Mahavir Singh

1. This appeal by the assessee is arising out of the final assessment order passed by the Assistant Commissioner of Income Tax, Corporate Circle 3(2), Chennai for the assessment year 2011-12 u/s. 143(3) r.w.s. 92CA(3) r.w.s. 144C(5) of the Income Tax Act, 1961, (hereinafter 'the Act') dated 12.01.2016 in lieu of directions of the Dispute Resolution Panel - 2, Bangalore vide F. No. 274/DRP-2/BNG/2015-16 dated 17.12.2015 u/s. 144C(5) of the Act. The draft assessment order was passed by the DCIT, Corporate Circle 3(2), Chennai u/s. 143(3) r.w.s. 92CA(3) of the Act vide order dated 13.03.2015. The transfer pricing adjustment was made by DCIT, Transfer Pricing Officer-3(2)(i/c), Chennai u/s. 92CA of the Act vide C.R. No. Y-603/TPO 3(2)/A.Y. 2011-12 dated 14.01.2015.

2. The assessee carried the matter against the final assessment order before Tribunal and Tribunal in ITA No. 322/Mds/2016 passed order vide dated 30.06.2016 partly allowing the appeal of assessee, dismissing the grounds on transfer pricing adjustment and disallowing the claim of deduction u/s. 10AA of the Act and allowing the loss claimed on unrealized foreign exchange. The assessee moved miscellaneous petition before Tribunal and Tribunal in M.P. No. 218/Mds/2016 vide order dated 04.04.2017 allowed miscellaneous application of assessee partly by recalling the issue of TP adjustment for fresh adjudication. The assessee challenged the original order of the Tribunal passed in ITA No. 322/Mds/2016 dated 30.06.2016 and MP No. 218/Mds/2016 dated 04.04.2017 before Hon'ble High Court of Madras in Tax Case Appeal Nos. 480 and 473 of 2017 and Hon'ble High Court vide order dated 22.08.2017 recalled the issue of claim of deduction u/s. 10AA of the Act and sustained the miscellaneous petition order dated 04.04.2017 on the issue of recalling of TP adjustment for adjudication by the Tribunal afresh. In essence, now two issues are before us for adjudication that is raised by assessee by way of ground No. 2 i.e., determination of arms length price u/s. 92CA of the Act in regard to management support services received by assessee from its associated enterprises and second the claim of disallowance of deduction u/s. 10AA of the Act.

3. Now before us, the Ld. AR for the assessee stated that the assessee has filed additional grounds on the issue of jurisdiction of AO in framing the final assessment order u/s. 143(3) r.w.s. 92CA(3) r.w.s. 144C(5) of the Act, dated 12.01.2016 and according to assessee, the assessment order is contrary to the provisions of section 144C of the Act and therefore deserves to be quashed. The assessee filed following additional grounds:-

"1. On the facts and circumstances of the case and in law, the assessment order being contrary to the provisions of section 144C of the Act, is bad in law and therefore, deserves to be quashed."

The assessee filed petition for admission of additional ground dated 19.11.2020 which was received by Tribunal on 24.11.2020. The Ld. AR Shri Ajit Kumar Jain argued that the facts in relation to this additional ground is already available on the assessment records and additional grounds raised is purely a question of law and no new fact are to be brought on record or to be investigated and hence, he requested the same may be admitted and adjudicated upon. The Ld. AR stated that failure to raise the grounds of appeal, as additional ground now raised vide petition dated 19.11.2020, at the time of filing of appeal originally was neither deliberate nor contumacious but are arising out of legal position, which has come to the notice of the assessee subsequent to filing of the above appeal and hence, he requested that the additional ground be admitted and be adjudicated upon on merits. The Ld. AR relied on the following case laws:-

1) Hon'ble Supreme Court in the case of Jute Corporation of India Ltd., 187 ITR 688 [LQ/SC/1990/495]

2) Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd., vs. CIT, 229 ITR 383 [LQ/SC/1996/2109]

3) Hon'ble Supreme Court in the case of CT vs. Nelliappan (S.), (1967) 66 ITR 722 [LQ/SC/1967/193]

4) Hon'ble Bombay High Court in the case of Ahmedabad Electricity Co. Ltd., vs. CIT, (1993) 199 ITR 351 [LQ/BomHC/1992/314]

5) Hon'ble Bombay High Court in the case of Ashok Vardhan Birla vs. CWT (1994) 208 ITR 958 [LQ/BomHC/1992/312]

6) Hon'ble Bombay High Court in the case of Inaroo Ltd., vs. CIT (1993) 204 ITR 312 [LQ/BomHC/1993/131]

7) Hon'ble Bombay High Court in the case of CIT vs. Govindram Bros. Pvt. Ltd., (1983) 141 ITR 626 [LQ/BomHC/1981/374]

4. On the other hand, the Ld. CIT-DR, Dr. S. Palani Kumar opposed admissibility of additional ground for the reason that this matter has travelled up to Hon'ble Madras High court against the appeal order of the Tribunal in ITA No. 322/Mds/2016 dated 30.06.2016 and M.P. No. 218/Mds/2016 dated 04.04.2017 and the Hon'ble High Court while adjudicating the Tax Case Appeal Nos. 480 and 473 of 2017 has considered the issues raised before it and the matter remanded back to the ITAT for decision afresh only qua the claim of deduction u/s. 10AA of the Act and also confirmed the order of Tribunal in M.P. No. 218/Mds/2016 dated 04.04.2017, wherein the Tribunal has recalled the issue of downward adjustment with respect to TP transactions. The Ld. CIT-DR stated that once the matter travelled up to Hon'ble High Court and assessee has not raised the issue of limitation either before DRP or before ITAT in original proceedings or in miscellaneous proceedings or even before Hon'ble High Court, now the assessee is totally precluded from raising the jurisdictional issue after almost 10 years. The Ld. CIT-DR stated that once Hon'ble High Court set aside the issues on merits, it is not open for assessee to raise any issue of limitation or on jurisdiction because that is already barred by limitation and the scope of appeal limits only to the directions of the Hon'ble High Court. Hence, he stated that the additional ground raised by assessee should not be admitted and the same be dismissed at the threshold.

5. We have heard rival contentions and gone through facts and circumstances of the case. We noted that the assessee company filed its return of income for the assessment year 2011-12 on 17.11.2011. This return was processed u/s. 143(1) of the Act and subsequently the case was selected for scrutiny assessment under CASS and notices u/s. 143(2) and 142(1) of the Act were issued by DCIT, Company Cirlce-12(5), Chennai. A draft assessment order was passed by DCIT, Corporate Circle 3(2), Chennai u/s. 143(3) r.w.s. 92CA(3) of the Act vide order dated 13.03.2015 after passing of transfer pricing adjustment order by the DCIT, Transfer Pricing Officer-3(2) (i/c), Chennai u/s. 92CA of the Act vide C.R. No. Y-603/TPO 3(2)/A.Y. 2011-12 dated 14.01.2015. In this draft assessment order passed by AO, made a proposed total addition of Rs. 18,20,39,564/- in regard to transfer pricing and corporate tax issues. This draft assessment order was accompanied by the Demand notice u/s. 156 of the Act, dated 13.03.2015 raising a demand of Rs. 2,82,60,180/- for the relevant assessment year 2011-12. The AO also initiated penalty proceedings and noted "Demand Notice u/s. 156 and calculation sheet are enclosed. Penalty proceedings u/s. 271(1)(c) initiated for the reasons discussed above."

5.1. We have further gone through the case records and noticed that the assessee filed appeal against final assessment order passed u/s. 143(3) r.w.s. 92CA(3) r.w.s. 144C(5) of the Act dated 12.01.2016 before the Tribunal and the Tribunal in ITA No. 322/Mds/2016 passed order vide dated 30.06.2016 partly allowing the assessee's appeal and the result of the appeal is as under:-

(i) Ground on transfer pricing adjustment was dismissed.

