2010 (8) TMI 743 - HC - Income Tax

Assessment - petitioner-assessee chosen to withdraw the objections filed before the Dispute Resolution Panel - Dispute Resolution Panel directed the Assessing Officer under section 144C(5) of the Act to pass assessment order in consonance with the draft assessment order already passed by him. Being aggrieved, the petitioner has moved the present petition seeking the reliefs - directions issued by the Dispute Resolution Panel makes it apparent that the Dispute Resolution Panel has failed to consider the contents of the letter/application - application clearly indicates that there is nary a whisper regarding withdrawing the objections - By the said application the petitioner has only requested the Dispute Resolution Panel to give its consent to allow it to approach the Assessing Officer and request him to issue the final order so as to enable the petitioner to avail of the appellate channel - order also causes immense prejudice to the petitioner as recorded - order of the Dispute Resolution Panel, therefore, cannot be sustained, petition succeeds and is accordingly allowed, objections filed by the petitioner before the Dispute Resolution Panel are hereby restored to the file of the Dispute Resolution Panel

Issues Involved:
1. Validity of the Dispute Resolution Panel's (DRP) order dated July 8, 2010.
2. Validity of the assessment order dated August 23, 2010, passed by the Assessing Officer.
3. Jurisdiction and procedural adherence of the DRP and the Assessing Officer.
4. Petitioner's right to choose the appellate channel.
5. Adherence to principles of natural justice.

Issue-wise Detailed Analysis:

1. Validity of the Dispute Resolution Panel's (DRP) order dated July 8, 2010:

The petitioner contended that the DRP's order dated July 8, 2010, was irrational and perverse. The DRP had incorrectly noted that the petitioner had withdrawn its objections, which was not the case. The petitioner had only requested the DRP's consent to approach the Assessing Officer to issue a final order to enable the petitioner to file an appeal before the Commissioner of Income-tax (Appeals). The court observed that the DRP failed to consider the contents of the petitioner's letter/application dated April 22, 2010, properly. The court noted that the DRP's order was contrary to the record and demonstrated non-application of mind, causing immense prejudice to the petitioner. The court held that the DRP's order could not be sustained.

2. Validity of the assessment order dated August 23, 2010, passed by the Assessing Officer:

The petitioner challenged the assessment order dated August 23, 2010, issued by the Assessing Officer, arguing that it was issued prematurely during the pendency of the petition. The court observed that the Assessing Officer had sufficient time until August 31, 2010, to make the order but proceeded to issue it on August 23, 2010. The court found that the assessment order was made pursuant to the flawed DRP order dated July 8, 2010, and therefore, it could not be sustained either.

3. Jurisdiction and procedural adherence of the DRP and the Assessing Officer:

The court examined the scope and ambit of the DRP's jurisdiction under section 144C of the Income-tax Act, 1961. The DRP is required to issue directions for the guidance of the Assessing Officer to complete the assessment, but it cannot set aside any proposed variation or issue directions for further inquiry. The court found that the DRP had overstepped its jurisdiction by noting that the petitioner had withdrawn its objections and directing the Assessing Officer to pass the assessment order in consonance with the draft assessment order. The court emphasized that the DRP should have considered the petitioner's objections on the merits.

4. Petitioner's right to choose the appellate channel:

The petitioner argued that it was not aware of the Central Board of Direct Taxes' (CBDT) clarification dated January 20, 2010, which allowed the petitioner to choose between approaching the DRP or the normal appellate channel. The court noted that the petitioner had filed its objections before the DRP on January 29, 2010, and subsequently became aware of the CBDT clarification. The court observed that the petitioner had the right to choose the appellate channel and that the DRP's refusal to allow the petitioner to withdraw its objections and approach the Assessing Officer was unjustified.

5. Adherence to principles of natural justice:

The court found that the DRP's order violated the principles of natural justice as it failed to consider the petitioner's objections and application properly. The court noted that the DRP's order caused immense prejudice to the petitioner by closing all doors for appeal. The court held that the DRP's order was contrary to the record and demonstrated non-application of mind, resulting in a miscarriage of justice.

Conclusion:

The court allowed the petition, quashing and setting aside the DRP's order dated July 8, 2010, and the assessment order dated August 23, 2010. The court restored the petitioner's objections to the DRP and directed the DRP to consider the objections on the merits within three months, after giving the petitioner an opportunity of hearing. The court made the rule absolute with no order as to costs.

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