2018 (7) TMI 1256 - HC - Income Tax

Assessment of foreign company - Non adherence to mandatory requirements of Section 144C - assessment order passed without having passed the necessary draft Assessment Order under Section 144C(1) - mandations applicable to a Foreign Company such as the petitioner - Held that - Fresh adjudication itself would imply that it would be an order which would decide the lis between the parties may not be entire lis but the dispute which has been restored to the Assessing Officer. According to us the order dated 31st January 2018 is not an order merely giving an effect to the order of the Tribunal but it is an assessment order which has invoked Section 143(3)and also Section 144C of the Act. This invocation of Section 144C has taken place as the Assessing Officer is of the view that it applies then the requirement of Section 144C(1) has to be complied with before he can pass the impugned order invoking Section 144C(13). Section 144C(13) of the Act can only be invoked in cases where the assessee has approached the DRP in terms of sub- Section 144(C)(2)(b) of the Act and the DRP gives direction in terms of Section 144C(5) of the Act. In this case the assessment order has invoked Section 144C(13) of the Act without having passed the necessary draft Assessment Order under Section 144C(1) of the Act which alone would make an direction under Section 144C(5) of the Act by the DRP possible. Thus the impugned order is completely without jurisdiction. So far as a Foreign Company is concerned the Parliament has provided a special procedure for its assessment and appeal in cases where the Assessing Officer does not accept the returned income. In this case in the working out of the order dated 5th May 2017 of the Tribunal results in the returned income being varied then the procedure of passing a draft assessment order under Section 144C(1) of the Act is mandatory and has to be complied with which has not been done. The impugned order is without jurisdiction. Thus the plea of alternate remedy advanced by the Revenue so as to not entertain this petition does not merit acceptance in the present facts.

Summary

Issues:
Challenge to assessment order under Income-Tax Act - Jurisdiction under Section 144C disputed by petitioner - Eligibility of petitioner as Foreign Company - Compliance with draft assessment order procedure - Invocation of Section 144C(13) without draft order - Applicability of alternate remedy - Quashing of impugned order.

Analysis:

Issue 1: Challenge to assessment order under Income-Tax Act
The petitioner challenged the assessment order dated 31st January, 2018, passed under Section 143(3) read with Section 144C (13) of the Income-Tax Act, 1961. The petitioner contended that the impugned order was without jurisdiction as it did not comply with the mandatory provisions of Section 144C of the Act.

Issue 2: Jurisdiction under Section 144C disputed by petitioner
The petitioner, being a Foreign Company, argued that it was entitled to the special procedure provided under Section 144C of the Act for passing assessment orders and appellate procedures. The petitioner claimed that the impugned order ignored the mandate of Section 144C, thereby depriving it of the right to object to the Draft Assessment Order before the Dispute Resolution Panel (DRP).

Issue 3: Compliance with draft assessment order procedure
The court noted that Section 144C of the Act provides a separate scheme for assessing Foreign Companies, ensuring disputes are resolved efficiently before final assessment orders are passed. It obliges the Assessing Officer to first pass a draft assessment order, allowing eligible assesses like the petitioner to approach the DRP with objections before the final assessment order is issued.

Issue 4: Invocation of Section 144C(13) without draft order
The court held that the impugned order, passed under Section 143(3) read with Section 144C (13) of the Act, made a variation to the returned income without preceding it with a Draft Assessment Order as required by Section 144C. The Assessing Officer was obligated to comply with the provisions of Section 144C in full and not partially, even in cases where the returned income was varied.

Issue 5: Applicability of alternate remedy
The Revenue contended that the petitioner should seek remedy through an appeal to the Income Tax Appellate Tribunal or the Commissioner of Income-Tax (Appeals). However, the court held that the impugned order was without jurisdiction, and the plea of alternate remedy did not merit acceptance in the present circumstances.

Issue 6: Quashing of impugned order
Ultimately, the court quashed and set aside the impugned order dated 31st January, 2018, as it was passed without complying with the mandatory requirements of Section 144C of the Act applicable to Foreign Companies. The decision did not prevent the Revenue from taking lawful steps, nor did it restrict the petitioner from contesting such actions in accordance with the law.