Income Tax Act, 1961 - Section 144C(1), 92CA, 143(3) and 144C(13) - The Assessee, an Indian subsidiary of Armstrong Global Holdings, USA, engaged in energy-saving solutions, had its international transactions scrutinized under transfer pricing provisions. Following an initial round of assessments involving Transfer Pricing Officer (TPO) adjustments, the Income Tax Appellate Tribunal (ITAT) remitted the matter back to the Assessing Officer (AO) for de novo consideration for AYs 2010-11 and 2011-12. However, during the second round of assessment, the AO bypassed the statutory requirement under Section 144C(1) to issue a draft assessment order before passing the final assessment order. This deprived the assessee of an opportunity to object before the Dispute Resolution Panel (DRP) - Whether the failure of the AO to issue a draft assessment order under Section 144C(1) during the second round of assessment rendered the final assessment order invalid - Whether the AO's omission infringed the principle of natural justice by denying the assessee the right to raise objections before the DRP - HELD - Under Section 144C(1), issuing a draft assessment order is mandatory, even in cases of remand by the ITAT for de novo assessment. The omission violated the procedure prescribed by law and deprived the assessee of substantive rights - The Tribunal rejected the Revenue’s argument that issuing a draft order is required only during the first instance of assessment, citing precedents from various High Courts, including Zuari Cement Ltd. v. ACIT and Vijay Television (P) Ltd. v. DRP, which held that non-compliance with Section 144C renders the final assessment order null and void - The failure to follow statutory procedure infringed upon the principle of "Rule of Law," enshrined in Article 14 of the Constitution, and vitiated the assessment process - The Tribunal quashed the final assessment orders for AYs 2010-11 and 2011-12 as invalid. All other grounds raised became academic. The appeals by the assessee were allowed

 

2024-VIL-1754-ITAT-CHE

 

IN THE INCOME TAX APPELLATE TRIBUNAL

‘D’ BENCH CHENNAI

 

IT(TP)A No. 19/Chny/2024

Assessment Year: 2010-11

IT(TP)A No.20/Chny/2024

Assessment Year: 2011-12

 

Date of Hearing: 17.10.2024

Date of Pronouncement: 06.12.2024

 

M/s ARMSTRONG INTERNATIONAL PRIVATE LIMITED

 

Vs

 

THE DCIT

 

Appellant by: Mr. Vikram Vijayaraghavan, Advocate

Respondent by: Mr. A. Sasikumar, CIT

 

BEFORE

SHRI ABY T. VARKEY, JUDICIAL MEMBER

SHRI AMITABH SHUKLA, ACCOUNTANT MEMBER

 

ORDER

 

PER ABY T. VARKEY, JM:

 

These are appeals filed by the assessee company against separate orders of Ld. Commissioner of Income Tax (Appeals), Chennai-16 both dated 20.03.2024 for the assessment years 2010-11 & 2011-12 (hereinafter in short "AY”).

 

2. At the outset, both the parties agreed that the main issue raised by the assessee (Legal issue] for both the assessment years is identical. Therefore, we take up appeal for 2010-11, as lead case and the result of which will be followed mutatis mutandis for AY 2011-12.

 

3. The assessee is a private limited company incorporated in India and wholly owned subsidiary of Armstrong Global Holdings Inc., USA (hereinafter called as ‘Amstrong US’). The assessee has pioneered into various energy saving developments in generation and distribution of steam compressed air and hot water in term of its products, service and engineering offerings. The assessee filed its return of income (RoI) for AY 2010-11 on 30.09.2010 admitting Nil income and current year loss of Rs.8,17,68,026/- and claimed refund of Rs.8,00,367/-. Later, return was selected for scrutiny, and since assessee company had international transactions with its Associated Enterprise (AE), the Assessing Officer [AO] made reference to Transfer Pricing Officer [TPO] u/s.92CA(1) of the Income Tax Act, 1961 (hereinafter “Act”) on 17.05.2012 for determining arm’s length price with reference to all the transactions reported in Form 3CD filed by the assessee for AY 2010-11.

 

4. Pursuant to the reference by the AO dated 17.05.2012, the TPO vide his order dated 21.01.2014 u/s.92CA(3) of the Act made certain adjustments to arm’s length price of international transactions undertaken by the assessee company [adjustment in the income of the assessee towards service rendered for brand promotion to the tune of Rs.94,47,638/- and adjustment towards reimbursement of expenditure incurred towards brand promotion to the tune of Rs.7,26,74,144/-]. Thereafter, draft assessment order was issued by the AO on 07.03.2014 u/s.144(3) r.w.s 92CA of the Act. Aggrieved over the said draft assessment order, assessee company filed its objections before Dispute Resolution Panel (DRP) and the DRP vide its order dated 19.12.2014 gave certain directions to AO and consequently, AO passed final assessment order u/s.143(3) r.w.s 144C(13) of the Act incorporating certain adjustments. The assessee company preferred appeal before this ITAT., Chennai in ITA No.945/Mds/2015 & 782/Mds/2016 for AY 2010-11 and 2011-12 respectively. The Tribunal vide its order dated 23.12.2016 remitted back the matter to the TPO/AO for de-novo consideration [relevant portion only] by observing as under: -

 

AY 2010-11

“From the perusal of the case records we observe that neither the Therefore, we AO/TPO nor the DRP have gone through the above issues. remit the matter back to the file of AO to consider the decision of Hon'ble Special Bench and the orders of this tribunal cited (supra) in the assessee's own case for the earlier year and decide the matter afresh. It is needless to say that the assessee would be entitled to raise all the issues before the AO and the AO is directed to give opportunity of hearing.”

 

AY 2011-12

“The issue involved in the AY is also brand promotion/advertising and marketing expenditure and the facts are identical to the AY 2010-11. The appeal for the AY 2010-11 is remitted back to the AO for de novo consideration. Therefore, we set aside the order of the AO for the A.Y 2011-12 also and remit the matter back to the file of AO for fresh consideration, in the light of the discussion made in appeal for the AY 2010-11. All the Issues are kept open before the AO and AO should give reasonable opportunity of being heard to the assessee.”

 

Thus, the Tribunal has remitted the matter back to file of the AO/TPO for deciding issues de-novo for AY 2010-11 & 2011-12.

 

5. Pursuant to aforesaid order of the Tribunal, TPO noted that appeal for AY 2010-11 was remitted back to the AO for fresh consideration and thereafter, he issued notices on 17.08.2017 & other notices and assessee made its submissions before TPO and after hearing, the TPO vide his order dated 31.10.2017 computed arm’s length price of international transactions by making i) upward adjustment of Rs.38,40,136/- towards AMP segment; ii) downward adjustment of Rs.4,77,91,966/- towards purchase of goods and services. And upon receiving the TPO order, the AO passed final assessment order u/s.143(3) r.w.s 144C of the Act on 10.11.2017 along with notice of demand.

 

6. The assessee being aggrieved by the order of the AO dated 10.11.2017 challenged the same before Ld.CIT(A) and raised the legal issue that the action/omission of AO not to pass the draft assessment order pursuant to TPO order is bad in law. According to assessee, the AO upon receipt of TPO order, ought not to have passed final assessment order [as done in this case] without passing draft assessment order as envisaged u/s.144C(1) of the Act and therefore, there was gross violation of procedure prescribed by the Act and therefore, according to Ld AR, the assessee was prevented from filing its objections before the DRP and thus, action of the AO to frame final assessment order on 10.11.2017 was void in the eyes of law. The Ld.CIT(A) has rejected the legal issue by stating that the AO has passed final order for administrative convenience and therefore, held that assessment order was legally valid by observing as under:-

 

“4.4 Grounds of Appeal No.15 is a legal ground in relation to issuing the final assessment order without issuing a draft assessment order under section 144C of the Act, with regards to the second round of assessment proceedings. Accordingly, the Appellant argued that the order passed by the Assessing Officer be quashed.

 

However, given that the current round of proceedings is the second round of proceedings, I am inclined to rule that the AO passed the final order for administrative convenience and accordingly doesn't warrant relying on the entire proceedings invalid. As the order passed is legally valid, I proceed to adjudicate on the merits of the case.”

