2019 (8) TMI 625 - HC - Income Tax

Non passing draft order u/s 144 (C ) - Whether AO can proceed straightway on the basis of the report of the Transfer Pricing Officer (TPO) u/S 92 (CA) to pass a final assessment order? - HELD THAT - JCB India Limited v. Dy. CIT 2017 (9) TMI 673 - DELHI HIGH COURT and Turner International India Private Limited v. DCIT 2017 (5) TMI 991 - DELHI HIGH COURT and numerous other orders it has been explained time and again that once there is a clear order of setting aside of an assessment order with the requirement of the AO/TPO to undertake a fresh exercise of determining the arm s length price, the failure to pass a draft assessment order, would violate Section 144C (1) of the Act result. This is not a curable defect in terms of Section 292B as held by this Court in Pr. CIT VERSUS CITI FINANCIAL CONSUMER FINANCE INDIA PVT. LTD. 2015 (8) TMI 53 - DELHI HIGH COURT . The fact remains that the officer in question in the present case has failed to follow the legal requirement spelt out so clearly u/s 144 (C) as has been explained by this Court in the above judgments. - the impugned order is hereby set aside

Summary

Issues:
1. Can the Assessing Officer proceed to pass a final assessment order without first passing the draft order under Section 144 (C) of the Act based on the report of the Transfer Pricing Officer (TPO) under Section 92 (CA) of the Act?

Analysis:
The High Court addressed the issue of whether the Assessing Officer can proceed directly to pass a final assessment order without following the mandatory requirement of passing the draft order under Section 144 (C) of the Act. The Court referred to previous judgments, including JCB India Limited v. Deputy Commissioner of Income Tax and Turner International India Private Limited v. DCIT, emphasizing the importance of complying with the legal provisions. It was reiterated that failure to pass a draft assessment order in cases requiring determination of arm's length price violates Section 144C (1) of the Act and is not a curable defect under Section 292B of the Act.

The Court noted that the Revenue's Special Leave Petition against a previous order on a similar issue had been dismissed by the Supreme Court. Additionally, reliance was placed on an order where the Joint Commissioner of Income Tax suggested treating the final assessment order as a draft order to follow the procedure under Section 144 (C). However, the Court clarified that such an approach did not establish a binding precedent and emphasized the importance of adhering to the legal requirements outlined in Section 144 (C).

In light of the above analysis, the Court set aside the impugned order dated 30th October, 2017, and allowed the writ petition in favor of the Petitioner. The Court's decision underscored the significance of following the statutory provisions and established legal principles in assessment proceedings to ensure procedural compliance and fairness in tax matters.