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2018 (8) TMI 2106 - AT - Income TaxAssessment u/s 144C - Validity of draft assessment order - HELD THAT - There are other judgments of Hon ble Delhi High Court wherein similar issue has been decided in favour of the assessee like in the case of, Honda Cars India Limited 2016 (2) TMI 527 - DELHI HIGH COURT as held that, if assessee is not an eligible assessee in terms of section 144C(15)(b), then AO is not competent to pass a draft assessment order u/s 144C and the final assessment order consequently becomes time barred. Accordingly, following the aforesaid binding judicial precedents, we hold that the draft assessment order is invalid and consequently the impugned final assessment order is also unsustainable in law and is set aside. Consequently the additional ground as well as the appeal of the assessee is allowed. Eligible assessee in terms of section 144C (15)(b) - AY 2006-07 2007-08 - As no transfer pricing adjustment or order u/s 92CA varying the returned income has been passed which is evident from the observation and the finding given by the AO in the impugned orders. In these years also, the AO has resorted to proposed draft assessment order u/s 144C (1) which is in absence of requisite condition that assessee was not the eligible assessee in terms of section 144C (15)(b). Hence, such a draft assessment order could not have been made, instead regular assessment order u/s 143 (3)/147 should have been passed. Thus, we hold that the impugned final assessment orders passed in the assessment years 2006-07 and 2007-08 are bad in law and are accordingly set aside. In these years also the appeal is allowed on the basis of additional ground raised.
Issues Involved:
1. Validity of reopening of assessment under section 147. 2. Directions of the Dispute Resolution Panel (DRP) regarding business connection in India under section 9(1). 3. Directions of the DRP regarding the assessee having a Permanent Establishment (PE) in India under the India-Mauritius Double Taxation Avoidance Agreement (DTAA). 4. Direction regarding the profits of the assessee from Indian operations at 30% of the gross revenue. 5. Charging of interest under sections 234A, 234B, and 234C. 6. Additional ground challenging the validity of the draft assessment order on the basis that the assessee is not an "eligible assessee" within the meaning of section 144C(15)(b). Detailed Analysis: 1. Validity of Reopening of Assessment under Section 147: The assessee's case was reopened under section 147 via notice dated June 10, 2008, issued under section 148. The reopening was based on the grounds that the assessee had entered into international transactions with its associated enterprise, which warranted a reference to the Transfer Pricing Officer (TPO). 2. Directions of the DRP Regarding Business Connection in India under Section 9(1): The DRP directed that the assessee had a business connection in India as per section 9(1). This direction was part of the final assessment order dated September 16, 2010, for the assessment years 2005-06, 2006-07, and 2007-08. 3. Directions of the DRP Regarding Permanent Establishment (PE): The DRP also directed that the assessee had a dependent Permanent Establishment (PE) in the form of ESPN Software India (P) Ltd. under the India-Mauritius DTAA. This was a significant point of contention as it affected the tax liabilities of the assessee. 4. Direction Regarding Profits from Indian Operations: The DRP directed that the profits from the assessee's Indian operations should be calculated at 30% of the gross revenue. This direction was challenged by the assessee as being excessive and not in line with the actual business operations. 5. Charging of Interest under Sections 234A, 234B, and 234C: The assessee contested the charging of interest under sections 234A, 234B, and 234C, arguing that the calculations were not justified based on the actual tax liabilities. 6. Additional Ground on Validity of Draft Assessment Order: The assessee raised an additional ground challenging the validity of the draft assessment order, arguing that it was not an "eligible assessee" within the meaning of section 144C(15)(b). The assessee, a non-resident entity and a partnership firm established under the laws of Mauritius, contended that no transfer pricing adjustment was made by the TPO, and hence, the draft assessment order was invalid. The Tribunal admitted this additional ground, citing the Supreme Court judgment in National Thermal Power Co. Ltd. vs. CIT (1998) 229 ITR 383 (SC), which allows for the admission of purely legal issues that go to the root of the assessment's validity. Tribunal's Findings: 1. Draft Assessment Order Invalidity: - The Tribunal found that the draft assessment order was invalid because the assessee was not an "eligible assessee" as defined under section 144C(15)(b). The TPO did not make any adjustment to the international transactions, and therefore, the draft assessment order should not have been issued. - The Tribunal referenced multiple judgments, including ESPN Star Sports Mauritius S.N.C. ET Compagnie v. Union of India (2016) 388 ITR 383 and Ess Distribution (Mauritius) S.N.C.E.T. Compagnie vs ACIT, which supported the assessee's position. 2. Quashing of Final Assessment Orders: - Since the draft assessment order was invalid, the final assessment orders for the assessment years 2005-06, 2006-07, and 2007-08 were also set aside. - The Tribunal emphasized that the assessment should have been completed under section 143(3) instead of section 144C. 3. Implications for Other Grounds: - Given the quashing of the draft and final assessment orders, the Tribunal did not find it necessary to address the other grounds on their merits, as they became academic. Conclusion: The appeals for the assessment years 2005-06, 2006-07, and 2007-08 were allowed, and the final assessment orders were set aside due to the invalidity of the draft assessment orders. The Tribunal's decision was based on the legal principle that the assessee was not an "eligible assessee" under section 144C(15)(b), thereby rendering the draft and final assessment orders unsustainable in law.
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