 

7. Aggrieved by aforesaid action of the Ld.CIT(A), assessee is before us and has raised the same legal issue [which has been rejected by the Ld CIT(A) supra]. The Ld.AR contended that the AO erred in straight away passing final assessment order dated 10.11.2017, without passing draft assessment order as envisaged u/s.144C(1) of the Act. According to him, while passing the impugned final assessment order, the AO has bypassed/circumvented the requirement of law mandated u/s.144C(1) of the Act, which cast a duty on the AO to a prepare draft assessment order, in order to facilitate an opportunity to the assessee to prefer objections before the DRP [which authority comprises of three [3] PCITs/CITs constituted by CBDT]. According to Ld. AR, the procedure followed by the AO in passing impugned order of final assessment is flawed being in violation of procedure contemplated u/s.144C of the Act. According to the Ld.AR, the AO by not passing draft assessment order, after receiving TPO order has deprived the assessee of filing objections before the DRP which denial of opportunity is in violation of the procedure given by the statute and offends Article 14 of the Constitution of India. Thus, according to the Ld.AR, impugned final assessment order dated 10.11.2017 is bad in law and is liable to be set aside. In order to support the aforesaid legal proposition, the Ld.AR cited various decisions, including jurisdictional Division Bench orders and coordinate Bench decisions and other High Court judgements which are noted as under: -

 

*case laws are those whch were remanded, similar to the fact pattern of appellant.

 

7.1 Relying on the aforesaid judgements, Ld.AR for the assessee reiterated that issuance of draft assessment order is mandatory as envisaged u/s.144C of the Act. And therefore according to him, the AO has not only violated provisions of the Act, but also thereby denied the assessee an opportunity to prefer its objections before Ld.DRP which omission goes to the root of the action of the AO passing the impugned final assessment order and therefore, it is bad in law.

 

8. Per contra, Ld.DR vehemently opposed submissions of the assessee and pointed out that this is the out-come of the second round before TPO/AO i.e., the Tribunal in the first round had remitted back the issue to the file of TPO/AO and therefore, procedure contemplated u/s.144C(1) i.e., to pass draft assessment order is only for the first round of assessment. Drawing our attention to section 144C(1), which is reproduced: -

 

“(1) The Assessing Officer shall, notwithstanding anything to the contrary contained in this Act, in the first instance, forward a draft of the proposed order of assessment (hereafter in this section referred to as the draft order) to the eligible assessee if he proposes to make, on or after the 1st day of October, 2009, any variation which is prejudicial to the interest of such assessee.”

 

8.1 He submitted that the AO needs to only pass a draft assessment order “in the first instance”. According to him, in the present case, draft assessment order was indeed passed ‘in the first instance’ on 07.03.2014 and subsequently, this Tribunal vide its order dated 23.12.2016 has remitted the matter back to the file of the AO for consideration of both assessment years dispute relating to AY 2010-11 & 2011-12. Therefore, according to the Ld.DR, consequent to the second TPO’s order [i.e., while giving effect to the Tribunal order dated 23.02.2016], the AO has rightly passed final assessment order dated 10.11.2017, because draft assessment order needs to be passed only “at the first instance” and not ‘at the second instance’; and therefore, according to him, there is no violation of provisions of section 144C(1) of the Act. And for such proposition, he drew support from Hon’ble Single Bench decision of the Jurisdictional High Court in the case of M/s. Enfinity Solar Solutions Pvt. Limited Vs. DCIT [W.P No.31165 of 2018 order dated 21.06.2021], wherein it was held as under: -

 

"This Court is of the considered opinion that once again following the procedures right from the beginning as contemplated under section 144C of the Income-tax Act would not arise at all .... Thus, once again commencing from the beginning is not the idea behind the provision and therefore, the very principles mooted out by the petitioner to commence the proceedings right from the initial stage deserves no merit consideration and stands rejected ....

 

Repetition of the same procedures would become an empty formality, which is not intended under the provision and therefore, this Court is of the considered opinion that when the matter was remitted with reference to a particular issue to be clarified or decided by the competent authority, it is sufficient if such an issue is decided and thereafter, a final assessment order is passed.

