I.T.A. Nos.: 89 and 3208/Ahd/11, 2637/Ahd/12, 474/Ahd/14 , 63 and 593 /RJT/2015 Assessment years: 2006-07, 07-08, 08-09, 09-10, 10-11 and 11-12 Page 1 of 21 IN INCOME TAX APPELLATE TRIBUNAL, RAJKOT BENCH, RAJKOT [conducted through E court at Ahmedabad] [Coram: Pramod Kumar AM and S S Godara JM] I.T.A. Nos.: 89 and 3208/Ahd/11, 2637/Ahd/12, 474/Ahd/14, 63 and 593/RJT/2015 Assessment years: 2006-07, 07-08, 08-09, 09-10,10-11 and 11-12 Woco Motherson Advanced Rubber Technologies Limited .. .Appellant Plot No. 341-344, Sector IV Kandala Special Economic Zone Gandhidham 370 230[ PAN: AAACW 5389 B] Vs. Dy Commissioner of Income Tax Gandhidham Circle, Gandhidham .. Respondent Appearances by: K M Gupta, for appellant Yogesh Pandey, for respondent Date of concluding hearing : 30/06/2016 Date of filing written submissions : 14/07/2016 Date of pronouncing order : 29/09/2016 O R D E R Per Pramod Kumar, AM: [1] These six appeals pertain to same assessee, involve some common issues and were heard together. As matter of convenience, therefore, all six appeals are being disposed of by this consolidated order. [2] We will first take up appeal for assessment year 2006-07. [3] This appeal is directed against order dated 26th October 2010 passed by Assistant Commissioner of Income Tax, Gandhidham, under section 143(3) r.w.s. 144C(13) of Income Tax Act, 1961, for assessment year 2006-07. I.T.A. Nos.: 89 and 3208/Ahd/11, 2637/Ahd/12, 474/Ahd/14 , 63 and 593 /RJT/2015 Assessment years: 2006-07, 07-08, 08-09, 09-10, 10-11 and 11-12 Page 2 of 21 [4] Grievance of appellant, in substance, is against Assessing Officer making arm s length price adjustment of Rs 1,34,85,624 to payment of technical services paid by assessee to its associated enterprise, and thus proceeding on basis that arm s length consideration for these services was zero. [5] Briefly stated, relevant material facts are as follows. assessee before us, i.e. Woco Motherson Advanced Rubber Technologies Limited (Woco India, in short), is joint venture between Woco Franz Joseph Wolf Holding GmbH (Woco Germany, in short) holding 66.67% shares, and Mothersons Sumi Systems Limited (Motherson India, in short) holding 33.33% shares. assessee is engaged in manufacturing of high quality rubber parts, rubber plastic parts, rubber metal parts and liquid silicon rubber parts. During relevant financial period, assessee had entered into several international transactions with its associated enterprises, and, one such international transactions pertained to payment of technical services fees, amounting to Rs 1,34,85,624, to Woco Mothersons FZC, Sharjah (Woco Sharjah, in short). When these international transactions came up for examination before Transfer Pricing Officer, upon reference being made to him under section 92CA(1), TPO noted that assessee company has paid TSF (i.e. technical service fees) to Woco Motherson Sharjah while Woco Germany owns manufacturing technology and that Woco Motherson Sharjah is in tax haven country where tax rate is very low . It was in this backdrop, and having noted facts that Woco Germany owns all intangibles associated with manufacturing process adopted by assessee and that Woco Sharjah does not provide such services to any other AE, Transfer Pricing Officer required assessee to show cause as to why arm s length price of technical services fees not be adopted as NIL. It was explained by assessee that manufacturing technology has been licensed by Woco Germany, and that it is on basis of manufacturing technology so licensed that assessee is able to produce Woco Germany patented products for sale in specified sales territory. However, as explained by assessee, technical services agreement between assessee and Woco Sharjah is for achieving operational and technical competencies, relating to know how and technology transferred licensed to I.T.A. Nos.: 89 and 3208/Ahd/11, 2637/Ahd/12, 474/Ahd/14 , 63 and 593 /RJT/2015 Assessment years: 2006-07, 07-08, 08-09, 09-10, 10-11 and 11-12 Page 3 of 21 assessee by Woco Germany, and, for that reason, materially distinct and from know how provided by Woco Germany. It was also explained by assessee that rendering of technical assistance does not require service provider to be owner of manufacturing technology . It was also explained by assessee that agreement with Woco Germany shows that role was envisaged for Woco Sharjah, for providing technical services, inasmuch clause 8 and 9 of agreement provided that WML (Sharjah), which is part of Woco Group of Companies and which is active in similar field of business as Woco (Germany) currently has, and expects continuously to have, Woco operational technical competencies and Woco (Germany) desires SML to render all or any of operational and technical competencies to JVC and WML is desirous to render same . However, TPO, after taking into account these submissions and after going through agreements entered into by assessee with Woco Germany and Woco Sharjah, was of view that services provided by Woco Germany and Woco Sharjah are not distinct, that Woco Sharjah does not possess requisite experience and expertise to provided for in technical services agreement, and that, therefore, arm s length price of services said to have been rendered by Woco Sharjah, being ploy adopted by assessee so as to transfer profits of assessee to tax haven , is NIL. Accordingly, ALP adjustment of Rs 1,34,85,624 was proposed by Assessing Officer. Aggrieved by draft assessment order so proposing ALP adjustment, assessee raised grievance before Dispute Resolution Panel but without any success. DRP, inter