Madras High Court
M/S.Lason India Pvt Limited vs The Asst Commissioner Of Income Tax on 20 November, 2024
Author: Anita Sumanth
Bench: Anita Sumanth
2025:MHC:231
T.C.A.No.211 of 2012
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 20.11.2024
CORAM :
THE HONOURABLE DR.JUSTICE ANITA SUMANTH
and
THE HONOURABLE MR.JUSTICE G. ARUL MURUGAN
T.C.A.No.211 of 2012
M/s.Lason India Pvt Limited
Dowlath Towers
8-12, Floors, 59, 61 & 63
Taylors Road, Kilpauk
Chennai-600 010. .. Appellant
vs
The Asst Commissioner of Income tax,
Company Circle II(4),
Chennai-600 034. .. Respondent
Prayer : Appeal filed under Section 260A of the Income Tax Act, 1961,
against the order of the Income Tax Appellate Tribunal, “A” Bench,
Chennai dated 30.01.2012 in ITA No.1591/Mds/2011.
For Appellant : Mr.R.Vijayaraghavan
for Mr.Subbaraya Aiyar Padmanabhan
For Respondent : Mr.J.Narayanaswamy
Senior Standing Counsel
https://www.mhc.tn.gov.in/judis
1
T.C.A.No.211 of 2012
JUDGMENT
(Delivered by Dr. ANITA SUMANTH.,J) The assessee is the appellant in this tax case (appeal) and challenges an order of the Income Tax Appellate Tribunal (Tribunal/ITAT) dated 30.01.2012.
2.The substantial questions of law admitted for resolution on 08.08.2012 are as follows:
'1.Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the order passed by the Assessing Officer under Section 143(3) read with Section 144C of the Income Tax Act on 27.12.2010 should be considered as draft assessment order passed under Section 144C(1) of the Income Tax Act?
2.Whether on the facts and in the circumstances of the case, the Tribunal ought to have held that in view of the order under Section 143(3) read with Section 144C(3) of the Income Tax Act passed by the Assessing Officer on 28.02.2011 (sic should read 27.12.2010), there can be no further proceedings before the DRP?
3.Whether on the facts and in the circumstances of the case, the order passed by the Assessing Officer under Section 143(3) read with Section 144C(3) of the Income Tax Act on 25.08.2011 is valid in law inasmuch as the Assessing Officer had already passed an order under Section 143(3) read with Section 144C of the Income Tax Act on 27.12.2010 and again on 28.02.2011?
4.Whether on the facts and in the circumstances of the case, the Tribunal was right in law in upholding the adjustments made to international transactions by https://www.mhc.tn.gov.in/judis 2 T.C.A.No.211 of 2012 the Transfer Pricing Officer and confirmed by the Dispute Resolution Panel?
5.Whether on the facts and in the circumstances of the case, the Tribunal was right i law in holding that no adjustment is required in respect of differential method of depreciation provided by the comparable companies as otherwise the profit margins of the companies taken as comparables are not computed on the same basis and cannot be taken as ALP?
6.Whether on the facts and circumstances of the case, the Tribunal ought to have appreciated that difference in method of rate of depreciation adopted by the assessee which materially affect the profitability and hence as per Rule 10B(2) and 10B(3) suitable adjustments have to be made in determining the ALP?'
3.The appellant/assessee had filed a return of income in terms of the Income tax Act 1961 (Act) for assessment year (AY) 2007-08 in respect of which a reference had been made to the Transfer Pricing Officer (TPO). In the course of determination of the Arm's Length Price (ALP), various details were called for from the appellant and an order has been passed by the TPO on 18.10.2010.
4.Pursuant thereto, notices were issued by the assessing authority and a proposal made to the assessee as to whether the basis of computation of the ALP in the order of the TPO may be adopted and the assessment finalised.
https://www.mhc.tn.gov.in/judis 3 T.C.A.No.211 of 2012
5.The appellant had put forth its objections to the determination of ALP by the TPO. However, in line with the mandate of Section 92CA(4) of the Act, which requires an assessing authority to complete the assessment in conformity with the order of the TPO, the officer proceeded to complete the assessment based on the ALP determined. An order of assessment came to be passed under Section 143(3) read with Section 144C of the Act on 27.12.2010.
