IN INCOME TAX APPELLATE TRIBUNAL PUNE BENCH C , PUNE BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI PARTHA SARATHI CHAUDHURY, JUDICIAL MEMBER . ITA No.649/PUN/2013 & 1726/PUN/2014 / Assessment Years : 2008-09 & 2009-10 DCIT, Circle-8, Atlas Copco (India) Limited, Pune Vs. Sveanagar, Dapodi, Pune 411 012 PAN : AAACA4074D (Appellant) (Respondent) C.O. Nos.34 & 35/PUN/2019 (Arising out of ITA Nos. 649/PUN/2013 & 1726/PUN/2014) / Assessment Years : 2008-09 & 2009-10 Atlas Copco (India) DCIT, Circle-8, Limited, Vs. Pune Mumbai Pune Road, Dapodi, Pune 411 012 PAN : AAACA4074D (Cross Objector) (Appellant in appeal) Assessee by Shri R. Murlidhar, Advocate Revenue by Shri M.K. Gautam, CIT-DR Date of hearing 26-08-2019 Date of pronouncement 29-08-2019 / ORDER PER R.S.SYAL, VP : Revenue has filed two appeals in relation to assessment years 2008-09 and 2009-10 against orders passed 2 Atlas Copco (India) Limited A.Yrs. 2008-09 and 2009-10 by CIT(A)-IT/TP on 18-12-2012 and 30.6.2014 respectively. assessee has also filed Cross objections for said years. 2. Cross objection for A.Y. 2008-09 is late by 1965 days. Similar cross objection filed by assessee for A.Y. 2009-10 is also late by 1018 days. assessee has moved application for condonation of delay. ld. AR submitted that assessee was not properly advised by its then counsel for espousing legal issue now sought to be raised in Cross objections, which is fundamental in nature. ld. DR strongly opposed condonation of delay. 3. It is seen that through Cross objections, assessee has raised legal ground challenging validity of assessment order passed u/s.143(3) r.w.s. 144C of Income-tax Act, 1961 (hereinafter also called `the Act ). moot point is as to whether such long delay deserves condonation. At this stage, it is relevant to note judgment of Hon ble Bombay High Court in Vijay Vishin Meghani Vs. DCIT & Anr (2017) 398 ITR 250 (Bom) holding that none should be deprived of adjudication on merits unless it is found that litigant deliberately delayed filing of appeal. Similar to cases under consideration, in that 3 Atlas Copco (India) Limited A.Yrs. 2008-09 and 2009-10 case too, delay of 2984 days crept in due to improper legal advice. Relying on Concord of India Ins. Co. Limited VS Nirmala Devi (1979) 118 ITR 507 (SC), Hon ble jurisdictional High Court condoned delay. 4. In yet another case in Anil Kumar Nehru and Another vs. ACIT (2017) 98 CCH 0469 BomHC, there was delay of 1662 days in filing appeal. Such delay was not condoned by Hon ble High Court. In further appeal, condoning delay, Hon ble Supreme Court in Anil Kumar Nehru vs. ACIT (2018) 103 CCH 0231 ISCC, held that : `It is matter of record that on identical issue raised by appellant in respect of earlier assessment, appeal is pending before High Court. In these circumstances, High Court should not have taken such technical view of dismissing appeal in instant case on ground of delay, when it has to decide question of law between parties in any case in respect of earlier assessment year. For this reason we set aside order of High Court; condone delay for filing appeal and direct to decide appeal on merits. 5. Turning to facts of instant cases, we find that assessee has raised legal ground through these Cross objections, 4 Atlas Copco (India) Limited A.Yrs. 2008-09 and 2009-10 which goes to root of matter. It would be seen infra that said legal issue is squarely covered in assessee s favour by several orders passed by Tribunal including those by Pune Benches. Under these circumstances, we condone delay and take up Cross objections for disposal on merits. A.Y. 2008-09 : 6. first legal issue raised by assessee in its cross objection is as under: Validity of Order passed u/s. 143(3) r.w.s 144C of Income- tax Act. 1961: 1. On facts and in circumstances of case and in law, learned Assessing Officer (Ld. AO) erred in passing draft assessment order dated December 29, 2011 without following mandate as laid down under section 144C of Income-tax Act, 1961 (the Act). Respondent prays that said draft assessment order be held as void-ab-initio, bad in law and illegal and consequently entire assessment ought to be quashed. 2. On facts and in circumstances of case and in law, Ld. AO erred in issuing notice of demand under section 156 and notice under section 274 read with section 271(1)(c) of Act along with said draft assessment order, thereby not following mandate as laid down under section 144C of Act. Respondent prays that said draft assessment order be held as void-ab-initio, bad in law and illegal and consequently entire assessment ought to be quashed. 