alia, held that stand of assessee was not justified inasmuch as when same services were received by assessee from Woco Germany, without any consideration, said transaction should have been adopted Internal CUP (Comparable Uncontrolled Price) and services received from Woco Sharjah should have been benchmarked on that basis. On these facts, TNMM was rejected as most appropriate method, and it was held that CUP method was to be applied. assessee s benchmarking of technical services fees paid on basis of similar fees paid to independent enterprises was rejected with observation that from copies of agreements filed before us, it is clear that those third party agreements between unrelated parties were for different services, in different geographical locations and are widely off mark as services rendered to assessee are concerned I.T.A. Nos.: 89 and 3208/Ahd/11, 2637/Ahd/12, 474/Ahd/14 , 63 and 593 /RJT/2015 Assessment years: 2006-07, 07-08, 08-09, 09-10, 10-11 and 11-12 Page 4 of 21 and that in view of strict comparability criterion followed in CUP method, submission of assessee is not accepted as transaction can at best be benchmarked by applying internal CUP wherein assessee has not provided any technical services fees to Woco Germany vis- -vis payment to WML (i.e. Woco Sharjah) . DRP then concluded that In view of above discussions, we hold that TPO has rightly computed arm s length price at NIL in respect of technical service fees paid by assessee to its AE. assessee has paid fees to WML (i.e. Woco Sharjah), company based in Sharjah (UAE) which is tax haven. Had fees been paid to Woco Germany, it might have been taxed there. However, assessee has used this route simply evade taxes for Woco Group on income due to it. Thus, as group, company has adopted strategy to make less payments by transferring money to tax haven action of TPO and AO was confirmed. [6] It was in this backdrop that Assessing Officer made ALP adjustment of Rs 1,34,85,624 by treating ALP of technical services fees paid to Woco Germany at NIL. assessee is aggrieved and is in appeal before us. [7] We have heard rival contentions, perused material on record and duly considered facts of case in light of applicable legal position. [8] We find that so far as approach adopted by DRP is concerned, it is wholly unsustainable in law inasmuch as even if services rendered, or believed to have been rendered, by Woco Germany are same as rendered by Woco Sharjah, same cannot be treated, being intra AE transaction, as valid Internal CUP. It is only uncontrolled transaction, i.e. between independent enterprises, which can be used as benchmark to ascertain arm s length price of As noted by coordinate bench in case of Skoda Auto India Ltd Vs ACIT [(2009) 30 SOT 319 (Pune)], To be considered as internal CUP also, transaction has to be independent transaction i.e., between two entities, which are independent of each other . transaction between AEs cannot be considered as valid input for application of CUP method. This principle is reiterated by majority view in third member decision in case of ACIT Vs Technimont ICB India Pvt I.T.A. Nos.: 89 and 3208/Ahd/11, 2637/Ahd/12, 474/Ahd/14 , 63 and 593 /RJT/2015 Assessment years: 2006-07, 07-08, 08-09, 09-10, 10-11 and 11-12 Page 5 of 21 Ltd [(2012) 138 ITD TM 23 (Mum)]. adoption of assessee s transactions with Woco Germany, as valid comparable for application of internal CUP method, is thus inherently vitiated in law. stand of DRP thus cannot meet judicial approval by us. That, however, is only one of reasons as to why action of authorities below must be held to be incorrect. [9] We have noted that there is no dispute about fact that Woco Germany had agreed to grant assessee non exclusive licence to manufacture, use, exercise or sell licensed products, pursuant to agreement dated 4th April 2005 between assessee and Woco Germany, at NIL royalty rate. Separately, though vide second amendment of even date, assessee as also Woco Germany agreed that Woco Sharjah will provide technical support services. Interestingly, however, while agreement with Woco Germany was for use of know how and inventions , agreement with Woco Sharjah was for provision for technical assistance required for use of technology . While undoubtedly these two things are interlinked and interconnected, their scope is distinct and separate. While purpose of agreement with Woco Germany was for right, authority and licence for use of know how and trademark, purpose of agreement with Woco Sharjah was for operational and technical competencies relating to manufacturing know how provided under licence agreement and effective commercial exploitation . obligation on Woco Germany, as noted in clause 3(A) of agreement, was to furnish and disclose to licensee all know how relating to development and manufacturing of licenced products , and obligation of Woco Sharjah was for directly or indirectly furnishing of guidance, advice and assistance with regard to use of product formulae, process technology, know how etc. nature of services under two agreements is distinct even though somewhat interconnected. lot of emphasis has been placed by authorities below on ownership of intangibles, by way of manufacturing technology, what is essentially overlooked is that provision for technical assistance required for use of technology does not require that technology, which is to be used in manufacturing process, is not essentially required to be owned by service provider for use of technology. There is no dispute that Woco Sharjah is capable of rendering these