 

Even in such circumstances, the assessee is having a right of appeal under the provisions of the Act and therefore, in the event of any grievance with reference to an assessment order subsequent passed after remitting the matter by the ITAT, the petitioner is at liberty to file an appeal and thus, the grounds raised once again to pass the draft assessment order would not arise at all.

 

The procedures as contemplated under section 144C of the Act must be meaningfully followed and constructive interpretation is to be adopted. Repeatedly passing draft assessment order is not the spirit of the provision. The legislative intention is to provide an opportunity to an assessee before passing the final assessment order. Thus, such an opportunity is already provided and the assessee also availed of the opportunity by submitting an objection before the Disputes Resolution Panel and the Assessing Officer…”

 

8.2 In light of the aforesaid submissions and decisions of the Hon’ble High Court in the case of M/s. Enfinity Solar Solutions Pvt. Limited Vs. DCIT (supra), the Ld.DR does not want us to interfere with the order of the Ld CIT(A) rejecting the ibid legal issue raised by the assessee.

 

9. In his rejoinder, the Ld.AR brought to our notice that decision cited by the Ld.DR i.e., M/s. Enfinity Solar Solutions Pvt. Limited Vs. DCIT (supra), has been stayed by the Hon’ble Division Bench in CMP No.14988 of 2022 in W.A No.2006 of 2022 vide order dated 02.09.2022 onwards by holding as under:-

 

“…. especially when the assessment of the appellant was sent back to the file of the respondent, by the Income Tax Appellate Tribunal, for the purpose of determination of the most appropriate method of computing the arm's length price, which requires a denovo consideration.”

 

9.1 According to him, reliance made by the Ld. DR, for supporting action of the AO passing final assessment order without passing draft assessment order, passed by the Hon’ble Single Bench in the case of M/s. Enfinity Solar Solutions Pvt. Limited Vs. DCIT (supra), is no longer a judicial precedent and cannot be relied upon by the Department.

 

10. We have heard both parties and perused records. It is not in dispute that a procedure for computation of arm’s length price [ALP] in respect of international transactions between eligible assessee & its AE has been prescribed under section 92C of the Act; and the AO is required to make a reference to the TPO u/s.92CA(1) of the Act for computing ALP; and TPO after getting reference from the AO is required to give an opportunity to the assessee, [who can furnish evidences, including any information or documents and after considering the same], and thereafter, the TPO should determine arm’s length price in relation to international transactions and send a copy of his order to the AO as well as to the assessee, as contemplated u/s.92CA(1) of the Act. After receiving order from the TPO, the AO is required to pass a draft-assessment order u/s.144C(1) of the Act and the same is to be forwarded to the assessee, who after receiving draft assessment order may file his objections, if there is any variation in the income or loss returned to the DRP within 30 days of the receipt of the draft order and the DRP, after considering objections of the assessee shall issue directions as per provisions of section 144C(6) of the Act.

 

11. The DRP before issuing any directions, may make such enquiry as he thinks fit, and DRP may confirm, reduce or enhance variations proposed in the draft order, however, it shall not set aside any proposed variation or issue any directions under sub-section (5) of section 144C of the Act for further enquiry and passing of the assessment order. Thereafter, the AO shall inconformity with the directions of DRP complete the assessment order within one month from the end of the month in which such direction is received.

 

12. However, in the present case the AO didn’t pass any draft order and straightaway framed the assessment on the basis of TPO order dated 31.10.2017 which prevented the assessee from filing objection before Ld.DRP. Therefore, it can be seen that in the present case, AO didn’t follow the procedure in accordance with law as stipulated u/s.144C(1) of the Act, after the Tribunal order dated 23.12.2016. Since the Tribunal vide order dated 23.12.2016 for AY 2010-11 & 2011-12 had directed the AO to de novo pass assessment order, he ought to have followed procedure prescribed u/s.144C(1) of the Act; and accordingly, when he received TPO order, he ought to have passed draft assessment order and gave opportunity to the assessee to prefer objections before the DRP, which omission/failure on the part of AO offends Article 14 of the Constitution of India and infringes the principle of “Rule of Law”, which is a basic feature of our Constitution. It is settled position of law that when the statute requires something to be done in a particular manner, it has to be done in that manner and cannot be done in any other manner [Refer: Taylor Vs. Taylor,1875) 1 Ch.D.426; Nazir Vs. King Emperor, AIR 1936 PC 253, AIR 1975 SC 985; Babu Verghese Vs. Bar Council of Kerala, (1999)3 SCC 422]. Moreover, we find that this issue in question i.e. the legal issue raised by assessee is no longer res integra and note that there are number of decisions of the Hon’ble High Courts in favour of the assessee that it was mandatory for the AO to have passed a draft assessment order u/s.144C of the Act, prior to issuing final assessment order, and few decisions are discussed (infra).

 

13. In Zuari Cement Ltd. v. ACIT (decision dated 21st February, 2013 in WP(C) No.5557/2012), the Division Bench (DB) of the Hon’ble Andhra Pradesh High Court held that the failure to pass a draft assessment order under Section 144C (1) of the Act would result in rendering the final assessment order "without jurisdiction, null and void” and consequently unenforceable and accordingly, the demand notice issued by AO in that case was also set aside. And the department challenged the decision of the Hon’ble Andhra Pradesh High Court before the Hon’ble Supreme Court which was dismissed [refer Revenue’s SLP (C) [CC No. 16694/2013] on 27th September, 2013].

 

14. In the case of Vijay Television (P) Ltd. v. Dispute Resolution Panel [2014] 369 ITR 113 (Mad.), a similar question arose before the Hon’ble Madras High Court. There, the Revenue sought to rectify similar impugned action of AO, by issuing a corrigendum after the final assessment order was passed. The assessee, consequently challenged not only the final assessment order but also the corrigendum issued by the AO. The Hon’ble Madras High Court concurred with the decision of the Hon’ble Andhra Pradesh High Court in Zuari Cement Ltd. v. ACIT (supra) as well as a number of other decisions, quashed the final assessment order of the AO as well as the demand notice. And in respect of the corrigendum issued by the AO, the Hon’ble Madras High Court held that it was beyond the time permissible for issuance of such corrigendum and, therefore, it could not be sustained in law.

 

15. Recently, the Hon’ble Delhi High Court Court in ESPN Star Sports Mauritius S.N.C. ET Compagnie v. Union of India [2016] 388 ITR 383 (Del.), following the decision of the Andhra Pradesh High Court in Zuari Cement Ltd. (supra), and the Madras High Court in Vijay Television (P) Ltd. (supra) and the Hon’ble Bombay High Court in International Air Transport Association V. DCIT (2016) 290 CTR (Bom) 46, also agreed with the same view.

 

16. Further, it is noted that the Hon’ble Gujarat High Court in C-Sam (India) (supra), repelled the plea of Revenue that non-compliance with the terms of Section 144C of the Act is merely an 'irregularity' and held that it was of 'great importance and mandatory'. It would be gainful to refer to the relevant portion of decision of Hon’ble High Court in C-Sam India (supra) which is reproduced as under: -

 

"6. These statutory provisions make it abundantly clear that the procedure laid down under Section 144C of the Act is of great importance and is mandatory. Before the Assessing Officer can make variations in the returned income of an eligible assessee, as noted, subsection (1) of Section 144C lays down the procedure to be followed notwithstanding anything to the contrary contained in the Act. This nonobstante clause thus gives an overriding effect to the procedure 'notwithstanding anything to the contrary contained in the Act'. Subsection (5) of Section 144C empowers the DRP to issue directions to the Assessing Officer to enable him to complete the assessment. Subsection (10) of Section 144C makes, such directions binding on the Assessing Officer. As per Sub-Section 144C, the Assessing Officer is required to pass the order of assessment in terms of such directions without any further hearing being granted to the assessee.

