2017 (8) TMI 291 - HC - Income Tax

Transfer pricing - Validity of assessment order issued u/s 143(3) without complying the requirement of Section 144C(1) - Held that - The procedure laid down under Section 144C of the Act is of great importance. When an Assessing Officer proposes to make variations to the returned income declared by an eligible assessee he has to first pass a draft order, provide a copy thereof to the assessee and only thereupon the assessee could exercise his valuable right to raise objections before the DRP on any of the proposed variations. In addition to giving such opportunity to an assessee, decision of the DRP is made binding on the Assessing Officer. It is therefore not possible to uphold the Revenue s contention that such requirement is merely procedural. The requirement is mandatory and gives substantive rights to the assessee to object to any additions before they are made and such objections have to be considered not by the Assessing Officer but by the DRP. Reference by the Revenue to the circulars dated 03.06.2010 and 19.11.2013 in this regard would be of no avail. First of these circulars was an explanatory circular issued by the Finance Ministry in which it was provided that these amendments (which included Section 144C of the Act) are made applicable with effect from 01.10.2009 and will accordingly apply in relation to assessment year 2010-11 and subsequent assessment years. In the latter clarificatory circular dated 19.11.2013, it was provided that in the earlier circular there was an inadvertent error and Section 144C would apply to any order which is being passed after 01.10.2009 irrespective of the concerned assessment year. The latter circular was thus merely in the nature of a clarificatory circular and clarified which all along was the correct position in law. The earlier circular dated 03.06.2010 did not lay down the correct criteria in this regard. The assessee cannot be made to suffer on account of any inadvertent error which runs contrary to the statutory provisions - Decided against revenue.

Summary

Issues involved:
1. Appeal against ITAT judgment on quashing assessment order under Section 143(3) without complying with Section 144C requirements.
2. Justification of ITAT in upholding CIT(A) order without setting aside assessment order for fresh assessment under Section 144C.
3. Error by ITAT in not setting aside assessment order for fresh assessment under Section 144C in the interest of natural justice.
4. Quashing of assessment order by ITAT based on Madras High Court decision without considering distinguishable facts.
5. Failure of ITAT to appreciate Revenue's request to set aside assessment order for fresh assessment under Section 144C.

Analysis:
1. The Revenue appealed against the ITAT judgment regarding the assessment order under Section 143(3) without following Section 144C requirements. The Tribunal upheld the CIT(A) order, leading to questions on the justification of quashing the assessment order without compliance with Section 144C.

2. The factual background involved the Assessing Officer making upward revisions in the assessee's income without following the prescribed procedure under Section 144C. The ITAT relied on decisions of the Madras High Court and Andhra Pradesh High Court to confirm the CIT(A)'s view, dismissing the Revenue's appeals.

3. The Revenue contended that the failure to follow the Section 144C procedure was a procedural defect and should have been curable. However, the Madras High Court and Andhra Pradesh High Court held that non-compliance with Section 144C is illegal, emphasizing the mandatory nature of the procedure.

4. The importance and mandatory nature of Section 144C were highlighted, with the statute providing a detailed procedure for variations in income of eligible assesses. The Assessing Officer is bound by the directions of the Dispute Resolution Panel, and non-compliance renders the assessment void.

5. The circulars dated 03.06.2010 and 19.11.2013 were cited, clarifying the applicability of Section 144C from 01.10.2009. The latter circular corrected an error in the former, emphasizing the statutory requirement for following the procedure. The dismissal of the tax appeal affirmed the mandatory nature of Section 144C and the importance of adhering to statutory provisions.

This detailed analysis of the judgment addresses the issues raised in the appeal, focusing on the procedural requirements under Section 144C and the significance of compliance with statutory provisions in assessment proceedings.