Wp/1554/2019 Of Mrf Ltd v. Deputy Commissioner Of Income Tax

MRF Ltd.No.124, Greams Road,Chennai 600 006Represented by Arun Mammen Managing Director ... Petitioner in all W.Ps. 1.Deputy Commissioner of Income Tax, Large Taxpayers Unit-2, Chennai – Wanaparthy Block, No.121, Mahatma Gandhi Road, Nungambakkam, Chennai 600 034. 2. The Joint Commissioner of Income Tax, Large Taxpayers Unit, Chennai – Wanaparthy Block, No.121, Mahatma Gandhi Road, Nungambakkam, Chennai 600 034. ... Respondents in all W.Ps. Prayer in W.P.No.1554 of 2019: Writ Petition filed under Article226 of the Constitution of India, for issuance of a Writ ofCertioari, calling for the records of the 1[st] respondent in OrderNo.ITBA/AST/S/143(3)/2018-19/1014638968(1) in the petitioner'scase dated 27.12.2018 and quash the same. Prayer in W.P.No.1561 of 2019 : Writ Petition filed underArticle 226 of the Constitution of India, for issuance of a Writof Certioari, calling for the records of the 2[nd] respondent inOrder under Section 144A of the Income Tax Act, 1961 dated21.12.2018 in the petitioner's case, PAN No. , forAssessment Year 2016-2017 and quash the same. Prayer in W.P.No.1567 of 2019 : Writ Petition filed underArticle 226 of the Constitution of India, for issuance of a Writ https://hcservices.ecourts.gov.in/hcservices/ of Prohibition, prohibiting the respondents from taking anyaction to make additions in its Income Tax Assessment for theassessment year 2016-17 in respect of expenditure incurredtowards procurement of raw materials from M/S.MRF SG PTE Ltdunder either section 40A(2) or Section 37 of the Income Tax Act,1961. For Respondents: Mrs.Hema Muralikrishnan Senior Standing Counsel (in all W.Ps.) In W.P.No.1561 of 2019, the petitioner has challenged theimpugned direction of the second respondent dated 21.12.2018under Section 144-A of the Income Tax Act, 1961. In W.P.No.1561of 2019, the petitioner has challenged the consequentialAssessment Order dated 27.12.2018 passed by the firstrespondent. In W.P.No.1567 of 2019 the petitioner has prayed fora writ of prohibition, prohibiting the respondents from takingany action to make additions in its Income Tax Assessment forthe assessment year 2016-17 in respect of expenditure incurredtowards procurement of raw materials from M/S.MRF SG OTE Ltdunder either section 40A(2) or Section 37 of the Income Tax Act,1961. 2. The dispute in this case pertains to the assessmentyear 2016-17. The petitioner had filed returns under Section 139of the "Income Tax Act, 1961" ( "IT Act, 1961" for the sake ofbrevity), which were examined by the first respondent by issuingnotices under Section 142 (1) of the IT Act, 1961. The disputearose as to whether the amounts paid by the petitioner to itsSingapore Subsidiary namely MRF SG PTE was inflated so as toreduce the profit and the income tax liability of the petitioner. 3. Under these circumstances, the 1[st] respondent issued anotice dated 13.11.2018 and called upon the petitioner to showcause as to why a reference to a Transfer Pricing Officer shouldnot be made in terms of Section 92 (1) (A) of IT Act, 1961 readwith instructions No.3/2018 dated 10.3.2016. 4. The petitioner replied to the above notice, thereafter,no decision was taken as to whether the case was referred to theTransfer Pricing Officer or the assessment was to be completedby the first respondent as the jurisdictional Assessing Officer. https://hcservices.ecourts.gov.in/hcservices/ 3. Under these circumstances, the 1[st] respondent issued anotice dated 13.11.2018 and called upon the petitioner to showcause as to why a reference to a Transfer Pricing Officer shouldnot be made in terms of Section 92 (1) (A) of IT Act, 1961 readwith instructions No.3/2018 dated 10.3.2016. 4. The petitioner replied to the above notice, thereafter,no decision was taken as to whether the case was referred to theTransfer Pricing Officer or the assessment was to be completedby the first respondent as the jurisdictional Assessing Officer. https://hcservices.ecourts.gov.in/hcservices/ 5. During the course, it appears that the first respondentmade a reference to the second respondent under Section 144 (A)of the IT Act, 1961. The second respondent by a directiondirected the first respondent to disallow 2.5 percent of thetransacted amount amounting to Rs.28,05,26,782/- under Section40 (A) (2) (a) and Section 37 of the Income Tax Act, 1961.The consequential impugned Assessment Order dated 27.12.2018 ofthe first respondent has been thus challenged on ground that thedirections of the second respondent was not in accordance withSection 144 A of the Income Tax Act, 1961. 