2022 (1) TMI 1243 - AT - Income Tax

Revision u/s 263 - CIT jurisdiction u/s. 263 of the act on an order passed by the AO pursuant to the direction of DRP - assessment order was passed after transfer pricing adjustment were made by the TPO - Whether CIT has erred in initiating proceedings under section 263 of the Act when the original assessment order has been passed under section 143(3) r.w.s. 144C(13) of the Act on the basis of the direction of the DRP? - HELD THAT:- Admittedly, this is not a case, where draft assessment order is being revised. This is a case where final assessment order passed pursuant to the direction of DRP u/s. 144(3) is being revised by Ld.CIT. Ld. Counsel of the assessee in this regard submits that from the Finance Act, 2009, memorandum explaining the rationale behind the insertion of section 144C of the Act by the Finance Bill, 2009 as also the CBDT Circular No. 5 of 2010 dated 3 June 2010 issued explaining the said insertion, the notes on clauses, etc., it can be seen that consequential amendments have been made to various provisions of the Act as a result of insertion of section 144C in the Act. Such consequential amendments have been made to section 13 1, section 246A and section 253 of the Act. That however, no amendment is made in section 263 of the Act as a consequence of insertion of section 144C of the Act to deem such orders being capable of being revised. That therefore, the memorandum, circular, etc. support the Assessee's stand that once the Assessing Officer passes an order in accordance with the Directions issued by a superior authority (being DRP) the same cannot be revised by the CIT under section 263 of the Act

Scheme of the Act itself does not provide any interference in the direction of the DRP as the law containing section 144C(13) directs that the AO shall pass an order inconformity with the directions of the DRP without providing any further opportunity of being heard to the assessee. When the Act itself provide, that order has to be passed by the AO without providing any opportunity to the assessee pursuant to the direction of the DRP, the direction given in this order u/s. 263 by the Ld.CIT to the AO to call for the details of allowability of various deductions claimed by the assessee, in light of the observations discussed by him is quiet contrary to the sanguine provisions of law. Even otherwise, the order passed by the Ld.CIT is an exercise in futility inasmuch as, if the AO proceeds to pass an order by giving the assessee an opportunity of being heard, the same will be against the mandate of section 144C(13). Furthermore, it is also settled law that in assessment u/s. 144C, AO has to invariably pass a draft assessment order and give the same to the assessee for filing objection before DRP. Hence, the direction by the Ld.CIT to the AO to pass an order by-passing the provisions of passing the draft assessment order is also not sustainable in law.

Now, we examine the constitution of DRP. As evident from the above, the DRP constitutes a collegium comprising of three Principal Commissioners or Commissioners of Income-tax, the directions given by them is binding upon by the AO.

Members of the DRP are three in numbers and are individually equivalent in rank to the CIT, who is initiating proceedings u/s. 263 against the order passed by the AO pursuant to their direction. Now as far as equivalence of single CIT to a ‘colliguem of 3 CIT is concerned, it is settled law that bench comprising single persons is not higher/superior than a collegiums of three persons. Hence, it is abundantly clear that the DRP stands at a higher pedestal than the CIT passing an order alone.

We set aside the orders of Ld.CIT and hold that he cannot legally assume jurisdiction u/s. 263 of the act on an order passed by the AO pursuant to the direction of DRP. This is over and above our other observations in para ‘14’ of this order, where we have noted that Ld.CIT has passed this order without properly appreciating the assessment order. Since, we have quashed assessment order on jurisdiction itself, we are not dealing with the merits of the case.