In High Court of Judicature at Madras Date :: 12.10.2015 Coram :: Hon'ble Mr. Justice R. Mahadevan Writ Petition No: 13442 of 2015 M/s. Carrier Race Technologies Pvt. Ltd. Temple Step, 9th floor Block No: 1 No: 184/187 Anna Salai Little Mount Chennai 600 015. ... Petitioner -vs- Income Tax Officer Corporate Ward I (4) Room No: 627-A, 6th floor No: 121 Nungambakkam High Road Chennai 600 034. ... Respondent .. .. .. Writ petition under Article 226 of Constitution of India praying for issuance of writ of certiorari calling for records relating to impugned Assessment Order dated 27.3.2015 relating to PAN/GIR No. AABCR1863L for assessment year 2012-2013 and Corrigendum to Assessment Order dated 9.4.2015 bearing No: AABCR1863L/12-13/99 passed by Respondent / Assessing Officer and quash 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 .. .. .. ORDER impugned assessment order dated 27.03.2015 relating to PAN/GIR No. AABCR1863L for assessment year 2012-2013 and Corrigendum to Assessment Order dated 9.4.2015 bearing No: AABCR1863L/12-13/99 are being challenged on ground that circular issued by department in accordance with Section 144 C of Income Tax Act has not been complied with. international transactions involved by petitioner in this writ petition are referred to in paragraph 5 of affidavit filed in support of writ petition. said international transactions were certified to be at arm's length, based on Transactional Net Margin Method as defined. Transfer Pricing Report and Transfer Pricing Documentation had been filed with respondent during assessment year. Provisions of Section 144 C makes it clear that if assessing authority proposes to make any variation in income or loss returned by assessee, necessarily he has to pass draft assessment order, forward it to assessee with all details and after assessee files his objections, assessment can be completed within one month. Section also provides option to assessee to file objections before Disputes Resolution Panel which can issue direction for guidance of assessing authority to enable him to complete assessment. Since respondent failed to follow above provision, petitioner is before this Court. 2. According to learned Senior counsel for petitioner respondent failed to follow provisions of Section 144 C of Income Tax Act, 1961. By act of respondent, petitioner lost several opportunities. learned Senior Counsel appearing for petitioner further submitted that as per C.P.D.T. instructions dated 20.05.2003, value, once it crosses over and above sum of Rs. 5 crores, necessarily assessing authority has to refer matter to Transfer Pricing Officer so as to proceed further. In this case, admittedly, matter has not been referred to Transfer Pricing Officer. Hence, he seeks to quash said order. 3. standing counsel for respondent submitted that as per Section 92 CA (1) where assessee has entered into international transaction or specified domestic transaction and assessing officer considers it necessary or expedient so to do, he may with previous approval of competent authority refer computation of Arms length price to Transfer Pricing Officer. He further submitted that no reference to transfer pricing officer in terms of Section 92 CA, was referred and respondent proceeded to compute arms length price of international transaction of petitioner after affording due opportunity to petitioner and passed impugned order. Hence, he sought to dismiss writ petition. 4. Heard both sides. 5. At first place, let us see relevant Sections. Section 144 C of Income Tax Act, 1961 reads as under : " 144C. (1) Assessing Officer shall, notwithstanding anything to contrary contained in this Act, in first instance, forward draft of proposed order of assessment (hereafter in this section referred to as draft order) to eligible assessee if he proposes to make, on or after 1st day of October, 2009, any variation in income or loss returned which is prejudicial to interest of such assessee. (2) On receipt of draft order, eligible assessee shall, within thirty days of receipt by him of draft order, (a) file his acceptance of variations to Assessing Officer; or (b) file his objections, if any, to such variation with, (i) Dispute Resolution Panel; and (ii) Assessing Officer. (3) Assessing Officer shall complete assessment on basis of draft order, if (a) assessee intimates to Assessing Officer acceptance of variation; or (b) no objections are received within period specified in sub-section (2). (4) Assessing Officer shall, notwithstanding anything contained in section 153 50[or section 153B], pass assessment order under sub-section (3) within one month from end of month in which, (a) acceptance is received; or (b) period of filing of objections under sub-section (2) expires. (5) Dispute Resolution Panel shall, in case where any objection is received under sub-section (2), issue such directions, as it thinks fit, for guidance of Assessing Officer to enable him to complete assessment. (6) Dispute Resolution Panel shall issue directions referred to in sub- section (5), after considering following, namely: (a) draft order; (b) objections filed by assessee; (c) evidence furnished by assessee; (d) report, if any, of Assessing Officer, Valuation Officer or Transfer Pricing Officer or any other authority; (e) records relating to draft order; (f) evidence collected by, or caused to be collected by, it; and (g) result of any enquiry made by, or caused to be made by, it. (7) Dispute Resolution Panel may, before issuing any directions 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 result of same to it. (8) Dispute Resolution Panel may confirm, reduce or enhance variations proposed in draft order so, however, that it shall not set aside any proposed variation or issue any direction under sub-section (5) for further enquiry and passing of assessment order. [Explanation. For removal of doubts, it is hereby declared that power of Dispute Resolution Panel to enhance variation shall include and shall be deemed always to have included power to consider any matter arising out of assessment proceedings relating to draft order, notwithstanding that such matter was raised or not by eligible assessee.] (9) If members of Dispute Resolution Panel differ in opinion on any point, point shall be decided according to opinion of majority of members. (10) Every direction issued by Dispute Resolution Panel shall be binding on Assessing Officer. (11) No direction under sub-section (5) shall be issued unless opportunity of being heard is given to assessee and Assessing Officer on such directions which are prejudicial to interest of assessee or interest of revenue, respectively. (12) No direction under sub-section (5) shall be issued after nine months from end of month in which draft order is forwarded to eligible assessee. (13) Upon receipt of directions issued under sub-section (5), Assessing Officer shall, in conformity with directions, complete, notwithstanding anything to contrary contained in section 153 51a[or section 153B], assessment without providing any further opportunity of being heard to assessee, within one month from end of month in which such direction is received. (14) Board may make rules52 for purposes of efficient functioning of Dispute Resolution Panel and expeditious disposal of objections filed under sub-section (2) by eligible assessee. following sub-section (14A) shall be inserted after sub-section (14) of section 144C by Finance Act, 2013, w.e.f. 1-4-2016 : (14A) provisions of this section shall not apply to any assessment or reassessment order passed by Assessing Officer with prior approval of Commissioner as provided in sub-section (12) of section 144BA. (15) For purposes of this section, (a) "Dispute Resolution Panel" means collegium comprising of three Commissioners of Income-tax constituted by Board54 for this purpose; (b) "eligible assessee" means, (i) any person in whose case variation referred to in sub-section (1) arises as consequence of order of Transfer Pricing Officer passed under sub- section (3) of section 92CA; and any foreign company.] Section 92 C of Act, reads as under : " 92CA. assessing officer may refer case for determination of arm's length price to TPO where assessing officer considers it necessary and expedient to do so." 6. While dealing with similar circumstance, this Court in W.P. No: 1526 and 1527 of 2014, vide its order dated 29.04.2014, held as follows :- "20. Under Section 144 (C) of Act, it is evident that assessing officer is required to pass only draft assessment order on basis of recommendations made by TPO after giving opportunity to assessee to file their objections and then assessing officer shall pass final order. According to learned senior counsel for petitioners, this procedure has not been followed by second respondent inasmuch as final order has been straightaway passed without passing draft assessment order. 21. .... ....... ........ 22. As mentioned supra, as per Section 144C (1) of Act,the second respondent assessing officer has no right to pass final order pursuant to recommendations made by TPO. In fact, second respondent assessing officer himself has admitted by virtue of corrigendum dated 15.04.2013, that order dated 26.03.2013 is only final order and it was directed to be treated as draft assessment order. In this context, it is worthwhile to refer to decisions of Hon'ble Supreme Court in decision reported in Deepak Agro Foods vs. State of Rajasthan and others reported in 2008 (16) VST 454 SC wherein in Para No.10, Hon'ble Supreme Court discussed as to when order could be construed as final order. 23 to 29. ....... ........ ...... 30. It is evident from above decision of Division Bench of this Court that where there is omission on part of assessing officer to follow mandatory procedures prescribed in Act, such omission cannot be termed as mere procedural irregularity and it cannot be cured. 