Income Tax Appellate Tribunal - Delhi
M/S. Oracle India Pvt. Ltd., New Delhi vs Addl. Cit, New Delhi on 31 August, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'I-1', NEW DELHI
Before Sh. N. K. Saini, AM and Sh. K. N. Chary, JM
ITA No. 1587/Del/2014 : Asstt. Year : 2004-05
ITA No. 1588/Del/2014 : Asstt. Year : 2005-06
M/s Oracle India Pvt. Ltd., Vs Asstt. Commissioner of Income
(Successor in Interest for Sun Tax, Range-13,
Microsystems India Pvt. Ltd.), F- New Delhi
01/02, Salcon Ras Vilas, D-1,
District Centre, Saket,
New Delhi-110017
(APPELLANT) (RESPONDENT)
PAN No. AAECS7710C
Assessee by : Sh. K. M. Gupta, Daksh S. Bhardwaj,
Sh. Anubhav Jain, Advs. &
Naveen Dhamija, CA
Revenue by : Sh. Amrender Kumar, CIT DR &
Sh. Kumar Pranav, Sr. DR
Date of Hearing : 29.08.2017 Date of Pronouncement : 31.08.2017
ORDER
Per N. K. Saini, AM:
These two appeals by the assessee are directed against the separate orders each dated 27.12.2006 passed by the AO u/s 143(3) r.w.s. 144C of the Income Tax Act, 1961 (hereinafter referred to as the Act).
2. Since the issues involved are common and the appeals were heard together so these are being disposed off by this consolidated order for the sake of convenience and brevity.
2 ITA Nos. 1587 & 1588/Del/2014Oracle India Pvt. Ltd.
3. At the first instance we will deal with the appeal in ITA No. 1587/Del/2014 for the assessment year 2004-05. Following grounds have been raised in this appeal:
"1. The assessment order passed by the Learned Assessing Officer ('Ld. AO') under section 143(3) read with section 144C of the Act pursuant to the directions of Honourable Dispute Resolution Panel (Hon'ble DRP') is bad in law and void ab-initio.
2. The assessment order passed by the Ld. AO (following the directions of the Hon'ble DRP) was void ab-initio and is liable to be quashed on account of being barred by limitation due to non-issuance of notice under section 143(2) of the Act within the prescribed time limit, i.e. September 30, 2012, in the instant case.
3. The Ld. AO has grossly erred in failing to dispose off the objection raised by the Appellant in the assessment order with respect to the fact that the subject reassessment proceedings are barred by limitation on account of non- service of notice under section 143(2) of the Act, within the prescribed time limit and accordingly, this order is liable to be quashed.
4. The reassessment proceedings under section 147 of the Act suffers from jurisdictional error and is void ab initio as the Ld. AO has erred in relying on the Show Cause Notice ('SCN') issued by Directorate of Revenue Intelligence ('DRI') which is not a tangible material in forming the belief that income chargeable to tax has escaped assessment.
5. Without prejudice to the above grounds, the Appellant submits that Hon'ble DRP has erred in stating that Hon'ble 3 ITA Nos. 1587 & 1588/Del/2014 Oracle India Pvt. Ltd.
DRP is not empowered to adjudicate on the validity of assessments.
6. The assessment order passed by the Ld. AO in pursuance to the directions issued by the Hon'ble DRP is a vitiated order as the Hon'ble DRP erred both on facts and in law in confirming part of the Transfer Pricing (TP) additions made by the Additional Commissioner of Income Tax, Range - 13 ("Ld. AO") / Learned Additional Commissioner of Income Tax, Transfer Pricing Officer - II(3), New Delhi ('Ld.TPO).
7. The Ld. AO / Ld. TPO and the Hon'ble DRP erred in ignoring the fact that the reference made u/s 143(2) of the Act suffers from jurisdictional error as the Ld. AO did not record any reasons in the draft assessment order based on which it was concluded that it was 'necessary or expedient' to refer the matter to the Ld. TPO for computation of the Arm's Length Price ('ALP'), as is required under section 92CA(1) of the Act.
