable defect. The revenue ITA No.248 of 2019 15 does not dispute the omissions pointed out in this behalfby the Tribunal. The filing of appeal before theCommissioner of Income Tax (Appeals) cannot be treatedas a waiver of an objection available to the assessee in thisbehalf under Sec.144C etc. Section 253(1)(d) provides forappeal only when order has been made under Section143(3) read with Section 144C of the Act. Annexure-Eorder is an order made under Section 143(3) of the Actand not a final revised assessment order made incompliance with the directions issued by DRP. Theassessee, hence was justified in moving the CIT(Appeals).This Court has difficulty in accepting the argument of therevenue to sustain the order in Annexure-E. Thearguments have been confined to the points consideredabove and we are of the view that the Tribunal hascorrectly considered the objections of assessee againstAnnexure-E order and recorded the findings whichresulted in the order under appeal. The order of Tribunalis to be understood in the background of what is ITA No.248 of 2019 16 considered by the Assessing Officer in Annexure-E andwhat was not the subject matter before the AssessingOfficer, upon the remand in the first round of litigationcannot and could not be understood as made by theTribunal. We are in agreement with the argument ofMr.Joseph Markos that Annexure-E is limited only to theissues remitted by the Tribunal in Annexure D order dated21.11.2014. For the above reasons and the discussion thequestions are answered in favour of the assessee andagainst the revenue. IT Appeal fails and accordingly dismissed. Sd/-S.V.BHATTI JUDGE css/ sd/- VIJU ABRAHAM JUDGE ITA No.248 of 2019 17 APPENDIX OF ITA 248/2019 PETITIONER'S ANNEXURE ANNEXURE-A ANNEXURE-B ANNEXURE-C ANNEXURE-D ANNEXURE-E ANNEXURE-F ANNEXURE-G ANNEXURE-HANNEXURE-I ANNEXURE-J ANNEXURE K COPY OF DRAFT ASSESSMENT ORDERS U/S.143(3) R.W.S. 144C (1) DATED 28.3.2013. COPY OF DRP'S ORDER DATED 12.12.2013. COPY OF ASSESSMENT ORDERS U/S.143(3) R.W.S. 144C DATED 31.12.2013. COPY OF ITAT ORDER DATED 21.11.2014. COPY OF ASSESSMENT ORDERS U/S.143(3) R.W.S. 144C R.W.S. 254 DATED 02.03.2016144C R.W.S. 254 DATED 02.03.2016 COPY OF RECTIFICATION APPLICATION FILED BY ASSESSEE.ASSESSEE. COPY OF STAY APPLICATION FILED BY ASSESSEE.COPY OF CIT (A)'S ORDER DATED 16.4.2018.COPY OF CIT (A)'S ORDER DATED 16.4.2018. COPY OF ITAT ORDER COPY OF SUPREME COURT ORDER IN THE CASE OF NOKIA INDIA P LTDNOKIA INDIA P LTD COPY OF DELHI HIGH COURT IN THE CASE OF NOKIAINDIA P LTDINDIA P LTD