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2021 (8) TMI 1188 - HC - Income TaxPower of DRP to enhance the assessment u/s 144C - Assessment order u/s 144C(5) to make disallowance u/s 40(a)(i) in respect of Employees Secondment Charges and Reimbursement of Expenses - variations not identifiable in the Draft Assessment Order - HELD THAT - As the present case is concerned, sub-section (8) is more relevant as the learned counsel for the petitioner states that the Dispute Resolution Panel has no power to enhance based on the variations which were not identifiable in the Draft Assessment Order. The explanation clarifies that the Dispute Resolution Panel have the power to consider any matter arising out of the assessment proceedings relating to the Draft Order. Thus, the requirement is that the variations proposed for enhancement must be relatable to the Draft Assessment Order and such issues must be arising out of the assessment proceedings. The very purpose and object of explanation is to ensure that in the event of any non-consideration of a particular point in the Draft Assessment Order by the Assessment Officer, the Dispute Resolution Panel being a Specialised Panel is provided with the power to propose such variations, relating to any matter arising out of the assessment proceedings. Therefore, the power of enhancement contemplated under subsection (8) is clarified through the explanation. Such a clarification cannot be construed as 'excessive power' as in the absence of such clarification by way of an explanation, the very purpose and object of sub-section (8) to Section 144C would be diluted. Explanation contemplates that any variation arising out of the assessment proceedings relating to the Draft Assessment Order shall be proposed and on such proposal, an opportunity is to be provided to the eligible assessee to defend their case. Thus, the requirement as contemplated is that the Dispute Resolution Panel is to provide pre-decisional hearing to the assessee in order to comply with the principles of natural justice. Once a Dispute Resolution Panel identified and picked up such variations arising out of the assessment proceedings relating to the Draft Assessment Order, then such variations are to be communicated to the Assessee, enabling them to file their objections on such variations. On receipt of objections, the same is to be disposed of meaningfully. There is a clear nexus between sub-section (8) and the Explanations provided to the sub-section. Explanation fulfils the purpose and object sought to be achieved under the said provision. In the absence of the explanation, there is a possibility of misinterpretation by either of the parties and therefore, the explanation became necessary as far as the subsection (8) is concerned and thus, the contention raised by the petitioner that the Explanation exceeds the provision is incorrect and thus, rejected. The Dispute Resolution Panel being an Expert Panel, is bound to ascertain the correctness or otherwise of the Draft Assessment Order passed by the Assessing Officer. In the event of identifying omission or commission or excessive exercise, the Dispute Resolution Panel is empowered under sub-section (8) to confirm or reduce or enhance the variations. - there is no impediment as such for the Dispute Resolution Panel to consider any matter arising out of the assessment proceedings relating to the Draft Assessment Order and no matter, such an issue was discussed in the Draft Assessment Order or not, but it should not be totally unconnected with the assessment proceedings or the Draft Assessment Order. This being the purposive interpretation to be adopted for the purpose of defining Section 144C and sub-section (8) as well as the Explanation, this Court is of the considered opinion that proposed notice issued to the writ petitioner is relatable to the assessment proceedings and to the Draft Assessment Order. Thus, there is no infirmity in respect of exercise of powers by the Dispute Resolution Panel and the notice issued for enhancement. The petitioner submitted its objections and such objections were also disposed of and finally, the assessment order was admittedly passed by the Assessing Officer on 05.10.2017. The relief as sought for by the petitioner in the present writ petition stands rejected - The petitioner is at liberty to prefer an appeal against the final Assessment Order passed by the competent authority on 05.10.2017 within a period of four weeks from the date of receipt of a copy of this order in a prescribed manner and by complying with the provisions of the Act and Rules;
Issues Involved:
1. Jurisdiction of the Dispute Resolution Panel (DRP) under Section 144C(8) of the Income Tax Act. 2. Validity of the enhancement notice issued by the DRP. 3. The necessity for the petitioner to exhaust appellate remedies. Issue-wise Detailed Analysis: 1. Jurisdiction of the Dispute Resolution Panel (DRP) under Section 144C(8) of the Income Tax Act: The petitioner challenged the jurisdiction of the DRP to issue an enhancement notice under Section 144C(8) of the Income Tax Act. The petitioner argued that the DRP's power to enhance variations should be limited to issues already considered in the Draft Assessment Order. The court examined the provisions of Section 144C and its sub-sections, emphasizing that the DRP is a specialized panel consisting of three Commissioners of Income Tax. The court noted that the DRP has the power to confirm, reduce, or enhance variations proposed in the Draft Assessment Order, and this power includes considering any matter arising out of the assessment proceedings, even if not initially raised by the eligible assessee. The court concluded that the explanation to Section 144C(8) clarifies the DRP's power to consider any matter arising out of the assessment proceedings, thereby supporting the DRP's jurisdiction in this case. 2. Validity of the Enhancement Notice Issued by the DRP: The petitioner contended that the enhancement notice issued by the DRP was beyond its powers, as the issues raised were not considered in the Draft Assessment Order. The court referred to several judgments, including those of the Supreme Court, to establish that the DRP's power to enhance variations includes considering any matter arising out of the assessment proceedings, even if not initially raised. The court found that the issues of Employee Secondment Charges and Reimbursement of Expenses were related to the assessment proceedings and the Draft Assessment Order. The DRP followed due process by issuing a notice, receiving objections, and disposing of them before passing the final assessment order. Thus, the court upheld the validity of the enhancement notice issued by the DRP. 3. The Necessity for the Petitioner to Exhaust Appellate Remedies: The respondents argued that the writ petition had become infructuous as the final Assessment Order had been passed, and the petitioner should approach the Appellate Authority for any grievances. The court agreed, stating that the petitioner must exhaust the available appellate remedies before seeking judicial intervention. The court directed the petitioner to file an appeal against the final Assessment Order within four weeks and instructed the Appellate Authority to condone any delay considering the pendency of the writ petition and to dispose of the appeal on merits. Conclusion: The court rejected the petitioner's request for relief, upheld the DRP's jurisdiction and the validity of the enhancement notice, and directed the petitioner to pursue appellate remedies. The writ petition was disposed of with no costs.
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