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2022 (1) TMI 1353 - HC - Income TaxAssessment u/s 144C - AO empowered u/s 144C to frame draft assessment order - depreciation claimed on goodwill disallowed - Respondent No. 1 while passing the draft assessment order had completely overlooked the decision in the petitioner s own case 2019 (11) TMI 803 - ITAT HYDERABAD - petitioner seeks quashing of the order passed by respondent No. 1 and seeks a direction to respondent No. 1 to pass a speaking and reasoned order dealing with all the objections raised by the petitioner - HELD THAT - Dispute Resolution Panel is a high-powered body constituted under the Act as an oversight body for the guidance of the AO. The object behind constitution of the Dispute Resolution Panel appears to be to ensure that the assessment proceedings are kept within the bounds of law while adhering to the principles of natural justice. Though the Assessing Officer has been empowered u/s 144C to frame draft assessment order the same is however subject to confirmation by the Dispute Resolution Panel. As already noticed that under sub-section (5) the Dispute Resolution Panel has the mandate to issue directions for guidance of the AO while framing the assessment and under sub-section (8) the Dispute Resolution Panel may confirm or reduce or enhance the variations proposed in the draft assessment order. Both sub-sections (5) and (8) have to be read together and from a conjoint reading of the two provisions it is clearly discernible that the final say in so far as the assessment is concerned rests with the Dispute Resolution Panel. The approach of the AO as manifest in clauses (a) to (d) as extracted above to our mind is problematic. In so far as the decision of the Income-tax Appellate Tribunal Hyderabad A Bench Hyderabad in respect of petitioner s own case for the assessment year 2014-15 2019 (11) TMI 803 - ITAT HYDERABAD the Assessing Officer has stated that the Department has not accepted the said decision. The views of the Income-tax Appellate Tribunal is not acceptable to the Department and therefore it has been appealed before the High Court. As such the issue of addition of depreciation claimed on goodwill has not attained finality. We are afraid such a view taken by the Assessing Officer can be justified. Rather it is highly objectionable for an Assessing Officer to say that the decision of the Income-tax Appellate Tribunal is not acceptable ; and that since it has been appealed against the issue of allowability of depreciation on goodwill has not attained finality. Unless there is a stay order/decision of the jurisdictional Income-tax Appellate Tribunal is binding on all Income-tax authorities within its jurisdiction. Giving a restricted meaning to the above words would intrude into rather curtail the jurisdiction of the Dispute Resolution Panel which could not have been the intent of the Legislature. While the Dispute Resolution Panel shall not set aside any proposed variation it certainly has the power and jurisdiction to reduce the variations proposed in the draft order. Following the above decisions of the Supreme Court KRISHNA SALES (P) LTD. 1993 (9) TMI 124 - SUPREME COURT a Division Bench of the Bombay High Court in Ganesh Benzoplast Ltd. v. Union of India 2020 (9) TMI 180 - BOMBAY HIGH COURT held that non-compliance of orders of the appellate authority by the subordinate original authority is disturbing to say the least as it strikes at the very root of administrative discipline and may have the effect of severely undermining the efficacy of the appellate remedy provided to a litigant under the statute. The second view expressed by the Assessing Officer vis-a-vis the decision of the Supreme Court in Smifs ( 2012 (8) TMI 713 - SUPREME COURT is still more problematic. It is not open to the Assessing Officer to try to evade from the binding effect of a Supreme Court decision by trying to find out distinguishing features . Though unnecessary we are still compelled to refer to article 141 of the Constitution of India which says that the law declared by the Supreme Court shall be binding on all courts within the territory of India. Therefore it is the bounden duty of all authorities whether administrative or quasi judicial or judicial to follow the law declared by the Supreme Court. While we agree with the learned standing counsel that the draft assessment order has not yet attained finality as it still has to be placed before the Dispute Resolution Panel and therefore in the circumstances we feel that interfering at this stage may not be justified as it would pre-empt decision-making by the high-powered Dispute Resolution Panel. However we hope and trust that the Dispute Resolution Panel shall look into all aspects of the matter more particularly the discussions made above while passing appropriate order(s) under sub-section (8) of section 144C of the Act and if necessary further personal hearing shall be afforded to the petitioner. DRP shall look into and consider the objections raised by the petitioner more particularly about the decision of the Income-tax Appellate Tribunal in its own case for the assessment year 2014-15 and the judgment of the Supreme Court in Smifs (supra) keeping in mind the discussions made above.
Issues Involved:
1. Validity of the draft assessment order dated September 28, 2021. 2. Disallowance of depreciation on goodwill. 3. Compliance with judicial precedents and principles of natural justice. 4. Prematurity of the writ petition. Detailed Analysis: 1. Validity of the Draft Assessment Order: The petitioner challenged the draft assessment order dated September 28, 2021, passed by respondent No. 1, seeking its quashing and a direction for a reasoned order addressing all objections raised. The court noted that the draft assessment order was issued under section 144C of the Income-tax Act, 1961, which mandates the Assessing Officer to forward a draft order to the eligible assessee if any variation prejudicial to the assessee is proposed. 2. Disallowance of Depreciation on Goodwill: The petitioner argued that the disallowance of depreciation on goodwill was erroneous. The draft assessment order disallowed depreciation claimed on goodwill amounting to Rs. 1247,45,31,301, citing that the issue had not attained finality as the Department had appealed against the Income-tax Appellate Tribunal's decision in the petitioner’s favor for the assessment year 2014-15. The petitioner contended that this disallowance was contrary to the Supreme Court's judgment in CIT v. Smifs Securities Ltd. [2012] 348 ITR 302 (SC), which held that goodwill is a depreciable asset. 3. Compliance with Judicial Precedents and Principles of Natural Justice: The court observed that the Assessing Officer's approach in disregarding the Income-tax Appellate Tribunal's decision and attempting to distinguish the Supreme Court's judgment in Smifs Securities was problematic. The court emphasized that the principles of judicial discipline require that decisions of higher appellate authorities be followed unreservedly by subordinate authorities unless stayed by a competent court. The court cited several precedents, including Union of India v. Kamlakshi Finance Corporation Ltd. [1992] Supp (1) SCC 443 and Collector of Customs v. Krishna Sales (P.) Ltd. [1994] Supp (3) SCC 73, reiterating that mere filing of an appeal does not operate as a stay or suspension of the order appealed against. The court also noted that the draft assessment order violated principles of natural justice by not considering binding judicial precedents. 4. Prematurity of the Writ Petition: The respondents argued that the writ petition was premature as it was directed against a draft assessment order, which had not yet attained finality and was subject to scrutiny by the Dispute Resolution Panel (DRP). The court acknowledged this argument, stating that interfering at this stage might pre-empt decision-making by the DRP. However, the court expressed hope that the DRP would consider all aspects of the matter, including the petitioner’s objections and the binding judicial precedents, while passing appropriate orders. Conclusion: The court disposed of the writ petition without expressing any opinion on the merits of the case. It directed the Dispute Resolution Panel to consider the petitioner’s objections, particularly the decision of the Income-tax Appellate Tribunal for the assessment year 2014-15 and the Supreme Court's judgment in Smifs Securities, keeping in mind the discussions made. The court emphasized the need for adherence to judicial discipline and the principles of natural justice in the assessment proceedings.
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