6. Appearing on behalf of the petitioner, learned SeniorCounsel for the petitioner submits that under Section 144 A ofthe Income Tax Act, 1961 before the Joint Commissioner namelythe second respondent herein could pass any prejudicial orderagainst the petitioner, a notice of hearing ought to have beengiven to the petitioner as much as the direction of the secondrespondent stipulates that 2.5 per cent of the transacted amountamounting to Rs.28,05,26,782/- is to be disallowed. The factthat the 2[nd] respondent passed an order dated 21.12.2018 was notknown to the petitioner. 7. Learned Senior Counsel further submits that explanationto Section 144 A also will not apply to the situation underconsideration as the directions are not in line with the letterand as per of Section 144 A of the Income Tax Act, 1961. 8. Learned Senior Counsel further submits that the lastdate for completing the assessment was 31.12.2018 and therefore,the first respondent has mechanically followed the directionspurportedly issued by the second respondent on 21.12.2018 andconfirmed the demand by issuing a show cause notice dated21.12.2018. It is further submitted the by reply dated26.12.2018 the petitioner sought for further time. However, thefirst respondent proceeded to pass the impugned assessment orderunder Section 143 (3) of the IT Act, 1961 on 27.12.2018 inorder to complete the assessment. 9. Learned Senior Counsel further submits that apart fromthe fact that the impugned order of the first respondent dated27.12.2018, mechanically adopts the directions of the secondrespondent dated 21.12.2018, it is submitted that the impugnedorders cannot be allowed to remain and is liable to be quashedin the light of the decision of the Hon'ble Supreme Court in SunBuilders Vs. Union of India [2001 25 ITR 197] which was alsofollowed by the Hon'ble High Court of Allahabad in Vijaya KumarSharma Vs. Appropriate Authority 1996 and the decision of theHon'ble High Court of Allahabad in V.K. Sharma Vs. AppropriateAuthority 1996 [220 ITR 509]. 10. Learned Senior Counsel further submits that the timelimit for finalizing the assessment expired on 23.12.2018 andtherefore the respondents cannot be allowed to complete theassessment after the expiry of the time limit prescribed in thelight of the decision of the Hon'ble Supreme Court referred tosupra and that of the Hon'ble High Court of Allahabad referredto supra. 11. Learned Senior Counsel,also relied on the decision ofthe Hon'ble Supreme Court in 2009 6 SCC 372 STATE OF U.P.v.PARASNATH SINGH (Criminal Appeal No. 499 of 2004) MAY 5, 2009 andreferred to para 6 from the said judgement which reads as under: 10. Learned Senior Counsel further submits that the timelimit for finalizing the assessment expired on 23.12.2018 andtherefore the respondents cannot be allowed to complete theassessment after the expiry of the time limit prescribed in thelight of the decision of the Hon'ble Supreme Court referred tosupra and that of the Hon'ble High Court of Allahabad referredto supra. 11. Learned Senior Counsel,also relied on the decision ofthe Hon'ble Supreme Court in 2009 6 SCC 372 STATE OF U.P.v.PARASNATH SINGH (Criminal Appeal No. 499 of 2004) MAY 5, 2009 andreferred to para 6 from the said judgement which reads as under: 6. Use of the expression, `official duty' impliesthat the act or omission must have been done by thepublic in the course of his service and that itshould have been in discharge of his duty. TheSection does not extend its protective cover toevery act or mission done by a public servant inservice but restricts its scope of operation to onlythose acts or omissions which are done by a publicservant in discharge of official duty. 12. Learned Senior Counsel submits that proviso to Section144 A couched with the negative language and therefore, thedirection of the second respondent to the non-est in law andcannot be basis on assessment could have been by the firstrespondent. 13. Defending the impugned orders, learned counsel for therespondents submits that there is no delay on the part of therespondents in either issuing the notice or while passing theAssessment Order. 14. It is further submitted earlier a decision was takento refer the case to the Transfer Pricing Officer under Section92 (C) of the Income Tax Act, 1961 read with the instructions3/2018 dated 10.03.2016. Later the direction was sought forfrom the second respondent, Joint Commissioner of Income Taxunder Section 144 A and the second respondent after examiningthe records gave the directions to the second respondent whichis binding on the first respondent. 