2024 (3) TMI 380 - HC - Income Tax

Validity of Proceedings u/s 144C - Eligible assessee - Original ITR filed declaring the status as Resident - In the revised ITR the status declared as Non-Resident - Later the assessee has withdrawn/ abandoned his revised return - petitioner requested the DRP to rule on the issue of jurisdiction since the petitioner now claimed that he was not the eligible assessee as defined under Section of the IT Act - DRP rejected the petitioner's objections and maintained the Draft Order - HELD THAT - Unless it was established that an assessee is an eligible assessee as defined under Section of the IT Act, there was no question of any reference to any DRP. There can be no estoppel against the law. Admittedly, this is not a case where the petitioner is a person in whose case variation referred to in sub-section 1 of Section 144C arises as a consequence of the order of the Transfer Pricing Officer passed under sub-section (3) of Section 92CA. Secondly, though the petitioner in his revised return had claimed that he was a non-resident, the Draft Order made by the first respondent upon considering the material on record has categorically held that this claim was incorrect and the petitioner was a resident in India and not a non-resident . This is the Department's finding, and the Department cannot distance itself from it merely because the Petitioner may have claimed otherwise in his revised returns. The petitioner has also now accepted the position that he is a resident in India and, based upon such acceptance, submitted that the authorities need not consider his revised return because the same proceeded on an erroneous premise that the petitioner was a non-resident . Accordingly, the petitioner cannot now be held as an eligible assessee as defined u/s 144C(15) of the IT Act. If the petitioner is not an eligible assessee, then there is no question of applying the procedure u/s 144C to the petitioner. Thus considering the clear and categorical conclusion recorded in the draft order that the Petitioner was not a non-resident in India, the provisions of Section 144C, including in particular the provisions of Section 144C (15)(b) we will have to hold that the proceedings u/s 144C against the petitioner who was a resident in India, are incompetent. As a consequence, the Draft Order(to the extent it initiates proceedings under 144C of the IT Act) and the order dated will have to be set aside and are hereby set aside.

Summary

Issues Involved:
The issues involved in the judgment are the validity of the Draft Order issued under Section 144C(1) of the Income Tax Act, determination of the petitioner's residential status, the applicability of Section 144C to the petitioner, and the rejection of petitioner's objections by the Dispute Resolution Panel.

Validity of Draft Order:
The petitioner challenged the Draft Order dated 26.12.2022 issued under Section 144C(1) of the Income Tax Act, claiming it was illegal, improper, and unreasonable. The petitioner contended that despite claiming non-resident status in a revised return, the Draft Order categorized the petitioner as a resident in India. The petitioner argued that the provisions of Section 144C should not have been applied, citing precedents to support the contention.

Residential Status Determination:
The petitioner initially filed tax returns as a resident of India but later submitted a revised return claiming non-resident status. The Draft Order determined the petitioner to be a resident in India, leading to a discrepancy between the petitioner's claim and the Department's finding. The petitioner accepted the resident status during the proceedings, withdrawing the claim of non-resident status and seeking a refund based on the original return.

Applicability of Section 144C:
The petitioner objected to the application of Section 144C proceedings, arguing that as a resident in India, he did not qualify as an "eligible assessee" under Section 144C(15) of the IT Act. The petitioner's objections were rejected by the Dispute Resolution Panel, leading to the challenge in the High Court. Precedents were cited to support the argument that proceedings under Section 144C were incompetent in the petitioner's case.

Rejection of Objections by DRP:
The Dispute Resolution Panel rejected the petitioner's objections and upheld the Draft Order, prompting the petitioner to file the present petition challenging the decision. The High Court analyzed the provisions of Section 144C, the petitioner's residential status, and the precedents cited to conclude that the proceedings under Section 144C against the petitioner, who was deemed a resident in India, were incompetent. As a result, the Draft Order and the DRP's decision were set aside.

Conclusion:
The High Court held that the proceedings under Section 144C against the petitioner, determined to be a resident in India, were incompetent. The Draft Order initiating such proceedings and the DRP's decision were set aside. The Court directed the Assessing Officer to assess the original return filed by the petitioner and make an appropriate assessment order in accordance with the law. The petitioner's withdrawn revised return claiming non-resident status could not prevent the assessment based on the original return. The rule was disposed of with no order for costs.

Judges' Names:
M. S. SONAK & VALMIKI SA MENEZES, JJ.