Amit Shukla, J.M:— The aforesaid appeal has been filed against final assessment order dated 7.11.2017 passed u/s 254/143(3)/144C for the assessment year 2012-13.
2. One of the main grounds raised by the assessee before us is that the final assessment order dated 7.11.2017, passed by the Ld. A.O u/s 143(3) r.w.s 254/144C is ex-facie illegal, non-est, null and void in as much as the Ld. A.O has failed to forward a draft assessment order to the assessee, which is in gross violation of the provisions of the Act and the procedure laid down in section 144C. Besides this various other grounds on transfer pricing adjustment on on merits have been raised.
3. The brief facts and background of the case qua the legal issue raised vide ground no. 4 are that, regular return of income was filed u/s 139 for the assessment year 2012-13 on 20.11.2012 The said return of income was selected for scrutiny and matter was also referred to the TPO for determination of arm's length price for the international transaction entered into by the assessee with its AE. In the transfer pricing assessment TPO suggested certain adjustments which was incorporated by the A.O and draft assessment order was passed, thereby making an upward adjustment of Rs. 56.07 crores which was mainly on account of international transaction pertaining to the following:
Contract manufacturing segment:INR 556,075,740Provision of business support services:INR 2,278,671Reimbursement for registration of product:INR 1,872,637Reimbursement for wound care services:INR 486,275
4. Against the said draft assessment order, the assessee filed its objection before the DRP in terms of the provision of section 144C(2) on 29th April, 2016. The DRP issued directions to the A.O vide order dated 18 October, 2016, giving certain directions to the A.O on account of adjustments to be made and in pursuance of such direction, final assessment order dated 30.11.2016 was passed u/s 143(3) r.w.s 144C(13) at an income of Rs. 89.98 crores. Against the said final assessment order, assessee in terms of section 253(1)(d) filed an appeal before the Tribunal. The Tribunal vide order dated 6 March, 2017, remanded back the entire transfer pricing adjustments back to the file of the AO/TPO for all the three transactions. In pursuance of such setting aside of the entire transfer pricing issue, the Ld. A.O referred the matter to the TPO for the determination of ALP. The Ld. TPO in the said assessment proceeding, further enhanced the transfer pricing adjustment by Rs. 11,85,24,905/- vide order dated 30.10.2017 Ld. A.O based on the TPO's recommendation of the proposed adjustment, added the said amount and instead of passing draft assessment order passed final assessment order vide order dated 7.11.2017 which has been captioned as “u/s 254/143(3)/144C. Thus, the A.O instead of passing the draft assessment order had passed final assessment order and also issued demand notice for payment of demand of Rs. 11,68,29,560/- and also initiated penalty proceedings u/s 271(1)(c) vide notice u/s 274 r.w.s 271 on the same date, i.e, 7.11.2007 Against the said assessment order, the assessee has preferred appeal before Tribunal directly.
5. Before us the Ld. Counsel for the assessee Shri Himanshu Sinha, submitted that when the transfer pricing adjustment was set aside to the file of the AO/TPO and in pursuance of such remand by the Tribunal, fresh assessment order was required to be passed in terms of procedure laid down in section 144C, first draft assessment order had to be issued so that assessee can file objection if any before the DRP within 30 days in terms of sub section (2) of section 144c or intimate to the A.O in this regard for the acceptance of the variation and no objection is filed within 30 days, then AO passes the final assessment order and the appeal against the said assessment order would be filed before the Ld. CIT(A). Here in this case the A.O without resorting to the mandatory provision of section 144C has passed the final assessment order without there being any acceptance by the assessee in terms of sub sections (2)/(3)/(4) of section 144C. He submitted that, now it is well settled proposition within the jurisdiction of the Hon'ble Delhi High Court, that it is mandatory for the A.O to first pass a draft assessment order u/s 144C; and if such a draft assessment order has not been passed, instead final assessment order has been passed, then such an order is nullity in the eyes of law. In support, he placed reliance on the judgment Turner International India Private Ltd. v. DCIT in WP, (C) 4260/2015 and 4261/2015 and also judgment of Hon'ble Delhi High Court in the case of JCB India Ltd. in WP (C) No. 3399, 3429, 3431/2016. In the later judgment, Hon'ble High Court was required to adjudicate the following substantial question of law:—
“14. The short question that arises for consideration is whether, after the remand proceedings, the AO could have, without issuing a draft assessment order under section 144 C of the Act, straightway issued the final assessment order.”
