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JCB India Ltd. Versus Deputy Commissioner of Income Tax & Anr.

2017 (9) TMI 673 - DELHI HIGH COURT

Failure to pass a draft assessment order under Section 144C - whether, after the remand proceedings, the AO could have, without issuing a draft assessment order under Section 144 C of the Act, straightway issued the final assessment order - Held that:- The Court finds no difficulty in holding that the impugned final assessment orders dated 30th March 2016 passed by the AO for AYs 2006-07, 2007-08 and 2008 -09 are without jurisdiction on account of the failure, by the AO, to first pass a draft as .....

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pta, Advocates Respondents Through: Mr. Sanjay Jain, ASG with Mr. Rahul Chaudhary, Ms. Rhea Verma and Ms. Rajul Jain, Advocates O R D E R Dr. S. Muralidhar, J. 1. These are three writ petitions by JCB India Ltd. seeking quashing of an order dated 30th March 2016 passed by the Transfer Pricing Officer ( TPO ) and the Final Assessment Order dated 31st March 2016 passed by the Assessing Officer ( AO) under Section 254 read with Section 143(3) of the Income Tax Act, 1961 ('Act) for three Assessm .....

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nternational transactions involving the Petitioner-Assessee and its Associated Enterprise ( AE ), the AO passed the final assessment order on 25th October 2010 under Section 143 (3) read with Section 144C of the Act. The returned income was enhanced to ₹ 255,45,21,520/-. 4. In the appeal filed by the Assessee, the Income Tax Appellate Tribunal ( ITAT ) set aside the assessment and matter to the file of the Dispute Resolution Panel ( DRP ) for a fresh determination after dealing with the ob .....

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e the ITAT, the issue of determining the arm s length price ( ALP ) was set aside to the file of the AO for fresh adjudication. The ITAT also directed that, Both the Assessee as well as the revenue are granted liberty to file fresh T.P. study and fresh comparables so as to arrive at the arm s length price in accordance with law. In the result, this ground of the Assessee is allowed for statistical purposes. AY 2007-08 7. As far as AY 2007-08 was concerned, the Assessee filed its return of income .....

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was in accordance with the DRP s instructions dated 26th September 2011. 8. An order similar to the one made for AY 2006-07 was made by the ITAT on 18th September 2013 for AY 2007-08. AY 2008-09 9. For AY 2008-09, the Assessee filed its return of income on 30th September 2008, declaring an income of ₹ 604,98,20,690/- which was subsequently revised on 26th March 2009 to ₹ 601,92,08,999/-. The AO passed the final assessment order under Section 143 read with Section 144 C of the Act on .....

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sue to the AO for a fresh adjudication in accordance with law. Like in AYs 2006-07 and 200708, the ITAT permitted the Assessee as well as the Revenue to file their fresh T.P. study and fresh comparables so as to arrive at the arm's length price in accordance with law. The appeal of the Assessee was allowed for statistical purposes. 11. For all the three AYs, by the letter dated 14th February 2014, the AO sought the comments of the TPO on the issue of transfer pricing adjustment. It is stated .....

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ns were made by the Assessee on 17th March 2016, inter alia stating that the proceedings were barred by limitation in light of Section 92CA (3A) read with Section 153 (2A). Thereafter, a second notice was issued by the TPO on 21st March 2016, calling upon the Assessee to file reply on the same day. This was extended to 30th March 2016. In reply to the notice dated 21st March 2016, the Assessee, in its submissions dated 30th March 2016, reiterated that the proceedings were barred by limitation in .....

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2007-08 and 2008-09. The AO enhanced the returned income on the basis of transfer pricing adjustment as recommended by the TPO. A notice of demand under Section 156 and show cause notice under Section 274 read with Section 271, as to why penalty should not be imposed, were also issued by the AO on the same date. Analysis 14. The short question that arises for consideration is whether, after the remand proceedings, the AO could have, without issuing a draft assessment order under Section 144 C of .....

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n respect of which an objection can be filed by the Assessee before the DRP. The failure to do so, according to Mr. Syali, was not a mere irregularity. He further referred to a decision of the Gujarat High Court dated 31st July 2017 in Tax Appeal No. 542 of 2017 (Commissioner of Income Tax, Vadodara-2 v. C-Sam (India) Pvt. Ltd.) 16. In response, Mr. Sanjay Jain, learned Additional Solicitor General of India appearing for the Revenue, submitted that there was an efficacious alternative remedy ava .....

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e arms length price after considering fresh comparables. Since the assessment itself was not cancelled by the ITAT or completely set aside, it is the provisions of Section 153 (3) (ii) of the Act which would apply. Mr Jain submitted that the requirement of passing a draft assessment order under Section 144C was only in the first instance and not after the remand by the ITAT. 17. The Court is unable to agree with the submissions made on behalf of the Revenue by Mr. Jain. Section 144C (1) of the A .....

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o first pass a draft assessment order under Section 144C of the Act. In this regard, reference is made to Section 292B of the Act. 19. As already noted, the final assessment order of the AO stood vitiated not on account of mere irregularity but since it was an incurable illegality. Section 292B of the Act would not protect such an order. This has been explained by this Court in its decision dated 17th July 2015 passed in ITA No. 275/2015 (Pr. Commissioner of Income Tax, Delhi-2, New Delhi v. Cit .....

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f the Act cannot save an order not passed in accordance with the provisions of the Act. As the Court explained, the issue involved is not about a mistake in the said order but the power of the AO to pass the order. 21. In almost identical facts, in Turner International (supra), this Court held in favour of the Assessee on the ground that it was mandatory for the AO to have passed a draft assessment order under Section 144C of the Act prior to issuing the final assessment order. The following pas .....

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Pradesh High Court categorically held that the failure to pass a draft assessment order under Section 144C (1) of the Act would result in rendering the final assessment order without jurisdiction, null and void and unenforceable. In that case, the consequent demand notice was also set aside. The decision of the Andhra Pradesh High Court was affirmed by the Supreme Court by the dismissal of the Revenue's SLP (C) [CC No. 16694/2013] on 27th September, 2013. 13. In Vijay Television (P) Ltd. v. .....

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ion Panel (supra) quashed the final order of the AO and the demand notice. Interestingly, even as regards the corrigendum issued, the Madras High Court held that it was beyond the time permissible for issuance of such corrigendum and, therefore, it could not be sustained in law. 14. Recently, this Court in ESPN Star Sports Mauritius S.N.C. ET Compagnie v. Union of India [2016] 388 ITR 383 (Del.), following the decision of the Andhra Pradesh High Court in Zuari Cement Ltd. v. ACIT (supra), the Ma .....

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lowing passages of the said decision of Gujarat High Court are relevant for the present purposes: 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 n .....

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rther 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 assesses 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 ass .....

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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 th .....

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