ACIT, Ludhiana vs Getrag Hi-Tech Gears Pvt. Ltd.

No draft order provided to the assessee as required u/s 144C; CIT (A) rules in favour of assessee; Appeal filed by the Income Tax Department; cross objections filed by the assessee.

Income Tax Appellate Tribunal, Chandigarh (March 11, 2016)

Getrag Hi – Tech Gears Pvt. Ltd., … vs Assessee on 11 March, 2016
       IN THE INCOME TAX APPELLATE TRIBUNAL
            DIVISION BENCH, CHANDIGARH

      BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER
         AND MS. RANO JAIN, ACCOUNTANT MEMBER


                      ITA No.823/Chd/2012
                  ( Assessment Year : 2008-09)


The A.C.I.T.,     Vs.        M/s Getrag Hi Tech Gears Pvt. Ltd.,
Circle-I,                    E-685, Phase-VIII, Focal Point,
Ludhiana.                    Ludhiana.
                             PAN: AABCG 1650J



                             And

                  C.O.No.29/Chd/2012

                        Arising out of

                  ITA No. 823/Chd/2012
                (Assessment Year : 2008-09)


M/s Getrag Hi Tech Gears Pvt. Ltd.,         Vs.        The A.C.I.T.,
E-685, Phase-VIII, Focal Point,                        Circle-I,
Ludhiana.                                              Ludhiana.
PAN: AABCG 1650J
(Appellant)                                            (Respondent)

      Assessee by       :    Shri Ajay Sharma, DR
      Department by :        S/Shri Ashwani Kumar
                             & Aditya Kumar

      Date of hearing                 :     14.01.2016
      Date of Pronouncement           :     11.03.2016



                            O R D E R

PER RANO JAIN, A.M. :

The appeal filed by the Revenue is directed against the order of learned Commissioner of Income 2Tax (Appeals)-I, Ludhiana dated 3.5.2012 for assessment year 2008-09. The assessee has filed Cross Objections against the same.

2. Briefly, the facts of the case are that the assessee is engaged in the business of manufacturing timing gears under 100% EOU status since 01.07.2000. The assessee filed its return of income for the relevant assessment year as on 25.9.2009 showing income of Rs.Nil. Since there were certain international transactions involved in the case of the assessee as prescribed under section 90CA(3) of the Income Tax Act (in short ‘the Act’), the case was referred by the Assessing Officer to the Transfer Pricing Officer (TPO) under section 92 of the Act.

3. Before the Transfer Pricing Officer, assessee filed a detailed transfer pricing report. However the TPO rejected the transfer pricing study maintained by the assessee and rejecting the comparables as adopted by the assessee in the transfer pricing study, carrying his own transfer pricing study, applying various filters, adopted some new comparable and recommended adjustment of an amount of Rs.6,16,68,296/. The Assessing Officer made the addition of this amount of Rs.6,16,68,296/- as proposed by the transfer pricing officer on account of difference between the Arm’s Length Price as computed by the transfer pricing officer and that computed by the assessee.

4. The assessee took the matter before the CIT (Appeals). The contentions of the assessee before the CIT (Appeals) were many fold. One of the contentions was that the Assessing Officer has not complied with the provisions of section 144C of the Act as no draft order was provided to the assessee before proceeding to frame the assessment order and thereby the assessee has been deprived of the opportunity and the right of filing appeal before the Dispute Resolution Panel. Further on the merits of the case the contentions of the assessee were that the TPO has wrongly rejected the comparables adopted by the assessee and substituted the same with his own new comparables. Another contention raised was that it had incurred losses due to extraordinary circumstances including those which were beyond the control of the assessee. It was stated that the assessee had incurred extraordinary expenses amounting to Rs.5,34,97,190/- which included premium rate, product rectification charges, stores and spares, power and fuel, personnel expenses, depreciation, internal rejections and travelling expenses. Since these expenses were incurred due to development and production of new product called DCX gears, these were claimed to be extraordinary expense. The CIT (Appeals) while adjudicating the appeal of the assessee rejected the legal ground raised by the assessee holding that the provisions as contained under section 144C have been brought into the statute w.e.f. 10.04.2009 by the Finance Act 2009 and therefore would 4not be applicable retrospectively to assessment year 2008-

09. However while adjudicating the issues of the assessee on merits, the CIT (Appeals) gave a categorical finding that the Assessing Officer has not given due adjustment to certain extraordinary items of expenditure/loss even though he has accepted that the same was due to the assessee. These expenses were foreign exchange fluctuation, airfreight and internal rejections. The CIT (Appeals) after giving effect of due adjustment on these extraordinary items calculated the Price of the international transactions entered into by the assessee and held that these were at Arm’s length. In this way the CIT (Appeals) gave a relief to the assessee on the merits of the case.

5. Aggrieved by the orders of the CIT (Appeals), the Department has come in appeal before us raising the following grounds of appeal :

1. That the Ld.CIT(A) has erred in law in deleting addition of Rs.6,16,68,296/-made by the AO as Transfer Pricing adjustment u/s 92C A in export of finished goods to the Associated Enterprises segments which is based on the report of TPO duly confronted to assessee during the course of assessment proceedings.

2. That the Ld.CIT(A) has erred in law and facts for not appreciating the decision on computation of Arm’s Length Price u/s 92CA of the I.T. Act, 1961.

5

3. That the order of the Ld CIT(A) be set aside and that of A.O. be restored.

4. That the appellant craves leave to add or amend any ground of appeal before it is finally disposed off.

6. As against this the assessee has filed a cross objection and raised the following grounds :

“1. That the Ld. CIT(A)-I, Ludhiana gravely erred in not holding the order passed by the Ld. Assessing Officer as void /invalid in as much as no reference was allowed to be made to the Dispute Resolution Panel regarding the variation in the income returned and the income proposed in the draft order as per provisions of Section 144C of the Income Tax Act, 1961.

2. That he gravely erred in holding hat provisions of section 144C brought into the Statute w.e.f. 01.04.2009 by Finance Act, 2009 were not applicable to A/Y 2008-

09.”

7. The main contention of the assessee in its cross objection is that the Assessing Officer has not complied with the provisions of section 144C, as no draft order was provided to it. Since the issue involved in the cross objection is a legal issue we intend to adjudicate the same first.

8. The learned counsel for the assessee while arguing before us stated that by not complying the provisions of section 144C i.e. not providing the draft order the Assessing Officer has deprived of the assessee opportunity and the right of filing objections before the 6Dispute Resolution Panel(DRP). Our attention was invited to the provisions of section 144C of the Act, whereby it has been provided that the Assessing Officer is obliged to forward a draft of the proposed order of assessment to the assessee if he intends to make on or after the 1st day of October 2009 any variation in the income or loss returned by the assessee. It was also brought to our notice that the order of the TPO is dated 21.10.2011, while the order of the assessing officer in the present case is dated 26.12.2011. In view of this it was contended that the order passed by the Assessing Officer is bad in law and liable to be quashed. Reliance was placed on the judgement of the High Court of Madras in the case of Vijay Television (P) Ltd. versus DRP (2014) 369 ITR 113. A copy of the order of the Supreme Court dismissing the SLP filed against the order of the Andhra Pradesh High Court in the case of Zuari cement limited versus ACIT in WP No. 5557 of 2012 dated 21.02.2013 was also filed to bring on record the fact that the judgement of the Andhra Pradesh High Court in the case of Zuari Cement has been affirmed by the Supreme Court. In this judgement of the Andhra Pradesh High Court it was held that that the passing of the assessment order without giving assessee draft assessment order is bad in law and is liable to be quashed.

9. The learned D.R. in reply relied on the order of the CIT (Appeals) and stated that the provisions of section 7 144C have been brought into the statute w.e.f. 1.4.2009 by the Finance Act 2009 and therefore would not be applicable retrospectively to assessment year 2008-09. Since the case pertains to assessment year 2008-09 these provisions are not applicable to it.

10. We have heard the learned representatives of both the parties, perused the findings of the authorities below and considered the material available on record. The provisions of Section144C of the Act read as under:

144C. (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 in the income or loss returned which is prejudicial to the interest of such assessee.

(2) On receipt of the draft order, the eligible assessee shall, within thirty days of the receipt by him of the draft order,–

(a) file his acceptance of the variations to the Assessing Officer; or

(b) file his objections, if any, to such variation with,–

(i) the Dispute Resolution Panel; and

(ii) the Assessing Officer.

(3) The Assessing Officer shall complete the assessment on the basis of the draft order, if–

(a) the assessee intimates to the Assessing Officer the acceptance of the variation; or

(b) no objections are received within the period specified in sub-section (2).

