Lionbridge Technologies P.Ltd, Navi ... vs Assessee

BEFORE HON'BLE S/SHRI VIJAY PAL RAO (JM), AND B.R.BASKARAN (AM) सव ी वजय पाल राव, या यक सद य एवं बी.आर.बा करन, लेखा सद य आयकर अपील सं./I.T.A. No.1041/Mum/2015 ( नधारण वष / Assessment Year : 2007-08) Lionbridge Technologies Pvt.Ltd. बनाम/ The Dy. Commissioner of Income Tax 3rd floor, Reliable Tech Park, -10(2)(1), Vs. off Thane-Belapur Road, Aayakar Bhavan, Airoli, M K Road, Navi Mumbai-400708 Mumbai-400020 (अपीलाथ /Appellant) .. ( यथ / Respondent)

आयकर अपील सं./ ITA No.1278/Mum/2015 नधारण वष / Assessment Year : 2007-08) The Dy. Commissioner of Income बनाम/ Lionbridge Technologies Pvt.Ltd.

Tax-15(2)(1), 5th and 6th floor, Vs. Room No.403, 4th floor, Spectra, High Street, Hiranandani Aayakar Bhavan, Garden, Powai-400076 M K Road, Mumbai-400020 (अपीलाथ /Appellant) .. ( यथ / Respondent)

थायी ले ख ा सं . /जीआइआर सं . /PAN/GIR No. :AABCT3380Q

अपीलाथ ओर से /: Assessee by Shri Ajit Kumar Jain यथ क ओर से/ Revenue by : Shri N R Chand

सन ु वाई क तार ख / Date of Hearing : 25.05.2015 घोषणा क तार ख /Date of Pronouncement :29. 5.2015

आदे श / O R D E R

PER B.R.BASKARAN (AM) These cross appeals have been filed by the parties challenging the order dated 09-01-2015 passed by the assessing officer u/s 143(3) r.w.s. 144C(13) and 254 of the Income tax Act, 1961 (proviso 4 to sec. 153(2A) of the Act) and they relate to the assessment year 2007-08.

ITA No.1041/Mum/2015 2 and 1278/Mum/2015

2. We shall first take up the appeal filed by the assessee. At the time of hearing, the Ld A.R did not press the grounds numbered as 4, 5, 5.1 and 6 and accordingly they are dismissed as not pressed. The grounds numbered as 1 and 2 relate to the validity of the assessment order passed by the assessing officer. We heard the parties on this preliminary issue.

3. The assessee company is engaged in the business of Design, Development and export of computer software, software solutions and providing information technology enabled services and related services. The assessment of the year under consideration was originally completed on 17.10.2011 u/s 144C(13) r.w.s. 143(3) of the Act by making various additions. When the assessee challenged the assessment order by filing appeal before the ITAT, the Tribunal set aside all the matters to the file of the assessing officer with the following observations, vide its order dated 25.1.2012 passed in ITA No.7667/Mum/2011:-

"8. Considering the provisions of Sec. 144C of the Act and order of DRP passed u/s 144C(5) of the Act dt. 30th September, 2011, placed on record, we observe that DRP has not given any reason and/or commented upon the objections of assessee in the said order while agreeing with the adjustments proposed by TPO. Ld. DR has not disputed the above contention of Ld AR save and except to submit that AO has to pass order in conformity with the adjustments proposed by TPO and referred to Sec. 92C(4) of I.T. Act. However, Ld DR conceded that DRP in its order has not given any reasons in respect of objections filed by assessee on TPO's order proposing ALP adjustments to be made. Therefore, we are of the considered view that order passed by DRP u/s 144C of the Act is not a speaking order in conformity with principles of natural justice and provisions of I.T. Act.

9. In view of above facts, we set aside the order of AO without going into the merits of additions disputed by assessee in this appeal and direct AO to pass fresh assessment order in conformity with provisions of the Act and also keeping in view observations of Hon'ble High Court of Uttarkhand (supra)."

4. In the set aside proceedings, the AO referred the matter of TP adjustments to the Transfer Pricing Officer (TPO), who suggested TP ITA No.1041/Mum/2015 3 and 1278/Mum/2015

adjustments, vide his order dated 27-01-2014. Thereafter the assessing officer passed the assessment order on 12-03-2014 by following the observations made by the DRP in the original assessment proceedings. However, subsequently on 16.04.2014, the assessing officer issued following Corrigendum against the assessment order passed on 12.03.2014:-

"In the order passed u/s 143(3) r.w.s. 254 of the I.T Act, 1961 (Proviso 4 to sec. 153(2A) of the Act dated 12/03/2014 in the case of M/s Lionbridge Technologies Pvt Ltd A.Y 2007-08, the section under which the assessment was made i.e. 143(3) r.w.s. 254 of the I.T Act, 1961 (Proviso 4 to section 153(2A) of the Act was incorrectly mentioned and the same be read as 144C(1) r.w.s. 143(3) of the Act. Also the order giving effect to ITAT's order dated 25.01.2012 be read as Draft Assessment Order. This Corrigendum be read alongwith order passed on 12/03/2014 by DCIT-8(2), Mumbai."