8. The Ld. AO in pursuance of the directions of the Hon'ble DRP erred both on facts and in law in enhancing the Appellant's income by INR 19,266,487. The Ld. AO / Hon'ble DRP erred in holding that the Appellant has under billed / undercharged its Associated Enterprise ('AE') in respect of the international transaction pertaining to Marketing and Software Development Segment. In doing so, the Hon'ble DRP has grossly erred in agreeing with the Ld. TPO's action of;
8.1 not appreciating the fact that the operating expenses amounting to INR 171,965,452/-, based on which the Directorate of Revenue Intelligence ('DRI') has computed the alleged undercharge, pertains to other services and do not 4 ITA Nos. 1587 & 1588/Del/2014 Oracle India Pvt. Ltd.
include any cost toward marketing services and software development services;
8.2 adopting an incorrect basis of allocating the operating expenses pertaining to 'Services Segment' to Marketing and Software Development Segment when no such allocation is warranted;
8.3 solely placing reliance on the observations made by the DRI and the statements/ information obtained from the employees during the course of the investigation and in doing so, completely disregarding the audited financial statements and other factual details submitted by the Appellant and ignoring the certificate from an independent Chartered Accountant submitted by the Appellant while voluntary disclosing the additional income from undercharges;
8.4 not appreciating the fact that all costs have been appropriately charged back with a mark-up to the AE under respective business segments and there are no further undercharges over and above what has been voluntarily disclosed by the Appellant in April 2009; and 8.5 enhancing the income of the Software Development segment by applying a higher mark-up of 18% in respect of the alleged undercharges as well as the additional income voluntarily disclosed by the Appellant for the Software Development Segment instead of a mark-up of 5% applicable for the said segment as per the terms of the Research & Development agreement.
8.6 (Without prejudice to the Appellant's contentions that there are no undercharges under the Marketing and Software Development Segment), adopting an adhoc basis of attributing the entire amount of alleged undercharge to the Software Development Segment and applying a higher mark-5 ITA Nos. 1587 & 1588/Del/2014
Oracle India Pvt. Ltd.
up of 18% instead of a lower mark-up of 10% applicable for Marketing Segment.
8.7 (Without prejudice to the Appellant's contentions that there are no undercharges under the Marketing and Software Development Segment), committing a factual error of INR 63,713/- in computing the total TP adjustment in respect of the said segment.
9. The Ld. AO / Hon'ble DRP erred both on facts and in law in rejecting the claim for set off of losses made by the Appellant for INR 55,656,046/- arising on account of overcharges reported by the Appellant in the Marketing Segment.
10. The Ld. AO in pursuance of the directions of the Hon'ble DRP erred both on facts and in law in enhancing the Appellant's income by INR 96,641,560/-. The Ld. AO / Hon'ble DRP erred in alleging under billing / undercharges in the Warranty Segment. In doing so, the Hon'ble DRP has grossly erred in agreeing with the Ld. TPO's action of:
10.1 solely placing reliance on the observations made by the DRI in its Show Cause Notice and not appreciating the fact that DRI has adopted an incorrect basis for computing the cost base to be used for computing the amount of spares to be charged back to the AE under Warranty Segment;
10.2 not appreciating the accounting policy consistently followed by the Appellant for computing the costs of spares allocable to the Warranty Segment;
10.3 (without prejudice to the above grounds), failing to appreciate that even where the basis adopted by DRI is used for computing the cost base for the Warranty Segment, 6 ITA Nos. 1587 & 1588/Del/2014 Oracle India Pvt. Ltd.
appropriate deduction should be made for value of defective spare parts exported by the Appellant so as to arrive at the correct value of spares consumed for warranty.
10.4 (without prejudice to the above grounds), not accepting the fact that if the basis adopted by the DRI for computing the alleged undercharges is adopted, then the Appellant should be allowed to claim the deduction for the spare parts consumed.
11 The Ld. AO / Hon'ble DRP erred both on facts and in law in disallowing the entire amount of expense recorded as Asia Escalated Charges ('AEC') with respect to Escalated Technical Support provided by the Appellant's AE, alleging that the same do not satisfy the Arm's Length Price envisaged under section 92CA of the Act. In doing so, the Hon'ble DRP has grossly erred in agreeing with the Ld. TPO's action of:
11.1 undertaking the fresh review of the transaction, which has been analyzed and accepted by the Ld. TPO's predecessor at the time of original assessment completed in the assessment order dated December 20, 2006;
11.2 disregarding Transactional Net Margin Method ('TNMM') as the most appropriate method for benchmarking the said transaction and instead, applying the Comparable Uncontrolled Price Method ('CUP') in contravention of the provisions of Rule 10B of the Income Tax Rules, 1962 ('the Rules') merely based on the presumption that the ALP of the said international transaction is 'NIL';
11.3 disregarding the actual expense of INR 24,145,433/-
incurred by the Appellant as AEC and which was determined as ALP in the TP documentation maintained by the Appellant 7 ITA Nos. 1587 & 1588/Del/2014 Oracle India Pvt. Ltd.
in terms of section 92D of the Act read with Rule 10D of the Rules;
11.4 failing to acknowledge the business efficacy of the subject transaction and benefits received by the Appellant from the same and thereby, challenging the commercial wisdom of the Appellant in making such payments while passing the order in contrast with the relevant judicial pronouncements in this regard;
11.5 disregarding the duly executed intercompany agreement, process chart and the explanation submitted by the Appellant explaining the nature and purpose of the said transaction.
11.6 (without prejudice to above grounds), disregarding the fact that the said AEC have not been challenged by the Income-tax authorities during the course of survey proceedings under section 133A of the Act as is evident from the Show Cause Notice dated October 19,2010.
12 The Ld. AO has erred in initiate penalty proceedings under section 271(1)(c) of the Act.
The above grounds are without prejudice to each other.
The appellant craves leave to alter, amend or withdraw all or any objections herein or add any further grounds as may be considered necessary either before or during the hearing."
4. At the first instance, the ld. Counsel for the assessee argued Ground Nos. 2 & 3 only, the contention of the assessee in these grounds is that the assessment order passed by the AO is barred by limitation due 8 ITA Nos. 1587 & 1588/Del/2014 Oracle India Pvt. Ltd.
to non-issuance of notice u/s 143(2) of the Act within the prescribed time limit i.e. September 30, 2012, therefore, it is void ab-initio.
5. Facts of the case in brief are that the assessee filed its return of income on 01.04.2004 declaring an income of Rs.1,25,07,570/- and a book profit u/s 115JB of the Act of Rs.1,35,31,976/-. Subsequently, the assessee filed revised return of income on 30.11.2004 declaring income at Rs.1,21,45,240/- and revised book profit at Rs.13,76,785/-. Later on, the case was selected for scrutiny as the international transactions exceeded Rs.5 Crores. The AO framed the assessment vide order dated 27.12.2006 at an income of Rs.16,97,28,254/- by making the various additions and worked out a total tax payable at Rs.7,08,86,516/- and the tax payable u/s 115JB of the Act at Rs.10,40,271/-. Thereafter, the AO issued reassessment notice u/s 148 of the Act on 29.03.2011, in response, the assessee filed the return of income on 28.04.2011. The assessee also filed a letter dated 28.04.2011 and raised certain objections against issuing of notice u/s 148 r.w.s. 147 of the Act by stating that the reason which led to believe that income chargeable to tax had escaped assessment, had not been indicated in the notice u/s 148 of the Act and that no income of the assessee in respect of the assessment year under consideration had or could be said to have escaped assessment. It has also been stated that the return of income pursuant to the notice u/s 148 of the Act was filed under protest. The AO issued the notice u/s 143(2) of the Act on 17.12.2012. The assessee filed technical objection vide 9 ITA Nos. 1587 & 1588/Del/2014 Oracle India Pvt. Ltd.
letter dated 01.03.2013 before the AO challenging the jurisdiction to reassess, on the ground that statutory notice u/s 143(2) of the Act had been issued late. The assessee also raised the same objection before the ld. DRP who dismissed the same by observing in para 3.3 of the order dated 26.12.2013 which read as under:
"We have considered these grounds very carefully. As per provisions of section 144C(5), the DRP 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 AO to enable him to complete the assessment. As per Section 144C(8), the DRP may confirm, reduce or enhance the variation proposed in the draft order. In other words, the DRP is empowered to give directions only with reference to variations proposed in the draft assessment order with reference to the returned income. DRP is not empowered to adjudicate the validity of assessment. Therefore, we find ourselves unable to deal with these three grounds of objections, having no jurisdiction."