6. Hon'ble High Court had quashed the final assessment order after observing and holding as under:—
“17. The Court is unable to agree with the submissions made on behalf of the Revenue by Mr. Jain. Section 144C(1) of the Act is unambiguous. It requires the AO to pass a draft assessment order after receipt of the report from the TPO. There is nothing in the wording of Section 144C(1) which would indicate that this requirement of passing a draft assessment order does not arise where the exercise had been undertaken by the TPO on remand to it, of the said issue, by the ITAT.
18. It was then contended by Mr. Jain that the assessment order passed by the AO should not be declared to be invalid because of the failure to first pass a draft assessment order under Section 144C of the Act. In this regard, reference is made to Section 292B of the Act.
19. As already noted, the final assessment order of the AO stood vitiated not on account of mere irregularity but since it was an incurable illegality. Section 292B of the Act would not protect such an order. This has been explained by this Court in its decision dated 17 July 2015 passed in ITA No. 275/2015 (Pr. Commissioner of Income Tax, Delhi-2, New Delhi v. Citi Financial Consumer Finance India Pvt. Ltd.) where it was held:
“Section 292B of the Act cannot be read to confer jurisdiction on the AO where none exists. The said Section only protects return of income, assessment” notice, summons or other proceedings from any mistake in such return of income, assessment notices, summons or other proceedings, provided the same are in substance and in effect in conformity with the intent of purposes of the Act.”
20. The Court further observed that Section 292B of the Act cannot save an order not passed in accordance with the provisions of the Act. As the Court explained, “the issue involved is-not about a mistake in the said order but the power of the AO to pass the order.
21. In almost identical facts, in Turner International (supra), this Court held in favour of the Assessee on the ground that it was mandatory for the AO to have passed a draft assessment order under Section 144C of the Act prior to issuing the final assessment order. The following passages from said decision are relevant for the present purposes:
“11. The question whether the final assessment order stands vitiated for failure to adhere to the mandatory requirements of first passing draft assessment order in terms of Section 144C(1) of the Act is no longer res intregra. There is a long series of decisions to which reference would be made presently.
12. In Zuari Cement Ltd. v. ACIT (decision dated 21st February, 2013 in WP(C) No. 5557/2012), the Division Bench (DB) of the Andhra Pradesh High Court categorically held that the failure to pass a draft assessment order under Section 144C(1) of the Act would result in rendering the final assessment order “without jurisdiction, null and void and unenforceable.” In that case, the consequent demand notice was also set aside. The decision of the Andhra Pradesh High Court was affirmed by the Supreme Court by the dismissal of the Revenue's SLP (C) [CC No. 16694/2013] on 2ih September, 2013.
13. In Vijay Television (P) Ltd. v. Dispute Resolution Panel, [2014] 369 ITR 113 (Mad.), a similar question arose. There, the Revenue sought to rectify a mistake by issuing a corrigendum after the final assessment order was passed. Consequently, not only the final assessment order but also the corrigendum issued thereafter was challenged. Following the decision of the Andhra Pradesh High Court in Zuari Cement Ltd. v. ACIT (supra) and a number of other decisions, the Madras High Court in Vijay Television (P) Ltd. v. Dispute-Resolution Panel (supra) quashed the final order of the AO' and the demand notice. Interestingly, even as regards the corrigendum issued, the Madras High Court held that it was beyond the time permissible for issuance of such corrigendum and, therefore, it could not be sustained in law.
14. Recently, this Court in ESPN Star Sports Mauritius 5:N.C ET Compagnie v. Union of India, [2016] 388 ITR 383 (Del.), following the decision of the Andhra Pradesh High Court in Zuari Cement Ltd. v. ACIT (supra), the Madras High Court in Vijay Television (P) Ltd. v. Dispute Resolution Panel, Chennai (supra) as well as the Bombay High Court in International Air Transport Association v. DCIT, (2016) 290 CTR (Bom) 46, came to the same conclusion.”
22. In the decision of the Gujarat High Court in C-Sam (India) (supra), the Court negated the plea that non-compliance with the terms of Section 144C of the Act is merely an ‘irregularity’. The Gujarat High Court held that it was of ‘great importance and mandatory’. The following passages of the said decision of Gujarat High Court are relevant for the present purposes:
“6. These statutory provisions make it abundantly clear that the procedure laid down under Section 144C of the Act is of great importance and is mandatory. Before the Assessing Officer can make variations in the returned income of an eligible assessee, as noted, sub-section (1) of section 144c lays down the procedure to be followed notwithstanding anything to the contrary contained in the Act. This non-obstante clause thus gives an overriding effect to the procedure ‘notwithstanding anything to the contrary contained in the Act’. sub-section (5) of section 144c empowers the DRP to issue directions to the Assessing Officer to enable him to complete the assessment. sub-section (10) of section 144c makes, such directions binding on the Assessing Officer. As per Sub-Section] 44C, the Assessing Officer is required to pass the order of assessment in terms of such directions without any further hearing being granted to the assessee.
