Wp/13342/2015 Of M/S.carrier Race Technologies v. The Income Tax Officer

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATE :: 12.10.2015 CORAM ::THE HON'BLE MR. JUSTICE R. MAHADEVANWrit Petition No: 13442 of 2015 M/s. Carrier Race Technologies Pvt. Ltd.Temple Step, 9[th] floorBlock No: 1No: 184/187 Anna SalaiLittle MountChennai – 600 015. ... Petitioner-vs- The Income Tax OfficerCorporate Ward – I (4)Room No: 627-A, 6[th] floorNo: 121 Nungambakkam High RoadChennai – 600 034.... Respondent Writ petition under Article 226 of the Constitution ofIndia praying for issuance of a writ of certiorari callingfor the records relating to the impugned Assessment Orderdated 27.3.2015 relating to PAN/GIR No. forassessment year 2012-2013 and the Corrigendum to AssessmentOrder dated 9.4.2015 bearing No: AABCR1863L/12-13/99 passed bythe Respondent / Assessing Officer and quash the same. For petitioner :: Mr. P.H. Arvind Pandian Senior Counsel for M/s. P.J. Rishikesh For respondent :: Mr.T.Pramod Kumar Chopda Senior Standing Counsel O R D E R The impugned assessment order dated 27.03.2015 relatingto PAN/GIR No. for assessment year 2012-2013 andthe Corrigendum to Assessment Order dated 9.4.2015 bearing No:AABCR1863L/12-13/99 are being challenged on the ground thatthe circular issued by the department in accordance withSection 144 C of the Income Tax Act has not been compliedwith. The international transactions involved by thehttps://hcservices.ecourts.gov.in/hcservices/petitioner in this writ petition are referred to in paragraph 5 of the affidavit filed in support of the writ petition. Thesaid international transactions were certified to be at arm'slength, based on Transactional Net Margin Method as defined.The Transfer Pricing Report and the Transfer PricingDocumentation had been filed with the respondent during theassessment year. The Provisions of Section 144 C makes itclear that if the assessing authority proposes to make anyvariation in income or loss returned by the assessee,necessarily he has to pass a draft assessment order, forwardit to the assessee with all the details and after the assesseefiles his objections, the assessment can be completed withinone month. Section also provides an option to the assessee tofile the objections before the Disputes Resolution Panel whichcan issue a direction for guidance of the assessing authorityto enable him to complete the assessment. Since therespondent failed to follow the above provision, thepetitioner is before this Court. 2. According to the learned Senior counsel for thepetitioner the respondent failed to follow the provisions ofSection 144 C of the Income Tax Act, 1961. By the act of therespondent, the petitioner lost several opportunities. Thelearned Senior Counsel appearing for the petitioner furthersubmitted that as per the C.P.D.T. instructions dated20.05.2003, the value, once it crosses over and above a sum ofRs. 5 crores, necessarily the assessing authority has to referthe matter to the Transfer Pricing Officer so as to proceedfurther. In this case, admittedly, the matter has not beenreferred to the Transfer Pricing Officer. Hence, he seeks toquash the said order. 3. The standing counsel for the respondent submittedthat as per Section 92 CA (1) where the assessee has enteredinto an international transaction or specified domestictransaction and the assessing officer considers it necessaryor expedient so to do, he may with the previous approval ofthe competent authority refer the computation of Arms lengthprice to the Transfer Pricing Officer. He further submittedthat no reference to transfer pricing officer in terms ofSection 92 CA, was referred and the respondent proceeded tocompute the arms length price of the international transactionof the petitioner after affording due opportunity to thepetitioner and passed the impugned order. Hence, he sought todismiss the writ petition. 4. Heard both sides. 3. The standing counsel for the respondent submittedthat as per Section 92 CA (1) where the assessee has enteredinto an international transaction or specified domestictransaction and the assessing officer considers it necessaryor expedient so to do, he may with the previous approval ofthe competent authority refer the computation of Arms lengthprice to the Transfer Pricing Officer. He further submittedthat no reference to transfer pricing officer in terms ofSection 92 CA, was referred and the respondent proceeded tocompute the arms length price of the international transactionof the petitioner after affording due opportunity to thepetitioner and passed the impugned order. Hence, he sought todismiss the writ petition. 4. Heard both sides. 5. At the first place, let us see the relevant Sections.Section 144 C of the Income Tax Act, 1961 reads as under : " 144C. (1) The Assessing Officer shall,notwithstanding anything to the contrary contained inthis Act, in the first instance, forward a draft of thehttps://hcservices.ecourts.gov.in/hcservices/proposed order of assessment (hereafter in this section referred to as the draft order) to the eligible assesseeif he proposes to make, on or after the 1st day ofOctober, 2009, any variation in the income or lossreturned which is prejudicial to the interest of suchassessee. (2) On receipt of the draft order, the eligible assesseeshall, within thirty days of the receipt by him of thedraft order,— (a) file his acceptance of the variations to theAssessing Officer; or(b) file his objections, if any, to such variation with,— (i) the Dispute Resolution Panel; and (ii) the Assessing Officer. (3) The Assessing Officer shall complete the assessmenton the basis of the draft order, if— (a) the assessee intimates to the Assessing Officer theacceptance of the variation; or (b) no objections are received within the periodspecified in sub-section (2). (4) The Assessing Officer shall, notwithstandinganything contained in section 153[50][or section 153B],pass the assessment order under sub-section (3) withinone month from the end of the month in which,— (a) the acceptance is received; or (b) the period of filing of objections under sub-section (2) expires. (5) The Dispute Resolution Panel shall, in a case whereany objection is received under sub-section (2), issuesuch directions, as it thinks fit, for the guidance ofthe Assessing Officer to enable him to complete theassessment.(6) The Dispute Resolution Panel shall issue thedirections referred to in sub-section (5), afterconsidering the following, namely:— (a) draft order; (b) objections filed by the assessee; (c) evidence furnished by the assessee;(d) report, if any, of the Assessing Officer, ValuationOfficer or Transfer Pricing Officer or any otherhttps://hcservices.ecourts.gov.in/hcservices/authority; (e) records relating to the draft order; (f) evidence collected by, or caused to be collectedby, it; and (g) result of any enquiry made by, or caused to be madeby, it. (7) The Dispute Resolution Panel may, before issuing anydirections referred to in sub-section (5),— (a) make such further enquiry, as it thinks fit; or (b) cause any further enquiry to be made by any income-tax authority and report the result of the same to it. (8) The Dispute Resolution Panel may confirm, reduce orenhance the variations proposed in the draft order so,however, that it shall not set aside any proposedvariation or issue any direction under sub-section (5)for further enquiry and passing of the assessment order. [Explanation.—For the removal of doubts, it is herebydeclared that the power of the Dispute Resolution Panelto enhance the variation shall include and shall bedeemed always to have included the power to consider anymatter arising out of the assessment proceedingsrelating to the draft order, notwithstanding that suchmatter was raised or not by the eligible assessee.] (b) cause any further enquiry to be made by any income-tax authority and report the result of the same to it. (8) The Dispute Resolution Panel may confirm, reduce orenhance the variations proposed in the draft order so,however, that it shall not set aside any proposedvariation or issue any direction under sub-section (5)for further enquiry and passing of the assessment order. [Explanation.—For the removal of doubts, it is herebydeclared that the power of the Dispute Resolution Panelto enhance the variation shall include and shall bedeemed always to have included the power to consider anymatter arising out of the assessment proceedingsrelating to the draft order, notwithstanding that suchmatter was raised or not by the eligible assessee.] (9) If the members of the Dispute Resolution Paneldiffer in opinion on any point, the point shall bedecided according to the opinion of the majority of themembers. (10) Every direction issued by the Dispute ResolutionPanel shall be binding on the Assessing Officer. (11) No direction under sub-section (5) shall be issuedunless an opportunity of being heard is given to theassessee and the Assessing Officer on such directionswhich are prejudicial to the interest of the assessee orthe interest of the revenue, respectively. (12) No direction under sub-section (5) shall be issuedafter nine months from the end of the month in which thedraft order is forwarded to the eligible assessee. (13) Upon receipt of the directions issued under sub-section (5), the Assessing Officer shall, in conformitywith the directions, complete, notwithstanding anythinghttps://hcservices.ecourts.gov.in/hcservices/to the contrary contained in section 153[51a][or section 153B], the assessment without providing any furtheropportunity of being heard to the assessee, within onemonth from the end of the month in which such directionis received. (14) The Board may make rules[52] for the purposes of theefficient functioning of the Dispute Resolution Paneland expeditious disposal of the objections filed undersub-section (2) by the eligible assessee. The following sub-section (14A) shall be inserted aftersub-section (14) of section 144C by the Finance Act,2013, w.e.f. 1-4-2016 : (14A) The provisions of this section shall not apply toany assessment or reassessment order passed by theAssessing Officer with the prior approval of theCommissioner as provided in sub-section (12) of section144BA. (15) For the purposes of this section,— (a) "Dispute Resolution Panel" means a collegiumcomprising of three Commissioners of Income-taxconstituted by the Board[54] for this purpose; (b) "eligible assessee" means,— (i) any person in whose case the variation referred toin sub-section (1) arises as a consequence of the orderof the Transfer Pricing Officer passed under sub-section(3) of section 92CA; and any foreign company.] Section 92 C of the Act, reads as under : " 92CA. The assessing officer may refer the casefor determination of the arm's length price to the TPOwhere the assessing officer considers it necessary andexpedient to do so." 6. While dealing with a similar circumstance, this Courtin W.P. No: 1526 and 1527 of 2014, vide its order dated29.04.2014, held as follows :- "20. Under Section 144 (C) of the Act, itis evident that the assessing officer is required topass only a draft assessment order on the basis ofthe recommendations made by the TPO after giving anopportunity to the assessee to file their objectionsand then the assessing officer shall pass a finalorder. According to the learned senior counsel forhttps://hcservices.ecourts.gov.in/hcservices/ the petitioners, this procedure has not beenfollowed by the second respondent inasmuch as afinal order has been straightaway passed withoutpassing a draft assessment order. 21. .... ....... ........ 6. While dealing with a similar circumstance, this Courtin W.P. No: 1526 and 1527 of 2014, vide its order dated29.04.2014, held as follows :- "20. Under Section 144 (C) of the Act, itis evident that the assessing officer is required topass only a draft assessment order on the basis ofthe recommendations made by the TPO after giving anopportunity to the assessee to file their objectionsand then the assessing officer shall pass a finalorder. According to the learned senior counsel forhttps://hcservices.ecourts.gov.in/hcservices/ the petitioners, this procedure has not beenfollowed by the second respondent inasmuch as afinal order has been straightaway passed withoutpassing a draft assessment order. 21. .... ....... ........ 22. As mentioned supra, as per Section 144C(1) of the Act,the second respondent – assessingofficer has no right to pass a final order pursuantto the recommendations made by the TPO. In fact,the second respondent – assessing officer himselfhas admitted by virtue of the corrigendum dated15.04.2013, that the order dated 26.03.2013 is onlya final order and it was directed to be treated as adraft assessment order. In this context, it isworthwhile to refer to the decisions of the Hon'bleSupreme Court in the decision reported in DeepakAgro Foods vs. State of Rajasthan and othersreported in 2008 (16) VST 454 SC wherein in ParaNo.10, the Hon'ble Supreme Court discussed as towhen an order could be construed as a final order. 23 to 29. ....... ........ ...... 30. It is evident from the above decisionof the Division Bench of this Court that where thereis an omission on the part of the assessing officerto follow the mandatory procedures prescribed in theAct, such an omission cannot be termed as a mereprocedural irregularity and it cannot be cured. 