6. Now the assessee is in appeal. The ld. Counsel for the assessee submitted a synopsis of relevant dates which read as under:
S. No Particulars AY 2004-05 AY 2005-06
1 Re-assessment Notice u/s 148 29 March 2011 31 March 2010
(at Pg22 of PB) (at Pg 39 of PB)
2 Return filed in response to re- 28 April 2011 29 April 2010
assessment notice (at Pg 23 - 44 of PB) (at Pg 40 - 60 of PB)
3 Due date for service of notice u/s 143(2) 30 September 2012 30 September 2011
[six months from end of the financial
year in which return is furnished]
4 Actual date of issue of notice u/s 143(2) 17 December 2012 17 December 2012
in instant case (at Pg 87 of PB) (at Page 100 PB)
5 Technical Objections filed - challenging 1 March 2013, 1 March 2013,
jurisdiction to re-assess on ground that 8 March 201 3 & 8 March 201 3 &
statutory notice u/s 143(2) has been 11 March 201 3 11 March 201 3
(at Pg 105- 117of PB) (at Pg 110- 122 of PB)
issued late
6 Letter filed pursuant to inspection of files 20 March 201 3 20 March 201 3
carried on 18 March, 2013 (at Pg 118- 119 of PB) (at Pg 123- 124 of PB)
10 ITA Nos. 1587 & 1588/Del/2014
Oracle India Pvt. Ltd.
7. On the basis of aforesaid synopsis, the ld. Counsel for the assessee submitted that the return of income in response to notice u/s 148 r.w.s. 147 of the Act was filed by the assessee under protest on 28.04.2011. A reference was made to page nos. 23 to 44 of the assessee's paper book. It was stated that the time limit for service of the notice u/s 143(2) of the Act i.e. six months from the end of the financial year in which return was furnished, was up to 30th September, 2012 but the AO issued notice on 17.12.2012 (a reference was made to page no. 87 of the assessee's paper book). It was accordingly submitted that the notice issued u/s 143(2) of the Act was barred by limitation and as such the assessment order passed by the AO was void ab-initio. It was further submitted that the assessee filed the technical objections challenging the jurisdiction to re-assess on the ground that statutory notice u/s 143(2) of the Act had been issued late (a reference was made to page nos. 105 to 117 of the assessee's paper book). It was stated that the assessee inspected the files of this case available with the AO on 18.03.2013 and informed the AO vide letter dated 20.03.2013 (copy of which is placed at page nos. 118 & 119 of the assessee's paper book). It was accordingly submitted that the assessment order passed by the AO subsequent to issuance of notice u/s 148 of the Act dated 17.12.2012 was barred by limitation and void ab- initio.
8. The reliance was placed on the following case laws:
Ø ACIT Vs Hotel Blue Moon (2010) 321 ITR 362 (SC) 11 ITA Nos. 1587 & 1588/Del/2014 Oracle India Pvt. Ltd.
Ø Pr. CIT Vs Sh. Jai Shiv Shankar Traders (P) Ltd. (2016) 383 ITR 448 (Del.) Ø Indus Towers Ltd. Vs DCIT, Cirecle-11(1) & Anr. in W.P.(C) 1560/2014, order dated 29.05.2017 of Hon'ble Delhi High Court
9. In his rival submissions the ld. CIT DR supported the orders of the authorities below. He also furnished copy of the report dated 28.04.2017 received from the Addl. CIT, Range-19, New Delhi which is placed on record.
10. We have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, it is an admitted fact that the original assessment was framed by the AO u/s 143(3) of the Act vide order dated 27.12.2006 and thereafter, the AO issued notice u/s 148 r.w.s 147 of the Act, copy of which is placed at page no. 22 of the assessee's paper book and reads as under:
"Ref: AAECS7710C/04-O5/DCIT(LTU)/2010-11 Dated :29 March, 2011 NOTICE UNDER SECTION 148 OF THE INCOME TAX ACT, 1961 To M/S Sun Microsystems India Pvt. Ltd., 6th Floor, Divyashree Chambers, Opposite Langford Road, Bangalore - 560 025 Whereas I have reason to believe that Income chargeable to tax in the case of M/s Sun Microsystems India Pvt. Ltd. for the 12 ITA Nos. 1587 & 1588/Del/2014 Oracle India Pvt. Ltd.
Assessment Year 2004-05 have escaped assessment within the meaning of section 147 of the Income Tax Act.
I, therefore, propose to assess / reassess the income for the said assessment year and hereby require you to deliver to me a return of Income in respect of which you are assessable in the prescribed form for the said assessment year. This Notice is being issued after obtaining the necessary satisfaction of the Joint/Addl. Commissioner/ Commissioner / Chief-Commissioner of Income Tax."