15. Learned counsel for the respondents further submitsthat petitioner has an alternative remedy by an appeal beforethe Assistant Commissioner and therefore, also the petitioneris liable to be dismissed. https://hcservices.ecourts.gov.in/hcservices/ 16. By way of re-joinder learned Senior Counsel submittedthat the directions of the second respondent would have beenbinding, provided to Section 144 A of the Income Tax Act, 1961,was followed in case and since the direction was prejudicial tothe interest of the petitioner the directions of the secondrespondent could not be the basis of the assessment. 17. I have considered the arguments advanced by the learnedcounsel for the petitioner and learned Senior Counsel for therespondents and I have also perused the impugned orders and thedecisions of the Hon'ble Supreme Court and that of the Hon'bleHigh Court of Allahabad cited above. 18. This Court is not sitting as an Appellate Court whileexercising its Jurisdiction under Article 226 of theConstitution of India. Therefore, I am refraining from makingany observation on the correctness of the computation of theincome in the impugned Assessment order dated 27.12.2018. 19. At the same time, what is evident that the impugnedAssessment Order dated 27.12.2018 in W.P.No.1554 of 2019 hasbeen passed, pursuant to the impugned direction of the secondrespondent dated 21.12.2018 in the impugned Assessment Order inW.P.No.1561 of 2019 . 18. This Court is not sitting as an Appellate Court whileexercising its Jurisdiction under Article 226 of theConstitution of India. Therefore, I am refraining from makingany observation on the correctness of the computation of theincome in the impugned Assessment order dated 27.12.2018. 19. At the same time, what is evident that the impugnedAssessment Order dated 27.12.2018 in W.P.No.1554 of 2019 hasbeen passed, pursuant to the impugned direction of the secondrespondent dated 21.12.2018 in the impugned Assessment Order inW.P.No.1561 of 2019 . 20. The prior to passing of the impugned Assessment Orderdated 27.12.2018, a show cause notice dated 21.12.2018 wasissued to the petitioner to which the petitioner also replied.Initially, the time granted for replying to the Show CauseNotice was to expire on 24.12.2018 by 11.30 p.m.. Thereafter,the time was extended till 26.12.2018. The petitioner alsoappears to have given a reply on 26.12.2018 to the aforesaidShow Cause Notice dated 21.12.2018. The Show Cause Notice doesnot indicate that an earlier direction had been issued by thesecond respondent – Joint Commissioner on 21.12.2018. The showcause notice however proposed disallowance of 2.5% of thetransaction under Section 40A(2)(a) on the amounts paid to thepetitioner viz., M/s.MRF SG PTE LTD. 21. Only in the Impugned Assessment Order fact regardingthe suo-motu direction given by the second respondent on21.12.2018 was mentioned as is evident from a reading of theimpugned Assessment Order dated 27.12.2018. Relevant portionreads as under:- “ During the Assessment proceedings, JCIT (LTU) bysuo-moto issued directions u/s.144A in this issue, https://hcservices.ecourts.gov.in/hcservices/ which is binding on the Assessment Officer. Theabove directions u/s.144A received the undersignedon 21.12.2018 at 5.30 p.m. Immediately, anopportunity given to the assessee-company tofurnish their reply by 24.12.2018. On 24.12.2018,the assessee company requested further time tofurnish their reply. Accordingly, the assessee-company was granted another opportunity to furnishthe reply by 26.12.2018. The assessee- companyhas given final reply on 26.12.2018. Theassessee-company was granted another opportunity tofurnish the reply by 26.12.2018. The assesseecompany should note that in the crutial period offinizaling the scrutiny assessment order, theundersigned does not have much time to allocate tosubmit the reply. Still another opportunity givento the assessee- company to file their reply on26.12.2018. Hence, the principle of naturaljustice is duly followed in the instant case. As per the above discussion made elaborately inthe JCIT, LTU direction which is bining on theAssessment Order. Accordingly, 2.5% of thetransaction amounting to Rs.28,05,26,782/- paidto M/S.MRF SG PTELimited under Section 40A(2)(a)and Section 37 of the Income Tax Act”. 