2016 (2) TMI 527 - HC - Income Tax

Eligible assessee as defined under Section 144C(15)(b) - whether the Assessing Officer was competent to pass a draft assessment order under Section 144C(1)? - whether the petitioner does not fall in the category of an eligible assessee , as defined under Section 144C(15)(b)? - Held that - The petitioner is admittedly not a foreign Company. Secondly, the Transfer Pricing Officer has not proposed any variation to the return filed by the petitioner. The consequence of this is that the Assessing Officer cannot propose an order of assessment that is at variance in the income or loss return. The Transfer Pricing Officer has accepted the return filed by the petitioner. In view of the which, neither of the two conditions are satisfied in the case of the petitioner and thus the petitioner for the purposes of Section 144C(15)(b) is not an eligible assessee . Since the petitioner is not an eligible assessee in terms of Section 144C(15)(b), no draft order can be passed in the case of the petitioner under Section 144C(1). As the petitioner, not being an eligible assessee in terms of Section 144C(15)(b) of the Act, the Assessing Officer was not competent to pass the draft assessment order under Section 144C (1) of the Act. The draft assessment order dated 31.03.2015 is accordingly quashed. - Decided in favour of assessee

Issues:
1. Competency of Assessing Officer to pass a draft assessment order under Section 144C(1) of the Income-tax Act, 1961.
2. Eligibility of the petitioner as an "eligible assessee" under Section 144C(15)(b) of the Act.
3. Compliance with Circular issued by the Central Board of Direct Taxes (CBDT) regarding disallowances under Section 40(a)(i) of the Act.
4. Time limit for completing the assessment proceedings.

Competency of Assessing Officer:
The main issue in this case was whether the Assessing Officer had the authority to pass a draft assessment order under Section 144C(1) of the Income-tax Act, 1961. The petitioner argued that they were not an "eligible assessee" as defined under Section 144C(15)(b) of the Act. The court analyzed the definition of an "eligible assessee" and concluded that since the Transfer Pricing Officer did not propose any variation in the income return of the petitioner, and the petitioner was not a foreign company, they did not fall under the definition of an "eligible assessee." Therefore, the Assessing Officer was not competent to pass the draft assessment order.

Eligibility as an "Eligible Assessee":
The court examined the definition of an "eligible assessee" under Section 144C(15)(b) of the Act, which includes any person in whose case the variation arises as a consequence of the Transfer Pricing Officer's order or any foreign company. The court emphasized that the definition is strict and cannot be extended beyond the specified categories. Since the petitioner did not meet the criteria as no variation was proposed by the Transfer Pricing Officer, they were not considered an "eligible assessee" as per the Act.

Compliance with CBDT Circular:
Regarding the contention of the petitioner that the Assessing Officer should have followed the Circular issued by the CBDT while making disallowances under Section 40(a)(i) of the Act, the court noted that the Circular directed disallowance only in the appropriate proportion of the sum chargeable to tax. As the respondents agreed to comply with the Circular, the court did not delve further into this issue.

Time Limit for Assessment Proceedings:
The petitioner argued that since the draft assessment order was passed and suffered from a jurisdictional defect, the assessment proceedings had become time-barred as per Section 153(1) third proviso. However, since the court quashed the draft assessment order, the question of the assessment becoming time-barred was left open for the parties to pursue legal remedies.

Conclusion:
The court ruled in favor of the petitioner, quashing the draft assessment order as the Assessing Officer was not competent to pass it due to the petitioner's ineligibility as an "eligible assessee." The court allowed the parties to bear their own costs and left the issue of the assessment becoming time-barred open for further legal action.

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