(I. Satish Kumar) Deputy Commissioner of Income-Tax LTU, Bangalore
11. In response to the said notice, the assessee furnished a letter dated 28.04.2011, copy of which is placed at page nos. 23 to 25 which read as under:
April 28, 2011 The Deputy Commissioner of Income Tax Large Tax Payer Unit (LTU) JSS Towers, 100 Feet Ring Road Banashankari III Stage Bangalore - 560 085 Dear Sir, Sub: Sun Microsystems India Private Limited ('Sun India' or 'the Compan') -Notice under section 148 of the Income Tax Act, 1961 ('Act') (1) PAN: AAECS7710C (2) Membership No. : LTU/15/GLT- 4 (3) Assessment Year ('AY'): 2004-05 13 ITA Nos. 1587 & 1588/Del/2014 Oracle India Pvt. Ltd.
(4) Notice issued under section 148 dated March 29, 2011 (5) Corrigendum notice dated March 31, 2011
1. We write with reference to your notice dated March 29, 2011 issued under section 148 of the Act, purporting to reassess our income, under section 147 of the Act. The said notice was received by us on March 31, 2011. We also refer to the corrigendum issued by your goodself wherein the Company is directed to file its return of income for the subject assessment year by April 29, 2011.
2. Background · The return of income for the Previous Year ('PY') ended March 31, 2004 [relevant to the Assessment Year ('AY') 2004-05] was filed on November 1, 2004 on the basis of management certified accounts.
· The audit of the financial statements was subsequently completed and consequent to some revision in the numbers, the Company has filed a revised return of income on November 30, 2004.
· The total income of the Company for the aforesaid year, as per the revised return of income was Rs. 12,145,240 (computed based on net profits as per books -Rs 54,823,137).
· The assessment of the said return was completed under section 143(3) of the Act vide assessment order dated December 27, 2006.
· Subsequent to the assessment under section 143(3) of the Act, during the course of an internal review of the services rendered by us to other Sun Associates/Group 14 ITA Nos. 1587 & 1588/Del/2014 Oracle India Pvt. Ltd.
Companies and the related charges/billings, the Company noticed that on account of inadvertence or interpretational divergence, certain expenses either have not been cross charged, or have been overcharged in relation to inter company services, in the operating expenses as reported in the financial statements. This has resulted into a loss of (Rs. 25,771,750) as against the total income as per the revised return of income of Rs.12,145,240.
· The Company vide its letter dated April 6, 2009, voluntarily and for the sake of good order revised its returned income from Rs 12,145,240 to a loss of (Rs.25,771,750).
3. Response to notice under section 148 of the Act:
In connection with the notice under section 148 of the Act, we would like to submit the following:
· As you are aware, the Assessing Officer is empowered to initiate reassessment proceedings under section 147 of the Act, if he has reason to believe that income chargeable to tax in respect of any AY has escaped assessment.
· The reasons, which led you to believe that income chargeable to tax for the AY 2004-05 has escaped assessment, have not been indicated in the impugned notice issued under section 148 of the Act purporting to reassess the income for the said AY.
· We would like to humbly submit that, a mere statement in the impugned notice, that you have reason to believe that income chargeable to tax has escaped assessment, would not automatically confer jurisdiction.15 ITA Nos. 1587 & 1588/Del/2014
Oracle India Pvt. Ltd.
· Without prejudice to the above, it is also submitted that no income of Sun India, in respect of the AY 2004-05 has or can be said to have escaped assessment.
In fact, Sun India had disclosed the revised income and the revised computation of income vide its letter dated April 6, 2009, voluntarily and for the sake of good order.
· Therefore, the primary condition precedent for assumption for jurisdiction under section 147 of the Act namely the escapement of income chargeable to tax has not been satisfied.
· In view of the aforesaid, we are constrained to state that none of the conditions precedent for the assumption of jurisdiction under section 147 read with section 148 of the Act has been satisfied and the notice dated March 31, 2011 and all proceedings there under would not be in accordance with law. The purported notice issued under Section 148 should be withdrawn, and cancelled and all proceedings initiated pursuant thereto in respect of the AY 2004-05 should be dropped under intimation to the Company.
· Without prejudice to any of our rights and contentions, we are filing a return of income pursuant to your aforesaid notice under section 148 of the Act, under protest.
· Without prejudice, we would request you to disclose the recorded reasons, which led you to form the belief that income chargeable to tax for the AY 2004-05 has escaped assessment.
Thanking you, Yours faithfully, for Sun Microsystems India Private Limited Sd/-
Authorized signatory 16 ITA Nos. 1587 & 1588/Del/2014 Oracle India Pvt. Ltd.
12. The assessee furnished the return of income under protest which is evident from the aforesaid letter, the copy of return filed on 28.04.2011, in response to notice u/s 148 of the Act is placed at page nos. 26 to 44 of the assessee's paper book. The AO issued notice u/s 143(2) of the Act on 17.12.2012, copy of which is placed at page no. 87 of the assessee's paper book and reads as under:
"NOTICE UNDER SECTION 143(2) OF THE INCOME TAX ACT, 1961 Dated: 17.12.2012 To, THE PRINCIPAL OFFICER M/S SUN MICROSYSTEMS INDIA PVT. LTD., 3rd FLOOR, A-WING, IFCI TOWER, 61 NEHRU PLACE, NEW DELHI-110019.
Sir/Madam, The assessment for A.Y. 2004-05 in your case was reopened u/s 148 of the IT Act & you are therefore given a fresh opportunity to appear before undersigned.
2. You are hereby required to attend my office on 21.12.2012 at 1100 Hours either in person or by a representative duly authorized in writing in this behalf or produce or cause there to be produced at the said time any documents, accounts and any other evidence on which you may reply in support of the return filed by you."
Sd/-
(David Z. Chawngthu) ADDL. COMMISSIONER OF INCOME TAX, RANGE-13, NEW DELHI 17 ITA Nos. 1587 & 1588/Del/2014 Oracle India Pvt. Ltd.
13. Now question arises as to whether the said noticed issued by the AO was barred by limitation and as to where the reassessment framed by the AO in response to the said notice was valid or void. The provisions contained in Section 143(2) of the Act read as under:
"143.................
[(2) Where a return has been furnished under section 139, or in response to a notice under sub-section (1) of section 142, the Assessing Officer or the prescribed income-tax authority, as the case may be, if, considers it necessary or expedient to ensure that the assessee has not understated the income or has not computed excessive loss or has not under-paid the tax in any manner, shall serve on the assessee a notice requiring him, on a date to be specified therein, either to attend the office of the Assessing Officer or to produce, or cause to be produced before the Assessing Officer any evidence on which the assessee may rely in support of the return:
Provided that no notice under this sub-section shall be served on the assessee after the expiry of six months from the end of the financial year in which the return is furnished.]"
14. From the proviso appended to Sub-Section (2) of Section 143 of the Act, it is crystal clear that no notice u/s 143(2) of the Act shall be served on the assessee after the expiry of six months from the end of the financial year in which the return is furnished. The use of the word 'shall' in the aforesaid proviso makes it mandatory. In the present case, the return in response to notice u/s 148 of the Act was filed by the assessee on 28.04.2011 and the financial year in which the return was furnished and ended on 31.03.2012. Therefore, the notice u/s 143(2) of 18 ITA Nos. 1587 & 1588/Del/2014 Oracle India Pvt. Ltd.
the Act should have been issued on or before 30.09.2012. However, in the present case, the notice u/s 143(2) of the Act was issued by the AO on 17.12.2012 which is evident from page no. 87 of the assessee's paper book, therefore, the said notice issued by the AO was barred by limitation.
15. On a similar issue the Hon'ble Supreme Court in the case of ACIT & Anr. Vs Hotel Blue Moon (supra) held as under:
"Section 158BC provides for enquiry and assessment. After the return is filed, clause (b) of section 158BC provides that the Assessing Officer shall proceed to determine the undisclosed income of the block period in the 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 the Assessing Officer, after the return is filed, to complete the assessment under section 143(2) by following the procedure like issue of notice under section 143(2)/142. This does not provide accepting the return as provided under section 143(1)(a): the officer has to complete the assessment under section 143(3) only. If an 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 the date of filing of the block return. Omission on the part of the assessing authority to issue notice under section 143(2) cannot be a procedural irregularity and is not curable. Therefore, the requirement of notice under section 143(2) cannot be dispensed with."
16. Similarly, the Hon'ble Jurisdictional High Court in the case of Pr. CIT Vs Sh. Jai Shiv Shankar Traders Pvt. Ltd. (supra) held as under:
19 ITA Nos. 1587 & 1588/Del/2014Oracle India Pvt. Ltd.
"Pursuant to a scrutiny of the return filed by the assessee, the Assessing Officer issued notice under section 148 of the Income-tax Act, 1961 and another notice under section 143(2) requiring further information and fixing a date for the assessee to appear. The notices were not served on the assessee. A further notice under section 142(1) was issued with a returnable date. On the returnable date the assessee's authorised representative gave a statement that the original return filed should be treated as a return filed pursuant to the notice under section 148. An assessment order was passed making an addition of a sum as unexplained credits under section 68. The Commissioner (Appeals) dismissed the appeal of the assessee holding that sufficient opportunity was provided through questionnaires to support his return by documentary evidence and that non issuance of notice under section 143(2) did not invalidate the reassessment. The assessee's further appeal was allowed by the Tribunal holding that the order of reassessment was unsustainable as a notice was not issued by the Assessing Officer before the completion of reassessment."
It has further been held as under:
"that there was no legal infirmity in the order of the Tribunal. Subsequent to the statement of the assessee on the returnable date to treat the original return filed as a return filed pursuant to a notice under section 148, the Assessing Officer's failure to issue notice under section 143(2) invalidated the order of reassessment. No question of law arose."
17. Recently, their Lordships of the Jurisdictional High Court in the case of Indus Towers Ltd. Vs DCIT & Anr. (supra) observed in paras 11 to 15 as under:
20 ITA Nos. 1587 & 1588/Del/2014Oracle India Pvt. Ltd.
"11. Two broad submissions have been advanced by Mr. Mihir Joshi, learned Senior counsel appearing for the Petitioner:
(i) Even where proceedings under Section 147 of the Act are sought to be taken with reference to intimation under Section 143(1) of the Act, there should exist reason to believe that income chargeable to tax has escaped assessment. In the facts and circumstances of the present case, certain disclosures were made in the return of income (original as well as revised) explaining the reasons for revising the return whereas the factual details pertaining to the transfer of infrastructure assets along with copies of the orders of the High Court were submitted. Therefore, the alleged formation of belief by the AO of income having escaped assessment is a mere change of opinion and an afterthought without any legal basis. The proceedings have been initiated on the basis of no material and, therefore, assumption of jurisdiction was plainly unsustainable in law.
(ii) In terms of the proviso to Section 153(1), the time limit for completion of the assessment for AY 2009-10 was 31st December, 2011 (21 months from the month of the AY). Further, the proviso to Section 143(2) of the Act requires that notice for assessment should be issued within six months from the end of the Financial Year ('FY') in which the return was furnished by an Assessee. In the present case, the original return was filed by ICTIL on 25th September, 2009 while the revised return was filed on 31st March, 2010. Therefore, the AO had time till 30th September, 2010 to issue notices under Section 143(2) of the Act. After the merger scheme was approved by this Court and ICTIL ceased to exist, notice in the meanwhile was issued on 22 nd February, 2013 under Section 148 of the Act. The last date for issuance of the notice under Section 143(2) of the Act was 30th September, 2013. However, the notice under Section 143(2) of the Act was issued only on 18th September, 2014.
12. It must be mentioned here that although this was not initially urged as a ground, by CM No. 574 of 2015 the Petitioner sought to amend the writ petition to incorporate this as a ground. This 21 ITA Nos. 1587 & 1588/Del/2014 Oracle India Pvt. Ltd.
CM was allowed by the Court by its order dated 13th January, 2015 and the amended writ petition was taken on record even while continuing the interim order.
13. In response to the above submissions, Mr. Dileep Shivpuri, learned Senior Standing Counsel for the Department, submitted that as far as second submission is concerned, the facts speak for themselves. He had nothing further to add because there was no explanation for the failure to issue notice under Section 143(2) of the Act pursuant to the notice under Section 148 of the Act before 30th September 2013, the last date by which the notice ought to have been issued.
14. The law on this point is fairly well settled in the decisions in ACIT v. Hotel Blue Moon [2010] 321 ITR 362 (SC) reiterated in CIT v. Madhya Bharat Energy Corporation [2011] 337 ITR 389 (Del) and Principal Commissioner of Income tax v. Jai Shiv Shankar Traders (P.) Ltd. [2016] 383 ITR 448 (Del). In the last mentioned judgment, this Court held that the delay in issuing a notice under Section 143(2) of the Act would be fatal to the re- assessment proceedings.
15. For the aforementioned reasons, it is held that as far as the second ground is concerned, the Petitioner should succeed. In that view of the matter, the Court does not consider it necessary to examine the first ground of challenge."