7. Briefly stated, facts of case are that assessee filed its return declaring income of Rs.1,44,59,01,250/-. Certain 5 Atlas Copco (India) Limited A.Yrs. 2008-09 and 2009-10 international transactions were reported by assessee. Assessing Officer (AO) made reference to Transfer Pricing Officer (TPO) for determining arm s length price (ALP) of international transactions. TPO passed order u/s. 92CA(3) of Act proposing transfer pricing adjustments. Then, AO passed order u/s.143(3) of Act on 29-12-2011 marking it as Assessment order . At end of this order, AO remarked that: `This is proposed order of assessment passed u/s.143(3) r.w.s.144C(1) of Income Tax Act, 1961 determining total income at Rs.1,56,72,76,785/-. assessee was also made aware that: `within 30 days of receipt of this draft order , it should either file acceptance to variations or file objections to such variations before Dispute Resolution Panel. Thereafter, AO proceeded to calculate tax in same order directing to Issue demand notice and challan accordingly after giving credit to prepaid taxes, if any and further directing to `Issue notice u/s.274 r.w.s. 271(1)(c) of I.T. Act, 1961 . demand notice dated 29-12-2011 was also simultaneously issued, copy of which has been placed on record by ld. AR. Then, AO issued penalty notice u/s.274 r.w.s. 271(1)(c) of Act, again, on 29-12-2012, whose copy has also been placed on record. Thereafter, AO 6 Atlas Copco (India) Limited A.Yrs. 2008-09 and 2009-10 passed final assessment order dated 27-02-2012 u/s.143(3) r.w.s. 144C of Act determining total income at Rs.156.73 crore. 8. From above factual matrix, it is seen that AO passed draft order by designating it as Assessment order u/s 143(3) of Act on 29-12-2011 and also issued notice of demand u/s.156 along with initiation of penalty proceedings. Thereafter, he passed final assessment order again characterizing it as `Assessment order on 27-2-2012. Under such circumstances, assessee has raised issue that final assessment order lacked validity and hence should be quashed as AO/TPO failed to follow statutorily prescribed procedure u/s.144C of Act. 9. Section 144C of Act with marginal note Reference to Dispute Resolution Panel provides through sub-section (1) of section 144C that: 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 7 Atlas Copco (India) Limited A.Yrs. 2008-09 and 2009-10 interest of such assessee. Sub-section (2) of section 144C states that assessee shall either file his acceptance to AO on variations proposed in draft order or file his objections, if any, with DRP. In case, assessee accepts variation in draft order or no objections are received within 30 days, then sub- section (3) states that: `The Assessing Officer shall complete assessment on basis of draft order . In case, assessee does not agree with draft order, it can, inter alia, raise objections before DRP, which shall issue directions under sub- section (5) of section 144C. Upon receipt of directions from DRP, AO completes assessment under sub-section (13) in conformity with directions given by DRP. 10. overview of section 144C of Act deciphers that draft order passed under sub-section (1) is only tentative order which does not fasten any tax liability on assessee. In case variations to income in draft order are accepted by assessee or no objections are received within 30 days, AO completes assessment under section 144C(3) on basis of draft order and matter ends. In case assessee objects to variations in income as proposed in draft order and approaches DRP, final assessment order is passed by AO u/s.144C (13) giving 8 Atlas Copco (India) Limited A.Yrs. 2008-09 and 2009-10 effect to directions given by DRP under sub-section (5). In case assessee seeks to take route of seeking redressal of its grievances through channel of CIT(A), in that case, again AO has to pass separate assessment order, which is obviously distinct from draft order. So, it is only on finalization of variation in income as per draft order, to extent specified in provision, that AO is obliged to pass assessment order, either under sub-section (3) or (13) of section 144C of Act, determining tax liability, pursuant to which notice of demand is issued. Thus it follows that, irrespective of course of action followed by assessee, whether or not accepting variation in draft order or choosing route of DRP or CIT(A), draft order has to be necessarily followed by assessment order on basis of which notice of demand is issued and it is then that assessment is said to have come to end. 11. Hon ble Apex Court in Kalyan Kumar Ray (1991) 191 ITR 634 (SC) has held that assessment order involves determination of income and tax. It laid down that: ` Assessment' is one integrated process involving not only assessment of total income but also determination of tax. latter is as 9 Atlas Copco (India) Limited A.Yrs. 2008-09 and 2009-10 crucial for assessee as