(ii) Ground on loss claimed on unrealized foreign exchange was allowed.

(iii) Ground in regard to claim of deduction U/S. 10AA of the Act was also dismissed.

The assessee against this Tribunal's order moved miscellaneous petition and the Tribunal in M.P. No. 218/Mds/2016 vide order dated 04.04.2017 allowed miscellaneous petition of assessee partly by recalling the only issue of transfer pricing adjustment for fresh adjudication. Simultaneously, the assessee also challenged the order of Tribunal i.e., original order passed in ITA No. 322/Mds/2016 dated 30.06.2016 and also challenged the Tribunal order passed in M.P. No. 218/Mds/2016 dated 04.04.2017 before Hon'ble High Court of Madras and the Hon'ble High Court in Tax Case Appeal Nos. 480 and 473 of 2017 vide order dated 22.08.2017 recalled the issue of claim of deduction u/s. 10AA of the Act and sustained the miscellaneous petition order dated 04.04.2017, where the Tribunal has already recalled the issue of TP adjustment for fresh adjudication by the Tribunal and finally Hon'ble High Court in its judgment dated 22.08.2017 held in paras 8 to 10 as under:-

8. In view of all that have been set out supra, the following directions are given by consent:

a) Para 4 alone of the order dated 04.04.2017 made in M.P. No. 218/Mds/2016 in I.T.A. No. 322/Mds/2016 is set aside;

b) Axiomatically, the other parts of the operative portion of the order dated 4.4.2017 in M.P. No. 218/Mds/2016 in I.T.A. No. 322/Mds/2016 being paragraphs 4.1 and 4.2 are sustained.

c) The matter shall stand remanded back to ITAT for a decision afresh based on materials that have now been placed before the ITAT on Section 10AA of the IT Act aspect alone;

d) Though obvious, we make it clear that we express no opinion on the merits of the matter;

e) We request the ITAT to dispose of the matter as expeditiously as possible.

9. T.C.A. No. 480 of 2017 is disposed of on the above terms made on the basis of the consent and joint representation/request made by both the learned counsel. No costs.

10. In the light of the order made in T.C.A. No. 480 of 2017, the Tax Case Appeal being T.C.A. No. 473 of 2017 assailing the main order dated 30.6.2016 in I.T.A. No. 322/Mds/2016, has become infructuous. Accordingly, T.C.A. No. 473 of 2017 is dismissed as infructuous. No costs.

5.2. We noted from the above judgment of Hon'ble High Court of Madras in T.C.A. No. 480 and 473 of 2017 dated 22.08.2017 that now two issues are before us for adjudication i.e., raised by way of Ground No. 2 i.e., determination of arms length price u/s. 92CA of the Act in regard to management support services received by assessee from its associated enterprises and the second issue raised by Ground No. 3, remanded back by Hon'ble High Court of Madras in regard to claim of disallowance u/s. 10AA of the Act. The Hon'ble High Court has categorically held that these two issues are to be adjudicated afresh and in such circumstances now appeal can be said to be pending qua these two issues or the additional ground now raised before us qua assumption of jurisdiction by the AO for framing of final assessment order, (which is framed u/s. 143(3) r.w.s. 92CA(3) r.w.s. 144C(5) of the Act dated 12.01.2016 in consequence to DRP's directions vide F. No. 274/DRP-2/BNG/2015-16 dated 17.12.2015 u/s. 144C(5) of the Act) in contravention of provisions of section 144C of the Act is legally sustainable or not. The Ld. CIT-DR Dr.S. Palanikumar opposed to the admissibility of additional ground for the reason that this matter has travelled up to Hon'ble High Court of Madras in TCA Nos. 480 and 473 of 2017, has considered the issues raised before Hon'ble High Court and remanded back to ITAT for fresh decision qua, the claim of deduction u/s. 10AA of the Act and also confirmed the order of Tribunal in M.P. Nos. 218/Mds/2016 dated 04.04.2016, wherein the Tribunal has already recalled the issue of downward adjustment with respect to TP of transaction of management support services received from its AE's. According to Ld. CIT-DR, once the matter travelled up to Hon'ble High Court and assessee has not raised the issue of jurisdiction either before ITAT or before Hon'ble High Court, now the assessee is totally precluded from raising the jurisdictional issue after almost 10 years.

5.3. Now, we have to consider his arguments that what happens once Hon'ble High Court remand back the issues on merits before the Tribunal and no issue was ever raised by assessee as regards to presumption of jurisdiction by the AO or draft assessment order prepared u/s. 143(3) r.w.s. 92CA(3) of the Act. The AO issued demand notices u/s. 156 of the Act both dated 13.03.2015 and also initiated penalty proceedings u/s. 271(1)(c) of the Act for concealment of income, the AO has contravene the provision of section 144C of the Act because the AO has become functus officio once demand is determined and notice u/s. 156 of the Act along with initiation of penalty order is passed, the AO ceased with the jurisdiction. The subsequent action of the AO in passing final assessment order u/s. 143(3) r.w.s. 92CA(3) r.w.s. 144(5) of the Act dated 12.01.2016 is bad in law. For this, we are of the view that once Hon'ble High Court has set aside the order of Tribunal passed in ITA No. 322/Mds/2016 dated 30.06.2016 and also confirmed the order passed by Tribunal in M.P. No. 218/Mds/2016 dated 04.04.2017, the appeal before Tribunal in ITA No. 322/Mds/2016 has become alive and pending from the date of inception i.e., from the date of filing of appeal as it is from 15.02.2016. Now the question arises, what will happen to the jurisdictional provision This has been answered by Hon'ble Gujarat High Court in the case of P.V. Doshi vs. CIT, [1978] 113 ITR 22 [LQ/GujHC/1977/93] , wherein it is held that jurisdictional provision which was mandatory and enacted in public interest could never be waived and the want of jurisdiction was discovered by the Appellate Assistant Commissioner, there was no question of waiver by the assessee. It was further held by Hon'ble Gujarat High Court that no question of finality of the remand order of the Tribunal could arise because the mandatory conditions for founding jurisdiction for initiating reassessment proceedings had not been fulfilled. The Hon'ble Gujarat High Court has considered exactly identical situation and answered the same from para 16, 17 & 18 as under:-

16. Even the alternative ground of finality of this order of the Tribunal suffers from the same infirmity, as the Tribunal has failed to notice this material distinction between a mere procedural provision which could be waived and such jurisdictional provision or a mandatory provision enacted in public interest which could not be waived, because by consent no jurisdiction could be conferred on the authority unless the conditions precedent were first fulfilled. In DasaMuni Reddy v. Appa Rao, AIR 1974 SC 2089 [LQ/SC/1974/273] , 2092, such a question of waiver was examined also in the context of the bar of estoppel or of res judicata. At page 2091, it was us exercise of jurisdiction. If there is want of jurisdiction the whole proceeding is coram non judice. The absence of a condition necessary to found the jurisdiction to make an order to give a decision deprives the order or decision of any conclusive effect. (See Halsbury's Laws of England, 3rd edition, volume 15, paragraph 384). Further proceeding at page 2092, it was pointed out that just as the courts normally did not permit contracting out of the Acts so there could be no contracting in. A status of control of premises under the Rent Control Acts could not be acquired either by estoppel or by res judicata. Their Lordships in terms held that the principle was that neither estoppel nor res judicata could give the court jurisdiction under the Acts which those Acts said it was not to have. Therefore, bar of res judicata or estoppel or waiver were negatived in such a case where the plea was outside the ambit of the Rent Control Act, for the simple reason that as one could not confer jurisdiction by consent, similarly one could not by agreement waive exclusive jurisdiction of the rent courts over the buildings in question. It is true that section 254(4) in terms provides that save as provided in section 256 (which provides for the reference to the High Court), orders passed by the Appellate Tribunal on appeal shall be final. That finality or conclusiveness could only arise in respect of orders which are competent orders with jurisdiction and if the proceedings of reassessment are not validly initiated at all, the order would be avoid order as per the settled legal position which could never have any finality or conclusiveness. If the original order is without jurisdiction it would be only a nullity confirmed in further appeals. If the essential distinction is borne in mind in such cases when there is such defect of jurisdiction because the conditions to found jurisdiction are absent, the Tribunal also would be suffering from the same defect and it could not confer any jurisdiction on the Income-tax Officer by making the remand order, because of the settled legal principle that consent could not confer jurisdiction when jurisdiction could be created only by fulfillment of the condition precedent as in the present case. Therefore, no question of finality of the remand order could ever arise in the present context, if the mandatory conditions for founding jurisdiction for initiating reassessment proceeding were absent. This is the view in Commissioner of Income-tax v. Nanalal Tribhovandas (1975) 100 ITR 734 (Guj) [LQ/GujHC/1973/119] , agreeing with the Madras view that there would be no such finality by remand because consent could not confer jurisdiction, and so, such objection in regard to the validity of the notice under section 34 could be raised before the Appellate Assistant Commissioner.

