Gujarat H.C : assessment order without complying the requirement of Section 144C(1) invalid

High Court Of Gujarat

CIT, Vadodara-2 Vs. C-Sam (India) (P.) Ltd.

Section 92C, 144C

Assessment year 2009-10

Akil Kureshi And Biren Vaishnav, Jj.

Tax Appeal No. 542 Of 2017

July 31, 2017

ORDER

Akil Kureshi, J. – The Revenue is in appeal against the judgement of the Income Tax Appellate Tribunal dated 29.11.2016 raising the following questions for our consideration:

“(A) Whether on the facts and circumstances of the case and in law, the ITAT was justified in holding that the CIT (A) was perfectly justified in quashing the assessment order issued under Section 143(3) of the Act without complying the requirement of Section 144C(1)?

(B) Whether on the facts and circumstances of the case and in law, the ITAT was justified in upholding the order of CIT (A) without appreciating that the interest of natural justice would have been better served if the ITAT had set aside the assessment order u/s. 143(3) of the Act to the file of the Assessing Officer with a direction to make fresh assessment after following the procedure laid down in Section 144C of the Act, since the Assessing Officer had merely followed Board’s Circular No. 05 of 2010 dated 03.06.2010 which was binding on him and Board’s Circular No. 09 of 2013 dated 19.11.2013 was not in existence on the date of passing order u/s. 143(3) of the Act i.e. 22.02.2013?

(C) Whether on the facts and circumstances of the case and in law, the ITAT erred in not setting aside the assessment order u/s. 143(3) to the file with a direction to pass fresh assessment order u/s. 143(3) of the Act after following the procedure laid down in Section 144C in the interest of natural justice considering the fact that consequent upon the clarification issued by the CBDT, New Delhi vide Circular No. 09 of 2013 dated 19.11.2013, the Assessing Officer could not have suo motu withdrawn order u/s. 143(3) dated 21.02.2013 and pass fresh assessment order after following the procedure laid down in section 144C of the Act?

(D) Whether on the facts and circumstances of the case and in law, the ITAT was justified in quashing assessment order in the assessee’s case for A.Y. 2009-10 by relying on the decision of Madras High Court in case of Vijay Television Ltd. v. DRP reported in [2014] 46 taxmann.com 100/225 Taxman 35/369 ITR 113 without appreciating that the case of Vijay Television (supra) was distinguishable with the facts of the instance case?

(E) Whether on the facts and circumstances of the case and in law, the ITAT erred in not appreciating that the Revenue’s ground of appeal requesting the High Court to set aside the assessment order passed by the Assessing Officer to the file of the Assessing Officer with a direction to pass fresh assessment order after following the procedure laid down in section 144C of the Act, in the interest of natural justice, since the Assessing Officer had no powers to suo motu withdraw the assessment order after following the procedure laid down in Section 144C of the Act was not before the consideration of Madras High Court in the case of Vijay Television (supra) and Andhra Pradesh High Court in the case of Zuari Cement Ltd. v. ACIT respectively?”

2. The facts are not in dispute and can be summarized as under:

2.1 For the assessment year 2009-10, the return of the assessee was taken in scrutiny by the Assessing Officer. The assessee was subjected to transfer pricing regime on account of its international transactions with associated persons. Against the returned income of Nil, the Assessing Officer in the order of assessment dated 22.02.2013 computed the assessee’s income at Rs. 2.86 crores (rounded off) by making various additions and deletions as per the order of the Transfer Pricing Officer. The assessee challenged such additions on the ground that the procedure laid down under Section 144C of the Act was not followed by the Assessing Officer. The Tribunal relying on the decisions of the Madras High Court in case of Vijay Television Ltd. v. DRP [2014] 46 taxmann.com 100/225 Taxman 35/369 ITR 113 and that of Andhra Pradesh High Court in case of Zuari Cements Ltd. v. ACIT rendered in [Writ Petition No. 5557 of 2012, dated 21-2-2013] confirmed the view of the CIT(Appeals) and dismissed the Revenue’s appeals.

3. Counsel for the Revenue did not dispute the factual aspects namely that upward revision was made in the income of the assessee on the basis of the order of the TPO sand the same was done without following the procedure laid down under Section 144C of the Act. He, however, submitted that this was a mere procedural requirement and therefore a curable defect. The Tribunal, therefore, should have placed the matter back before the Assessing Officer for passing a fresh order after following such procedure.

4. Learned Single Judge of Madras High Court in case of Vijay Television Ltd. (supra) has taken a view that the procedure laid down under Section 144C of the Act is mandatory and the order passed by the Assessing Officer without following such procedure is illegal and the defect is not a curable defect. This view has also been taken by the Andhra Pradesh High Court in case of Zuari Cements Ltd. (supra) against which we are informed that SLP has been dismissed. We notice that the Delhi High Court in case of ESPN Star Sports Mauritius S.N.C. ET Compagnie v. Union of India [2016] 388 ITR 383/241 Taxman 38/68 taxmann.com 377 though was not strictly concerned with the issue at hand, however, held and observed that the Assessing Officer is bound by the orders passed by the Dispute Resolution Panel and the order passed by the Assessing Officer disregarding such order is ab-initio void.