18. In the present case also, it is an admitted fact that the return was filed by the assessee in response to the notice issued u/s 148 of the Act on 28.04.2011 and as per the proviso to Sub-Section (2) to Section 143 of the Act. The notice was required to be served upon the assessee before expiry of 6 months from the end of financial year ending on 31.03.2012 i.e. on or before 30.09.2012. However, the notice u/s 143(2) of the Act was issued on 17.12.2012 which was barred by limitation.
22 ITA Nos. 1587 & 1588/Del/2014Oracle India Pvt. Ltd.
Therefore, on the basis of the said notice, the reassessment framed was void ab-initio. It is also relevant to point out that the ld. CIT DR furnished the submission dated 28.04.2017 relating to information available as per record sent by Addl. CIT, Range-19, New Delhi, which read as under:
"1. In this regard, it is submitted that notice u/s 148 dated 29/03/2011 was issued to the assessee company and which was personally received on 31.03.2011. In response to this notice, the assessee company has revised its return of income on 29.04.2011. In the notice, it was clearly mentioned of escaped assessment within the meaning of 147 of the Income-tax Act, 1961 and the notice was issued after necessary satisfaction of competent authority.
2. The Assessing Officer moved proposal in the prescribed proforma after recording the satisfaction dated 23.3.2011. The ITO (Hq), o/o the CIT (LTD) vide letter dated 28.03.2011 intimated the Assessing Officer for CIT's approval.
3. Approval was received from the office of the CIT (LTU) vide letter dated which approval for referring the case to TPQ was granted.
4. Thereafter, the case was referred to the TPO vide letter dated 23.05.201 the ACIT (LTU), Bangalore.
5. Notice u/s 143(2) of the Income-tax Act, 1961 was issued on 17.12.2012. This notice was issued before the completion of reassessment which is well within the prescribed limit as per provision of the Income-tax Act, 1961 (AY 2004-05 and 2005-06).
6. TPO order was passed on 23.01.2013 u/s 92CA.
7. Thereafter u/s 143(3) r.w.s. 144 was passed on 28/03/2013"23 ITA Nos. 1587 & 1588/Del/2014
Oracle India Pvt. Ltd.
19. From Clause (5) of the above submissions, it is clear that the notice u/s 143(2) of the Act was issued to the assessee on 17.12.2012 was barred by limitation, the assessee also raised the objections before the ld. DRP who did not answer which is evident from para 3.3 of the order dated 26.12.2013 passed by the ld. DRP u/s 144C(5) of the Act which read as under:
"We have considered these grounds very carefully. As per provisions of section 144C(5), the DRP 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 AO to enable him to complete the assessment. As per Section 144C(8), the DRP may confirm, reduce or enhance the variation proposed in the draft order. In other words, the DRP is empowered to give directions only with reference to variations proposed in the draft assessment order with reference to the returned income. DRP is not empowered to adjudicate the validity of assessment. Therefore, we find ourselves unable to deal with these three grounds of objections, having no jurisdiction."
20. We, therefore, considering the totality of the facts and the ratio laid down by the Hon'ble Apex Court and Hon'ble Delhi High Court in the aforesaid cases, as discussed hereinabove, are of the confirmed view that the assessment framed by the AO on the basis of the notice dated 17.12.2012 issued u/s 143(2) of the Act which was barred by limitation, was void ab-initio and accordingly the same is quashed. No other ground was argued by either of the parties, therefore, no finding is given on the remaining grounds.
24 ITA Nos. 1587 & 1588/Del/2014Oracle India Pvt. Ltd.
21. For the assessment year 2005-06 in ITA No. 1588/Del/2014, the facts are identical, the only difference is in the dates for issuing the notice u/s 148, filing of the return, due date of service of notice u./s 143(2) of the Act and the actual date of issue of notice which were 31.03.2010, 29.04.2010, 30.09.2011 and 17.12.2012 respectively, otherwise all the facts are identical. Therefore, our findings given in the former part of this order in respect of ITA No. 1587/Del/2014 for the assessment year 2004-05 shall apply mutatis mutandis for the assessment 2005-06.
22. In the result, the appeals of the assessee are allowed. (Order Pronounced in the Court on 31/08/2017) Sd/- Sd/-
(K. N. Chary) (N. K. Saini)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 31/08/2017
*Subodh*
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5.DR: ITAT
ASSISTANT REGISTRAR