2022 (2) TMI 986 - HC - Income Tax

Validity of assessment order u/s 143(3) v/s assessment u/s 144C - petitioner states that the impugned assessment order has been passed by the respondents by wrongfully assuming jurisdiction under section 143(3) as it ought to have been exercised under section 144C - HELD THAT - In view of several judgments of this court on this issue including ESPN Star Sports Mauritius S. N. C. ET Compagnie v. Union of India 2016 (4) TMI 45 - DELHI HIGH COURT , he admits that the Assessing Officer in the present case, could have passed a draft assessment order only with a right to the assessee to file objections with the Dispute Resolution Panel. Keeping in view the aforesaid, the impugned assessment order dated September 22, 2021 is directed to be treated as a draft assessment order and not an assessment order passed under section 143(3) - The petitioner is given liberty to file objections against the said draft assessment order with the Dispute Resolution Panel within thirty days from today and on receipt of objections, the Dispute Resolution Panel is directed to decide the same in accordance with law.

Summary

Issues:
Challenge to assessment order under section 143(3) of the Income-tax Act, 1961 for the assessment year 2019-20. Jurisdiction under section 143(3) vs. section 144C for a foreign company. Denial of exemption under Double Taxation Avoidance Agreement (DTAA) provisions. Interpretation of "non obstante clause" in section 144C. Rights of foreign company-assessee under section 144C. Enforcement of demand during pendency before the Dispute Resolution Panel.

Analysis:
The petitioner filed a writ petition challenging the assessment order dated September 22, 2021 issued under section 143(3) of the Income-tax Act, 1961 for the assessment year 2019-20. The petitioner contended that the jurisdiction under section 143(3) was wrongfully assumed, and it should have been exercised under section 144C, as the petitioner is a foreign company eligible for benefits under this section. The impugned assessment order denied the exemption claimed under the DTAA provisions between India and Singapore, resulting in a demand of ?82,94,640.

The petitioner emphasized the significance of the "non obstante clause" in section 144C, which mandates that in the case of an eligible assessee, the Assessing Officer should first forward a draft assessment order if any variation is prejudicial to the assessee's interest. This provision grants certain rights to a foreign company-assessee, allowing them to file objections to the Dispute Resolution Panel (DRP) upon receiving the draft assessment order for adjudication through a quasi-judicial procedure under section 144C.

During the pendency before the DRP, the Assessing Officer is prohibited from enforcing any demand against the foreign company. The final assessment order can only be framed after the DRP disposes of the objections, and until then, the entire demand specified in the draft assessment order must be stayed. Mr. Sunil Agarwal, Advocate representing the respondent, acknowledged the court's previous judgments, including ESPN Star Sports Mauritius S. N. C. ET Compagnie v. Union of India [2016] 388 ITR 383 (Delhi), supporting the petitioner's position.

Consequently, the court directed the impugned assessment order to be treated as a draft assessment order under section 144C, allowing the petitioner to file objections with the DRP within thirty days. The DRP was instructed to decide on the objections in accordance with the law. The court disposed of the writ petition and application with the clarification that the demand imposed by the impugned order would remain stayed until the DRP resolves the objections.