 

7. The procedure laid down under Section 144C of the Act is thus of great importance. When an Assessing Officer proposes to make variations to the returned income declared by an eligible assesses he has to first pass a draft order, provide a copy thereof to the assessee and only thereupon the assessee could exercise his valuable right to raise objections before the DRP on any of the proposed variations. In addition to giving such opportunity to an assessee, decision of the DRP is made binding on the Assessing Officer. It is therefore not possible to uphold the Revenue's contention that such requirement is merely a procedural. The requirement is mandatory and gives substantive rights to the assessee to object to any additions before they are made and such objections have to be considered not by the Assessing Officer but by the DRP. Interestingly, once the DRP gives directions under subsection (5) of Section 144C, the Assessing Officer is expected to pass the order of assessment in terms of such directions without giving any further hearing to the assessee. Thus, at the level of the Assessing Officer, the directions of the DRP under sub-section (5) of Section 144C would bind even the assessee. He may of course challenge the order of the Assessing Officer before the Tribunal and take up all contentions. Nevertheless at the stage of assessment, he has no remedy against the directions issued by the DRP under sub-section (5). All these provisions amply demonstrate that the legislature desired to give an important opportunity to an assessee who is likely to be subjected to upward revision of income on the basis of, transfer pricing mechanism. Such opportunity cannot be taken away by treating it as purely procedural in nature."

 

17. It is further noted that in Turner International India Pvt.Ltd in WP(C)4260/2015 the Revenue contended before the Hon’ble Delhi High Court in a similar case that failure to pass a draft assessment order under Section 144C of the Act is a curable defect and therefore, pleaded that the issue may be restored back to AO to correct the defect. It is noted that such a contention of the Revenue has been repelled by Hon’ble High Court where it was observed in paras 15 and 16 as under:

 

"15. Mr. Dileep Shivpuri, learned counsel for the Revenue sought to contend that the failure to adhere to the mandatory requirement of issuing a draft assessment order under Section 144C (1) of the Act would, at best, be a curable defect. According to him the matter must be restored to the AO to pass a draft assessment order and for the Petitioner, thereafter, to pursue the matter before the DRP.

 

16. The Court is unable to accept the above submission. The legal position as explained in the above decisions in unambiguous. The failure by the AO to adhere to the mandatory requirement of Section 144C ( 1) of the Act and first pass a draft assessment order would result in invalidation of the final assessment order and the consequent demand notices and penalty proceedings.”

 

18. Further, it is noted that the Hon’ble Delhi High Court in the case of PCIT Vs. Headstrong Services India Pvt. Ltd in ITA No.77 of 2019 dated 24.12.2010 held in similar circumstances of the case as under:-

 

“17. In the opinion of this Court, Section 144C is a self contained provision which carves out a separate class of assesses i.e. 'eligible assessee' i.e. any person in whose case the variation arises as a consequence of the order of the Transfer Pricing Officer passed under sub-section (3) of Section 92CA. For this class of assesses, it prescribes a collegium of three commissioners, once objections are preferred. Dispute Resolution Panel's powers are co-terminous with the CIT(A), including the power to confirm, reduce or enhance the variation proposed and to consider the issues not agitated by the Assessee in the objections. In fact, under Section 144C, the Dispute Resolution Panel can issue directions as it thinks fit for the guidance of the Assessing Officer to enable him to complete the assessment and the Dispute Resolution Panel can confirm, reduce or enhance the variations proposed in the draft order. It is specifically stipulated in Section 144C that every direction issued by the Dispute Resolution Panel shall be binding on the Assessing Officer. This is akin to the Assessing Officer giving effect to an order passed by the Appellate Authority or the Courts.

 

18. Consequently, Section 144C envisages a change of forum and it leads to complete cessation of the jurisdiction of the Assessing officer on passing of the draft order. Thereafter the Assessing officer is to give effect to either the direction of the Dispute Resolution Panel or pass an order on acceptance by the Assessee.

 

THE EXPRESSION 'IN THE FIRST INSTANCE' HAS BEEN USED IN SECTION 144C TO SIGNIFY THE FIRST STEP TO BE TAKEN BY THE ASSESSING OFFICER IN A SERIES OF ACTS CONTEMPLATED BY THE SAID SECTION. TO ACCEPT THE APPELLANT'S ARGUMENT WOULD BE TO PERMIT THE ASSESSING OFFICER TO DECIDE THE OBJECTIONS FILED BY THE ASSESSEE- WHICH POWER HAS BEEN SPECIFICALLY DENIED BY THE STATUTE.

 

19. The expression 'in the first instance' has been used in Section 144C to signify the first step to be taken by the Assessing Officer in a series of acts contemplated by the said Section while dealing with the case of an eligible assessee. This Court is further of the view that if the Assessing Officer under Section 144C can prepare a draft assessment order only, then by virtue of a remand order which directs the Assessing Officer to decide the matter de novo, the Assessing Officer cannot get the power to pass an assessment order, when there is an objection by the Assessee like in the present case, without reference of the Dispute Resolution Panel which comprises of three Principal Commissioners or Commissioners of Income Tax constituted by the Board.

 

20. Now to accept the appellant's argument would be to permit the Assessing Officer to decide the objections filed by the Assessee - which power has been specifically denied by the statute.

 

IT IS SETTLED IA W THAT WHEN A POWER IS GIVEN TO DO CERTAIN THING IN A CERTAIN WAY. THE THING MUST BE DONE IN THAT WAY OR NOT AT ALL AND OTHER METHODS OF PERFORMANCE ARE FORBIDDEN

 

21. It is further settled law that when a power is given to do certain thing in a certain way, the thing must be done in that way or not at all and other methods of performance are forbidden. [See: Taylor Vs. Taylor, 1875) 1 Ch.D.426; Nazir Vs. King Emperor, AIR 1936 PC 253, AIR 1975 SC 985; Babu Verghese Vs. Bar Council of Kerala, (1999)3 SCC 422],

 

FAILURE TO ADHERE TO THE MANDATORY PROCEDURE PRESCRIBED UNDER SECTION 144C OF THE ACT WOULD VITIATE THE ENTIRE PROCEEDINGS AND THE SAME CANNOT BE TREATED AS AN IRREGULARITY/ CURABLE DEFECT.

 

22. The appellant has also contended that the failure to follow the procedure under Section 144C of the Act, at the highest, was a procedural irregularity and not an illegality. This issue is no longer res integra. It is now settled law that failure to adhere to the mandatory procedure prescribed under Section 144C of the Act would vitiate the entire proceedings and the same cannot be treated as an irregularity/ curable defect.

 

23. In ESPN Star Sports Mauritius S.N.C. ET Companies vs. Union of India, (2016) 388 /TR 383 (Delhi) this Court, after discussing the judgments of the Andhra Pradesh High Court, High Court of Bombay as well as Madras High Court in Vijay Television Pvt. Ltd. vs. TRP and Ors. (2014) 369 ITR 130 has held that failure to pass a draft assessment order under Section 144C(l) of the Act would render the final assessment order without jurisdiction, null and void and unenforceable. The said view was reiterated by this Court in Turner International India Pvt. Ltd. vs. Deputy Commissioner of Income Tax, Cirlce-25(2), New Delhi, WP(C) 42604261/2015 as well Nokia India Pvt. Ltd. vs. Additional Commissioner of Income Tax, WP(C)3629/2017. The relevant portion of the judgment in Turner International India Pvt. Ltd. (supra) is reproduced herein below:

 

"11. The question whether the final assessment order stands vitiated for failure to adhere to the mandatory requirements of first passing draft assessment order in terms of Section 144C(l) of the Act is no longer res integra. There is a long series of decisions to which reference would be made presently.

 

12. in Zuari Cement Ltd. v. ACIT (decision dated 21st February, 2013 in WP(C) No.5557/2012), the Division Bench (DB) of the Andhra Pradesh High Court categorically held that the failure to pass a draft assessment order under Section 144C (]) of the Act would result in rendering the final assessment order "without jurisdiction, null and void and unenforceable." In that case, the consequent demand notice was also set aside. The decision of the Andhra Pradesh High Court was affirmed by the Supreme Court by the dismissal of the Revenue's SLP (C) [CC No. 16694/2013] on 27 September, 2013.