31. In identical case as that of the case onhand, the Division Bench of the Andhra Pradesh HighCourt, in an unreported decision, had an occasion toconsider the scope of the validity of the demandnotice issued by the assessing officer in the caseof Zuari Cement Limited vs. Assistant Commissionerof Income Tax, Circle 2 (1) passed in WP No. 5557 of2012 dated 21.02.2013, wherein it was held asunder:- “A reading of the above section shows that ifthe assessing officer proposes to make, on or after01.10.2009, any variation in the income or lossreturned by an assessee, then, notwithstandinganything to the contrary contained in the Act, heshall first pass a draft assessment order, forwardit to the assessee and after the assessee files hisobjections, if any, the assessing officer shallcomplete assessment within one month. The assesseeis also given an option to file objections beforethe Dispute Resolution Panel in which event thelatter can issue directions for the guidance of theAssessing Officer to enable him to complete theassessment.https://hcservices.ecourts.gov.in/hcservices/ In the case of the petitioner, admittedly theTPO suggested an adjustment of Rs.52.14 croresu/s.92CA of the Act on 20.09.2011 and forwarded itto the Assessing Officer and to the assessee undersub-section (3) thereof. The assessing officeraccepted the variation submitted by the TPO withoutgiving the petitioner any opportunity to object toit and passed the impugned assessment order. Asthis has occurred after 01.10.2009, the cut off dateprescribed in sub-section (1) of S.144C, theAssessing Officer is mandated to first pass a draftassessment order, communicate it to the assessee,hear his objections and then complete assessment.Admittedly, this has not been done and therespondent has passed a final assessment order dated22.12.2011 straight away. Therefore, the impugnedorder of assessment is clearly contrary to S.144C ofthe Act and is without jurisdiction, null and void. The contention of the Revenue that the circularNo.5/2010 of the CBDT has clarified that theprovisions of S.144C shall not apply for theassessment year 2008-09 and would apply only fromthe assessment year 2010-2011 and later years is nottenable in as much as the language of Sub-section(1) of Section 144C referring to the cut off date of01.10.2009 indicates an intention of the legislatureto make it applicable, if there is a proposal by theAssessing Officer to make a variation in the incomeor loss returned by the assessee which isprejudicial to the assessee, after 01.10.2009.Therefore, this particular provision introduced byFinance (No.2) Act, 2009, would apply if the abovecondition is satisfied and other provisions, inwhich similar contrary intention is not indicated,which were introduced by the said enactment, wouldapply from 01.04.2009 i.e., from the assessment year2010-2011. It is not disputed that the memorandumexplaining the Finance Bill and the Notes andclauses accompanying the Finance Bill which precededthe Finance (No.2) Act, 2009 clearly indicated thatthe amendments relating to S.144C would take effectfrom 01.10.2009. In our view, the circularNo.5/2010 issued by the CBDT stating that S.144C(1)would apply only from the assessment year 2010-2011and subsequent years and not for the assessment year2008-09 is contrary to the express language inS.144C(1) and the said view of the Revenue isunacceptable. The circular may represent only theunderstanding of the Board/Central Government of thestatutory provisions, but it will not bind thishttps://hcservices.ecourts.gov.in/hcservices/Court or the Supreme Court. It cannot interfere with the jurisdiction and power of this Court todeclare what the legislature says and take a viewcontrary to that declared in the circular of theCBDT (Ratan Melting and Wire Industries Case (1Supra), Indra Industries (2 supra). The Revenue hasnot been able to pursuade us to take a contra viewby citing any authority. In this view of the matter, we are of the viewthat the impugned order of assessment dated23.12.2011 passed by the respondent is contrary tothe mandatory provisions of S.144C of the Act and ispassed in violation thereof. Therefore, it isdeclared as one without jurisdiction, null and voidand unenforceable. Consequently, the demand noticedated 23.12.2011 issued by the respondent is setaside. 32. As against this order of the DivisionBench of the Andhra Pradesh High Court, the Revenuewent on appeal before the Honourable Supreme Court.The record of proceedings of the Supreme Courtindicate that the Special Leave Petition wasdismissed on 27.09.2013. In this view of the matter, we are of the viewthat the impugned order of assessment dated23.12.2011 passed by the respondent is contrary tothe mandatory provisions of S.144C of the Act and ispassed in violation thereof. Therefore, it isdeclared as one without jurisdiction, null and voidand unenforceable. Consequently, the demand noticedated 23.12.2011 issued by the respondent is setaside. 32. As against this order of the DivisionBench of the Andhra Pradesh High Court, the Revenuewent on appeal before the Honourable Supreme Court.The record of proceedings of the Supreme Courtindicate that the Special Leave Petition wasdismissed on 27.09.2013. 33. The decision of the Division Bench of theAndhra Pradesh High Court deals with an identicalissue as that of the present case. In this case,against the order passed by the second respondent on26.03.2013, the petitioner filed objections beforethe DRP, the first respondent herein and the firstrespondent refused to entertain it by stating thatthe order passed by the second respondent is a finalorder and it had jurisdiction to entertainobjections only if it is a draft assessment order.While so, the order dated 26.03.2013 of the secondrespondent can only be termed as a final order andin such event it is contrary to Section 144C of theAct. As mentioned supra, in and by the order dated26.03.2013, the second respondent determined thetaxable amount and also imposed penalty payable bythe petitioner. According to the learned seniorcounsel for the petitioners, even as on this date,the website of the department indicate the amountdetermined by the second respondent payable by thecompany inspite of issuance of the corrigendum on15.04.2013 as a tax due amount. Thus, while issuingthe corrigendum, the second respondent did not evenwithdraw the taxable amount determined by him orupdated the status in the website. In any event,such an order dated 26.03.2013 passed by the secondrespondent can only be construed as a final orderpassed in violation of the statutory provisions ofhttps://hcservices.ecourts.gov.in/hcservices/the Act. The corrigendum dated 15.04.2013 is also beyond the period prescribed for limitation. Such adefect or failure on the part of the secondrespondent to adhere to the statutory provisions isnot a curable defect by virtue of the corrigendumdated 15.04.2013. By issuing the corrigendum, therespondents cannot be allowed to develop their owncase. Therefore, following the order passed by theDivision Bench of the Andhra Pradesh High Court,which was also affirmed by the Honourable SupremeCourt by dismissing the Special Leave Petition filedthereof, on 27.09.2013, the orders, which areimpugned in these writ petitions are liable to beset aside. " 7. Similar issue came up for consideration before aDivision Bench of the Delhi High Court in I.T.A. No: 504 of2008. By its decision dated 18.11.2011, the Division Bench ofthe Delhi High Court held as follows : " 13. On the basis of aforesaid reasoning, theTribunal concluded that once validity of CBDTCircular was upheld, as per the said circular theAssessing Officer was duty bound to refer the matterto the TPO having regard to the purpose ofSpecialized Cell created by the Revenue Department todeal with complicated and complex issues and sincethis channel was not resorted to by the AssessingOfficer in the instant case, the Commissioner wasright in passing the order under Section 263 of theAct. 7. Similar issue came up for consideration before aDivision Bench of the Delhi High Court in I.T.A. No: 504 of2008. By its decision dated 18.11.2011, the Division Bench ofthe Delhi High Court held as follows : " 13. On the basis of aforesaid reasoning, theTribunal concluded that once validity of CBDTCircular was upheld, as per the said circular theAssessing Officer was duty bound to refer the matterto the TPO having regard to the purpose ofSpecialized Cell created by the Revenue Department todeal with complicated and complex issues and sincethis channel was not resorted to by the AssessingOfficer in the instant case, the Commissioner wasright in passing the order under Section 263 of theAct. 