6.While so, a letter dated 21.02.2011 came to be issued, styled as a 'Corrigendum' after nearly two months from date of finalisation of assessment. The corrigendum states as follows:
'PAN: AABCV3563H Dt.21.2.2011
CORRIGENDUM
Sub: Income tax assessment – in the case of
M/s.Lason India Ltd Dowlath Towers, 8 to
12 floor, No.59, 61 & 63 Taylors Road
Chennai 600 010 – Reg.
*****
In the Draft Assessment order dt. 27/12/2010
forward to the assessee Company M/s.Lason India Ltd, Chennai 600 010 through its representative on 29/12/2010 – Sub section under which the assessment is made, was mentioned as “143(3) r.w. Sec.144C of the I.T. Act, 1961 which may be read as “Draft Assessment Order u/s 143(3) read with Sec.144C(1) of the Income-Tax Act, 1961” The Demand notice u/s 146 dated 27/12/2010 sent along with the above mentioned draft Assessment Order to the assessee may be treated as withdrawn.' https://www.mhc.tn.gov.in/judis 4 T.C.A.No.211 of 2012
7.On the heels of this corrigendum, an order of assessment was passed on 28.02.2011 styled as a 'final assessment order' (FAO). Thus, the Department has made a turn-around in the procedure followed, eschewing the order of assessment originally passed on 27.12.2010 and claiming that the same was only a DAO. Incidentally, as against the order of assessment dated 27.12.2010, the appellant had filed a statutory appeal within 30 days as provided for under Section 246A of the Act.
8.The grievance of the assessee hinges on the position that the procedure under Section 144C has not been followed in this case. Section 144C, entitled 'Reference to Dispute Resolution Panel', is a self- contained code that requires, at the first instance, a Draft Assessment Order (DAO) to be passed. A DAO is a set of assessment proposals that are put to the assessee soliciting its acquiescence or objections thereto.
9.Upon receipt of a DAO, the assessee is required to respond, and shall, within 30 days of receipt of the DAO, (a) file its acceptance of the variations contained in the DAO with the assessing officer or (b) file its objection to the variations with the Dispute Resolution Panel and submit a copy thereof to the assessing officer.
10.In the present case, order of assessment dated 27.12.2010 contains no such stipulation. It is couched exactly like an order under https://www.mhc.tn.gov.in/judis 5 T.C.A.No.211 of 2012 Section 143(3), and moreover, is accompanied by a statutory demand notice in terms of Section 156 of the Act. The assessing authority has, as is normally done in the case of regular assessments, consciously enclosed a challan with the order and demand notice, mandating that the appellant remit the demand under the notice.
11.The notices issued by the assessing authority prior to finalising the assessment also do not indicate that the officer had been proceeding along the lines expected for framing of a DAO. No reference has been made in the notices to a DAO, or to the procedure under Section 144C having being triggered. Hence, reference to ‘Section 144C’ in order dated 27.12.2010, hardly carries any weight and is only incidental, as the required procedure in terms of those provisions have not been adhered to by the officer.
12.Upon receipt of the FAO dated 28.02.2011, the appellant filed objections on 30.03.2011 before the Dispute Resolution Panel (DRP), Chennai raising inter alia, a ground on assumption of jurisdiction as well.
13.An order came to be passed on 20.07.2011 by the DRP issuing certain directions. The specific objections raised, on the assumption of jurisdiction and the invalidity of procedure followed by the officer came https://www.mhc.tn.gov.in/judis 6 T.C.A.No.211 of 2012 to be rejected, and the DRP proceeds on the basis that the order passed by the assessing officer on 27.12.2010 was only a DAO.
14.As against the order of the DRP, an appeal was filed before the ITAT also raising, inter alia, a ground on assumption of jurisdiction and on illegality of the procedure followed by the department. The Tribunal has rejected those grounds in the impugned order dated 30.01.2012, assailing which the present appeal has been filed.