5. Section 144C of the Act refers to the Dispute Resolution Panel. Sub-section (1) of Section 144C provides that in case of an eligible assessee, the Assessing Officer shall notwithstanding anything to the contrary contained in the Act forward a draft of the proposed order of assessment to the assessee if he proposes to make on or after 01st day of October, 2009 any variation in the income or loss returned which is prejudicial to the interest of the assessee. Under sub-section (2) of Section 144C, the assessee gets an opportunity to file his objections within thirty days of such variation before the Dispute Resolution Panel as well as before the Assessing Officer. As per sub-section (3) of Section 144C, the Assessing Officer would complete the assessment on the basis of the draft order if the assessee either intimates his acceptance of the variation or does not raise objections within the time prescribed. Under sub-section (5) of Section 144C, the Dispute Resolution Panel could issue such directions to the Assessing Officer as it thinks fit for his guidance to enable him to complete the assessment in case the assessee has raised an objection. Under sub-section (7) of Section 144C, it is open for the Dispute Resolution Panel to make further inquiries or have such inquiries made before issuing the directions referred to in sub-section (5). Sub- section (8) of Section 144C recognizes wide powers of the DRP to confirm, reduce or enhance the variations proposed in the draft order subject to the limitation that it shall not set aside any proposed variation or issue any direction under sub- section (5) for further inquiry. As per sub-section (10) of Section 144C, every direction issued by the DRP would be binding on the Assessing Officer. Sub-section (13) of Section 144C further provides that upon receipt of the directions issued by the DRP under sub-section (5), the Assessing Officer shall in conformity with the directions complete the assessment without providing any further opportunity of being heard to the assessee.

6. These statutory provisions make it abundantly clear that the procedure laid down under Section 144C of the Act is of great importance and is mandatory. Before the Assessing Officer can make variations in the returned income of an eligible assessee, as noted, sub-section (1) of Section 144C lays down the procedure to be followed notwithstanding anything to the contrary contained in the Act. This non- obstante clause thus gives an overriding effect to the procedure ‘notwithstanding anything to the contrary contained in the Act’. Sub-section (5) of Section 144C empowers the DRP to issue directions to the Assessing Officer to enable him to complete the assessment. Sub-section (10) of Section 144C makes such directions binding on the Assessing Officer. As per sub-section (13) of Section 144C, the Assessing Officer is required to pass the order of assessment in terms of such directions without any further hearing being granted to the assessee.

7. The procedure laid down under Section 144C of the Act is thus of great importance. When an Assessing Officer proposes to make variations to the returned income declared by an eligible assessee he has to first pass a draft order, provide a copy thereof to the assessee and only thereupon the assessee could exercise his valuable right to raise objections before the DRP on any of the proposed variations. In addition to giving such opportunity to an assessee, decision of the DRP is made binding on the Assessing Officer. It is therefore not possible to uphold the Revenue’s contention that such requirement is merely procedural. The requirement is mandatory and gives substantive rights to the assessee to object to any additions before they are made and such objections have to be considered not by the Assessing Officer but by the DRP. Interestingly, once the DRP gives directions under sub-section (5) of Section 144C, the Assessing Officer is expected to pass the order of assessment in terms of such directions without giving any further hearing to the assessee. Thus, at the level of the Assessing Officer, the directions of the DRP under sub-section (5) of Section 144C would bind even the assessee. He may of course challenge the order of the Assessing Officer before the Tribunal and take up all contentions. Nevertheless at the stage of assessment, he has no remedy against the directions issued by the DRP under sub-section (5). All these provisions amply demonstrate that the legislature desired to give an important opportunity to an assessee who is likely to be subjected to upward revision of income on the basis of transfer pricing mechanism. Such opportunity cannot be taken away by treating it as purely procedural in nature.

8. Reference by the Revenue to the circulars dated 03.06.2010 and 19.11.2013 in this regard would be of no avail. First of these circulars was an explanatory circular issued by the Finance Ministry in which it was provided that these amendments (which included Section 144C of the Act) are made applicable with effect from 01.10.2009 and will accordingly apply in relation to assessment year 2010-11 and subsequent assessment years. In the latter clarificatory circular dated 19.11.2013, it was provided that in the earlier circular there was an inadvertent error and Section 144C would apply to any order which is being passed after 01.10.2009 irrespective of the concerned assessment year. The latter circular was thus merely in the nature of a clarificatory circular and clarified which all along was the correct position in law. Sub-section (1) of Section 144C itself in no uncertain terms provides that the Assessing Officer shall forward a draft order to the eligible assessee, if he proposes to make any variation in the income or loss which is prejudicial to the interest of the assessee on or after 01st day of October 2009. The statute was thus clear, permitted no ambiguity and required the procedure to be followed in case of any variation which the Assessing Officer proposed to make after 01.10.2009. The earlier circular dated 03.06.2010 did not lay down the correct criteria in this regard. The assessee cannot be made to suffer on account of any inadvertent error which runs contrary to the statutory provisions. No question of law arises. Tax appeal is therefore dismissed.

[Citation : 398 ITR 182]