Later, the assessee filed objections before DRP and the DRP issued directions dated 05-12-2014 u/s 144C(5) of the Act. The assessing officer, thereafter passed the assessment order dated 09-01-2015 u/s 143(3) r.w.s. 144C(13) r.w.s. 254 of the Income tax Act, 1961 (proviso 4 to sec. 153(2A) of the Act).

5. The assessee has filed the present appeal challenging the assessment order dated 09-01-2015, referred above.

6. The Ld Counsel appearing for the assessee submitted that the provisions of sec. 144C(1) of the Act mandates that the AO shall, in the first instance, forward a draft of the proposed order of assessment to the eligible assessee. He submitted that the assessing officer, in the instant case, has passed the final assessment order on 12.03.2014 without adhering to the mandate of the provisions of sec. 144C(1) of the Act. He further submitted that the assessing officer has issued a Corrigendum on 16.04.2014, but the same will not make good the mistake committed by ITA No.1041/Mum/2015 4 and 1278/Mum/2015

the assessing officer. He further submitted that the assessing officer has issued "Notice of demand" for the tax determined in the assessment order dated 12-03-2014 and also issued penalty notice u/s 271(1)(c) of the Act, which clearly bring out the intention of the assessing officer that he has intended the assessment order dated 12-03-2014 to be the final order only. Further the AO himself has observed in the assessment order that the time limit for completion of assessment proceedings got extended up to 31-03-2014 by virtue of third proviso to Sec. 153(2A) of the Income tax Act. Accordingly he submitted that the corrigendum issued on 16-04-2014 will not extend the statutorily prescribed time limit for completing the assessment as per the third proviso to sec. 153(2A) of the Act. Accordingly he submitted that the assessment order passed on 12.03.2014 is a nullity in the eyes of law and consequently, the subsequent assessment order passed on 09-01-2015 is also a nullity in the eyes of law. In support of these contentions, the Ld A.R placed his reliance on the following case law:-

(a) Zuari Cement Limited Vs. ACIT (WP No. 5557/2012)(AP)

(b) Vijay Television Private Limited Vs. DRP (2014)(46 Taxmann 100)(Mad)

(c) Capsugel Healthcare Limited Vs. ACIT (ITA No.1356 and 1371/Del/12)

7. On the contrary, the Ld D.R submitted that the assessee has filed the present appeal challenging the assessment order dated 09.01.2015 passed by the assessing officer pursuant to the directions issued by the DRP. He further submitted that the assessee did not raise this legal objection before the DRP and it is being raised for the first time before the Tribunal. He submitted that the assessment order dated 12.03.2014 passed by the assessing officer was corrected as "draft assessment order" by the Corrigendum issued by the AO on 16.04.2014. The assessee has also accepted the said fact and accordingly it has filed objections before the ITA No.1041/Mum/2015

5 and 1278/Mum/2015

DRP. He further submitted that the "Doctrine of Estoppel" is not applicable to the income tax Act and in this regard, the Ld D.R placed reliance on the decision rendered by Hon'ble Supreme Court in the case of CIT Vs. V.Mr.P. Firm, (1965)(56 ITR 67). Accordingly he submitted that merely because the AO omitted to name the order dated 12-03-2014 as "Draft assessment order", the same shall not become final assessment order. The Ld D.R submitted that the provisions of sec. 144C(1) of the Act mandates the assessing officer to pass initially draft assessment order only and hence the AO cannot ignore the said mandate. Hence the assessment order dated 12.03.2014 passed by the AO should be construed as "Draft assessment order" only, which was passed in accordance with the provisions of sec. 144C(1) of the Act. He further submitted that the provisions of sec. 292B shall come to the rescue of the AO for the error committed in not mentioning the order as "Draft assessment order".

8. With regard to the time limit prescribed u/s 153(2A) of the Act, the Ld D.R submitted that the provisions of sec. 144C(13) overrides the provisions of sec. 153 and hence the time limit prescribed u/s 153(2A) does not apply to the present proceedings. He further submitted that the third proviso to sec.153(2A) prescribes two year period for completion of assessment consequent to the directions given by the ITAT. He submitted that the Tribunal has passed the order in January, 2012 and it is not clear from the record as to whether the Commissioner has received the order by March, 2012 or not. Accordingly he submitted that the observation made by the AO that the time limit is available up to 31.3.2014 requires verification.