7. The procedure laid down under Section 144C of the Act is thus of great importance. When an Assessing Officer proposes to make variations to the returned income declared by an eligible assesses he has to first pass a draft order, provide a copy thereof to the assessee and only thereupon the assessee could exercise his valuable right to raise objections before the DRP on any of the proposed variations. In addition to giving such opportunity to an assessee, decision of the DRP is made binding on the Assessing Officer. It is therefore not possible to uphold the Revenue's contention that such requirement is merely a procedural. The requirement is mandatory and gives substantive rights to the assessee to object to any additions before they are made and such objections have to be considered not by the Assessing Officer but by the DRP. Interestingly, once the DRP gives directions under sub-section (5) of section 144c, the Assessing Officer is expected to pass the order of assessment in terms of such directions without giving any further hearing to the assessee. Thus, at the level of the Assessing Officer, the directions of the DRP under sub-section (5) of section 144c would bind even the assessee. He may of course challenge the order of the Assessing Officer before the Tribunal and take up all contentions. Nevertheless at the stage of assessment, he has no remedy against the directions issued by the DRP under sub-section (5). All these provisions amply demonstrate that the legislature desired to give an important opportunity to an assessee who is likely to be subjected to upward revision of income on the basis of, transfer pricing mechanism. Such opportunity cannot be taken away by treating it as purely procedural in nature.”
23. In the present case, just as in Turner International (supra), it is submitted that, at the most, failure to pass a draft assessment order under Section 144C of the Act is a curable defect and that the Court should now delegate the parties to a stage as it was when the TPO issued a fresh order after the remand by the ITAT.
24. This very argument of the Revenue has been negated by the Court in Turner International (supra) where it was observed in paras 15 and 16 as under:
“15. Mr. Dileep Shivpuri, learned counsel for the Revenue sought to contend that the failure to adhere to the mandatory requirement of issuing a draft assessment order under Section 144C(1) of the Act would, at best, be a curable defect.
According to him the matter must be restored to the AO to pass a draft assessment order and for the Petitioner, thereafter, to pursue the matter before the DRP.
16. The Court is unable to accept the above submission. The legal position as explained in the above decisions in unambiguous. The failure by the AO to adhere to the mandatory requirement of Section 144C(1) of the Act and first pass a draft assessment order would result in invalidation of the final assessment order and the consequent demand notices and penalty proceedings.”
25. For all of the aforementioned reasons, the Court finds no difficulty in holding that the impugned final assessment orders dated 30 March 2016 passed by the AO for AY s 2006-07, 2007-08 and 2008-09 are without jurisdiction on account of the failure, by the AO, to first pass a draft assessment order and thereafter, subject to the objections filed before the DRP and the orders of the DRP, to pass the [mal assessment order. The Court also sets aside the orders of the TPO dated 30” March 2016 issued pursuant to the remand by the ITAT.”
7. Thus, he submitted that in view of the aforesaid judgment of principle laid down therein, the impugned final assessment order should be held to be nullity and deserves to be quashed.
8. On the other hand, Ld. CIT (DR) raised a preliminary objection that here in this case, once the assessment was set aside and remanded back to the file of the A.O and in pursuance thereof any assessment order has been passed which may be legally sustainable or unsustainable, but the remedy of appeal lies before the Ld. CIT (A) and not before the Tribunal. He pointed out that the present assessment order has been passed u/s 254/143(3)/144C, which is not in pursuance of direction given by the DRP, albeit has been passed in consequence of remand by the Tribunal. Thus, if the assessment is not routed through DRP, then the appeal has to be filed before the appropriate authority which is Ld. CIT (A). It is only when assessee or department is aggrieved by the order of the Ld. CIT (A), the appeal will lie before this Tribunal in terms of section 253. Thus, he submitted that at the threshold only, appeal filed by the assessee is non-maintainable and infructuous as the proper course opened to the assessee is to file first appeal before the Ld. CIT (A).