15.Mr.R.Vijayaraghavan, learned counsel for the appellant, would reiterate that FAO dated 27.12.2010 has been passed within the limitation provided for framing of assessments, as provided under Section 153 of the Act. The question of treating it as a DAO does not arise as the procedure followed is not in conformity with the substantive requirements contemplated under Section 144C of the Act. Clearly, the procedure set out under Section 144C was never under consideration by the officer, and the mere issuance of a corrigendum on 21.02.2011 proposing to treat order dated 27.12.2010 as a DAO, cannot save the gross and substantive error committed.
16.According to him, all proceedings further to, and post passing of order dated 27.12.2010, including purported final assessment order dated 28.02.2011, directions of the DRP dated 20.07.2011 and order of https://www.mhc.tn.gov.in/judis 7 T.C.A.No.211 of 2012 the Tribunal dated 30.01.2012 are bad in law, since the very assumption of jurisdiction in respect of the subsequent proceedings is vitiated.
17.For this proposition, he relies on two decisions, one of a Division Bench of this Court in the case of ACIT v. Vijay Television Private Limited [407 ITR 642] and the other of the Writ Court in G.E. Oil & Gas India P. Ltd v. ACIT [WP.No.1575 of 2020 dated 05.01.2021).
18.Mr.J.Narayanaswamy, learned Senior Standing Counsel, appearing for the Department would defend the orders of the authorities on four primary grounds.
19.Firstly, he cannot but accede to the position that order dated 27.12.2010 does certain aberrations, in that it is not in conformity with the requirements of a DAO per Section 144C of the Act. However, he would insist that corrigendum dated 21.02.2011 had set right all errors by withdrawing the demand raised under that order.
20.Secondly, he would submit that the assessee has acquiesced to the procedure followed, by participating in the proceedings before both the DRP as well the Tribunal and hence cannot be permitted to turn around now and challenge the same now.
21.Thirdly, he would point out that in order dated 28.02.2011, the assessing authority has pointed out that no objections have been filed by https://www.mhc.tn.gov.in/judis 8 T.C.A.No.211 of 2012 the assessee either before the DRP or before the assessing officer as required under Section 144C(2) of the Act. Hence, in such circumstances, there is nothing untoward or erroneous in the assessing authority having proceeded to pass order dated 28.02.2011.
22.Finally, and as an alternate submission, he would point out that Section 144C had been inserted with effect from 01.04.2009, to apply to all proceedings pending as on that date. Hence, even if it were to be taken that an error had been committed by the authority, benefit of the error committed, must be given to the assessing authority as it is the first year of implementation of that provision.
23.In this regard, he would rely on a judgment of the Supreme Court in National Faceless Assessment Centre v. Mantra Industries Ltd. [(2023) 148 taxmann.com 421]. In that case, the Supreme Court was concerned with the implementation of the Faceless Assessment Scheme and has held that since that Scheme was a new scheme, the implementation thereof was bound to face difficulties. Some leverage must be given to the officers of the department to correct errors, if any, committed by then in the implementation of the Scheme.
24.Mr.Vijayaraghavan, while distinguishing the above judgment states that the implementation of the Faceless Assessment Scheme is https://www.mhc.tn.gov.in/judis 9 T.C.A.No.211 of 2012 procedural, and quite another matter, and cannot be compared with the mandate of the statutory procedure for assessment as set out under Section 143 vis-a-vis Section 144C of the Act.
25.We have heard both learned counsel and perused the relevant materials available on record.
26.The dates and events in this matter are not in dispute. The subject assessment year is 2007-08, and a reference was made to the TPO on 31.12.2011. The matter was duly taken up for assessment by the assessing officer by issuance of notices on various dates. None of those notices contain reference to the procedure set out under Section 144C of the Act.
27.Be that as it may, the assessing authority has taken a conscious choice while finalising the assessment, that the procedure to be followed would be in terms of the Section 143 of the Act, as the order of assessment does not contain any of the elements of Section 144C of the Act and neither has it followed the statutory stipulations contained therein.
28.In our considered view, mere reference to Section 144C(1) without having followed any of the procedures paving the way to the https://www.mhc.tn.gov.in/judis 10 T.C.A.No.211 of 2012 passing of a DAO will not lead to the inference that the assessment order passed is a DAO.