former. Again Hon ble Summit Court in Auto and Metal Engineers vs. UOI (1998) 229 ITR 399 (SC) has held that process of assessment involves (i) filing of return of income under s. 139 or under s. 142 in response to notice issued under s. 142(1) ; (ii) inquiry by AO in accordance with provisions of ss. 142 and 143 ; (iii) making of order of assessment by AO under s. 143(3) or s. 144; and (iv) issuing of notice of demand under s. 156 on basis of order of assessment. process of assessment thus commences with filing of return or where return is not filed, by issuance by AO of notice to file return under s. 142(1) and it culminates with issuance of notice of demand under s. 156. On going through above precedents, it is manifested that assessment proceedings come to end on issue of notice of demand u/s 156 of Act. Once notice of demand is issued, AO becomes functus officio in so far as completion of assessment is concerned. It consequently follows that issue of notice of demand marks completion of assessment. 12. Turning to facts of instant case, it turns out that AO issued notice of demand on 29.12.2011 tantamounting to legally finalizing assessment, which was just stage of draft 10 Atlas Copco (India) Limited A.Yrs. 2008-09 and 2009-10 order. As against that, it was incumbent upon him to statutorily pass final assessment order after draft order and then issue notice of demand. Issue of notice of demand brings down curtain on process of assessment. Until notice of demand is issued, assessment cannot be said to have concluded. 13. Hon ble Madras High Court in Vijay Television (P) Ltd. Vs. DRP (2014) 369 ITR 113 (Mad.) was confronted with situation in which AO, pursuant to order of TPO, passed final assessment order instead of draft order. question arose as to whether order so passed could be treated as valid order. Accepting contention of assessee, Hon ble High Court set aside order passed by AO by observing that: where there was omission on part of AO to follow mandatory procedures prescribed in Act, such omission cannot be termed as mere procedural irregularity and it cannot be cured . Resultantly, assessment order was quashed. Almost similar issue came up for consideration before Hon ble jurisdictional High Court in Pr. CIT Vs. Lionbridge Technologies Pvt. Lt. (2019) 260 Taxman 273 (Bom.) in which Tribunal in first round restored matter to AO on ground that DRP failed to 11 Atlas Copco (India) Limited A.Yrs. 2008-09 and 2009-10 deal with assessee s objections. During remand proceedings, reference was made to TPO. On receipt of TPO s order, AO straightaway passed order u/s.143(3) r.w.s. 144C(13), which action came to be disapproved by Hon ble High Court. It, ergo, follows that statutorily mandated procedure must be adhered to by authorities, non-observance of which renders assessment order null and void. 14. Similar issue came up for consideration before Pune Benches of Tribunal in Skoda Auto India Ltd. Vs. ACIT. In that case also AO passed draft order and simultaneously issued notice of demand and initiated penalty proceedings by issuing notice u/s 274 of Act. It was thereafter that final assessment order was passed. assessee challenged legality of final assessment order. Vide its order dated 02-07-2019, Tribunal in ITA No.714/PUN/2011 has held that demand got crystallised on passing of draft order pursuant to issue of demand notice which is contrary to relevant provision of Act. Ex Consequenti, draft order was held to be invalid in law and consequential assessment order void ab-initio. 12 Atlas Copco (India) Limited A.Yrs. 2008-09 and 2009-10 15. ld. DR buttressed his point of view by relying on order passed by Hyderabad Benches in BS Ltd. Vs. ACIT (2018) 94 taxmann.com 346 (Hyderabad-Trib.) in which it has been held that issuance of demand notice along with draft order is only procedural mistake. In our considered opinion, this case does not advance Departmental stand. Unlike assessee in instant case not raising objections before DRP and pursuing appeal straight away before ld. CIT(A), assessee in that case adopted route of DRP. Be that as it may, it is found that similar issue came up for consideration before Pune Benches of Tribunal in series of cases including Eaton Fluid Power Ltd. Vs. DCIT (2018) 96 taxmann.com 512 (Pune Trib.). In that case also, AO passed draft order u/s.143(3) r.w.s. 144C(1) of Act. Thereafter, he issued notice of demand u/s.156 and initiated penalty proceedings u/s.271(1)(c) of Act. When this infirmity in not following statutorily mandated procedure was pointed out, Tribunal declared assessment order to be without jurisdiction and hence, null and void. 16. It is observed that facts and circumstances of instant case are similar to those considered by Pune Benches of 13 Atlas Copco (India) Limited A.Yrs. 2008-09 and 2009-10 Tribunal in case of Skoda Auto India Ltd. Vs. ACIT (supra) and Eaton Fluid Power Ltd. Vs. DCIT (supra). As AO in extant case issued notice of demand at stage of draft order, which, actually ought to have been done at stage of passing final order, thereby assigning finality to assessment at stage of draft order itself, we hold that resultant final assessment order got vitiated in eyes of law and hence cannot stand. 