(4) The Assessing Officer shall, notwithstanding anything contained in section 153 [or section 153B], pass the assessment order under sub-section (3) within one month from the end of the month in which,–

(a) the acceptance is received; or

(b) the period of filing of objections under sub-section (2) expires.

8

11. From the perusal of the above provisions it is clear that the position of law is that under section 144C of the Act, with effect from 1.10.2009 the Assessing Officer is required to issue a draft assessment order in case there is a proposed addition or disallowance on the return filed by the assessee. This is a mandatory requirement of law.

12. The provisions are quiet unambiguous. The fact that the assessee is an eligible assessee is not in dispute in the present case. The meaning of eligible assessee is provided under section 144C(15) clause (b), which reads as under:

144C (15) For the purposes of this section,–

(b) “eligible assessee” means,–

(i) any person in whose case the variation referred to in sub-section (1) arises as a consequence of the order of the Transfer Pricing Officer passed under sub-section (3) of section 92CA; and

(ii) any foreign company.]

12. There is no doubt as to the fact that the TPO has proposed adjustment to be made on account of difference in ALP in his order passed under section 92AC of the Act.

13. Further under section 144C(2) of the Act, such eligible assessee has the option either to accept the said addition or to file objection before the DRP and such option has to be exercised within 30 days of receipt of 9such draft assessment order. The procedure is if the assessee chooses to raise its objection before the DRP, it has to be done within 30 days and if it does not do so, the AO has power to pass the final assessment order and then the straight route of the filing appeal before the CIT (A) is open to the assessee. Nowhere in any of the provisions the Assessing Officer has been given any option to pass or not to pass the draft assessment order.

14. Further on perusal of the circular No. 5 of 2010, dated 3 .06.2010, issued by CBDT being explanatory notes to the provision of the Finance No. 2 Act, 2009, it has been very clearly stated that the provisions are applicable with effect from 01.10.2009. Relevant extract of the circular reads as under:

“45. Provision for constitution of alternate dispute resolution mechanism 45.1 The dispute resolution mechanism presently in place is time consuming and finality in high demand cases is attained after long drawn litigation till Supreme Court. In order to address the concern of the multi-national companies and to provide mechanism for speedy disposal of their cases so as to attain finality, a new section 144C is inserted in the Income-tax Act to facilitate expeditious resolution of disputes.

45.2 The salient features of the alternate dispute resolution mechanism are as under:-

(1) The Assessing Officer shall, forward a draft of the proposed order of assessment (hereinafter 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 in the income or loss returned which is prejudicial to the interest of such assessee. (2) On receipt of the draft order, the eligible assessee shall, within thirty days of the receipt by him of the draft order,-

(a) file his acceptance of the variations to the Assessing Officer; or

(b) file his objections, if any, to such variation with-

(i) the Dispute Resolution Panel; and

(ii) the Assessing Officer.

(3) The Assessing Officer shall complete the assessment on the basis of the draft order, if-

10

(a) the assessee intimates to the Assessing Officer the acceptance of the variation; or

(b) no objections are received within the period specified in sub-section (2). (4) The Assessing Officer shall, notwithstanding anything contained in section 153, pass the assessment order under sub-section (3) within one month from the end of the month in which,-

(a) the acceptance is received; or

(b) the period of filing of objections under sub-section (2) expires. (5) The Dispute Resolution Panel shall, in a case where any objection is received under sub-section (2), issue such directions, as it thinks fit, for the guidance of the Assessing Officer to enable him to complete the assessment. (6) The Dispute Resolution Panel shall issue the directions referred to in sub section (5), after considering the,-

(a) draft order;

(b) objections filed by the assessee;

(c) evidence furnished by the assessee;

(d) report, if any, of the Assessing Officer, Valuation Officer or Transfer Pricing Officer or any other authority;

(e) records relating to the 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) The 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 the result of the same to it.

(8)The Dispute Resolution Panel may confirm, reduce or enhance the variations proposed in the 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 the assessment order.

(9)If the members of the Dispute Resolution Panel differ in opinion on any point, the point shall be decided according to the opinion of the majority of the members. (10) Every direction issued by the Dispute Resolution Panel shall be binding on the Assessing Officer.

(11) No direction under sub-section (5) shall be issued unless an opportunity of being heard is given to the assessee and the Assessing Officer on such directions which are prejudicial to their interest.

