Panaji Goa v. M/S Andrew Telecommunications P. Ltd

Amrut 1 TA144-17dt16-07-2018 IN THE HIGH COURT OF BOMBAY AT GOA TAX APPEAL NO.144 OF 2017 The Principal Commissioner of Income Tax,having office at Aayakar Bhavan,Patto-Plaza,…Panaji Goa. Appellant VersusM/s Andrew Telecommunications P. Ltd.,Plot No.N-2, Phase IV,Verna Salcete Goa. PAN: AABCA 8820A…. Respondent Ms. Amira Razaq, Junior Central Government Standing Counsel forthe Appellant. Mr. Percy Pardiwala, Senior Advocate with Ms. Priyanka Kamat,Advocate for the Respondent. Coram : N.M. Jamdar & Prithviraj K. Chavan, JJ. Date : 16 July 2018. Judgment ( Per N. M. Jamdar, J ) The Revenue has filed this appeal taking exception to theorder passed by the Income Tax Appellate Tribunal, Panaji, on 21 Amrut 2 TA144-17dt16-07-2018 January 2016. By the impugned order, the Tribunal dismissed theappeal filed by the Revenue and confirmed the order passed by theCommissioner of Income Tax ( Appeals) dated 13 March 2015. TheAssessee had filed cross objection which the Tribunal allowed. 2.The Respondent-Assessee had taken an additional groundbefore the Tribunal that the order was passed by the Assessing Officerwithout forwarding a draft of the proposed order of assessmentcontrary to the procedure laid down under Section 144C of theIncome Tax Act. The Tribunal held that the factual assertion of theAssessee was correct and the absence of draft assessment order goesto the root of the assessment. Consequently the Tribunal held thesame in favour of the Respondent-Assessee. 3.In this appeal the Revenue contends that the order passedby the Tribunal is incorrect in view of the provisions of Section144C(13) of the Act and there is no need for a draft assessment orderin the said sub-section and that the Assessee never took any objectionto the non-issuance of the draft order. It is also contended that if thematter is remanded, a draft assessment order is not necessary. Theseaccording to the Revenue are the substantial questions of law in thepresent appeal. Amrut 3 TA144-17dt16-07-2018 4.We have heard Ms. A. Razaq, learned Standing Counselfor the Appellant-Revenue and Mr. P. Pardiwala, learned SeniorAdvocate for the Respondent-Assessee. 5.Since the appeal raises a question relating to Section 144Cof the Income Tax Act, a brief overview of this provision is necessary.Section 144C lays down a scheme for reference to Dispute ResolutionPanel. The Assessing Officer at the first instance forwards a draft of theproposed order of assessment to the eligible Assessee if he proposes tomake any variation in the income or loss which is prejudicial to theinterest of the Assessee. Once such a draft order is received, theAssessee can, within 30 days accept the variations or file his objectionsto the Dispute Resolution Panel. If the Assessee accepts the variationsor no objections are received within a period specified, the AssessingOfficer proceeds to complete the assessment on the basis of draftorder. When an objection is lodged with the Dispute ResolutionPanel, the Dispute Resolution Panel issues necessary directions for theguidance of the Assessing Officer. Before passing any directions, theDispute Resolution Panel take into consideration the draft order, theobjections, evidence furnished by the assessee, report of the TransferPricing Officer, Assessing Officer or Valuation Officer as the case maybe, the record relating to the draft order, the evidence collected by the Amrut 4 TA144-17dt16-07-2018 Amrut 4 TA144-17dt16-07-2018 Panel, and the result of the enquiry. The Dispute Resolution Panelmay confirm, reduce or enhance the variations. Direction issued bythe Dispute Resolution Panel is binding on the Assessing Officer.Before issuing any directions, the Dispute Resolution Panel is requiredto give opportunity of hearing. After such directions are received fromthe Dispute Resolution Panel, the Assessing Officer proceeds tocomplete the assessment under Section 144C(13) of the Act. If theAssessing Officer proceeds to complete the assessment pursuant to thedirections issued by the Panel under Section 144C(13), he is notrequired to give further opportunity of hearing to the assessee. This isbroadly the scheme of Section 144C. 6.Turning now to the facts of the case at hand. The Assesseeis in the business of manufacturing and assembly oftelecommunication cables, wave-guides, connector