29.As regards the judgment in the case of Mantra Industries Ltd. (supra), we agree with the assessee that the circumstances under which that judgement was passed were entirely different. The Faceless Assessment Scheme was introduced in 2007 and sets out the procedure to be followed in framing an assessment deploying a methodology that maintains the anonymity of the officers involved.
30.In the case of Mantra Industries Ltd. (supra) the Court was concerned with the question as to whether errors in the implementation of the Faceless Assessment Scheme would be fatal to the validity of the assessment orders passed.
31.The Faceless Assessment Scheme contained a requirement for issuance of a show cause notice encompassing proposals for assessment. In cases where notices had been issued prior to completion of the proceedings, but not in the form of the show cause notice containing assessment proposals, various High Courts, in exercise of powers under Article 226 of the Constitution of India, had annulled the assessments declaring such assessments as non est, being of the view that the mandatory requirements of Section 144B of the Act had been violated. https://www.mhc.tn.gov.in/judis 11 T.C.A.No.211 of 2012
32.It is in those circumstances that the Supreme Court held that the error committed by the assessing officer constituted an infirmity that could be cured as the elements of a DAO had been contained within the show cause notice itself. The circumstances in which those observations were made was different and distinct from the circumstances that we are now faced with. The Court had held that the Scheme being nascent, such errors should not be viewed as fatal, but as curable errors, such that the assessments were saved. The nature of the errors committed is very different from those that have occurred in the present case.
33.The violations, in the present case, is not one of mere procedure. Section 144C has been inserted with effect from 01.04.2009 and sets out a statutory scheme for a certain class of assessments, involving international transactions. The notices issued by the officer in the present case, as revealed under column 11 of order dated 28.02.2011 are dated 30.11.2010, 07.12.2010, 22.12.2010, 24.12.2010 and 27.12.2010.
34.The Scheme has hence been part of Statute for nearly two years when the notices were issued and hearings were conducted by the assessing authority. That apart, Section 144C(2) requires the assessee to indicate, upon receipt of the DAO, whether it wishes to accept the https://www.mhc.tn.gov.in/judis 12 T.C.A.No.211 of 2012 proposals in the DAO or object to the same. Hence the DAO has mandatorily to enable such a response from the assessee, stipulating the time within which the assessee must respond.
35.Order dated 27.12.2010 however merely concludes the assessment and raises a demand, without reference to the aforesaid mandatory requirement of Section 144C(2) of the Act. In such circumstances, where the order of assessment dated 27.12.2010 is conclusive, containing neither proposals for assessment or extending an option to the assessee, the assessing officer has this to state in the purported final order of Assessment dated 28.02.2011:
'As per Section 144C(1) of the Income Tax Act, 1961 a draft assessment order dated 27.12.2010 was prepared and duly sent to the assessee Company. As per Section 144C(2), on receipt of draft assessment order, the assessee Company ought to have filed its acceptance to the variation in the income proposed in the draft assessment order prepared by the Assessing Officer or file its objections to such variations, if any, with the Dispute Resolution Panel (DRP) within thirty days of the receipt of the draft assessment order. However, the assessee has neither filed its acceptance nor filed its objections with DRP.'
36. The above statement is wholly erroneous and indicates total non-application of mind by the officer. The officer has made reference to the statutory requirement under Section 144C(2) of the Act, which https://www.mhc.tn.gov.in/judis 13 T.C.A.No.211 of 2012 requires an assessee on receipt of a DAO, to either indicate acceptance or file objections to the DAO proposals with the DRP within 30 days. The officer then blames the assessee for neither filing its acceptance nor objections with the DRP within the time provided.
37.The fact of the matter was that such statutory option was never extended to the assessee. Hence, the assessee could not have complied with the statutory requirement as order of assessment dated 27.12.2010 does not extend such option as it ought to have. The corrigendum stating that order dated 27.12.2010 may be taken to be a DAO has itself been issued only on 21.02.2011, two months after order dated 27.12.2010. Hence, the period of 30 days provided in terms of Section 144C(2) has expired by then and the attempt of the Department to circumvent the issue and pin the blame for its error on the assessee is nothing short of a travesty of its statutory responsibilities under that provision.
