Galaxy Surfactants Limited Vs ACIT (ITAT Mumbai)
Once an Assessing Officer prepares a draft assessment order, that is the end of his domain of powers so far as framing of assessment is concerned- unless of course there are any directions from the Dispute Resolution Panel which are required to be implemented by the Assessing Officer. When Dispute Resolution Panel declines to interfere, the Assessing Officer proceeds to finalize the assessment order on the basis of the draft assessment order only. Similarly, when an assessee does not propose to take the matter to the Dispute Resolution Panel, the Assessing Officer has to proceed to pass the final assessment order “on the basis” of the draft assessment order. There are no further hearings on the issues in assessment in question. The expression used in Section 144C(3) undoubtedly is that “the Assessing Officer shall complete the assessment on the basis of the draft assessment order” but in a situation in which the final assessment drops certain proposed disallowances, can it really be said that the Assessing Officer has completed the assessment on the basis of the draft assessment order- more so when there is no further hearing, no further directions and no occasion for further application of mind. The answer has to be, in our humble understanding, emphatically in negative. When a draft order is finalized by the Assessing Officer, no further hearings take place on the issues raised therein, no directions are received by the Assessing Officer to make any variations from the stand so taken, there is no occasion for making any variations from such a draft assessment order. When the Assessing Officer does not have an obligation to hear the assessee to review the draft orders or any specific powers enabling such a review, it is a natural corollary thereto that the Assessing Officer does not have the discretion, that too in such an unfettered and most opaque manner, to review the draft order nevertheless. The change of heart on the part of the Assessing Officer, howsoever well meaning and justified as it may be, is not permissible at the stage of passing the final assessment order. We disapprove and deprecate the same. The line of reasoning adopted by the learned PCIT was thus indeed correct. As regards the grievance raised by the assessee to the effect that some of the proposed disallowances, on merits, are covered in favour of the assessee, in our considered view, these issues cannot be raised at this stage. Right now the limited question before us is whether an assessment order, contrary to the draft assessment order, could be subjected to revision or not, and, on that point, we uphold the action of the PCIT. Whether these disallowances were covered in favour of the assessee or not is immaterial because it is a conscious decision to keep the matters alive or not, and, in any case, all this was relevant before finalizing the draft assessment order. The remedy against unjust disallowances, on merits, lies in the appellate process and not in review by the Assessing Officer on his own. In our considered view, an Assessing Officer cannot revisit his conclusions at the stage of passing the final order under section 144C(3). In addition to these points, the assessee has also raised several other facets of this controversy in grounds of appeal before us, but arguments of the learned counsel were restricted to these points. We see no legally sustainable merits in the arguments of the learned counsel on these points. The order of the Assessing Officer was thus clearly erroneous as also prejudicial to the interest of the assessee, and the learned PCIT was indeed justified in assuming the powers under section 263 on the facts of this case, and direct the Assessing Officer to pass the assessment order on the basis of draft assessment order issued by the Assessing Officer. No interference is called for.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
1. By way of this appeal, the assessee appellant has challenged correctness of the order dated 16th March 2018, passed by the learned Principal Commissioner of Income Tax under section 263 r.w.s. 143(3) and 144C(4) of the Income Tax Act, 1961, for the assessment year 2011-12.
2. The core issue arising for our adjudication in this case is whether or not the learned PCIT was justified in subjecting an assessment order, passed under section 143(3) r.w.s. 144C(4), for the reason that the disallowances proposed in the draft assessment order have been dropped by the Assessing Officer suo motu and without any interference on those points by the Dispute Resolution Panel.