services and has actually rendered these services. It is not in dispute that Woco I.T.A. Nos.: 89 and 3208/Ahd/11, 2637/Ahd/12, 474/Ahd/14 , 63 and 593 /RJT/2015 Assessment years: 2006-07, 07-08, 08-09, 09-10, 10-11 and 11-12 Page 6 of 21 Sharjah was already engaged in manufacturing similar manufacturing activities, as being carried out by assessee now, and it had necessary knowledge, skills and expertise in use of same technology. We have also noted that Chief Technical Officer of Woco Group was based in Sharjah, and this person, being key technical person of Woco Group and working for Woco Sharjah, was indeed in possession of requisite technical skills for rendition of services. In any evet, once there was agreement between Woco Sharjah and assessee for rendition of technical services, it was immaterial as to whether Woco Sharjah was in position to render these services on its own or with help of other group entities. What is, however, clear is that Woco Sharjah had requisite expertise and skills available for rendition of technical services. We have also noted that complete details of Woco Sharjah personnel visiting assessee s facilities is placed on record and evidences of their presence at assessee s facilities is also on record. Once rendition of services is reasonably evidenced, it cannot be open to TPO to disregard same and come to conclusion that these services need not have been compensated for or ought to have been rendered by Woco Germany. In course of ascertaining arm s length price, all that TPO has to examine is as to how much is consideration that assessee would have paid for these services in arm s length situation, rather than sitting in judgment over whether assessee should have incurred these expenses at att. Explaining this principle, coordinate bench of this Tribunal, in case of AWB India Pvt Ltd Vs DCIT [(2015) 152 ITD 779 (Del)], has observed as follows: 15. .His (TPO s) perception that these services are worthless is of no relevance. It is not his job to decide whether business enterprise should have incurred particular expense or not. business enterprise incurs expenditure on basis of what is commercially expedient and what is not commercially expedient. As held by Hon ble jurisdictional High Court in case of CIT Vs EKL Appliances Limited (345 ITR 241), Even Rule 10B(1)(a) does not authorise disallowance of any expenditure on ground that it was not necessary or prudent for assessee to have incurred same . 16. very foundation of action of TPO is thus devoid of legally sustainable merits. There is no dispute that impugned payments are made under arrangement with AE to provide certain services. It is I.T.A. Nos.: 89 and 3208/Ahd/11, 2637/Ahd/12, 474/Ahd/14 , 63 and 593 /RJT/2015 Assessment years: 2006-07, 07-08, 08-09, 09-10, 10-11 and 11-12 Page 7 of 21 not even TPO s case that payments for these services were not made for specific services under contract but he is of view that either services were useless or there was no evidence of actual services having been rendered. As for services being useless, as we have noted above, it is call taken by assessee whether services are commercially expedient or not and all that TPO can see is at what price similar services, whatever be worth of such services, are actually rendered in uncontrolled conditions. [10] We have also noted that authorities below have taken exception to payment being made to Woco Sharjah, even while admitting that similar payment would have been at arm s length if it was to be made to Woco Germany, on ground that Woco Sharjah is located in tax haven, that Had fees been paid to Woco Germany, it might have been taxed there and that assessee has used this route simply evade taxes for Woco Group on income due to it. Thus, as group, company has adopted strategy to make less payments by transferring money to tax haven . So far as determination of arm s length pricing is concerned, all that is to be examined is as to what is arm s length price of transaction in question, irrespective of fact as to whether or not person entering into transaction is in high tax jurisdiction or low tax jurisdiction. If person is in low tax jurisdiction but arm s length price of transaction is same at which transaction is entered into, transaction value cannot be tinkered with. In any event, base erosion, which is sought to be checked by transfer pricing provisions in India, is tax base in India, but then irrespective of whether recipient is in UAE (Sharjah) or Germany, tax withholding rate from fees for technical services is same i.e. @10%. Obviously, Indian transfer pricing cannot be, and is not, concerned with whether Woco Group, as whole, has been able to reduce their tax burden by locating their units rendering technical services outside Germany. authorities below were thus clearly swayed by considerations which were not at all germane to context. [11] Learned Departmental Representative s defence primarily consists of his reliance on decisions of coordinate benches in case of Gemplus India I.T.A. Nos.: 89 and 3208/Ahd/11, 2637/Ahd/12, 474/Ahd/14 , 63 and 593 /RJT/2015 Assessment years: 2006-07, 07-08, 08-09, 09-10, 10-11 and 11-12 Page 8 of 21 Pvt Ltd vs ACIT [(2010) 3 taxmann.com 755 (Bang)] and Deloitte Consulting India Pvt Ltd Vs DCIT [(2012) 19 ITR(Tribunal) 378 (Del)]. He contends that to satisfy arm s length standard, charge for services or intangibles must at least meet following conditions i.e. need for services or intangibles is established, that services or intangibles have actually been received and that benefit from services or