17. Before parting, we would like to clarify that for assessment year 2006-07 also, assessee took similar argument urging that assessment order be declared null and void. We have noted above that assessment proceedings get completed on issue of notice of demand only. On examination of facts, Tribunal for such earlier year found that even though penalty notice was issued u/s 274 but no notice of demand was issued u/s 156 of Act pursuant to draft order. It was under such circumstances that Tribunal in ITA No. 1470/Pun/2010 vide its order dated 21.08.2019 did not accept contention of assessee to effect that assessment got concluded on passing of draft order and hence final assessment order was nullity. It is altogether different matter that initiation of penalty through draft order carried some infirmity, but that 14 Atlas Copco (India) Limited A.Yrs. 2008-09 and 2009-10 would not impinge upon validity of assessment order. 18. To sum up, we set-aside assessment order by declaring it to be null and void. Thus, income offered in return becomes total income of assessee. A.Y. 2009-10 : 19. Here also, assessee has raised first issue in its Cross objection challenging validity of assessment order passed by AO on ground that AO issued notice of demand u/s.156 and also penalty notice along with draft order. 20. For this year, it is observed that assessee filed return declaring total income at Rs.128.23 crore. Certain international transactions were reported. AO made reference to TPO for their benchmarking. TPO proposed transfer pricing adjustment of Rs.6.33 crore in relation to international transaction of Indenting Commission; Rs.1.25 core in payment of Royalty; and Rs.1.00 crore on account of difference in price of products sold to Associated Enterprises and Non-Associated Enterprises. AO passed Assessment order u/s.143(3) r.w.s. 144C(1) of Act on 28-03-2013. He not only computed 15 Atlas Copco (India) Limited A.Yrs. 2008-09 and 2009-10 total income, but also computed amount of interest u/ss 234B to 234D in assessment order itself. At end of assessment order, he directed to issue demand notice for Rs.4.32 crore, which is inclusive of interest and also simultaneously initiated penalty proceedings u/s.271(1)(c) by means of notice u/s.274. copy of demand notice has also been placed on record. final assessment order came to be passed later on 30-04-2013. Challenge has been laid in assessee s Cross objection to validity of final assessment order on ground that AO completed assessment at stage of passing of draft assessment order by not only issuing notice of demand u/s.156 but also initiating penalty u/s.271(1)(c) of Act. 21. Having heard both sides, it is observed that facts and circumstances for this year are mutatis mutandis similar to those of preceding year discussed hereinabove. Following same view, we declare assessment order to be null and void. In view of this, income declared by assessee in return of income becomes final. 22. In light of our decision on first issue raised in Cross objections of assessee for two years under 16 Atlas Copco (India) Limited A.Yrs. 2008-09 and 2009-10 consideration in quashing assessments, there is no need to deal with grounds raised by Revenue in its appeals on merits. 23. In result, Cross objections are partly allowed in so far as validity of assessment orders is concerned and appeals of Revenue are dismissed. Order pronounced in Open Court on 29th August, 2019. Sd/- Sd/- (PARTHA SARATHI CHAUDHURY) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT Pune; Dated : 29th August, 2019 /Copy of Order is forwarded to: 1. Appellant; 2. Respondent; 3. CIT(A)-IT/TP, Pune 4. CIT-V, Pune 5. DR C , ITAT, Pune; 6. Guard file. BY ORDER, True Copy Senior Private Secretary , ITAT, Pune 17 Atlas Copco (India) Limited A.Yrs. 2008-09 and 2009-10 Date 1. Draft dictated on 26-08-2019 Sr.PS 2. Draft placed before author 28-08-2019 Sr.PS 3. Draft proposed & placed JM before second member 4. Draft discussed/approved JM by Second Member. 5. Approved Draft comes to Sr.PS Sr.PS/PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to Bench Clerk Sr.PS 9. Date on which file goes to Head Clerk 10. Date on which file goes to A.R. 11. Date of dispatch of Order. DCIT, Circle-8, Pune v. Atlas Copco (India) Limited