antennas andaccessories and also trades in the related products. The Assessee filedits return of income on 29 November 2006 declaring a loss ofRs.14,93,68,912/-. The Assessment Order was passed under Section143(3) on 16 December 2009 on an income of Rs.31,21,13,590/- onthe basis of the order passed by the Transfer Pricing Officer underSection 92CA(3) dated 30 October 2009. The Transfer Pricing Officerconcluded that the excess payment being adjustment under Section Amrut 92CA in the manufacturing segment towards the purchase of goodsfrom the associated enterprises was at Rs.50,50,38,712/- and theincome derived from the industrial undertaking was atRs.14,66,97,731/- against returned loss of Rs.35,83,40,981/-. 7.The Assessee filed its objection before the DisputeResolution Panel on 28 January 2010. The Panel, by order dated 24September 2010, directed the Assessing Officer to modify the orderpassed on Arms Length Price by the Transfer Pricing Officer. TheTransfer Pricing Officer, by its order dated 29 October 2010, directedthe transfer pricing adjustment be made under Section 92CA atRs.44,18,04,792/-. The Assessing Officer passed an order on 24November 2010, giving effect to the revised transfer pricingadjustment of Rs.44,18,04,792/-. 8.The Assessee filed an appeal before the Income TaxAppellate Tribunal against the order passed by the Assessing Officerunder Section 144C(13) dated 24 November 2010. Since the TransferPricing Officer had changed in the meanwhile, the Tribunal held thatthe new Transfer Pricing Officer should have given hearing to theassessee and by order dated 1 October 2012 set aside the AssessmentOrder dated 24 November 2010. Amrut 6 TA144-17dt16-07-2018 9.The matter was sent back to the Transfer Pricing Officerwho gave hearing to the Assessee and passed a fresh order on 30January 2014. Thereafter, the Assessing Officer, without issuing anydraft assessment order, proceeded to pass an order on 2 February2015. The Assessee challenged the said order before the Commissionerof Income Tax ( Appeals) and the appeal was partly allowed by theCommissioner of Income Tax ( Appeals) by order dated 13 March2015. As against this order, the Revenue filed the Income Tax AppealNo.271/2015 before the Income Tax Appellate Tribunal and theAssessee filed a Cross Objection No.62/2015. 10.ground on 4 September 2015, which reads thus : Before the Tribunal, the Assessee filed an additional “The Assessing Officer has erred in passing the assessmentorder 12th March, 2014 without forwarding a draft of theproposed order of assessment to the assessee and therebynot following the procedure laid down in Sec.144C of theIncome Tax Act, 1961. The appellant submits the orderdated 12th March 2014 is void, bad in law, non est and anullity”. The Tribunal entertained the additional ground and disposed of theappeal with the following observations. Amrut 7 TA144-17dt16-07-2018 10.ground on 4 September 2015, which reads thus : Before the Tribunal, the Assessee filed an additional “The Assessing Officer has erred in passing the assessmentorder 12th March, 2014 without forwarding a draft of theproposed order of assessment to the assessee and therebynot following the procedure laid down in Sec.144C of theIncome Tax Act, 1961. The appellant submits the orderdated 12th March 2014 is void, bad in law, non est and anullity”. The Tribunal entertained the additional ground and disposed of theappeal with the following observations. Amrut 7 TA144-17dt16-07-2018 “10. We have considered the rival submissions. As it isnoticed that the draft assessment order has not beenproduced before us to counter the specific allegations inrespect of non-availability of the draft assessment order,we are of the view that the assessment order passed isliable to the annulled, respectfully following the decisionof the Hon'ble Andhra Pradesh High Court in the caseof M/s. Zuari Cement Ltd.(supra), wherein it has beenheld that where the assessment order has been passedcontrary to the mandatory provisions of sec. 144C of theAct and violation thereof, the assessment order is liable tothe declared as one without jurisdiction, null and voidand unenforceable.” 11.It was an admitted position before the Tribunal and soalso in this Court that before the order was passed by the AssessingOfficer on 2 February 2015, no draft assessment order was given. Thequestion that is debated before us is whether it was necessary. 