17. The learned standing counsel in this connection marshalled in aid the decision in Northern Railway Co-operative Credit Society Ltd. v. Industrial Tribunal, Rajasthan, AIR 1967 SC 1182 [LQ/SC/1967/22] ; 31 FJR 511, which could hardly be invoked in the present case. There the High Court in writ jurisdiction had held at the earlier stage that the dispute in question was an industrial dispute and, therefore, the reference being a competent reference, the writ petition was dismissed. The order of the High Court was a final judgment which terminated the independent writ proceeding. It was held at page 1186 that order having not been appealed before the Supreme Court, it had become final and it was no longer open to the parties to raise a plea of jurisdiction in appeal against the subsequent award given by the Industrial Tribunal after exercising jurisdiction which the Tribunal was permitted to exercise by the order of the High Court. These were competent proceedings and the independent writ proceeding was also finally terminated and, therefore, this final order precluded the parties from reagitating the same question before the Industrial Tribunal. Their Lordships distinguished the earlier decision in Satyadhyan Ghosal v. Smt. Deorajin Debi, AIR 1960 SC 941 [LQ/SC/1960/128] , where the question had arisen about the applicability of section 28 of the Calcutta Thika Tenancy Act, 1949, and the plea having been rejected by the munsif trying a suit, revision, the High Court had held that operation of section 28 of the Act was not affected by the subsequent amendment Act and the case was remanded to the munsif for disposal according to law. After the final decree was passed by the munsif and the appeal finally came to the Supreme Court, it was held by the Supreme Court that the order of the High Court holding section 28 to be applicable could not operate as res judicata in appeal before the Supreme Court, because the High Court's order of remand was merely an interlocutory order, which did not terminate the proceeding pending before the munsif and which did not terminate the proceeding pending before the munsif and which had not been appealed from at that stage. Consequently, in the appeal from the final decree or order it was open to the party concerned to challenge the correctness of the High Court's decision. The two special features which distinguished that case were : one, that the order of the High Court which was relied upon to invoke the principle of res judicata was an interlocutory order, and the other, that it was made in a pending suit which as a result of that order did not finally terminate. In the present case also the remand order did not terminate the proceedings at the earlier stage. In fact, no question of any bar of res judicata even at the subsequent stage of the same proceeding could arise in the present case for the simple reason that the original order is said to be without jurisdiction. The first condition in invoking any bar of res judicata is the condition about the competence of the court. Similarly, the provision of finality in this relevant provision in section 254(4) could also not be attracted in such a case, where the question admittedly, went to the root of the jurisdiction and if that contention was upheld, it would have made all the proceedings of reassessment totally void and without jurisdiction. As per the aforesaid settled legal position such a point could not be waived and there can be no question of the earlier remand order operating as a final order, because if such a jurisdictional point could not be waived, even the fact of passing of the remand order by the Tribunal could not confer jurisdiction on the Income-tax Officer, if the conditions to found his jurisdiction were absent.

18. Therefore, if this settled position was borne in mind, the Tribunal's view was clearly erroneous that the matter became final when the Tribunal passed the earlier remand order so that this point of jurisdiction got finally settled, which could not be agitated unless the assessee had come in the reference to this court at that stage. The Tribunal's view was also incorrect that in restoring the case to the file of the Income-tax Officer by the earlier order, the only point left open was in respect of addition of Rs. 19,421 on merits and that the legal or jurisdictional aspect whether the reassessment proceedings were legally initiated was not kept open. Even on the third question the Tribunal's view was erroneous that even though this point went to the root of the jurisdiction and was a pure question of law, merely because the point was initially raised and not pressed when the matter was taken up before the Appellate Assistant Commissioner, it could be waived and it could not be reagitated. Therefore, in view of the settled legal position our answers on questions Nos. 1 and 2 are in the negative, while our answer on question No. 3 is in the affirmative, that is to say, all the questions are answered against the revenue and in favour of the assessee. The reference is accordingly disposed of and the Commissioner shall pay the costs of the assessee.

5.4. We noted that even Co-ordinate Bench decision i.e., Third Member decision in the case of M/s. Heman Kinitting Industries vs. Asst. CIT, in ITA No. 2089/Mds/2008, order dated 01.10.2010 has considered an identical issue and considered various case laws and finally held that eve in second round of litigation, it is always open to question or challenge the jurisdictional proceedings as long as the matter has not reached the finality. Anyway that the issue is always open to challenge even if the issue has not been raised in first round but it is raised in second round. For speaking on behalf of Coordinate Bench, the Third Member held in para 11 & 12 as under:-

"11. I have carefully gone through the records as also the elaborate discussions in the dissenting orders of the Members constituting the Bench. The issue raised in this appeal is quite interesting and even a matter of detailed discussions in the dissenting orders. According to me the crux of the matter is whether in the first round of litigation it could be said that the issue relating to the validity of the proceedings u/s. 147 has reached finality. If the answer to this is 'yes', there would be no question of the issue being re-agitated in the second round, but the question remain whether the issue in this case has at all reached finality. According to the learned Vice President, it has not reached finality, whereas in the opinion of the Judicial Member, it has reached. Now my exercise, therefore, would be simply to cull out from the impugned orders in the light of the facts and circumstances of the case and see whether the issue has reached finality. The only order on the issue available is the order of the CIT (Appeals) dated 3.12.2004 which has been extracted by me in para 2 above. A cursory look at this four sentences order of the CIT(A) wherein he has rejected the assessee's ground, in my opinion, cannot be said to confer a finality of the matter relating to jurisdiction of the A.O. in issuing the notice u/s. 147 of the Act. In fact the order itself says that no material was brought on record questioning the validity of action u/s. 147 of the Act. The whole approach of the assessee was casual and it did not raise the issue seriously. It does not appear to have made any arguments on the merits of the matter. In such a circumstance, to say that the said order has reached a finality and to throw the assessee out of the court, in the second round of litigation, we will only be extending the rules of technicalities in the matter and thereby rendering injustice. It is for these reasons, in my opinion, the learned Vice President was correct to draw an inference having regard to the factual circumstances to say the assessee at best could be said to have not pressed the issue before the CIT (Appeals). I am conscious of the fact that the CIT (Appeals) did not record such a finding in so many clear and pointing words. But substance of the decision is that the disposal was never on merit. It was more like an assessee having taken the ground has given up that ground as was appreciated by the Gujarat High Court in the case of P.V. Doshi (cited supra).