intangibles is commensurate with charge. He also contended that if it is established that under similar circumstances, uncontrolled entity would not incur such expenditure, arm s length price in respect of same will be NIL. In present case, technical services are rendered. We are satisfied that these services, being in nature of being in nature of technical assistance for use of technology received from Woco Germany, are distinct from technology itself. These are separate services which are required for efficient use of technology. rendition of these services is not in doubt, as there is contemporaneous evidence for travel and work of personnel of Woco Sharjah. There is nothing to show that independent entity would not have paid anything for these services as these were important services for proper use of technology. In light of our these findings, reliance placed by learned DR on Gemplus (supra) and Delloite (supra) decisions is of no assistance to revenue s case at present. It is also important to bear in mind fact that, even going by revenue s case, agreements that assessee entered into with Woco Germany and Woco Sharjah were essentially interlinked and are required to be viewed as such. As long as technical services are received by assessee, payment for these services cannot be declined on ground that ideally this payment should have been made to German entity. As for contention that all these services, for which Woco Sharjah is paid, are already covered by agreement with Woco Germany, this is factually incorrect. Clearly, therefore, services are rendered, Woco Sharjah is paid for same, and at best, contention of revenue is that these services are de facto rendered by Woco Germany as even personnel of Woco Sharjah who have rendered services are primarily Woco Germany employees on secondment to Woco Sharjah. Nothing on turns on this argument either because as long as services are rendered under arrangement with Woco Sharjah- as is our categorical finding, and irrespective of who renders these services, no arm s length price adjustment can be made to consideration paid for these services unless it is I.T.A. Nos.: 89 and 3208/Ahd/11, 2637/Ahd/12, 474/Ahd/14 , 63 and 593 /RJT/2015 Assessment years: 2006-07, 07-08, 08-09, 09-10, 10-11 and 11-12 Page 9 of 21 established that arm s length price for services received is less than transaction value. That s not case here. It is also contended by learned DR to effect that visit of Woco personnel will be in nature of shareholder services rather than technical services , but then technical services, by no stretch of logic or by any convention, are treated as shareholder services . [12] It is also contended that for product or service, only CUP can be most appropriate method, but then what this argument overlooks is that availability of relevant date are sine qua non for application of any method. On one hand, comparables given by assessee have been rejected, on basis of sweeping generalizations, and no other comparables are given by TPO, and yet CUP method is being sought to be applied. assessee has given CUP analysis, on basis of per mandays of technical services, which shows that in uncontrolled situation, technical service fees, including travel costs, would have been Euros 2,84,115 as against Euros 2,50,000 paid by assessee. No specific infirmities are pointed out in this CUP analysis, save and except for observation that nature of services is substantially different. It has been contended by learned DR that only visits of Lutz Becker, Chief Technical Officer of Woco Group- who is based in Sharjah, should be taken into account as he alone was in position to render any useful services to Woco India, but then ascertainment of ALP is not for consideration paid for visits of this official, as it is not separate transaction, and as long as persons have attended to technical services in question, CUP analysis for fees for technical services has to essentially take into account visits of all these persons since consideration, for CUP analysis, is based on mandays of persons attending to technical services. This plea is also devoid of legally sustainable merits. As noted earlier, no other comparables are brought on record by TPO are either. This is wholly unworkable. Even if CUP is sought to be applied, as canvassed by learned DR, appropriate comparables are to be brought on record, in case comparables adopted by assessee are to be rejected. One cannot proceed on basis that under CUP method these services are worthless and, therefore, NIL value should be adopted. For detailed reasons set out above, such approach is unsustainable in law. assessee has adopted TNMM, as transactions of manufacturing and fees for technical services are I.T.A. Nos.: 89 and 3208/Ahd/11, 2637/Ahd/12, 474/Ahd/14 , 63 and 593 /RJT/2015 Assessment years: 2006-07, 07-08, 08-09, 09-10, 10-11 and 11-12 Page 10 of 21 interlinked, and authorities below have not taken any specific objection to same. [13] In view of these discussions, in our considered view, stand of authorities below cannot be accepted. impugned ALP adjustment of Rs 1,34,85,624 is indeed devoid of any legally sustainable merits and it must stand deleted. We direct that. [14] In result, appeal for assessment year 2006-07 is allowed. [15] As regards appeals for assessment years 2007-08, 2008-09, 2009-10, 2010-11 and 2011-12, there is one common issue in all these years, and that is with regards to arm s length price adjustment in respect of technical services fees paid for assistance in use of knowhow and technology received from Woco Germany. quantum of these ALP adjustments are as follows: 2007-08 Rs 1,47,77,405 2008-09 Rs 1,61,95,898 2009-10 Rs 2,35,87,058 2010-11 Rs 2,64,40,263 2011-12 Rs 1,48,43,000 [16] Learned representatives fairly agree that whatever we decide, on this issue, for assessment year 2006-07 will apply mutatis mutandis for these years as well. In assessment year 2011-12, however, there is small variation. This is year in which instead of agreement with Woco Sharjah, separate agreement with Woco Germany was entered into for technical services fees. Under this agreement, assessee has paid fixed fees of Euros 2,40,000. Once again stand of revenue is that since all these services are already available to assessee under original agreement for transfer of technology, no other services were required and arm s length price for services under this agreement is NIL. This argument must fail for reason, and in view of our categorical finding, that scope of technology transfer agreement and technical services, even though interlinked, is quite distinct and separate. I.T.A. Nos.: 89 and 3208/Ahd/11, 2637/Ahd/12, 474/Ahd/14 , 63 and 593 /RJT/2015 Assessment years: 2006-07, 07-08, 08-09, 09-10, 10-11 and 11-12 Page 11 of 21 [17] In any event, in addition to establishing arm s length price under TNMM, assessee has performed supplementary CUP analysis which shows that fees for technical services was at arm s length, as shown below: Assessment Average rate per day Amount independent Amount charged by year which would have enterprise would have AEs been charged by paid- based on independent number of mandays enterprises (In visited by AEs Euros) personnel 2007-08 718.31 4,62,767 2,50,000 2008-09 759.62 6,87,427 2,81,350 2009-10 856,74 5,32,183 3,55,354 2010-11 907.61 4,23,316 3,89,068 2010-11 907.61 3,00,373 2,40,000 [18] No specific infirmities are pointed out in above, save and except for ones discussed above, in course of our order for assessment year 2006-07, which we have rejected on merits. Obviously, we have no reasons to take any other view of matter for these assessment years as well. [19] In light of our discussions above, as also respectfully following our own order for assessment year 2006-07, these ALP adjustments must also stand deleted. action of authorities below is treating arm s length price for technical services fees at NIL thus stands vacated. assessee gets relief accordingly. [20] So far as appeals for assessment years 2007-08, 2008-09, 2009-10 and 2010-11 are concerned, no other additions, disallowances or ALP adjustments are called into question. [21] In result, therefore, these four appeals (for assessment years 2007-08, 2008-09, 2009-10 and 2010-11) must also, therefore, be held to be allowed in terms indicated above. I.T.A. Nos.: 89 and 3208/Ahd/11, 2637/Ahd/12, 474/Ahd/14 , 63 and 593 /RJT/2015 Assessment years: 2006-07, 07-08, 08-09, 09-10, 10-11 and 11-12 Page 12 of 21 [22] In assessment year 2011-12, however, there is one more issue involved, and that involves question whether issue, not raised in draft assessment order, can at all be raised in assessment order in case of assessees eligible for approaching Dispute Resolution Panel. We will take up this appeal now. [23] This appeal is directed against order dated 20th October 2015 passed by Dy Commissioner of Income Tax, Gandhidham Circile, Gandhidham, under section 143(3) r.w.s. 144C(13) of Income Tax Act, 1961, for assessment year 2011- 12. [24] In first ground of appeal, in substance, grievance of assessee is that Assessing Officer erred in making disallowance of Rs 7,64,15,421 under section 10AA off Act in final assessment order dated 20th October 2015 even though no such disallowance was proposed in draft assessment order dated 30th December 2014 passed under section 143(3) read with section 144C of Act. [25] issue in appeal lies in very narrow compass of undisputed material facts. In draft assessment order issued by Assessing Officer on 30th December 2014, Assessing Officer proposed only APL adjustment of Rs 1,48,43,000. No other addition, disallowance or adjustment was proposed in draft assessment order. This draft order was carried before DRP and proposed adjustment was contested. assessee did not succeed before DRP, and matter was thus again before Assessing Officer for framing of final assessment order. At this stage, in addition to ALP adjustment of Rs 1,48,43,000, Assessing Officer also made disallowance of claim under section 10AA amounting to Rs 7,64,15,421. assessee is aggrieved and in appeal before us. [26] On ground of Assessing Officer s jurisdiction to make this disallowance under section 10AA, short point being made by learned counsel for assessee is that under section 144C(13) Assessing Officer, upon receipt of directions of DRP, shall complete assessment in conformity with directions and without providing any further opportunity of being heard to assessee. Clearly, therefore, adjustment being made at this stage, without having I.T.A. Nos.: 89 and 3208/Ahd/11, 2637/Ahd/12, 474/Ahd/14 , 63 and 593 /RJT/2015 Assessment years: 2006-07, 07-08, 08-09, 09-10, 10-11 and 11-12 Page 13 of 21 been raised in draft assessment order, is contrary to scheme of Section 144C and nullity in law. He contends that once draft assessment order is framed by Assessing Officer, he is functus officio except for implementing directions of DRP. Learned counsel has made elaborate submissions on this and certain other connected legal issues as also on merits of disallowance, but, for reasons we will set out in short while, it is not really necessary to go into these aspects in detail at this stage. [27] Learned Departmental Representative, however, submits that it is inadvertent mistake committed by Assessing Officer and at best matter can be restored to file of Assessing Officer for assessee being given opportunity to approach DRP on this issue. He submits that procedural flaw cannot be allowed to prejudice legitimate interests, of such magnitude, of revenue. In case of procedural irregularity, as in this case, matter should be restored to stage at which illegality has supervened. Learned Departmental representative then invites our attention to cases in which it is held that in case Assessing Officer did not serve draft assessment orders, as required under section 144B- as it then existed, Courts have consistently held that matter is required to be remitted to assessment stage with direction to follow right procedure. [28] We find that so far as section 144C is concerned, there are binding judicial precedents to effect that when procedure contemplated under section 144C is not followed in case of eligible assessee s, assessment order is to be treated as nullity. In case of Capsugel Healthcare Limited Vs ACIT [(2015) 152 ITD 142 (Del)], coordinate bench summed up legal position as follows: 7. We find that issue is covered is now covered in favour in of assessee by judgment of Hon'ble Madras High Court, in case of Vijay Television (P.) Ltd v. Dispute Resolution Panel [2014] 46 taxmann.com 100/225 Taxman 35, wherein Hon'ble High Court has, inter alia, observed 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 I.T.A. Nos.: 89 and 3208/Ahd/11, 2637/Ahd/12, 474/Ahd/14 , 63 and 593 /RJT/2015 Assessment years: 2006-07, 07-08, 08-09, 09-10, 10-11 and 11-12 Page 14 of 21 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. As rightly pointed out by learned senior counsel for petitioners, in order passed on 26.03.2013, second respondent even raised demand as also imposed penalty. Such demand has to be raised only after final order has been passed determining tax liability. very fact that taxable amount has been determined itself would show that it was passed as final order. In fact, notice for demand under Section 156 of Act was issued pursuant to such order dated 26.03.2013 of second respondent. Both order dated 26.03.2013 and notice for demand thereof have been served simultaneously on petitioner. Therefore, not only assessment is complete, but also notice dated 28.03.2013 was issued thereon calling upon petitioner to pay tax amount as also penalty under Section 271 of Act. Thereafter, petitioner was given opportunity of hearing on 12.04.2013. Subsequently, second respondent realised mistake in passing final order instead of draft assessment order which resulted in issuing corrigendum on 15.04.2013. In corrigendum it was only stated that order passed on 26.03.2013 under Section 143C of Act has to be read and treated as draft assessment order as per Section 143C read with Section 93CA (4) read with Section 143 (3) of Act. In and by order dated 15.04.2013, second respondent granted thirty days time to enable assessee to file their objections. On receipt of corrigendum dated 15.04.2013, petitioner company approached first respondent, but first respondent declined to issue any direction to assessment officer on ground that first respondent has got jurisdiction only to entertain such appeal if order passed by second respondent is pre-assessment order. Therefore, it is evident that first respondent declined to entertain objections raised by petitioner company on ground that order passed by second respondent is not draft assessment order, rather it is final order. Thus, first respondent had treated order dated 26.03.2013 of second respondent as final order and therefore it refused to entertain objections filed on behalf of petitioner company. 22. As mentioned supra, as per Section 144C (1) of Act, 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 decision of Honourable Supreme Court in decision Deepak Agro Foods (supra) wherein in Para No.10, Honourable I.T.A. Nos.: 89 and 3208/Ahd/11, 2637/Ahd/12, 474/Ahd/14 , 63 and 593 /RJT/2015 Assessment years: 2006-07, 07-08, 08-09, 09-10, 10-11 and 11-12 Page 15 of 21 Supreme Court discussed as to when order could be construed as final order: "10. Shri Rajiv Dutta, learned senior counsel appearing on behalf of appellant, submitted that in light of its afore-extracted observations and clear finding that assessment order for assessment year 1995-96 had been anti-dated, order was null and void. It was urged that assessment proceedings after expiry of period of limitation being nullity in law, High Court should have annulled assessment and there was no question of fresh assessment. Thus, nub of grievance of appellant is that in remanding matter back to Assessing Officer, High Court has not only extended statutory period prescribed for completion of assessment, it has also conferred jurisdiction upon Assessing Officer, which he otherwise lacked on expiry of said period." 23. It is evident from above decision of Honourable Supreme Court that if order is passed beyond statutory period prescribed, such order is nullity and has no force of law. In that case before Honourable Supreme Court, period for assessment proceedings expired and thereafter, fresh assessment orders have been issued by anti-dating it. In those circumstances, it was held that High Court ought not to have remanded matter back to assessment officer and by doing so, statutory period prescribed for completion of assessment has been extended by conferring jurisdiction upon Assessing Officer, which he otherwise lacked on expiry of said period. In that case, Honourable Supreme Court also held that there is distinction between order which is nullity and order which is irregular and illegal. Where authority making order lacks inherent jurisdiction, such order will be null and void ab initio, as defect of jurisdiction goes to root of matter and strikes at his very authority to pass any order and such defect cannot be cured even by consent of parties. 