38. Importantly, a demand accompanying an assessment order is a statutory demand in terms of Section 156 of the Act, which states that 'when any tax, interest, penalty, fine or any other sum is payable in consequence of any order passed under this Act, the assessing officer shall serve upon the assessee a notice of demand in the prescribed form https://www.mhc.tn.gov.in/judis 14 T.C.A.No.211 of 2012 specifying the sum so payable'. The recovery of the demand under that notice is as per the modes of recovery under Section 226 of the Act.
39.There is hence, a sanctity attached to a demand under a notice under Section 156 of the Act that cannot be wished away merely by issuing a letter styled as a 'corrigendum'. If at all such demand is to be extinguished, the order under which such demand was raised ought to be reversed in a manner known to law.
40.The revenue has also relied on the provisions of Section 292BB inserted by Finance Act, 2008 with effect from 01.04.2008. Section 292BB deems a notice to be valid in certain circumstances. It states that where an assessee has appeared in a proceeding or cooperated in any enquiry relating to an assessment, then, it shall be deemed that any notice under any provision of the Act, which is required to be served, has been duly served well in time, in accordance with the provisions of the Act.
41.The assessee shall hence be precluded from taking an objection that the notice was either not served in time, or served in an improper manner. The thrust of Section 292BB is on service of notice and not so much on the content of the notice itself. In the present case, the notices sent prior to framing assessment dated 27.12.2010, do not adhere to the https://www.mhc.tn.gov.in/judis 15 T.C.A.No.211 of 2012 statutory stipulations of Section 144C of the Act and such aberrations in law are not saved by virtue of Section 292BB.
42.Moreover, the proviso to Section 292BB states that that Section shall not apply where the assessee has raised an objection in relation to that notice before the completion of the assessment or pre-assessment. In this case, we find that the assessee has, at the very first instance, raised the ground relating to illegality of the proceedings before the DRP in its objection dated 30.03.2011.
43.This was prior to finalisation of the proceedings both before the DRP as well as passing of final assessment order and hence, the benefit of the proviso would directly come to the aid of the assessee since the argument in relation to illegality of procedure has been raised at the very threshold.
44.We also draw support from the decision of the Division Bench of this Court in Vijay Television Private Limited (supra). In the case of Vijay Television, an order of assessment had been passed which was sought to be rectified as a DAO. Both the assessment order dated 26.03.2013 and corrigendum dated 15.04.2013, were challenged on the ground that the assessment order should be treated as a final order and https://www.mhc.tn.gov.in/judis 16 T.C.A.No.211 of 2012 that the corrigendum was non est, as it had been issued beyond limitation for passing of an order of assessment.
45.Arguments similar to those addressed before us were considered by the Division Bench in appeal against the order of the writ Court allowing the writ petition. In that case as well, order dated 26.03.2013 had been accompanied by a statutory demand notice and the argument of protection under Section 292B of the Act was also taken.
46.The departmental appeal was dismissed holding that the procedure followed was not merely irregular which could be corrected by issuance of a corrigendum but an incurable illegality which could not be protected by Section 292B of the Act.
47.Revenue has relied upon a decision in Deepak Agro Foods v. State of Rajasthan and others [(2008) 7 SCC 748], which has also been cited by the Tribunal in the impugned order. In that case, ex-parte assessments had been framed on the assessee, a proprietary concern, for AY 1995-96. The assessment was challenged by way of a writ petition where that assessee alleged that the assessment order had been ante- dated.
48.He had also sought examination of the order-sheets prior to finalization of assessments and alleged that there had been interpolation https://www.mhc.tn.gov.in/judis 17 T.C.A.No.211 of 2012 in the order-sheets and that he had been ‘coerced to countersign the cuttings and tempering in the order sheets’. The writ Court relegated the assessee to statutory appeal as against which an intra-court appeal was filed before the Division Bench in which that assessee was partly successful.
49.The Bench agreed that the assessee had established the allegation of tampering of records and ante-dating of the assessment order. However, while allowing the appeal, the assessment order was set aside with a direction to the Commissioner of Commercial Taxes to nominate another assessing officer not below the rank of a Senior Commercial Tax Officer for re-doing the assessment. The assessee was directed to appear before the nominated authority, who was required to complete the assessment within the timelines that had been stipulated by the Bench.