9. We have gone through the aforesaid facts and background of the case as well as the objection raised by the Ld. CIT-DR with regard to the very maintainability of the appeal before the Tribunal. As stated above, in present case the appeal has not been filed against the final assessment order which has been passed in pursuance of the directions given by the DRP in terms of sub section (13) of section 144C. section 253(1)(d) provides that the order passed by the A.O in pursuance of directions of DRP can be filed before the Tribunal. Similarly in section 246A(1)(a), exception has been carved out for the filing of the appeal before CIT(A) against an order passed in pursuance of the direction of the DRP. From the conjoint reading of both the sections, it is quite ostensive that the appeal before the Tribunal against the assessment order would lie if it has been passed in pursuance of direction given by the DRP in terms of section 144C and no appeal can be filed before the first appellate authority in such a case. In the original round of proceedings, the appeal before the Tribunal has come through DRP route and that is the reason how this Tribunal has decided the appeal and thereafter has remanded the matter back to the file of the AO/TPO. Once an appeal has been disposed of by the Tribunal by remanding back the matter before the A.O to be pass fresh assessment order in accordance with the law, then it relegates back to the stage of assessment proceedings as if it is a fresh assessment which has to be done by the A.O Even if the matter is remanded with specific direction or purpose of verification or re-computation etc., then also the A.O has to give effect to such direction and pass a fresh assessment order thereby determining the income of the assessee and work out the tax demand accordingly. If the assessee is aggrieved by such an assessment order giving effect to the appellate order, then in that case, the only remedy open for appeal is before the first appellate authority in terms of section 246 and 246A.
10. Now here in this case, the AO instead of passing draft assessment order u/s 144C, which he was though mandatorily required under the law, has passed a final assessment order. Whether such an order may survive or not in view of the aforesaid principle laid down by the Hon'ble Jurisdictional High Court is an altogether a secondary issue, because, at the threshold what is required to be seen is that, the statutory remedy of appeal has to be before the appropriate authority. If an appeal mechanism has been provided under the statute for different kind of orders before different authorities then such an authority alone has the jurisdiction to decide the appeal. Even if the final assessment order has been passed in contravention of any statutory provision or any judicial precedent, the only course open for the assessee to seek for remedy is, firstly, either to file appeal before the appropriate forum/authority in terms of the provisions of law, which in our opinion lies before the CIT (A); or secondly, assessee has other constitutional remedy before the Hon'ble High Court under extra ordinary jurisdiction, of course with the discretion of Hon'ble Court. If an assessment order has been passed post remanding back by the Tribunal, then appeal will lie to the appropriate authority/forum and the Tribunal does not have any jurisdiction to entertain an appeal which is not provided under the statute. In other words, right or wrong, if an assessment order has been passed, the remedy to rectify such a wrong has to be by filing of appeal before the appropriate authority empowered under the Act. The statute clearly envisages that the appeal before the Tribunal can be filed against those assessment orders which has been passed in pursuance of DRP's direction and not otherwise. That is, not against the final assessment order even though it could not have been passed under the law. One very important aspect which can be deduced from the aforesaid judgments of the Hon'ble High Court is that, the Court have held that when the matter in the appeal before the Tribunal has been set-aside or remanded back to the file of AO, the AO has to resort to the same procedure of section 144C and pass draft assessment order and if such a draft assessment order is passed then the appeal will lie before the Tribunal. This inter alia means that the entire assessment procedure is thrown open and remedy against the order will follow according to the statute. One another inference can be drawn though not directly flowing from the judgments, is that, the remanding back to the AO is not reckoned as extension of lis pending before the Tribunal, albeit, the set-aside or remand back to the file of AO is disposal of the appeal by the Tribunal and all the consequence of passing of fresh assessment order will follow. Most of these judgments have been rendered under writ jurisdiction of the Hon'ble High Court where non adherence to procedure laid down in section 144C has been struck down or has been held as nullity.
11. Accordingly, we agree with the objection raised by the Ld. CIT (DR) that the appeal filed by the assessee is not maintainable before the Tribunal and hence treated as infructuous being not been filed before the appropriate authority under the law.
12. However, under the given facts and circumstances of the case and in the interest of justice, we can only direct the assessee to seek shelter of statutory remedy of filing of first appeal before the CIT (Appeals) and if such an appeal is filed, then Ld. CIT (A) should entertain the appeal and decide the matter at the earliest and in accordance with the law. Otherwise the constitutional remedy is always available to the assessee before the Hon'ble High Court if so advised, of course with discretion and the permission of the Hon'ble Court as it deems fit whether to entertain such a remedy or not. Accordingly, we hold that assessee is at liberty to file an appeal before the Ld. CIT (Appeals) and contest this appeal in accordance with law. Consequently, appeal of the assessee is dismissed in-limine being non maintainable.
13. In the result appeal of the assessee is dismissed in-limine. Order pronounced in the open court on 16 February, 2018.