12. The assessee in the first round of litigation did not raise this issue before the Tribunal, although it was in appeal before the Tribunal on merits. Therefore, there was no scope for the Tribunal in the first round even to have tinkered with the decision and to confer finality to such an order in a manner that in the second round that doors of justice would be closed to the assessee on the issue regarding the jurisdiction. It is now well established that the issue of jurisdiction of the authorities is fundamental and is like the root of the proceedings or matter. The matter, in my opinion, had not reached the finality and the dispute or defect as regards the jurisdiction was got inbuilt into the order and should therefore always be subject matter for legal scrutiny when questioned. After all the jurisdiction to the authorities cannot be conferred by acceptance or negligence of the parties to the dispute. It can always be agitated or questioned when the assessee get some opportunity over the issue. In a way that issue is always open to challenge even if the round is second or third. As long as the issue had not reached the finality, it is always open to question or challenge in judicial proceedings. To shut the doors at the threshold on the grounds of technicalities in my view is not within the spirit of the decision of the Apex Court in the case of Improvement Trust (cited supra). Again the Apex Court in the aforesaid case has stressed that in such matters it should be allowed to be fought on merits and not on technicalities and super technicalities. It is from this background, I am persuaded to agree with the view expressed by the Vice President in upholding the assessee's contention about the lack of jurisdiction of the A.O. in proceedings u/s. 147 of the Act and it may be stated that action of the A.O. in taking an action u/s. 147 within a period of time available to him to issue the notice u/s. 143(2) is again impermissible in the light of the decision of Jurisdictional High Court in the case of Qatalys Software Technologies Ltd. (cited supra). In my view the matter has not reached the finality and, therefore, it was open to the assessee to take up the issue even in the second round of litigation. I have gone through the facts in the case of M.S.P. Senthil Kumar (Mad) and of Bombay High Court in the case of Murlidhar Bhagwan Das. In both these cases the issues, which were re-agitated in the second round, have reached the finality by an order on merits in the first round. I think the difference lies there and therefore should not be blindly applied to the facts and circumstances of this case. As regards the reliance of the D.R. to the provisions of Section 151(2) of the Act, I may state the stand of the Department is not accepted by the decision of the jurisdictional High Court in the case of Qatalys Software Ltd. (cited supra). Accordingly the said contention does not give any force to deviate from the view that is being expressed. In the light of the discussions, I, therefore, fully agree with the order of the learned Vice President."

5.5. This issue has further been considered by Hon'ble Bombay High Court (Full Bench) in the case of Ahmedabad Electricity Co. Ltd., vs. CIT, [1993] 199 ITR 351 [LQ/BomHC/1992/314] after considering almost all the case laws at hand, the Hon'ble Bombay High Court considered this issue as under:-

17. Similarly, the absence of such an Explanation in section 254 which deals with the powers of the Tribunal also makes no different to the scope of powers of the Tribunal. Looking to the wide language in which this power is granted to the Tribunal, we do not find any reason for restricting this power only to the points at issue arising from the order of the Appellate Assistant Commissioner and raised by the assessee or by the Department before the Tribunal.

18. In this connection, a reference may also be made to the Income-tax (Appellate Tribunal) Rules, 1963, which have been framed under section 255(5) of the Income-tax Act, 1961. Under rule 11 of the Appellate Tribunal Rules, the appellant shall not, expect by leave of the Tribunal, urge or be heard in support of any ground not set forth in the memorandum of appeal but the Tribunal, in deciding the appeal, shall not be confined to the Tribunal under this rule; provided that the Tribunal shall not rest its decision on any other ground unless the party heard on that ground. So that, in deciding the appeal, the Tribunal is not restricted to the grounds which are taken or which have been allowed to be taken in the memorandum of appeal.

19. Similarly, under rule 29, the parties to the appeal shall not be entitled to produce additional evidence, either oral or documentary before the Tribunal, but if the Tribunal requires any documents to be produced or any witness to be examined or any affidavit to be filed to enable it to pass orders or for any other substantial cause, or if the income-tax authorities have decided the case without giving sufficient opportunity to the assessee to adduce evidence either on points specified by them or not specified by them, the Tribunal, for reasons to be recorded, may allow such document to be produced or witness to be examined or affidavit to be filed or may allow such evidence to be adduced. These rules, therefore, indicate that the scope of enquiry before the Tribunal can be wider than the points which are raised before the Tribunal. The Tribunal, therefore, would ordinarily have the power to allow additional points to be raised before it so long as they arise from the subject-matter of the proceedings and not necessarily only from the subject-matter raised in the memorandum of appeal. This point, however, is not res integra. There are a large number of authorities on this question.

20. In the case of Hukumchand Mills Ltd. v. CIT [1967] 63 ITR 232 [LQ/SC/1966/200] , the Supreme Court was required to consider the powers of the Appellate Tribunal under section 33(4) of the Indian Income-tax Act, 1922, which is equivalent to the present section 254 of the Income-tax Act, 1961. In the case before the Supreme Court, the assessee-company was incorporated in the then native State of Indore. It was assessed in British India, except for the assessment year 1948-49, as a non-resident on such income as fell within section 4(1)(a) or (c) read with section 42 of the Indian Income-tax Act, 1922. After the Constitution of India came into force, Indore became a Part B State and the Indian Income-tax Act, 1922, was brought into force in Part B State with effect from April 1, 1950. For the assessment year 1950-51, the assessee became assessable as a resident. The Tribunal, in that case, had permitted the Department to raise for the first time the contention that the Income-tax Officer had not considered the provisions of paragraph 2 of the Taxation Laws (Part B State) (Removal of Difficulties) Order, 1950, and remanded the matter to the Income-tax Officer to ascertain whether any depreciation was allowed under the Indore Industrial Tax Rules and, if he was of the opinion that there rules related to income-tax or super tax or any law relating to tax on profits of business, to take into consideration such depreciation actually allowed under these Rules also for the purpose of computing the written down value. The assessee contended that the Tribunal should not have allowed the Department to raise the contention for the first time before it and remanded the case. The Supreme Court held that the Appellate Tribunal had sufficient power under section 33(4) of the old Income-tax Act to entertain the contention of the Department and to remand the case to the Income-tax Officer.

21. After referring to section 33(4) which gave to the Appellate Tribunal power to pass "such orders thereon as it thinks fit", the Supreme Court said (at page 237) : "The world 'thereon', of course, restricts the jurisdiction of the Tribunal to the subject-matter of the appeal. The words pass such orders as the Tribunal thinks fit' include all the powers (except possibly the power of enhancement) which are conferred upon the Appellate Assistant Commissioner by section 31 of the Act". And a little later, the court explained, (at page 237) : "In the present case, the subject of the appeal before the Tribunal was the question as to what should be the proper written down value of the buildings, machinery, etc., of the assessee for calculating the depreciation allowance under section 10(2)(vi) of the Act." Therefore, the Supreme Court clearly said that the Tribunal could permit additional grounds to be raised for the first time before it so long as these additional grounds were the subject-matter of the proceedings; because, quite clearly, the court has interpreted the subject-matter of the appeal widely as covering the various issues arising in the proceedings whether raised earlier or not.

22. The position was further clarified by the Supreme Court in the case of CIT v. Mahalakshmi Textile Mills Ltd. [1967] 66 ITR 710. [LQ/SC/1967/197] The Supreme Court has held (headnote) : "Under section 33(4), the Appellate Tribunal is competent to pass such order on appeal 'as it thinks fit'. There is nothing in the Income-tax Act which restricts the Tribunal to the determination of question raised before the Department authorities. All questions, whether of law or of facts, which relate to the assessment of the assessee may be raised before the Tribunal."