24. This decision squarely applies to facts of this case. In this case, order passed by second respondent lacks jurisdiction especially when it is beyond period of limitation prescribed by statute. When there is statutory violation in not following procedures prescribed, such order cannot be cured by merely issuing corrigendum. 25. In decision rendered by Honourable Supreme Court of India in case of (L. Hazari Mal Kuthiala (supra), which was relied on by learned standing counsel for respondents, it was held that mistake or defect on part of Commissioner to consult Central Board of Revenue did not render his order invalid since provision about consultation in terms of Section 5 (3) of Patiala Act was merely directory and not mandatory. In present case, procedure that was required to be followed by second respondent to pass draft assessment order is mandatory and it is I.T.A. Nos.: 89 and 3208/Ahd/11, 2637/Ahd/12, 474/Ahd/14 , 63 and 593 /RJT/2015 Assessment years: 2006-07, 07-08, 08-09, 09-10, 10-11 and 11-12 Page 16 of 21 prescribed by statute. Therefore, this decision relied on by learned standing counsel for respondents cannot be made applicable to this case. 26. learned senior counsel for petitioners relied on decision of Allahabad High Court in case of Shital Prasad Kharag Prasad (supra) wherein Division Bench of Allahabad High Court held that notice contemplated under Section 148 of Income Tax Act is jurisdictional notice and it is not curable by issuing notice under Section 292 B of Act, if it was not served in accordance with provisions of Act. 27. Similarly, Division Bench of this Court in decision in case of V. Ramaiah (supra) Madras held that when order is passed under Section 158BC of Act instead of Section 158BD, it is not valid since it is not defect curable under Section 292B of Act. It was also held that order passed after period of limitation laid down in Section 158BC is not valid order. It was further held that when there is prescribed procedure contemplated under Act or in particular section and it is violated, then it cannot be cured. In present case, certain procedure has been contemplated under Section 144C of Act and they have been violated by second respondent by passing final order of assessment and therefore such order passed by second rspondent has got no jurisdiction or it can be cured by virtue of issuing corrigendum. 28. By referring to decision of Division Bench of this Court dated 10.02.2014 passed in Tax Case (Appeal) No. 2412 of 2006, learned standing counsel for respondents sought to make distinction with decision of Division Bench of this Court mentioned in preceding paragraph. That is case where facts relating to order covered in decision of Honourable Supreme Court, which Division Bench relied on, could not be made applicable to facts of that case and therefore it was not discussed by Division Bench in order dated 10.02.2014. For more clarity, relevant portion of decision of Division Bench of this Court in case of V. Ramaiah (supra) is extracted hereunder: "Certainly passing order of assessment under Section 158BC instead of Section 158BD (inspite of clear terminology used in both sections) would not amount to mistake, defect or omission, much less curable one. When different contingencies are dealt with under different sections of Act, allowing illegality to be perpetrated and then taking plea by Revenue that such action adopted on their part would not nullify proceedings, cannot be appreciated since by virtue of such actions, Revenue has attempted to nullify scheme of things of limitations legally propounded under Act...." 29. In yet another decision of Division Bench of this Court in case of Smt. R.V. Sarojini Devi (supra), which was relied on by learned senior counsel for petitioners, it was held as follows: I.T.A. Nos.: 89 and 3208/Ahd/11, 2637/Ahd/12, 474/Ahd/14 , 63 and 593 /RJT/2015 Assessment years: 2006-07, 07-08, 08-09, 09-10, 10-11 and 11-12 Page 17 of 21 "Under Section 158BC of Act empowers assessing officer to determine undisclosed income of block period in manner laid down in Section 158BB and 'the provisions of Section 142, sub-sections (2) and (3) of Section 143, Section 144 and Section 145 shall, so far as may be apply. This indicates that this clause enables Assessing Officer, after return is filed, to complete assessment under Section 143 (2) by following procedure like issue of notice under Section 143 (2)/142. This does not provide accepting return as provided under Section 143 (1) (a). Officer has to complete assessment order under Section 143 (3) only. If assessment is to be completed under Section 143 (3) read with Section 158BC, notice under Section 143 (2) should be issued within one year from date of filing of block return. Omission on part of assessing officer to issue notice under Section 143(2) cannot be procedural irregularity and is not curable." 