2019 (7) TMI 136 - HC - Income Tax

Maintainability of writ against draft assessment order passed u/s 143 (3) r.w.s. 144C - effective and efficacious alternative remedy under the IT Act - valuation of the share for the buy-back u/s 77 A of the Companies Act - Determination of FMV under Rule 11UA - taxability of excess consideration over FMV u/s 56(1) - violation of principles of natural justice - matter refer to TPO who come to conclusion no adverse inference is drawn - HELD THAT - In the present case, buy-back of shares in accordance with Section 77A of the Companies Act was completed before 01.06.2013 and the Income Tax Returns filed by the petitioners were also accepted by the Assessing Officer, however notice un/s 143(2) dated 28.08.2015 and 31.08.2015 were issued and the impugned Draft Assessment Orders came to be passed on 31.12.2017, i.e., nearly about 2 1/2 years after initiation of the proceedings. It is to be noted that the Draft Assessment Orders are required to be passed within the prescribed time. In the meanwhile, the Authorized Representative of the petitioner-Company appeared before the respondent and submitted the documents and a reply to the showcause notice. The dates and events mentioned would prove that there is no breach of violation of principles of natural justice.This Court does not find any merit in the contention that the principles of natural justice has been violated. The Dispute Resolution Panel is empowered by the Act to consider the objections, and pass suitable orders, viz., may confirm, reduce or enhance the variations proposed in the draft order. The Assessing Officer is bound to pass final Assessment Orders in tune with the order of the Dispute Resolution Panel. Against the final order, the First Appeal lies before the CIT(A) u/s 246 and Second Appeal lies before the Appellate Tribunal u/s 253. Thereafter, an appeal lies to the High Court u/s 260A on the substantial questions of law. In the matter on hand, except the two grounds dealt with supra, no other good reasons pleaded by the petitioners to bypass the statutory remedies. Keeping in mind, the principles laid down in the above decisions and the facts of this case, in my opinion, these Writ Petitions are not maintainable at this stage. In that view, these Writ Petitions fail and they are accordingly dismissed.

Summary

Issues Involved:
1. Validity of the Draft Assessment Orders.
2. Adherence to principles of natural justice.
3. Jurisdiction of the Assessing Officer vs. Transfer Pricing Officer.
4. Applicability of Section 115QA of the Income Tax Act.
5. Maintainability of the Writ Petitions.

Detailed Analysis:

1. Validity of the Draft Assessment Orders:
The petitioners, companies incorporated in Mauritius and the USA, filed Writ Petitions to quash the draft assessment orders passed under Section 143(3) read with Section 144C(1) of the Income Tax Act, 1961. The petitioners argued that the Assessing Officer deviated from the valuation determined by the Transfer Pricing Officer (TPO), which was ?23,915 per share, and instead valued the shares at ?8,512. The petitioners contended that the Assessing Officer must conform to the TPO's valuation as per Section 92CA(4) of the Income Tax Act.

2. Adherence to Principles of Natural Justice:
The petitioners claimed that the draft assessment orders violated principles of natural justice, as the final show-cause notice was issued on 22.12.2017, and the draft orders were passed on 31.12.2017 without providing sufficient opportunity for a hearing. The respondents countered that ample opportunities were provided, and the delay in issuing the show-cause notice was due to the petitioners' delay in submitting documents. The court found no breach of natural justice, noting that the petitioners had been given multiple opportunities to present their case.

3. Jurisdiction of the Assessing Officer vs. Transfer Pricing Officer:
The petitioners argued that the Assessing Officer is bound to pass orders based on the Arms Length Price determined by the TPO. The respondents contended that the Assessing Officer has the authority to independently determine the Fair Market Value (FMV) of the shares under Rule 11UA of the Income Tax Rules, 1962. The court noted that the Dispute Resolution Panel (DRP) has wide powers to consider all materials and pass appropriate orders, and the Assessing Officer can be persuaded to reject the TPO's report.

4. Applicability of Section 115QA of the Income Tax Act:
The petitioners contended that Section 115QA, which imposes a tax on buy-back of shares, came into effect from 01.06.2013 and cannot be applied retrospectively to transactions completed on 22.05.2013. The respondents argued that the tax was imposed on the excess payment over the FMV under Section 56(1) of the Income Tax Act. The court found that the respondents' approach of taxing the excess payment over the FMV was not retrospective application of Section 115QA.

5. Maintainability of the Writ Petitions:
The respondents argued that the Writ Petitions should be dismissed as the petitioners have an effective alternative remedy under the Income Tax Act, including filing objections before the DRP or appealing to the Commissioner of Income Tax (Appeals). The court agreed, citing precedents that emphasize exhausting statutory remedies before approaching the High Court. The court dismissed the Writ Petitions, granting the petitioners liberty to raise all issues before the DRP within two weeks.

Conclusion:
The court dismissed the Writ Petitions, holding that the petitioners must exhaust the statutory remedies available under the Income Tax Act. The court found no violation of natural justice and upheld the jurisdiction of the Assessing Officer to independently determine the FMV of the shares. The court also clarified that the tax imposed was not a retrospective application of Section 115QA. The petitioners were granted liberty to raise their objections before the DRP.