23. In the case of CIT v. S. Nelliappan [1967] 66 ITR 722 [LQ/SC/1967/193] , the Supreme Court once again considered the scope of section 33(4) of the Indian Income-tax Act, 1922. The court reiterated that in hearing an appeal the Tribunal may give leave to the assessee to urge grounds not set forth in the memorandum of appeal and in deciding the appeal the Tribunal is not restricted to the grounds set forth in the memorandum of appeal or taken by leave of Tribunal. The Tribunal was, therefore, competent to allow the assessee to raise the contention relating to the cash credits which was not made the subject-matter of a ground in the memorandum of appeal. The court said that the Tribunal is not precluded from adjusting the tax liabilities of the assessee in the light of its findings merely because the findings were inconsistent with the pleaded by the assessee.

24. Coming to our High Court in the case of Ramgopal Ganpatrai and Sons Ltd. v. CEPT [1953] 24 ITR 362, the court considered the provisions relating to appeals in respect of the Excess Profit Tax. The court observed that an Appellate Tribunal has jurisdiction to deal with an order which is in appeal before it on any ground even though such a ground was not taken earlier. It said, inter alia, that the appellate court may even reverse or modify the order on a point of law taken by itself suo motu, without being asked to do so by the appellant. When a statute confers a right of appeal and permits an order of the trial court to be challenged, the appellate court has full jurisdiction to reverse or modify that order on any ground which is open to it in law. The court further said that it was not suggesting that the appellate court had no discretion to refuse the appellant to urge a ground not taken in the court below, but the appellate court did have competence and jurisdiction to allow a point of law to be taken before it which was not taken in the court below.

25. In the case of CIT v. Breach Candy Swimming Bath Trust [1955] 27 ITR 279 (Bom) [LQ/BomHC/1954/115] , the High Court was required to consider the powers of the Income-tax Appellate Tribunal. In that case, the assessee for the first time raised a new contention before the Tribunal to the effect that it was a charitable trust and hence the income derived by the charitable trust was exempt from taxation. The Tribunal permitted the assessee to raise this point and answered it in its favour. The question which was referred to the High Court was whether the Tribunal was competent in law in permitting an assessee to raise a ground at the time of the hearing of the appeal - a ground which was not raised either before the Income-tax Officer or before the Appellate Assistant Commissioner, or in the grounds of appeal before the Appellate Tribunal. The court said that the Tribunal has the authority to permit a new point to be raised, provided that the party who is affected by the raising of this point. (vide rule 12 of the Appellate Tribunal Rules, 1946). (See also in this connection B.R. Bamasi v. CIT 83 ITR 223 [LQ/BomHC/1970/51] (Bom)).

26. In the case of J.S. Parkar v. V.B. Palekar [1974] 94 ITR 616 (Bom) [LQ/BomHC/1973/77] , the court said that new contention could be raised before the Tribunal in an appeal which had not been taken either before the Appellate Assistant Commissioner or before the Income-tax Officer. In the case of CED v. Bipinchandra N. Patel [1990] 186 ITR 29 (Bom) [LQ/BomHC/1990/120] , our court was required to consider whether, in an appeal to the Appellate Tribunal under the Estate Duty Act, 1953, the Tribunal had the power to admit an additional ground which was not raised either before the Assistant Controller or before the Appellate Controller. The court (to which one of us was a party) held that it was permissible for the Tribunal to allow such an additional ground, especially as the ground pertained to a legal question. The court in that case considered various authorities of our High Court which have been referred to earlier and also referred to the decision of the Andhra Pradesh High Court in the case of CIT v. Gangappa Cables Ltd. as also Addl. CIT v. Gurjargravures P. Ltd. while arriving at this conclusion.

27. In the case of Addl. CIT v. Gurjargravures [1978] 111 ITR 1 [LQ/SC/1977/308] , the Supreme Court was concerned with a case where the Tribunal had allowed a point to be raised which had not been taken before the Income-tax Officer or before the Appellate Assistant Commissioner. The Supreme Court held that such a point should not have been allowed to be raised. It said, however, that it was not called upon to consider a case where the assessee had failed to make a claim although there was evidence on record to support it; nor was it called upon to consider a case where a claim was made but there was no evidence or insufficient evidence adduced in support of the claim. In the case before the Supreme Court, neither any claim had been made before the Income-tax Officer, nor was there any material on record supporting such a claim and, therefore, such a claim ought not to have been allowed to be raised by the Tribunal before it for first time.

28. This decision has now been explained by the Supreme Court in the case of Jute Corporation of India Ltd. v. CIT [1991] 187 ITR 688 [LQ/SC/1990/495] , as turning upon its own special facts. We will revert to it a little later. This decision of the Supreme Court in the case of Addl. CIT v. Gurjargravures P. Ltd. [1978] 111 ITR 1 [LQ/SC/1977/308] , was also distinguished by the Andhra Pradesh High Court in the case of CIT v. Gangappa Cables Ltd. [1979] 116 ITR 778. The Andhra Pradesh High Court also said that the Appellate Tribunal disposing of an appeal under the Income-tax Act has got the power to allow the assessee to put forward a new claim, notwithstanding the fact that such a claim was not raised by him before the Income-tax Officer or the Appellate Assistant Commissioner provided that there is sufficient material on record to allow such a claim.

29. The Andhra Pradesh High Court relied upon the decisions of the Supreme Court in CIT v. Mahalakshmi Textile Mills Ltd. [1967] 66 ITR 710 [LQ/SC/1967/197] and Hukumchand Mills Ltd. v. CIT [1967] 63 ITR 232 [LQ/SC/1966/200] in support of its finding that the words "pass such orders as the Tribunal thinks fit" are wide enough to empower a Tribunal to consider a claim which was not made earlier, provided there was sufficient evidence on record to support such a claim.

30. The Punjab and Haryana High Court has also taken a similar view in the case of Atlas Cycle Industries Ltd. v. CIT [1982] 133 ITR 231. [LQ/PunjHC/1980/542] The Punjab and Haryana High Court relied upon the Supreme Court decision in the case of CIT v. Mahalakshmi Textile Mills Ltd. [1967] 66 ITR 710 [LQ/SC/1967/197] in support of its finding that all question, whether of law or of fact, which relate to the assessment of the assessee, can be raised before the Tribunal. There is nothing in the Income-tax Act which restricts the Tribunal to the determination only of questions raised before the Department authorities. The Punjab and Haryana High Court also distinguished the Supreme Court decision in the case of Addl. CIT v. Gurjargravures P. Ltd. [1978] 111 ITR 1 [LQ/SC/1977/308] on the ground that that decision turned upon the peculiar facts and circumstances of that case, since that was a case where material was not available in support of the plea which was raised before the Tribunal for the first time. (See also in this connection two other decisions of the Punjab and Haryana High Court to similar effect in the case of Oswal Cotton Spinning and Weaving Mills v. CIT[1981] 129 ITR 761 [LQ/PunjHC/1978/341] and in the case of Vijay Kumar Jain v. CIT [1975] 99 ITR 349 [LQ/PunjHC/1974/74] ).

31. The Kerala High Court has taken a similar view in the case of CIT v. Kerala State Co-operative Marketing Federation Ltd. [1992] 193 ITR 624. [LQ/KerHC/1991/101] The Kerala High Court has observed that the appeal provisions under the Income-tax Act are for the purpose of assessing the correct tax liability of the assessee and, for that purpose, the Tribunal can permit additional grounds to be raised before it which had not been raised either before the Income-tax Officer or before the Appellate Assistant Commissioner.