12.As regards the admission of the additional ground beforethe Tribunal, the Tribunal had relied on the decision of the SupremeCourt in the case of National Thermal Power Co. Ltd. Vs CIT[1]. Asstated earlier, there is no factual dispute that there was no draftassessment order. A draft assessment order is an essential requirementof the scheme of Section 144C and in view of the admitted factualposition, the Tribunal was not in error in admitting the additional1 229 ITR 383 Amrut 8 TA144-17dt16-07-2018 ground. 13.Ms. Razaq, the learned Standing Counsel contended thatsince the proceedings themselves show that the order was passed underSection 144C(13) and as per the scheme of the Section there was norequirement of any draft assessment order. It was also submitted thatupon remand it is not necessary to issue draft assessment order again. 14.Mr. Pardiwala contended that a draft assessment orderought to have been issued and upon failure of the Officer to do so theAssessee has lost a valuable right. Mr. Pardiwala submitted that, whenthe Dispute Resolution Panel sent the proceedings back to the TransferPricing Officer, categorical observations were made that the order waspassed in violation of the principles of natural justice and exercise hadto be taken afresh. He submitted that therefore the earlier draftassessment order did not exist and a fresh draft order had to be issuedand the failure has vitiated the further proceedings and, therefore,there is no error in the order passed by the Tribunal and there is noquestion of law arises. Mr. Pardiwala relied upon the decisions in thecase of the Deputy Commissioner of Income Tax Delhi Vs ControlRisks India Pvt. Ltd.2; Control Risks India Pvt. Ltd. Vs Deputy 2 Special Leave Petition (Civil) No.7090/2018. Amrut 9 TA144-17dt16-07-2018 3; International Air Transport; International Air Transport Commissioner of Income Tax3; International Air Transport; International Air Transport4Association V/s Deputy Commissioner of Income Tax and Others;5JCB India Ltd. Vs Deputy Commissioner of Income Tax & Another;and Turner International India Pvt. Ltd. Vs Deputy Commissioner ofIncome Tax Circle 25(2) New Delhi6 2 Special Leave Petition (Civil) No.7090/2018. Amrut 9 TA144-17dt16-07-2018 3; International Air Transport; International Air Transport Commissioner of Income Tax3; International Air Transport; International Air Transport4Association V/s Deputy Commissioner of Income Tax and Others;5JCB India Ltd. Vs Deputy Commissioner of Income Tax & Another;and Turner International India Pvt. Ltd. Vs Deputy Commissioner ofIncome Tax Circle 25(2) New Delhi6 15. It is settled law that mere wrong reference to a provisionin the order cannot be determinative of the source of power. Questionswhich therefore arise for consideration are as follows. First, what wasthe effect of not issuing the draft assessment order by the AssessingOfficer. Second, when the proceedings were remanded whether adraft assessment order was required to be issued. Thirdly, whether theorder of the Assessing Officer could be said to an order under Section144C(13). 16.We have gone through the order of the Tribunal dated 1October 2012 by which the proceedings were remanded. The Tribunalnoted that during the course of the proceedings, a new TransferPricing Officer took charge of the Assessee's case and he passed anorder without issuing any show cause and without hearing the 3 W.P.(C)5722/2017 & C.M.No.23860/2017(Stay) dated 27 July 2017. 4 WP(L) No.351 of 2016 dated 18 February 2016 5 W.P. (C ) No.3399/2016 dated 7 September 2017 6 W.P.(C)4260/2015 dated 17 May 2017 Amrut 10 TA144-17dt16-07-2018 Assessee. The Tribunal upheld the grievance of the Assessee that anotice ought to have been issued when the new Transfer PricingOfficer took charge by observing thus :- “11. In view of the aforesaid decision of the Hon'bleSupreme Court and the other case laws, we are of the viewthat the new TPO should have given a show cause noticeand also the copy of the material gathered by him whichhe wanted to use against the assessee prior to makingadjustment. There is clear cut violation of principles ofnatural justice. We, accordingly, set aside the assessmentorder and restore the matter back to the file of theassessing officer in the interest of justice