3. The material facts are not in dispute. The assessee had filed an income tax return disclosing a taxable income of Rs 42,43,47,423, on 25th November 2011. This appeal was subjected to a scrutiny assessment under section 143(3). In addition to the arm’s length price adjustment of Rs 4,04,566, as determined by the TPO, the Assessing Officer proposed disallowances by rejecting deduction claims, as made by the assessee, to the extent of Rs2,97,83,922 as inadmissible under section 36(1)(iii), to the extent of Rs 6,19,20,626 as inadmissible claim under section 37(1), to the extent of Rs 3,13,50,440 as inadmissible claim under section 10B, and to the extent of Rs 3,01,01,049 as an inadmissible claim under section 14A. The draft assessment order was, accordingly, served upon the assessee. Vide letter dated 22nd April 2015, the Assessing Officer was informed that the assessee does not wish to file any objections before the Dispute Resolution Panel. The Assessing Officer thus proceeded to frame the assessment under section 143(3) r.w.s. 144C(3), but what he did was that he suo motu dropped the disallowances of 2,97,83,922 under section 36(1)(iii), of Rs 6,19,20,626 as inadmissible claim under section 37(1), and of Rs 3,13,50,440 as inadmissible claim under section 10B. So far as disallowance under section 14 A was concerned, as against the proposed disallowance of Rs 3,09,01,049 was concerned, he scaled it down to Rs 6,197. The assessment under section 143(3) was thus completed at Rs 42,47,58,190, as against an assessed income of Rs 56,24,27,870 in the draft assessment order. The assessee successfully challenged the additions made by the Assessing Officer in appeal before the CIT(A). The matter, however, did not end at that. On 22nd August 2017, the learned Principal Commissioner sought to invoke his revisionary powers under section 263 by issuing a show cause notice, which, inter alia, stated as follows:
On examination of the case records it is noticed that the assessment u/s. 143(3) r.w.s. 144C(4) of I .T. Act was passed on 22.05.2015, determining the total income at Rs.42,47,58,190/-. The said order is found erroneous in so far as it is prejudicial to the interest of revenue in view of the following reasons:-
It is seen from the records that the assessing officer while passing the final order has omitted the addition u/s. 36(1) (iii) to the tune of Rs.2,97,83.922/- disallowance u/s.37(1) of Rs.6,19,20,626/- and addition made u/s. 10B of Rs.3,13,50,440/- which were made in draft assessment order. Further on disallowance made u/s. 14A to the tune of Rs.3,01,01,049/ in the draft assessment order, the assessing officer reworked the calculation under Rule 8D and reduced the disallowance u/s 14A r.w. Rule 8D to Rs.6,197/- in the final order, thereby computing the total income at Rs.42,47,58, 186/-
You are therefore, requested to show cause as to why the assessment order dated 22.05.2015 passed u/s 143(3) r.w.s.144C(4) of the I.T Act, dated 22.05.2015 should not be revised or cancelled or modified within the meaning of section 263 of the I.T Act. 1961. In this connection a hearing is fixed on 06.09.2017 at 11.30 a.m you may attend before me at the above given address, either in person or through your authorized representative.
In case of non-compliance on the stipulated date and time, it will be presumed that you have no objection to the proposed revision of the assessment order passed by the Assessing Officer u/s 143(3) r.w.s. 144C(4) of the I.T. Act dated 22.05.2015 as discussed above.
4. On 14th September 2017, the assessee responded to the aforesaid notice as follows:
1. At the outset, we submit that the impugned assessment order passed u/s.143(3) r/w. 144C(4) of the Income Tax Act, 1961 is neither erroneous nor prejudicial to the interests of the revenue in the view that all the four situations given the Explarnation-2 to section 263 are absent in our case with regard to the four issues raised in the show cause notice.
2. In particular, with regard to the four issues listed in the show cause notice namely:
a) Omission to add u/s.36(1)(iii),
b) Disallowance not made u/s37(1), and
c)Addition not made u/s. 10B these three though proposed to be made as additions/ disallowance in the draft assessment order, none was made in the final order, and
d) Reduced disallowance made under section 14A, of only Rs.6,197/- in the final order of assessment against proposed disallowance of Rs.3,01,01,049/ in the draft assessment order.
3. We respectfully submit that in the case of all the four issues mentioned above full enquiry was conducted by the Leaned Assessing Officer (the A.O) during course the assessment proceedings by issuing notices and getting responses from the assessee on every issue. For your kind reference enquiry letter/queries received and replies filed by the authorized representative of the assessee are enclosed. Consequently the A.O was obviously convince of the reasons given by the assessee of the factual and legal position in respect of each and every issue. Accordingly no disallowance or additions were made in respect of issues (a), (b) and (c) listed above. With regard to item (d), disallowance u.s. 14A, the A.O was convinced to restrict the same to Rs.6,197/.
4. Indeed of the above four issues mentioned in your honour’s show cause notice dated 22.08.2017, the three issues namely:
(a) Addition u.s. 36(1)(iii) of Rs.2,97,83.922/-
(b) Addition u.s. 10B of Rs.3,13,50,440/-
(c) Disallowance u.s. 144 of Rs.3,01,01,049/-
are fully covered by the decisions of the Hon. ITAT in the assessee’ s own case in the earlier years as under:
