2019 (6) TMI 1300 - HC - Income Tax

Powers of the DRP u/s 144C(8) - authority either to direct the AO or TPO to make further enquiry and decide the matter - DRP has reduced the variation than what was granted to the assessee in the draft assessment order - Tribunal was right in not deciding the grounds raised by the Revenue in their grounds of appeal touching upon the merits of the assessment order? - HELD THAT - The order dated 24.11.2015 passed by the DRP is an order reducing the variation proposed in the draft assessment order dated 25.02.2015. Thus, in our considered view, the Tribunal was not right in holding that the DRP exceeded its jurisdiction in passing the order. In any event, the order passed by the DRP was not impugned before the Tribunal rather what was impugned was the assessment order dated 28.12.2015 passed under Section 144C(13) r/w Section 143(3) of the Act. Therefore, the Tribunal was required to consider on merits whether the said assessment order was justified or not. The Revenue was clear in their mind in the challenge before the Tribunal which was an final order of assessment passed under Section 144C(13) and therefore, on facts we found that the DRP has granted relief to the assessee and the correctness of relief granted to the assessee which has translated into a final assessment order which was questioned by the Revenue before the Tribunal on merits. Therefore, on facts we have held as above. We hold that the Tribunal should decide the matter rather than allowing the appeal filed by the Revenue in its entirety. Appeal is allowed and the substantial questions of law are answered in favour of the assessee, consequently, the order passed by the Tribunal is set aside and the matter is remanded back to the Tribunal to decide the appeal filed by the Revenue on merits, on the grounds raised by it in the appeal memorandum as referred above and such other grounds that may be adduced at the time of hearing.

Summary

Issues Involved:
1. Interpretation of the authority of the Dispute Resolution Panel (DRP) under Section 144C of the Income Tax Act.
2. Jurisdiction of the Tribunal in deciding the grounds raised by the Revenue in their appeal.

Analysis:

Issue 1 - DRP Authority under Section 144C:
The Tax Case Appeal raised questions regarding the correctness of the Appellate Tribunal's decision on the DRP's authority. The Tribunal held that the DRP cannot direct the Assessing Officer or Transfer Pricing Officer to conduct further inquiries, citing Section 144C(8) of the Act. The Tribunal emphasized that the DRP can issue directions for guidance but cannot set aside proposed variations or order further inquiries. The Tribunal's decision was based on a thorough analysis of the relevant sections of the Act.

The case involved the DRP issuing directions after objections were raised by the appellant/assessee, as per Section 144C(5). The DRP's authority to make further inquiries under Section 144C(7) was also considered. The Tribunal concluded that the DRP's role is to guide the Assessing Officer and cannot exceed its jurisdiction as defined in Section 144C.

Issue 2 - Tribunal's Jurisdiction in Deciding Revenue's Appeal:
The Tribunal was tasked with determining whether it correctly handled the grounds raised by the Revenue in their appeal against the assessment order. The Revenue challenged the assessment order dated 28.12.2015, not the DRP's decision. The Tribunal was criticized for not evaluating the final assessment order's merits, which resulted from the DRP's actions.

The Tribunal's decision was based on the grounds of appeal raised by the Revenue, which focused on the assessment order. The Tribunal's role was to assess the correctness of the final assessment order rather than the DRP's actions. The Tribunal's judgment highlighted the need to consider the assessment order's justification on its merits.

In conclusion, the High Court allowed the Tax Case Appeal, answering the substantial questions of law in favor of the assessee. The Tribunal's decision was set aside, and the matter was remanded back to the Tribunal for a thorough examination of the appeal filed by the Revenue on its merits and the grounds raised in the appeal memorandum. The judgment emphasized the importance of considering the final assessment order's validity in such cases.