and fair play toboth the parties as in our opinion no prejudice shall becaused to either of the parties if matter is restored to thefile of the assessing officer. The assessing officer is directedto pass a fresh order in accordance with law afterproviding adequate and sufficient opportunity of beingheard on the various objections and then decide thematter afresh in accordance with the law. Thus, the Tribunal set aside the assessment order and restored thematter back to the file of the Assessing Officer. Ms. Razaq raised acontention that the order of the Panel was not set aside. In paragraph10 of the order the tribunal had adverted to this issue. After reachingthe conclusion that the assessment has to be set aside, the Tribunalconsidered to which authority it should be sent to. In that context, theTribunal noted that even the Dispute Resolution Panel had not dealt Amrut 11 TA144-17dt16-07-2018 with all objections including the objections regarding the denial ofnatural justice. Therefore, the Tribunal found it necessary that thematter should be de novo considered by the Assessing Officer. It is inthis context the matter was relegated to the stage of Section 144C(1).Further proceedings were therefore not under Section 144C(13) as theentire exercise was set aside to be started afresh. Therefore thecontention that the order passed thereafter was under Section144C(13), cannot be accepted. Amrut 11 TA144-17dt16-07-2018 with all objections including the objections regarding the denial ofnatural justice. Therefore, the Tribunal found it necessary that thematter should be de novo considered by the Assessing Officer. It is inthis context the matter was relegated to the stage of Section 144C(1).Further proceedings were therefore not under Section 144C(13) as theentire exercise was set aside to be started afresh. Therefore thecontention that the order passed thereafter was under Section144C(13), cannot be accepted. 17. In the case of International Air Transport Association, theDivision Bench of this Court has held that the order passed by theAssessing Officer without their being any draft assessment order isillegal and without jurisdiction. The same view has been reiterated inthe case of Zuari Cement Ltd., Vs ACIT[7]by the Division Bench ofAndhra Pradesh High Court which also held that the failure to pass adraft assessment order under Section 144C(1) of the Act would resultin rendering the final assessment as one without jurisdiction. Thisposition of law is settled. 18.Now to consider whether after remand, it was necessary toissue a draft assessment order. Firstly, the issuance of a draft assessment 7 WP(C) No.5557/2012 dated 21 February 2013 Amrut 12 TA144-17dt16-07-2018 order is not an empty formality. When a draft assessment order ispassed and copy is given to the Assessee, the Assessee can raiseobjections before the Dispute Resolution Panel on any of the proposedvariations. There is a right given to the Assessee to object, and to havethe objections considered not by the Assessing Officer, but by theDispute Resolution Panel. 19.The Tribunal, by order dated 1 October 2012, set asidethe entire exercise and the matter was relegated to the AssessingOfficer. Once the matter was sent back to be decided afresh it wentback to the stage of Section 144C(1) of the Act. Since the Tribunal setaside the proceedings on the ground of violation of principles ofnatural justice, the first exercise was void and without jurisdiction.Therefore, nothing remained on the record, including the draftassessment order. Therefore, issuance of a draft assessment order wasnecessary. We do not find from the scheme of Section 144C that if theproceedings were to be started a fresh on remand, the draft assessmentorder is not required to be given. Non issuance of the draft assessmentorder has thus vitiated the final assessment order. 20.In the case of JCB India, the Division Bench of the DelhiHigh Court in identical circumstances has held that after the remand Amrut 13 TA144-17dt16-07-2018 on facts, the draft assessment order was necessary. 21. The view taken by the Tribunal in the impugned order that for want of issuance of draft order, the assessment order is without jurisdiction, cannot be faulted with. No substantial question of lawarises in the present appeal. The appeal is dismissed. Prithviraj K. Chavan, J.N.M. Jamdar, J.