50.Assailing that order, the assessee went on Appeal before the Supreme Court reiterating the argument that the assessment order was null and void as it had been ante-dated and contained interpolations and thus ought to have been annulled as being a nullity in law.
51.The Supreme Court was of the view that the appeal was misconceived and rejected the same confirming the directions of the https://www.mhc.tn.gov.in/judis 18 T.C.A.No.211 of 2012 Division Bench. It is in that context that the Bench has made a fine distinction between orders that are null and void and orders that are irregular, wrong or illegal. We extract below the relevant paragraphs:-
‘15.All irregular or erroneous or even illegal orders cannot be held to be null and void as there is a fine distinction between the orders which are null and void and orders which are irregular, wrong or illegal. Where an authority making order lacks inherent jurisdiction, such order would be without jurisdiction, null, non est and void ab initio as defect of jurisdiction of an authority goes to the root of the matter and strikes at its very authority to pass any order and such a defect cannot be cured even by consent of the parties. (See: Kiran Singh & Ors. Vs. Chaman Paswan & Ors.1). However, exercise of jurisdiction in a wrongful manner cannot result in a nullity - it is an illegality, AIR 1954 SC 340 capable of being cured in a duly constituted legal proceedings.
16.Proceedings for assessment under a fiscal statute are not in the nature of judicial proceedings, like proceedings in a suit inasmuch as the assessing officer does not adjudicate on a lis between an assessee and the State and, therefore, the law on the issue laid down under the civil law may not stricto sensu apply to assessment proceedings. Nevertheless, in order to appreciate the distinction between a "null and void" order and an "illegal or irregular" order, it would be profitable to notice a few decisions of this Court on the point.
17.In Rafique Bibi (Dead) By LRs. Vs. Sayed Waliuddin (Dead) By LRs. & Ors.2, explaining the distinction between "null and void decree" and "illegal decree", this Court has said that a decree can be said to be without jurisdiction, and hence a nullity, if the Court passing the decree has usurped a jurisdiction which it did not have; a mere wrong (2004) 1 SCC 287 exercise of jurisdiction does not result in a nullity.
The lack of jurisdiction in the court passing the decree must be patent on its face in order to enable the executing court to take cognisance of such a nullity based on want of jurisdiction. The Court further held that a distinction exists between a decree passed by a court having no jurisdiction and consequently being a nullity and not executable and a decree of the court which is merely illegal or not passed in https://www.mhc.tn.gov.in/judis 19 T.C.A.No.211 of 2012 accordance with the procedure laid down by law. A decree suffering from illegality or irregularity of procedure, cannot be termed inexecutable.’
52.In conclusion, the Court has held that all irregular, erroneous or illegal orders cannot be held to be non est as there is a distinction between orders that are null and void on the one hand, and those that are irregular, wrong or illegal, on the other. We are of the view that the above judgement, rather than advancing the case of the Revenue, would support the case of the assessee.
53.We disagree with the Tribunal in its conclusion that the errors committed by the Department in this matter are insignificant and have assigned reasons in the paragraphs supra in support of our conclusion that the errors committed are fundamental to the assumption of jurisdiction and go to the root of the matter.
54.In light of the fact that we have upheld the validity of order dated 27.10.2010 as a regular assessment, we answer substantial questions 1 to 3 in favour of the assessee and adverse to the revenue. There is thus no necessity to advert to questions 4 to 6 which are on the merits of the adjustments made. Hence, questions 4 to 6 are returned as unanswered.
https://www.mhc.tn.gov.in/judis 20 T.C.A.No.211 of 2012
55.This Tax Case (Appeal) is disposed in terms of the above order. No costs.
[A.S.M., J] [G.A.M., J] 20.11.2024 Index:Yes Speaking order Neutral Citation:Yes vs To The Assistant Commissioner of Income tax, Company Circle II(4), Chennai-600 034.
https://www.mhc.tn.gov.in/judis 21 T.C.A.No.211 of 2012 DR. ANITA SUMANTH.,J.
and G. ARUL MURUGAN.,J.
vs T.C.A.No.211 of 2012 20.11.2024 https://www.mhc.tn.gov.in/judis 22