9. We have heard the rival contentions on this preliminary issue. There is no dispute with regard to the fact that the present proceedings have been completed by the assessing officer in order to give effect to the order ITA No.1041/Mum/2015 6 and 1278/Mum/2015

dated 25.01.2012 passed by the Tribunal, referred above. Since the assessing officer himself has observed that the time limit for completing the assessment got extended up to 31.3.2014 after referring to the third proviso to sec. 153(2A) of the Act, we do not think it necessary to examine the correctness of the said observation at this stage. Accordingly we do not find any merit in the contentions of Ld D.R urged in this regard. Accordingly, the assessing officer has to complete the assessment on or before 31.3.2004 in order to give effect to the order of the Tribunal.

10. The Ld D.R further contended that the provisions of sec. 144C(13) overrides the provisions of sec. 153 and hence the limit of completing the assessment by 31.3.2014 shall not apply to the present proceedings. The provisions of sec. 144C(13) read as under:-

"144C(13) Upon receipt of the directions issued under sub-section (5), the Assessing Officer shall, in conformity with the directions, complete, notwithstanding anything to the contrary contained in section 153 or section 153B, the assessment without providing any further opportunity of being heard to the assessee, within one month from the end of the month in which such direction is received."

A careful perusal of the above said provision would show that the same shall take effect only after the receipt of the directions issued by the Dispute Resolution Panel u/s 144C (5) of the Act.

11. Now we shall analyse the facts prevailing in the instant case. The assessing officer proceeded to frame fresh assessment order in order to give effect to the order dated 25-01-2012 passed by the Tribunal, i.e., as noticed earlier, the Tribunal has set aside the assessment order and restored back the same to the file of the assessing officer, since the Tribunal found that the DRP did not pass a reasoned order, meaning thereby the assessment is restored back by the Tribunal to the stage of ITA No.1041/Mum/2015 7 and 1278/Mum/2015

the passing of "Draft assessment order". Hence, the assessing officer should have forwarded the copy of the Draft order to the assessee in terms of sec. 144C(1) of the Act. Apparently, the assessing officer did not do so, but instead passed the final assessment order on 12-03-2014 by raising demand upon the assessee. Further the assessing officer also issued the Notice of Demand and also the Penalty notice u/s 271(1)(c) of the Act. These two notices clearly bring out the fact that the assessing officer has passed the final assessment order only on 12-03-2014. We have already noticed that the assessing officer himself has observed that the time limit for completing the present assessment was 31.3.2014 as per the third proviso to sec. 153(2A) of the Act. Hence, it appears that the assessing officer has rushed to complete the assessment by that date and hence it appears that he has passed the assessment order on 12.03.2014 and since he considered the same to be the final order, he has issued notice of demand as well as the penalty notice.

12. The sequence of events narrated above would show that the assessing officer has failed to follow the directions given by the Tribunal in its order dated 25-01-2012. We have already noticed that the Tribunal has made a specific observation that the DRP has not passed a reasoned order and hence the matter was restored to the file of the assessing officer at the stage of "draft assessment order". Hence the assessing officer was required to forward a copy of the draft order in terms of sec. 144C(1) of the Act and thereafter the procedure prescribed for filing objections, if any, before the DRP by the assessee might have been followed. Apparently the assessing officer has failed to follow the mandate of the provisions of sec. 144C(1) of the Act.

13. The next question that arises is Whether the Corrigendum dated 16.04.2014 issued by the Assessing officer to the effect that the ITA No.1041/Mum/2015 8 and 1278/Mum/2015

assessment order dated 12-03-2014 should be read as "Draft assessment order" will make good the mistake committed by the assessing officer. The Ld D.R submitted that the assessee, after receipt of Corrigendum (referred above), has filed objections before the DRP and the assessing officer has passed the final assessment order on 09-01-2015 after the receipt of order passed by DRP. The Ld D.R further submitted that the assessing officer has to necessarily follow the mandate of provisions of sec. 144C(1) of the Act and hence the assessment order passed on 12-03- 2014 should be construed as Draft assessment order only. With regard to the time limit for completing the assessment, he placed strong reliance on the provisions of sec. 144C(13) in order to contend that the time limit prescribed in sec. 153 is not applicable to the assessment order passed u/s 144C(13) of the Act.

14. We are unable to agree with the contentions of Ld D.R. The provisions of sec. 144C(13) overrides the provisions of sec. 153 only for the purpose of completing the assessment in conformity with the directions issued by the DRP u/s 144C(5) of the Act. Thus the provisions of sec. 144C(13) operate for a limited purpose and, in our view, the same would come into effect only if the assessing officer had completed the process of forwarding the draft assessment order within the time limit prescribed u/s 153(2A) of the Act. In the instant case, admittedly, the draft order was not forwarded to the assessee within the time limit prescribed under the third proviso to sec.153(2A) of the Act, i.e., prior to 31.3.2014.

15. In the case of M/s Zuari Cement Ltd (supra), the assessing officer had passed the final assessment order without forwarding the draft assessment order as per the provisions of sec. 144C(1) of the Act. The Hon'ble Andhra Pradesh High Court held that the said assessment order is ITA No.1041/Mum/2015 9 and 1278/Mum/2015

contrary to them mandatory provisions of sec. 144C of the Act and is passed in violation thereof. Accordingly the High Court held that it is without jurisdiction, null and void and unenforceable. It is pertinent to note that the Special Leave petition filed by the revenue before the Hon'ble Supreme Court challenging the order of the Hon'ble Andhra Pradesh High Court has been dismissed by the Hon'ble Apex Court, vide its order dated 27-09-2013 passed in CC 16694/2013.

16. In the case of Vijay Television Private Ltd (supra), the assessing officer passed the assessment order on 26.3.2013 without passing a draft assessment order as per the provisions of sec. 144C(1) of the Act. Later the AO issued a corrigendum on 15.04.2013 modifying the final assessment order passed on 26.03.2013 to be read as "Draft assessment order". The Hon'ble Madras High Court noticed that the AO had issued Demand notice raising tax demand upon the assessee. Further, the High Court noticed that the AO has failed to withdraw the demand raised upon the assessee at the time of issuing Corrigendum. The Hon'ble High Court further noticed that the Corrigendum dated 15.04.2013 is beyond the period prescribed for limitation. Under these set of facts, the High Court held that the assessment order dated 26-03-2013 should be construed as final assessment order passed in violation of the statutory provisions of the Act. The High Court further held that such a defect or failure on the part of the AO to adhere to the statutory provisions is not a curable defect by virtue of corrigendum dated 15.04.2013.

17. In the instant case also, it is not the case of the department that the demand raised in the assessment order dated 12-03-2014 was withdrawn by the AO at the time of issuing Corrigendum dated 16-04- 2015. Further, the Corrigendum itself was issued by the AO after the expiry of time limit prescribed under third proviso to sec. 153(2A) of the Act. As per the decision of Hon'ble Madras High Court rendered in the ITA No.1041/Mum/2015 10 and 1278/Mum/2015

case of Vijay Television Private Ltd (supra), the said defect cannot be cured by the Corrigendum issued subsequently after the expiry of limitation period. Hence the assessment order dated 12-03-2014 passed by the AO should be construed as final assessment order passed in violation of the statutory provisions of the Act. Since the AO has failed to comply with the time limit prescribed by sec. 153(2A) of the Act and further failed to follow the mandate of the provisions of sec. 144C, the impugned order is the one without jurisdiction, null and void and unenforceable. Accordingly we set aside the impugned assessment order.

18. Since we have annulled the assessment order, there is no necessity to address the issues urged by the assessee on merits. For the same reasoning, we do not find it necessary to adjudicate the grounds urged by the revenue in its appeal filed before us.

19. In the result, the appeal filed by the assessee is treated as allowed and the appeal filed by the revenue stands dismissed being infructuous.

The above order was pronounced in the open court on 29th May, 2015. घोषणा खल ु े यायालय म दनांकः29th May, 2015 को क गई ।

Sd sd

( वजय पाल राव/VIJAY PAL RAO) (बी.आर. बा करन,/ B.R. BASKARAN) या यक सद य / Judicial Member लेखा सद य/Accountant Member मुंबई Mumbai:29th May,2015. व. न.स./ SRL , Sr. PS

आदे श क त ल प अ े षत/Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent. 3. आयकर आयु त(अपील) / The CIT(A)- concerned 4. आयकर आयु त / CIT concerned 5. वभागीय त न ध, आयकर अपील य अ धकरण, मंब ु ई/ DR, ITAT, Mumbai concerned 6 ITA No.1041/Mum/2015 11 and 1278/Mum/2015

गाड फाईल / Guard file.

आदे शानस ु ार/ BY ORDER,

True copy सहायक पंजीकार (Asstt. Registrar) आयकर अपील य अ धकरण, मुंबई /ITAT, Mumbai