32. A similar view has been taken by the Madras High Court in the case of CIT v. Indian Express (Madurai) Pvt. Ltd. [1983] 140 ITR 705. The Madras High Court has also said that the primary purpose of the Income-tax Act is to levy and collect income-tax and the purpose of the statutory provisions, especially those relating to the administration and management of income-tax, is to ascertain the tax liability correctly. The various provision relating to appeal, reference, etc., cannot be equated to a lis or dispute arising between two parties as in a civil litigation. The very object of the appeal is not to decide a point raised as a dispute but any point which goes into the adjustment of the taxpayer's liability. Therefore, the proceeding before such authorities lack the basic elements of adversary proceedings. Under section 33(4) of the Indian Income-tax Act, 1922, the Appellate Tribunal is competent to pass such orders on the appeal as it thinks fit and there is nothing in the Act which restricts the Tribunal to a determination of the question raised before the Department. All questions whether of law or of fact which relate to the assessment of the assessee may be raised before the Tribunal. The Madras High Court also relied upon the Supreme Court decisions in the cases of CIT v. Mahalakshmi Textile Mills Ltd. [1967] 66 ITR 710 [LQ/SC/1967/197] and CIT v. Nelliappan [1967] 66 ITR 722 [LQ/SC/1967/193] , as also Hukumchand Mills Ltd. v. CIT [1967] 63 ITR 232. [LQ/SC/1966/200] It did not follow a contrary decision of the Gujarat High Court in the case of CIT v. Karamchand Premchand Private Ltd. [1969] 74 ITR 254 [LQ/GujHC/1968/128] , in view of the above Supreme Court decisions. (See also in this connection CED v. R. Brahadeeswaran : [1987] 163 ITR 680, 682 (Mad)). These decisions of the Madras High Court have taken a view which is different from the view earlier taken by the Madras High Court in the case of Panchura Estate Ltd. v. Government of Madras [1973] 87 ITR 698. [LQ/MadHC/1972/271]

33. There are, however, some judgments of High Courts which have taken a somewhat different view. The case of Addl. CIT v. Gurjargravures P. Ltd., we have already referred to earlier The decision of the Supreme Court in that case turned upon the special facts of that case, especially because there was absolutely no material on the basis of which the plea could have been raised before the Tribunal. The Gujarat High Court has also taken a different view. In the case of CIT v. Karamchand Premchand Private Ltd. [1969] 74 ITR 254 [LQ/GujHC/1968/128] , the Gujarat High Court has taken the view that the Tribunal can consider only the points which have been dealt with by the Appellate Assistant Commissioner. In that case, the Gujarat High Court held that where, in an appeal to the Appellate Assistant Commissioner by the assessee against an order of assessment, the assessee had not questioned the decision of the officer on a point decided and the Appellate Assistant Commissioner The High Court said that the Tribunal was not entitled to allow the assessee to agitate the question under the guise of granting leave under rule 11 of the Income-tax (Appellate Tribunal) Rules, 1963. The Gujarat High Court held that, while the powers of the Appellate Assistant Commissioner were very wide, under section 253 which dealt with an appeal to the Tribunal, the jurisdiction of the Tribunal was confined only to points raised before the Appellate Assistant Commissioner which were the subject-matter of the appeal before the Tribunal. It said that, if a particular matter is not considered and decided by the Appellate Assistant Commissioner and the decision on it does not form part of the order of the Appellate Assistant Commissioner, there can be no appeal against it. Apparently, there was no dispute before the court on this proposition (see page 262) : and hence the court said that the jurisdiction of the Tribunal in appeal was limited.

34. The Gujarat High Court did not consider the nature of the appeal or the nature of appellate proceedings in an income-tax appeal where the analogy of adversary proceedings does not strictly apply. If the purpose of the income-tax appeal, whether it is before the Appellate Assistant Commissioner or before the Tribunal, is to ascertain the correct tax liability of the assessee, we do not see any reason why the jurisdiction of the Tribunal should be restricted in the manner set out by the Gujarat High Court in the case of CIT v. Karamchand Premchand Private Ltd. [1969] 74 ITR 254. [LQ/GujHC/1968/128]

35. The Gujarat High Court had emphasised the word "thereon" in section 254 of the Income-tax Act. In out view, this word does not in any manner restrict the jurisdiction of the Appellate Tribunal. The word "thereon" merely refers to the appeal. Section 254 states that the Appellate Tribunal, while deciding the appeal, may pass such order on the appeal as it thinks fit. To read the word "thereon" as restricting the jurisdiction of the Appellate Tribunal is, in our view, not warranted. It does not refer to the scope of jurisdiction at all. The words which prescribe the extent of jurisdiction of the Tribunal under section 254 are the words "may pass such orders .... as it thinks fit". These are words which prescribe the jurisdiction of Appellate Tribunal. The word "thereon" merely refers to the fact that the Tribunal, while deciding the appeal, has to exercise this jurisdiction.

36. Looked at from a slightly different point of view, if the word "thereon" can be said to refer to the subject-matter of the appeal, then, as stated by the Supreme Court in the case of Hukumchand Mills [1967] 63 ITR 232 [LQ/SC/1966/200] , the subject-matter of the appeal is the entire tax proceeding of the assessee which is before the Tribunal for consideration; and this will cover the proceedings before the Income-tax Officer, before the Appellate Assistant Commissioner as well as before the Tribunal - including the grounds raised before the Tribunal, any additional grounds which may be allowed to be raised before the Tribunal, as also cross-objections, if any, before the Tribunal. Undoubtedly, the Tribunal has discretion to decide whether any additional points can be allowed to be raised before it at the stage of appeal before it. And it may not permit such a new point to be raised for good reasons. But the extent of jurisdiction of the Tribunal is not confined only to points which were considered by the Appellate Assistant Commissioner and which may be challenged in appeal before the Tribunal. The Tribunal can permit other grounds also to be raised before it, provided, of course, that they arise out of the proceedings.

37. We do not, therefore, agree with the view taken by the Gujarat High Court in the case of CIT v. Karamchand Premchand Private Ltd. [1969] 74 ITR 254. [LQ/GujHC/1968/128] The view taken by the Gujarat High Court in the case of CIT v. Karamchand Premchand Private Ltd. [1969] 74 ITR 254 [LQ/GujHC/1968/128] , was reiterated by a Full Bench of the Gujarat High Court in the case of CIT v. Cellulose Product of India Ltd. [1985] 151 ITR 499. This view has also been followed by the Madhya Pradesh High Court in the case of Hukumchand and Mannalal Co. v. CIT [1980] 126 ITR 251 [LQ/MPHC/1979/264] and the Delhi High Court in the case of CIT v. Anand Prasad [1981] 128 ITR 388. [LQ/DelHC/1980/389] For reasons set out above, we differ from the view taken in these cases.

38. Our High Court in the case of Ugar Sugar Works Ltd. v. CIT [1983] 141 ITR 326 also followed the judgment of the Gujarat High Court in the case of CIT v. Karamchand Premchand Private Ltd. [1969] 74 ITR 254 [LQ/GujHC/1968/128] and held that there was a distinction between the jurisdiction of the Appellate Assistant Commissioner and that of the Tribunal. It said that, while the Appellate Assistant Commissioner's jurisdiction ranges over the whole assessment and is not confined to matters raised by the assessee, the Tribunal's Jurisdiction is restricted to the points which were decided by the Appellate Assistant Commissioner and which may be challenged in the memorandum of appeal before the Tribunal. For reasons set out earlier, in our view, the view expressed in this judgment cannot be accepted. It is contrary to the decisions of the Supreme Court referred to earlier as well as the decisions of our High Court which have also been set out earlier.