22. Section 144-A of the Income Tax Act, 1961 reads asunder: Power of Joint Commissioner to issuedirections in certain cases. “ 144A. A Joint Commissioner may, on his ownmotion or on a reference being made to him by theAssessing Officer or on the application of anassessee, call for and examine the record of anyproceeding in which an assessment is pending and,if he considers that, having regard to the natureof the case or the amount involved or for anyother reason, it is necessary or expedient so todo, he may issue such directions as he thinks fitfor the guidance of the Assessing Officer toenable him to complete the assessment and suchdirections shall be binding on the AssessingOfficer : Provided that no directions which areprejudicial to the assessee shall be issuedbefore an opportunity is given to the assessee tobe heard. Power of Joint Commissioner to issuedirections in certain cases. “ 144A. A Joint Commissioner may, on his ownmotion or on a reference being made to him by theAssessing Officer or on the application of anassessee, call for and examine the record of anyproceeding in which an assessment is pending and,if he considers that, having regard to the natureof the case or the amount involved or for anyother reason, it is necessary or expedient so todo, he may issue such directions as he thinks fitfor the guidance of the Assessing Officer toenable him to complete the assessment and suchdirections shall be binding on the AssessingOfficer : Provided that no directions which areprejudicial to the assessee shall be issuedbefore an opportunity is given to the assessee tobe heard. Explanation.—For the purposes of thissection no direction as to the lines on which aninvestigation connected with the assessmentshould be made, shall be deemed to be a directionprejudicial to the assessee.” 23. Any decision pre-judicial to the interest of theassessee has to precede with an opportunity of being heard underSection 144A. Section 144-A does not empower to the JointCommissioner to give a direction to an Assessing Officer tocomplete the assessment in a particular manner. Directions tobe exercised by the Joint Commissioner under Section 144(A) ismerely intended to guide the Assessing Officer to complete theassessment and only such directions are binding on an AssessingOfficer. Since directions contained in the impugned order passedby the Joint Commissioner was prejudicial to the petitioner andto complete the assessment in a particular manner, petitionershould have been called for hearing by the second respondentJoint Commissioner. As there is a violation of Section 144(A)of the Income Tax Act, 1961, the consequential the AssessmentOrder dated 27.12.2018 passed by the first respondent also hasto go. It would have different, if the 1[st] respondentindependently had decided to proceed with the proposal in theShow Cause Notice. 24. Therefore, the impugned direction dated 21.12.2018 ofthe second respondent impugned in W.P.No.1561 is hereby quashed.However, there is no necessity to remit the cases back to thesecond respondent to re-do exercise under Section 144 A of theIncome tax Act, 1961. 25. Under these circumstances, the impugned AssessmentOrder dated 27.12.2018 passed by the first respondent, impugnedin W.P.No.1554 of 2019 is also hereby quashed. Consequently,the case is remitted back to the first respondent to pass anindependent fresh Assessment Order after considering thesubmission of the petitioner. It is needless to state beforepassing such order, the petitioner shall be heard, if thepetitioner so desires. 26. Considering the fact that the dispute pertains to theassessment year 2016-17, I direct the first respondent tocomplete the exercise, within a period of three months from thedate of receipt of a copy of this order. 27. In view of the above, no separate order is required tobe passed in W.P.No.1567 of 2019. Hence, this writ petition isclosed. W.P.Nos.1554 and 1561 of 2019 are stands allowed withthe above observation. No costs. Consequently, connectedmiscellaneous petitions are closed. Sd/-Assistant Registrar //True copy// Sub Assistant Registrar nst/kkd To 1.The Deputy Commissioner of Income Tax, Large Taxpayers Unit-2, Chennai – Wanaparthy Block, No.121, Mahatma Gandhi Road, Nungambakkam, Chennai 600 034.2. The Joint Commissioner of Income Tax, Large Taxpayers Unit, Chennai – Wanaparthy Block, No.121, Mahatma Gandhi Road, Nungambakkam, Chennai 600 034. +1cc to Mr.M.V.Swaroop, Advocate SR.No.25250+1cc to Mrs.T.Hema Muralikrishnan, Advocate SR.No.24344 W.P.Nos.1554,1561 & 1567 of 2019 MT(CO)GMY(06/05/2022)