2017 (7) TMI 1077 - HC - Income Tax

Opportunity of questioning the draft assessment order under Section 144C denied - Held that - Consequent upon an order of the TPO under Section 92 CA (3) of the Act it is incumbent upon the AO to pass a draft assessment order under Section 144C of the Act is the settled legal position as explained by the Court in its decision in Turner International India Pvt. Ltd. Vs. DCIT (2017 (5) TMI 991 - DELHI HIGH COURT). In the present case clearly the AO overlooked the above legal position and proceeded to pass a final assessment order thereby depriving the Assessee of an opportunity of questioning the draft assessment order under Section 144C of the Act before the DRP.

Summary

Issues:
Challenge to order dated 11th May, 2017 passed by the Deputy Commissioner of Income Tax under Section 254/143(3) of the Income Tax Act, 1961 and Section 144C for Assessment Year 2011-12.

Analysis:
The petitioner, engaged in specialist risk consultancy services, challenged a draft assessment order passed by the Assessing Officer (AO) on 16th March, 2015, which included transfer pricing adjustment and disallowance of interest on late deposit of TDS. The Dispute Resolution Panel (DRP) confirmed these variations on 23rd December, 2015. The Transfer Pricing Officer (TPO) recomputed the transfer pricing adjustment on 14th January, 2016, leading to a final assessment order by the AO on 29th January, 2016 under Section 143(3) and Section 144C of the Act.

The matter was appealed to the Income Tax Appellate Tribunal (ITAT), which remitted it to the TPO for further consideration based on additional details filed by the petitioner. Subsequently, the TPO proposed an adjustment to the Arm's Length Price (ALP) on 31st March, 2017. However, instead of issuing a draft assessment order, the AO directly passed a final assessment order on 11th May, 2017, leading to the current challenge.

The court highlighted the legal position that upon a TPO's order under Section 92 CA (3) of the Act, the AO must pass a draft assessment order under Section 144C. Citing the case of Turner International India Pvt. Ltd. Vs. DCIT, the court emphasized that the AO's failure to follow this procedure deprived the assessee of the opportunity to question the draft assessment order before the DRP. Consequently, the court set aside the impugned assessment order dated 11th May, 2017, and quashed the notice of demand issued to the petitioner under Section 156 of the Act.

In conclusion, the writ petition was allowed with no order as to costs, and the application was disposed of accordingly.