39. The powers of an appellate authority under the Income-tax Act have been recently considered once again by the Supreme Court in the case of Jute Corporation of India Ltd. v. CIT [1991] 187 ITR 688. [LQ/SC/1990/495] In that case, the Appellate Assistant Commissioner permitted the appellate to raise an additional ground for the first time claiming deduction of purchase tax liability in its return because the assessee had been held liable to pay purchase tax Officer, the Appellate Assistant Commissioner allowed the deduction. On appeal, the Appellate Tribunal placed reliance on the decision of the Supreme Court in the case of Gurjargravures Pvt. Ltd. [1978] 111 ITR 1 [LQ/SC/1977/308] and held that the Appellate Assistant Commissioner had no jurisdiction to entertain the additional claim. The Tribunal and the High Court rejected the applications of the application for a reference. On appeal, the Supreme Court said (headnote) : "An appellate authority has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations, if any, prescribed by the statutory provisions. In the absence of any statutory provision, the appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter. There is no good reason to justify curtailment of the power of the Appellate Assistant Commissioner in entertaining an additional ground raised by the assessee in seeking modification of the order of assessment passed by the Income-tax Officer." The Supreme Court considered the observations in the case of Gurjargravures P. Ltd., and said that these do not rule out the case for raising an additional ground before the Appellate Assistant Commissioner if the ground so raised could not have been raised at the stage when the return was filed or when the assessment order was made or if the ground became available on account of change of circumstances or law. There may be several factors justifying the raising of such a new plea in an appeal. Each case has to be considered on its own facts. If the Appellate Assistant Commissioner is satisfied, he would be action within his jurisdiction in considering the question so raised in all its aspects. He must be satisfied that the ground raised was bona fide and that the same could not have been raised earlier for good reasons. The Supreme Court said that it was not overruling the decision in Gurjargravures P. Ltd. [1978] 111 ITR 1 [LQ/SC/1977/308] , since it could be distinguished on facts.

40. The ratio of this judgment would apply to the jurisdiction of the Appellate Tribunal also. The observations of the Supreme Court, in fact, cover all appellate authorities under the Income-tax Act. We do not find anything in section 254(1) of the Income-tax Act which limits the jurisdiction of the Appellate Tribunal in any manner. For reasons which we have set out earlier, the phrase "pass such order thereon" does not in any way restrict the jurisdiction of the Tribunal but, on the contrary, confers the wides possible jurisdiction of the Appellate Tribunal including jurisdiction to permit any additional ground of appeal if, in its discretion, and for good reason, it thinks it necessary or permissible to do so. (See also in this connection a decision of the Bombay High Court in the case of CIT v. Western Rolling Mills (Pvt.) Ltd. [1985] 156 ITR 54 [LQ/BomHC/1984/554] ).

41. In view of the above decisions, it is quite clear that the Appellate Tribunal has jurisdiction to permit additional grounds to be raised before it even though these may not arise from the order of the Appellate Assistant Commissioner, so long as these grounds are in respect of the subject-matter of the entire tax proceedings.

5.6. In view of the entire discussion, the jurisprudence discussion above, we are of the view that this additional ground raised by assessee, for which no new fact are to be investigated, as the facts are very much available on record, we admit this additional issue and will adjudicate.

6. The undisputed facts are that the assessee company is a logistics service provider and had filed return of income for the assessment year 2011-12 on 17.11.2011 admitting a loss of Rs. 8,45,48,991/-. This return was processed u/s. 143(1) of the Act and subsequently assessee's case was selected for scrutiny assessment under CASS and notice u/s. 143(2) r.w.s. 142(1) of the Act dated 03.08.2012 & 09.04.2013 were issued by DCIT, Company Circle 12(5), Bangalore and later the jurisdiction was transferred to Corporate Circle 3(2), Chennai. In this case, the AO noticed that the assessee has entered into international transaction with its Associated Enterprises exceeding Rs. 15 crores. Therefore, as per the Board's circular/notification, the matter was referred to the Transfer Pricing Officer and the TPO has passed order u/s. 92CA of the Act dated 14.01.2015 vide C.R. No. Y-603/TPO 3(2)/A.Y. 2011-12, in which the TPO has recommended downward adjustment of Rs. 7,40,95,333/- incurred to Management Support Services received from its Associated Enterprises YCH, Singapore. Thereafter the DCIT, Corporate Circle 3(2), Chennai passed draft assessment order u/s. 143(3) r.w.s. 92CA(3) of the Act dated 13.03.2015 wherein the AO along with the draft assessment order raised demand of Rs. 2,82,60,180/- u/s. 156 of the Act dated 13.03.2015 and along with the same, the AO also initiated penalty proceedings u/s. 271(1)(c) of the Act and issued notice u/s. 274 r.w.s. 271 of the Act i.e., penalty notice u/s. 271(1)(c) of the Act dated 13.03.2015. The draft assessment order dated 13.03.2015 contains the following details:-

"Case was heard and the assessment is completed. The income of the assessee company is assessed as under:-

Demand Notice u/s. 156 and calculation sheet are enclosed. Penalty proceedings u/s. 271(1)(c) initiated for the reasons discussed above."

Thereafter final assessment order was passed by the ACIT, Corporate Circle 3(2), Chennai u/s. 143(3) r.w.s. 92CA(3) r.w.s. 144C(5) of the Act dated 12.01.2016 in consequence to directions issued by DRP - 2, Bangalore vide F. No. 274/DRP-2/BNG/2015-16 directions dated 17.12.2015 u/s. 144C(5) of the Act.

7. From the above facts, it is seen that the draft assessment order passed by the AO u/s. 143(3) r.w.s. 92CA of the Act, dated 13.03.2015 issuing demand notice u/s. 156 of the Act and also initiating penalty proceedings by issuing notice u/s. 274 r.w.s. 271 of the Act for levy of penalty u/s. 271(1)(c) of the Act for concealment of income. Thereafter the AO passed final assessment order again vide dated 12.01.2016. Under such circumstances, the assessee raised additional ground, which is reproduced in the above para 3 and for the same of clarity again it is being reproduced as it is:-

"1. On the facts and circumstances of the case and in law, the assessment order being contrary to the provisions of section 144C of the Act, is bad in law and therefore, deserves to be quashed."

7.1. Now, the assessee has raised the issue that the final assessment order lack validity and hence, the same should be quashed as the AO and TPO failed to follow the statutorily prescribed procedure u/s. 144C of the Act is vitiated.

8. The Ld. counsel for the assessee relied on Co-ordinate Bench of the Tribunal in the case of DCIT vs. Atlas Copco (India) Limited in C.O. Nos. 34 & 35/PUN/2019, order dated 29.08.2019, wherein on exactly identical facts, the Tribunal has considered this similar issue and the relevant discussion, facts and legal position reads as under:-

9. Section 144C of the Act with the marginal note "Reference to Dispute Resolution Panel" provides through sub-section (1) of section 144C that: "The Assessing Officer shall, notwithstanding anything to the contrary contained in this Act, in the first instance, forward a draft of the proposed order of assessment (hereafter in this section referred to as the draft order) to the eligible assessee if he proposes to make, on or after the 1st day of October, 2009, any variation in the income or loss returned which is prejudicial to the interest of such assessee.' Sub-section (2) of section 144C states that the assessee shall either file his acceptance to the AO on the variations proposed in the draft order or file his objections, if any, with the DRP. In case, the assessee accepts the variation in the draft order or no objections are received within 30 days, then sub-section (3) states that: 'The Assessing Officer shall complete the assessment on the basis of the draft order'. In case, the assessee does not agree with the draft order, it can, inter alia, raise objections before the DRP, which shall issue directions under sub-section (5) of section 144C. Upon receipt of the directions from the DRP, the AO completes the assessment under sub-section (13) in conformity with the directions given by the DRP.

10. An overview of section 144C of the Act deciphers that a draft order passed under sub-section (1) is only a tentative order which does not fasten any tax liability on the assessee. In case variations to the income in the draft order are accepted by the assessee or no objections are received within 30 days, the AO completes the assessment under section 144C(3) on the basis of draft order and the matter ends. In case the assessee objects to the variations in the income as proposed in the draft order and approaches the DRP, the final assessment order is passed by the AO u/s. 144C(13) giving effect to the directions given by the DRP under sub-section (5). In case the assessee seeks to take the route of seeking redressal of its grievances through the channel of the CIT(A), in that case, again the AO has to pass a separate assessment order, which is obviously distinct from the draft order. So, it is only on the finalization of the variation in the income as per the draft order, to the extent specified in the provision, that the AO is obliged to pass an assessment order, either under sub-section (3) or (13) of section 144C of the Act, determining the tax liability, pursuant to which a notice of demand is issued. Thus it follows that, irrespective of the course of action followed by the assessee, whether or not accepting the variation in the draft order or choosing the route of the DRP or the CIT(A), a draft order has to be necessarily followed by an assessment order on the basis of which a notice of demand is issued and it is then that the assessment is said to have come to an end.