 

13. In Vijay Television (P) Ltd. v. Dispute Resolution Panel [2014] 369 ITR 113 (Mad.), a similar question arose. There, the Revenue sought to rectify a mistake by issuing a corrigendum after the final assessment order was passed. Consequently, not only the final assessment order but also the corrigendum issued thereafter was challenged. Following the decision of the Andhra Pradesh High Court in Zuari Cement Ltd. v. ACIT (supra) and a number of other decisions, the Madras High Court in Vijay Television (P) Ltd. v. Dispute Resolution Panel ( supra) quashed the final order of the AO and the demand notice. Interestingly, even as regards the corrigendum issued, the Madras High Court held that it was beyond the time permissible for issuance of such corrigendum and, therefore, it could not be sustained in law.

 

14. Recently, this Court in ESPN Star Sports Mauritius S.N.C. ET Compagnie v. Union of Indi [2016] 388 ITR 383 (Del.), following the decision of the Andhra Pradesh High Court in Zuari Cement Ltd. v. ACIT (supra), the Madras High Court in Vijay Television (P) Ltd. v. Dispute Resolution Panel, Chennai (supra) as well as the Bombay High Court in International Air Transport Association v. DCIT (2016) 290 CTR (Bom) 46, came to the same conclusion.

 

15. Mr. Dileep Shivpuri, learned counsel for the Revenue sought to contend that the failure to adhere to the mandatory requirement of issuing a draft assessment order under Section l 44C ( 1) of the Act would, at best, be a curable defect. According to him the matter must be restored to the AO to pass a draft assessment order and for the Petitioner, thereafter, to pursue the matter before the DRP.

 

16. The Court is unable to accept the above submission. The legal position as explained in the above decisions in unambiguous. The failure by the AO to adhere to the mandatory requirement of Section l 44C ( 1) of the Act and first pass a draft assessment order would result in invalidation of the final assessment order and the consequent demand notices and penalty proceedings."

 

CONCLUSION

 

24. Consequently, in the present case, in complete contravention of Section 144C, the Assessing Officer wrongfully assumed the jurisdiction and passed the final assessment order without passing a draft assessment order and without giving the respondent/assessee an opportunity to raise objections before the Dispute Resolution Panel.

 

25. Keeping in view the aforesaid, this Court is of the opinion that no question of law, let alone a substantial question of law, arises in the present appeal.

 

26. This Court is of the view that till the Income Tax Department ensures that the Assessing Officers follow the mandate of law, in particular, binding provisions like Section 144C and eschew filing of unnecessary appeals rather than in nearly all matters where the Assessing Officer has taken a view against the Assessee, the assessments will not achieve finality for a number of years like in the present case where the case of assessment year 2007-08 stands remanded and restored to the file of the Assessing Officer.

 

27. Consequently, we dismiss the present appeal and confirm the impugned order of the ITAT with costs of Rs.11,000/- to be paid to Delhi High Court Legal Services Committee.”

 

19. In the light of the aforesaid discussion, relying on the decisions of the Hon’ble Jurisdictional High Court in the case of Vijay Television Pvt. Ltd (supra) and GE OIL & Gas India Pvt.Ltd. (supra) as well as other judicial precedents cited supra, we are of the view that AO erred in passing final assessment order without passing draft assessment order and therefore, final order dated 10.11.2017 passed by the AO is held to be bad in law and therefore, quashed.

 

IT(TP)A No. 20/Chny/2024 (A.Y. 2011-12):

 

20. Since the assessee has raised similar/identical legal issue assailing the action of AO framing final assessment order, without passing draft assessment order, and since there is no change in facts or law, the legal issue raised by assessee is allowed for the very same reasoning given for deciding appeal for AY 2010-11. Thus, the assessee succeeds on the legal issue raised by it for both AY 2010-11 & AY 2011- 12 and therefore, we quash the final assessment orders passed by the AO for the AY 2011-12 also. All other grounds raised in both appeals, has become academic and therefore, not adjudicated.

 

21. In the result, appeals of the assessee for both the assessment years 2010-11 & 2011-12 are allowed.

 

Order pronounced in the open court on 06th December, 2024.

 

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