14. No doubt, the validity of the saidinstruction was upheld on the touch stone of Article14 of the Constitution holding that it was based onreasonable classification and there was rationalenexus with the objectives sought to be achieved. Atthe same time, we feel that while doing so this Courthad also laid down the rigors of the said Circular.No doubt, this Court observed, in the process thatthe said Circular acted as a guideline to theAssessing Officer. However, much mileage cannot bedrawn by the appellant from those observations asthese observations were made while dealing with thecontention of the petitioner in the said petition.That instruction completely takes away the discretionof the Assessing Officer in relation to aninternational transaction if the aggregate valuethereof exceeded Rs. 5 crore. This contention wasturned down in the following words :- " 37. The other ground on which theinstruction is challenged is that it completelytakes away the discretion of the AO in relationto an international transaction of the valuehttps://hcservices.ecourts.gov.in/hcservices/ exceeding Rs. 5 crores. A reading of theimpugned instruction indicates that it acts asa guideline to the AO in the exercise of thediscretion conferred under Section 92CA (1).This instruction is in fact helpful in ensuringthat the discretion of the A will not beabused. It correctly interprets the law asrequiring only a formation of a prima facieopinion by the AO at the stage of thereference. Therefore, the question of the CBDTsupplanting the judicial discretion of the AOdoes not arise. It is perfectly possible that,independent of the circular, the AO might still"consider it necessary or expedient" to referan nternational transaction of such value ofthe TPO for determination of the ALP. At thesame time it is not as if the transactions ofthe valueof less than Rs. 5 crores cannot bereferred to the TOP by the AO. Ultimately, anyexercise of discretion by the AO is bound to bejudicially reviewed by the statutory appellateauthorities as well as by Courts. Therefore,it is not as if there is no check on theexercise of discretion by the AO. 39. For these reasons, we hold that theimpugned Instruction No: 3 dated 20.5.2003issued by the CBDT is consistent with thestatutory objective underlying Section 92 CA(1) and acts as a guidance to the AO in theexercise of discretion in referring aninternational transaction to the TPO fordetermination of its ALP. It is neitherarbitrary nor unreasonable, and is not ultravirus the Act. " 15. It is clear from the above that this Courtheld that referred of the matter to the TPO fordetermination of arm's length price acts as a guideto the AO and is, in fact helpful in ensuring thatthe discretion of the Assessing Officer will not beabused. " 8. Since the provisions of the Act makes it very clearthat under Section 92 CA of I.T. Act the only option is toplace the matter to the TPO and the same has not beenfollowed, this Court feels it appropriate to set aside theorder of the assessing authority so that the matter can bereferred to the TPO. 15. It is clear from the above that this Courtheld that referred of the matter to the TPO fordetermination of arm's length price acts as a guideto the AO and is, in fact helpful in ensuring thatthe discretion of the Assessing Officer will not beabused. " 8. Since the provisions of the Act makes it very clearthat under Section 92 CA of I.T. Act the only option is toplace the matter to the TPO and the same has not beenfollowed, this Court feels it appropriate to set aside theorder of the assessing authority so that the matter can bereferred to the TPO. 9. Accordingly, the order impugned in this writ petitionis set aside and the matter is remanded to the AssessingAuthority who shall in turn refer the matter to the Transferhttps://hcservices.ecourts.gov.in/hcservices/Pricing Officer. On such reference, the Transfer Pricing Officer shall proceed in accordance with the C.P.D.T.Regulations dated 20.05.2003. This writ petition standsdisposed of in the above terms. Connected miscellaneouspetition is closed. There shall be no orders as to the costs. Sd/- Assistant Registrar(CCC) //True Copy// Sub Assistant RegistrargpToThe Income Tax OfficerCorporate Ward – I (4)Room No: 627-A, 6[th] floorNo: 121 Nungambakkam High RoadChennai – 600 034.+ 1 cc to Mr.P.J. Rishikesh, Advocate SR.35870+ 1 cc to Mr.T. Pramodkumar Chopda, Advocate SR.55732 W.P. No: 13342 of 2015SK(CO)Eu 6.11.15