11. The Hon'ble Apex Court in Kalyan Kumar Ray (1991) 191 ITR 634 (SC) [LQ/SC/1991/356] has held that assessment order involves determination of income and tax. It laid down that: Assessment' is one integrated process involving not only the assessment of the total income but also the determination of the tax. The latter is as crucial for the assessee as the former.' Again the Hon'ble Summit Court in Auto and Metal Engineers vs. UOI (1998) 229 ITR 399 (SC) has held that the process of assessment involves (i) filing of the return of income under s. 139 or under s. 142 in response to a notice issued under s. 142(1); (ii) inquiry by the AO in accordance with the provisions of ss. 142 and 143; (iii) making of the order of assessment by the AO under s. 143(3) or s. 144; and (iv) issuing of the notice of demand under s. 156 on the basis of the order of assessment. The process of assessment thus commences with the filing of the return or where the return is not filed, by the issuance by the AO of notice to file the return under s. 142(1) and it culminates with the issuance of the notice of demand under s. 156. On going through the above precedents, it is manifested that the assessment proceedings come to an end on the issue of notice of demand u/s. 156 of the Act. Once a notice of demand is issued, the AO becomes functus officio in so far as the completion of assessment is concerned. It consequently follows that issue of notice of demand marks the completion of the assessment.

12. Turning to the facts of the instant case, it turns out that the AO issued notice of demand on 29.12.2011 tantamounting to legally finalizing the assessment, which was just the stage of draft order. As against that, it was incumbent upon him to statutorily pass the final assessment order after the draft order and then issue notice of demand. Issue of notice of demand brings down the curtain on the process of assessment. Until notice of demand is issued, the assessment cannot be said to have concluded.

13. The Hon'ble Madras High Court in Vijay Television (P) Ltd. Vs. DRP (2014) 369 ITR 113 (Mad.) was confronted with a situation in which the AO, pursuant to the order of the TPO, passed a final assessment order instead of a draft order. A question arose as to whether the order so passed could be treated as a valid order. Accepting the contention of the assessee, the Hon'ble High Court set aside the order passed by the AO by observing that: "where there was omission on the part of the AO to follow the mandatory procedures prescribed in the Act, such omission cannot be termed as a mere procedural irregularity and it cannot be cured". Resultantly, the assessment order was quashed. Almost similar issue came up for consideration before the Hon'ble jurisdictional High Court in Pr. CIT Vs. Lionbridge Technologies Pvt. Lt. (2019) 260 Taxman 273 (Bom.) in which the Tribunal in the first round restored the matter to the AO on the ground that the DRP failed to deal with the assessee's objections. During the remand proceedings, a reference was made to the TPO. On receipt of the TPO's order, the AO straightaway passed an order u/s. 143(3) r.w.s. 144C(13), which action came to be disapproved by the Hon'ble High Court. It, ergo, follows that the statutorily mandated procedure must be adhered to by the authorities, non-observance of which renders the assessment order null and void.

14. Similar issue came up for consideration before the Pune Benches of the Tribunal in Skoda Auto India Ltd. Vs. ACIT. In that case also the AO passed the draft order and simultaneously issued notice of demand and initiated penalty proceedings by issuing notice u/s. 274 of the Act. It was thereafter that the final assessment order was passed. The assessee challenged the legality of the final assessment order. Vide its order dated 02-07-2019, the Tribunal in ITA No. 714/PUN/2011 has held that the demand got crystallised on passing of the draft order pursuant to issue of demand notice which is contrary to the relevant provision of the Act. Ex Consequenti, the draft order was held to be invalid in law and the consequential assessment order void ab-initio.

15. The Ld. DR buttressed his point of view by relying on an order passed by the Hyderabad Benches in BS Ltd. Vs. ACIT (2018) 94 taxmann.com 346 (Hyderabad-Trib.) in which it has been held that the issuance of demand notice along with the draft order is only a procedural mistake. In our considered opinion, this case does not advance the Departmental stand. Unlike the assessee in the instant case not raising objections before the DRP and pursuing the appeal straight away before the Ld. CIT(A), the assessee in that case adopted the route of the DRP. Be that as it may, it is found that similar issue came up for consideration before the Pune Benches of the Tribunal in series of cases including Eaton Fluid Power Ltd. Vs. DCIT (2018) 96 taxmann.com 512 (Pune Trib.). In that case also, the AO passed the draft order u/s. 143(3) r.w.s.144C(1) of the Act. Thereafter, he issued notice of demand u/s. 156 and initiated penalty proceedings u/s. 271(1)(c) of the Act. When this infirmity in not following the statutorily mandated procedure was pointed out, the Tribunal declared the assessment order to be without jurisdiction and hence, null and void.

16. It is observed that the facts and circumstances of the instant case are similar to those considered by the Pune Benches of the Tribunal in the case of Skoda Auto India Ltd. Vs. ACIT (supra) and Eaton Fluid Power Ltd. Vs. DCIT (supra). As the AO in the extant case issued notice of demand at the stage of the draft order, which, actually ought to have been done at the stage of passing the final order, thereby assigning the finality to the assessment at the stage of draft order itself, we hold that the resultant final assessment order got vitiated in the eyes of law and hence cannot stand.

18. To sum up, we set-aside the assessment order by declaring it to be null and void. Thus, the income offered in the return becomes total income of the assessee.

Apart from the above, the Ld. counsel for the assessee relied on the following case laws:-

(i) Delhi Tribunal in the case of Perfetti Van Melle (India) Pvt. Ltd., in ITA No. 9116/Del/2019

(ii) Delhi Tribunal in the case of Mavenir India Pvt. Ltd., in ITA No. 203/Del/2020

(iii) Pune Tribunal in the case of Skoda Auto India Pvt. Ltd., in ITA No. 546/Pun/2014

(iv) Pune Tribunal in the case of Eaton Industrial Systems Pvt. Ltd., in ITA No. 536/Pun/2014

(v) Pune Tribunal in the case of Sandvik Asia Pvt. Ltd., in ITA No. 467 & 564/Pun/2015

(vi) Pune Tribunal in the case of Rehau Polymers Pvt. Ltd., in ITA No. 566/Pun/2015

(vii) Pune Tribunal in the case of Soktas India Pvt. Ltd., in ITA No. 206/Pun/2015

(viii) Mumbai Tribunal in the case of Aker Powergas Pvt. Ltd., in ITA No. 7211/Mum/2017

9. On the other hand, the Ld. CIT-DR could not controvert the above fact situation but only stated that there is no harm in passing a draft assessment order and issuing demand notice and penalty notice u/s. 271(1)(c) of the Act. According to him, this is not illegality and it is curable and particularly when the matter is restored back by Hon'ble Madras High Court, nothing survives.

10. We have heard rival contentions and gone through the issue arises on jurisdiction. We noted that this issue has been considered by Co-ordinate Benches of this Tribunal as noted above and particularly in the case of Atlas Copco (India) Limited, supra, Pune Bench has considered the issue and the facts being exactly identical, we allow this jurisdictional issue in favour of assessee.

11. As the issue of jurisdiction is allowed in favour of assessee, we need not go into merits of the case, which has become academic.

12. In the result, the appeal of the assessee is allowed.

Order pronounced in the open court on 20th July, 2022 at Chennai.