31. In identical case as that of case on hand, Division Bench of Andhra Pradesh High Court, in unreported decision, had occasion to consider scope of validity of demand notice issued by assessing officer in case of Zuari Cement Limited vs. Assistant Commissioner of Income Tax, Circle 2 (1) passed in WP No. 5557 of 2012 dated 21.02.2013, wherein it was held as under:- reading of above section shows that if assessing officer proposes to make, on or after 01.10.2009, any variation in income or loss returned by assessee, then, notwithstanding anything to contrary contained in Act, he shall first pass draft assessment order, forward it to assessee and after assessee files his objections, if any, assessing officer shall complete assessment within one month. assessee is also given option to file objections before Dispute Resolution Panel in which event latter can issue directions for guidance of Assessing Officer to enable him to complete assessment. In case of petitioner, admittedly TPO suggested adjustment of Rs.52.14 crores u/s.92CA of Act on 20.09.2011 and forwarded it to Assessing Officer and to assessee under sub-section (3) thereof. assessing officer accepted variation submitted by TPO without giving petitioner any opportunity to object to it and passed impugned assessment order. As this has occurred after 01.10.2009, cut off date prescribed in sub-section (1) of S.144C, Assessing Officer is mandated to first pass draft assessment order, communicate it to assessee, hear his objections and then complete assessment. Admittedly, this has not been done and respondent has passed final assessment order dated 22.12.2011 straight away. Therefore, impugned order of assessment is clearly contrary to S.144C of Act and is without jurisdiction, null and void. contention of Revenue that circular No.5/2010 of CBDT has clarified that provisions of S.144C shall not apply for assessment year 2008-09 and would apply only from assessment year 2010-2011 and later years is not tenable in as much as language of Sub- section (1) of Section 144C referring to cut off date of 01.10.2009 indicates intention of legislature to make it applicable, if there is proposal by Assessing Officer to make variation in income or loss returned by assessee which is prejudicial to assessee, after 01.10.2009. Therefore, this particular provision introduced by Finance (No.2) Act, 2009, would apply if above condition is satisfied and other provisions, in which similar contrary intention is not indicated, which were introduced by said enactment, would apply from 01.04.2009 i.e., from assessment year 2010-2011. It is not disputed that memorandum explaining Finance Bill and Notes and clauses accompanying Finance Bill which preceded Finance (No.2) Act, 2009 clearly indicated that amendments relating to S.144C would take effect from 01.10.2009. In our view, circular No.5/2010 issued by CBDT stating that S.144C(1) would apply only from assessment year 2010-2011 and subsequent years and not for assessment year 2008-09 is contrary to express language in S.144C(1) and said view of Revenue is unacceptable. circular may represent only understanding of Board/Central Government of statutory provisions, but it will not bind this Court or Supreme Court. It cannot interfere with jurisdiction and power of this Court to declare what legislature says and take view contrary to that declared in circular of CBDT (Ratan Melting and Wire Industries Case (1 Supra), Indra Industries (2 supra). Revenue has not been able to pursuade us to take contra view by citing any authority. In this view of matter, we are of view that impugned order of assessment dated 23.12.2011 passed by respondent is contrary to mandatory provisions of S.144C of Act and is passed in violation thereof. Therefore, it is declared as one without jurisdiction, null and void and unenforceable. Consequently, demand notice dated 23.12.2011 issued by respondent is set aside. 32. As against this order of Division Bench of Andhra Pradesh High Court, Revenue went on appeal before Honourable Supreme Court. record of proceedings of Supreme Court indicate that Special Leave Petition was dismissed on 27.09.2013. 33. decision of Division Bench of Andhra Pradesh High Court deals with identical issue as that of present case. In this case, against order passed by second respondent on 26.03.2013, petitioner filed objections before DRP, first respondent herein and first respondent refused to entertain it by stating that order passed by second respondent is final order and it had jurisdiction to entertain objections only if it is draft assessment order. While so, order dated 26.03.2013 of second respondent can only be termed as final order and in such event it is contrary to Section 144C of Act. As mentioned supra, in and by order dated 26.03.2013, second respondent determined taxable amount and also imposed penalty payable by petitioner. According to learned senior counsel for petitioners, even as on this date, website of department indicate amount determined by second respondent payable by company inspite of issuance of corrigendum on 15.04.2013 as tax due