(12) No direction under sub-section (5) shall be issued after nine months from the end of the month in which the draft order is forwarded to the eligible assessee. (13) Upon receipt of the directions issued under sub-section (5), the Assessing 11 Officer, shall, in conformity with the directions, complete the assessment without giving any further opportunity of being heard, within one month from the end of the month in which the direction is received notwithstanding anything to the contrary contained in section 153.

(14) The Board may make rules for the efficient functioning of the Dispute Resolution Panel with a view to expeditiously dispose of the objections filed, under sub-section (2), by the eligible assessee. (15) For the purposes of this section,-

(a) “Dispute Resolution Panel” means a collegium comprising of three commissioners of Income-tax constituted by the Board for this purpose;

(b) “eligible assessee” means,-

(i) any person in whose case the variation referred to in sub-section (1) arises as a consequence of the order of the Transfer Pricing Officer passed under sub-section (3) of section 92CA; and

(ii) any foreign company.

45.3 Further, consequential amendments have been made –

(i) in sub-section (1) of section 131 so as to provide that the “Dispute Resolution Panel” shall have the same powers as are vested in a Court under the Code of Civil Procedure, 1908 (5 of 1908);

(ii) in clause (a) of sub-section (1) of section 246A so as to exclude the order of assessment passed under sub-section (3) of section 143 or under section 147 in pursuance of the directions of the “Dispute Resolution Panel” as an appealable order and in clause (c) of sub-section (1) of section 246 so as to exclude an order passed under section 154 of such order as an appealable order;

(iii) in sub-section (1) of section 253 so as to include an order of assessment passed under sub-section (3) of section 143 or under section 147 in pursuance of the directions of the “Dispute Resolution Panel” as an appealable order. It would be the choice of the assessee whether to file an objection against the draft assessment order before the Dispute Resolution Panel (DRP) or to pursue the normal channel of filing an appeal against the assessment order before the Commissioner of Income Tax (Appeals). In order to approach the DRP, the assessee must file an objection against the draft assessment order within the prescribed time limit. In case the assessee does not file an objection, the assessing officer shall pass the assessment order. The assessee can file an appeal against such assessment order before the CIT (Appeals). Once the option of filing an objection against the draft assessment order before the DRP has been exercised, the assessee cannot withdraw the objection and opt for the normal channel of filing appeal before CIT(Appeals).

45.5 Applicability – These amendments have been made applicable with effect from 1st October, 2009, and will accordingly apply in relation to assessment year 2010- 11 and subsequent assessment years. The Dispute Resolution Panel Rules have been notified by S.O. No. 2958(E) dated 20th November, 2009. 12

15. It is also an undisputed fact that the order of the AO in the present case is dated 26.12.2011, the order of the TPO is dated 21.10.2011.

16. In view of the above, the order passed by the Assessing Officer is without jurisdiction. Reliance placed by the Ld. counsel of the assessee on the judgement of High Court of Madras in the case of Vijay Television private limited versus DRP (2014) 369 ITR 113 (Mad) is not out of place. In the said case, it was held that the final order passed by the Assessing Officer without passing a draft assessment order is bad in law. In this case, reliance was placed on the judgement of Andhra Pradesh High Court in the case of Zuari cement limited versus CIT, in WP No. 5557 of 2012 dated 21.02.2013. It has also been stated that the said judgement of the AP High Court has got affirmed by the Supreme Court by dismissing the SLP filed thereon as on 27. 09.2013, a copy of which was also filed before us by the counsel of the assessee.

17. In view of the above the order passed by the AO is set aside and the cross objection of the assessee is allowed.

18. Since the order of the Assessing Officer is set aside by us while adjudicating the cross objection of the 13assessee, we do not find any need to adjudicate the issues on merits as raised by the Department.

19. In the result appeal of the Revenue is dismissed and the Cross Objection filed by the assessee is allowed.

Order pronounced in the open court on this 11th day of March, 2016.

         Sd/-                                           Sd/-

(BHAVENESH SIANI)                           (RANO JAIN)
JUDICIAL MEMBER                         ACCOUNTANT MEMBER

Dated : 11 t h March, 2016

*Rati*

Copy to: The Appellant/The Respondent/The CIT(A)/The CIT/The DR.

Assistant Registrar, ITAT, Chandigarh

 

 

 

 

 

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s