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 Ltd. (supra), wherein it was held as under: "A 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 I.T.A. Nos.: 89 and 3208/Ahd/11, 2637/Ahd/12, 474/Ahd/14 , 63 and 593 /RJT/2015 Assessment years: 2006-07, 07-08, 08-09, 09-10, 10-11 and 11-12 Page 18 of 21 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 I.T.A. Nos.: 89 and 3208/Ahd/11, 2637/Ahd/12, 474/Ahd/14 , 63 and 593 /RJT/2015 Assessment years: 2006-07, 07-08, 08-09, 09-10, 10-11 and 11-12 Page 19 of 21 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.' 8. Learned Departmental Representative, on other hand, submits that this lapse on part of Assessing Officer is at best procedural lapse and matter should, therefore, be restored to file of Assessing Officer for adjudication de novo. 9. We are, however, unable to see any legally sustainable merits in stand so taken by learned Departmental Representative. Hon'ble High Court's esteemed views, as extracted above, bind us and we have to respectfully follow same. Accordingly, in due deference to this binding judicial precedent, and other binding judicial precedents referred to therein, we quash impugned assessment order. It is legal nullity. As for show cause notice issued by Assessing Officer, before making ALP adjustment, this cannot be treated as draft assessment order nor assessee could have approached DRP against same. Learned CIT(A) was thus clearly in error in equating show cause notice with draft assessment order against, and thus rationalizing impugned assessment order. stand of CIT(A) cannot be upheld. In case in which no draft assessment order is furnished to assessee, to which assessee is entitled under section 144C (15), assessment order passed by AO is to be held is illegal and liable to be quashed on this ground alone. We do so. I.T.A. Nos.: 89 and 3208/Ahd/11, 2637/Ahd/12, 474/Ahd/14 , 63 and 593 /RJT/2015 Assessment years: 2006-07, 07-08, 08-09, 09-10, 10-11 and 11-12 Page 20 of 21 [29] In this view of matter, it cannot be open to us to proceed on basis of judicial precedents in cases dealing with Section 144B as it then existed. Undoubtedly, in context of Section 144B, which then required Assessing Officer to issue draft assessment orders in certain situations to enable assessee to approach DCIT before issuance of final assessment orders, it was held that even when Assessing Officer directly passed final assessment orders, without issuance of any draft assessment orders first, such lapse on part of Assessing Officer was nothing more than procedural lapse, which at best required matter being restored to assessment stage for. However, as noted above, coordinate benches, as also Hon ble Madras and AP High Courts, have held that when draft assessment order is not issued by Assessing Officer, final assessment order is nullity. That s altogether different approach and it binds us being directly in context of section 144C. Now that Hon ble Courts above, even if non jurisdictional High Court, have followed different path, we must respectfully follow same. Of course, as on now, this issue is open issue before Hon ble Gujarat High Court, and whatever we hold now is, and shall always remain, subject to esteemed views of Their Lordships. right forum for grievance of revenue, which can take independent call, is, therefore, before Hon ble Courts above. Be that as it may, in light of legal position as it stands now in light of binding judicial precedents before us, any non-compliance with scheme of Section 144C is fatal to assessment itself. As corollary thereto, when issue is not raised in draft assessment order, it cannot be raised in final assessment order either. As learned counsel rightly points out, once draft assessment order is passed by AO and matter is even carried before DRP by assessee, all that Assessing Officer can do, while framing final assessment order, is to frame final assessment order in light of draft assessment order and directions of DRP. We are in considered agreement with learned counsel s contention that no other issue, other than issues taken up in draft assessment order and directions of DRP, can be taken up by Assessing Officer at stage of passing final assessment order. Any other view of matter will be contrary to scheme of Section 144C. In this view of matter, and without dealing with other contentions which are academic at this stage, we hold that impugned disallowance of Rs 7,64,15,421, in respect of claim under I.T.A. Nos.: 89 and 3208/Ahd/11, 2637/Ahd/12, 474/Ahd/14 , 63 and 593 /RJT/2015 Assessment years: 2006-07, 07-08, 08-09, 09-10, 10-11 and 11-12 Page 21 of 21 section 10AA, is wholly unsustainable in law. We, accordingly, delete same as well. [30] assessee has also raised some other legal issues including core legal issues on merits of admissibility of deduction under section 10AA and on impermissibility of reference to TPO- without affording assessee opportunity of hearing before doing so, but, having decided matter on merits, we see no need to deal with these issues. All those issues and related grounds of appeal have, in light of assessee having succeeded on merits as above, been rendered academic and infructuous. [31] In result, appeal for assessment year 2011-12 is also allowed. To sum up, all six appeals are allowed in terms indicated above. Pronounced in open court today on 29th day of September 2016. Sd/xx Sd/xx S S Godara Pramod Kumar (Judicial Member) (Accountant Member) Ahmedabad, dated 29th day of September, 2016 Copies to: (1) appellant (2) respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order Assistant Registrar Income Tax Appellate Tribunal Rajkot bench, Rajkot Woco Motherson Advanced Rubber Technologies Limited v. Dy Commissioner of Income Tax Gandhidham Circle, Gandhidham