amount. Thus, while issuing corrigendum, second respondent did not even withdraw taxable amount determined by him or updated status in website. In any event, such order dated 26.03.2013 passed by second respondent can only be construed as final order passed in violation of statutory provisions of Act. corrigendum dated 15.04.2013 is also beyond period prescribed for limitation. Such defect or failure on part of second respondent to adhere to statutory provisions is not curable defect by virtue of corrigendum dated 15.04.2013. By issuing corrigendum, respondents cannot be allowed to develop their own case. Therefore, following order passed by Division Bench of Andhra Pradesh High Court, which was also affirmed by Honourable Supreme Court by dismissing Special Leave Petition filed thereof, on 27.09.2013, orders, which are impugned in these writ petitions are liable to be set aside. " 7. Similar issue came up for consideration before Division Bench of Delhi High Court in I.T.A. No: 504 of 2008. By its decision dated 18.11.2011, Division Bench of Delhi High Court held as follows : " 13. On basis of aforesaid reasoning, Tribunal concluded that once validity of CBDT Circular was upheld, as per said circular Assessing Officer was duty bound to refer matter to TPO having regard to purpose of Specialized Cell created by Revenue Department to deal with complicated and complex issues and since this channel was not resorted to by Assessing Officer in instant case, Commissioner was right in passing order under Section 263 of Act. 14. No doubt, validity of said instruction was upheld on touch stone of Article 14 of Constitution holding that it was based on reasonable classification and there was rationale nexus with objectives sought to be achieved. At same time, we feel that while doing so this Court had also laid down rigors of said Circular. No doubt, this Court observed, in process that said Circular acted as guideline to Assessing Officer. However, much mileage cannot be drawn by appellant from those observations as these observations were made while dealing with contention of petitioner in said petition. That instruction completely takes away discretion of Assessing Officer in relation to international transaction if aggregate value thereof exceeded Rs. 5 crore. This contention was turned down in following words :- " 37. other ground on which instruction is challenged is that it completely takes away discretion of AO in relation to international transaction of value exceeding Rs. 5 crores. reading of impugned instruction indicates that it acts as guideline to AO in exercise of discretion conferred under Section 92CA (1). This instruction is in fact helpful in ensuring that discretion of A will not be abused. It correctly interprets law as requiring only formation of prima facie opinion by AO at stage of reference. Therefore, question of CBDT supplanting judicial discretion of AO does not arise. It is perfectly possible that, independent of circular, AO might still "consider it necessary or expedient" to refer nternational transaction of such value of TPO for determination of ALP. At same time it is not as if transactions of valueof less than Rs. 5 crores cannot be referred to TOP by AO. Ultimately, any exercise of discretion by AO is bound to be judicially reviewed by statutory appellate authorities as well as by Courts. Therefore, it is not as if there is no check on exercise of discretion by AO. 39. For these reasons, we hold that impugned Instruction No: 3 dated 20.5.2003 issued by CBDT is consistent with statutory objective underlying Section 92 CA (1) and acts as guidance to AO in exercise of discretion in referring international transaction to TPO for determination of its ALP. It is neither arbitrary nor unreasonable, and is not ultra virus Act. " 15. It is clear from above that this Court held that referred of matter to TPO for determination of arm's length price acts as guide to AO and is, in fact helpful in ensuring that discretion of Assessing Officer will not be abused. " 8. Since provisions of Act makes it very clear that under Section 92 CA of I.T. Act only option is to place matter to TPO and same has not been followed, this Court feels it appropriate to set aside order of assessing authority so that matter can be referred to TPO. 9. Accordingly, order impugned in this writ petition is set aside and matter is remanded to Assessing Authority who shall in turn refer matter to Transfer Pricing Officer. On such reference, Transfer Pricing Officer shall proceed in accordance with C.P.D.T. Regulations dated 20.05.2003. This writ petition stands disposed of in above terms. Connected miscellaneous petition is closed. There shall be no orders as to costs. Index : Yes Website : Yes gp 12.10.2015 To Income Tax Officer Corporate Ward I (4) Room No: 627-A, 6th floor No: 121 Nungambakkam High Road Chennai 600 034. R. Mahadevan, J. W.P. No: 13342 of 2015 12.10.2015 M/s. Carrier Race Technologies Pvt. Ltd. v. Income-tax Officer Corporate Ward – I (4)