2019 (11) TMI 878 - HC - Income Tax

TP Adjustment - whether, the objections filed by the petitioner on 1/2/2019 was within the time contemplated u/ 144(C) of the Income Tax Act? - HELD THAT - In terms of Section 144(C)(2) of the Income Tax Act, the petitioner assessee was to submit his objections to the draft assessment order within 30 days of the receipt of the same, and the said objections were to be simultaneously sent to both the Dispute Resolution Panel as also to the Assessing Officer. It is trite, that in matters involving transfer pricing, and where a reference is made to the Transfer Pricing Officer, the final assessment must await the decision of the Transfer Pricing Officer, or in applicable cases, that of the Dispute Resolution Panel. The relevant date in the instant case, which involved a reference to the transfer pricing officer, has to be the date on which the objections were received by the Dispute Resolution Panel and the question to be answered is whether, the objections filed by the petitioner on 1/2/2019 was within the time contemplated under Section 144(C) of the Income Tax Act. When the petitioner had not opted for the e-proceeding facility, and had chosen to have its assessment proceedings continued in the manual mode, the receipt of the draft assessment order in the manual mode has to be seen as the date of service of the draft assessment order. This would be so because, an assessee that did not opt for the electronic mode for the completion of his assessment proceedings, virtually expresses his lack of confidence in the said facility and thereby chooses to opt for the manual facility in which he reposes greater confidence. Till such time as the electronic facility is made mandatory for assessees, therefore, the wishes of the assessee have necessarily to be respected by the department. It would also be an aspect of fairness in tax administration that the assessee is not prejudiced on account of service of an order, through a mode that he did not opt for. This court must also remind itself that, in the event of an ambiguity in construing the provisions in a taxing statute, it has to take a view that favours the assessee. It is the receipt of the draft assessment order on 05/01/2019 through the manual mode, that determines the starting point of limitation for the period of 30 days u/s 144(C)(2) of the Income Tax Act, for the petitioner to have submitted his objections before the Dispute Resolution Panel. On reckoning the period of 30 days from 05/01/2019 as aforesaid, I find that the objection filed by the petitioner on 01/02/2019 before the Dispute Resolution Panel was within time. Ext.P19 order of the Dispute Resolution Panel must, on that reasoning, be set aside and I do so. As already noticed, in matters involving transfer pricing, the assessment order by the Assessing Officer must necessarily follow the findings of the Dispute Resolution Panel and hence, based on the finding that Ext.P19 order of the Dispute Resolution Panel is illegal,I have to hold that Ext.P20 order of assessment, that did not await the decision of the Dispute Resolution Panel on merits, is also illegal. The writ petition is therefore allowed by quashing Exts.P19 and P20 orders and directing the 2nd respondent Dispute Resolution Panel to consider the objections of the petitioner to the draft assessment order on merits, and pass fresh orders in lieu of Ext.P19 within a period of three months from the date of receipt of a copy of this judgment. The 1st respondent Assessing Officer shall thereafter, complete the assessment proceedings, taking note of the order of the 2nd respondent, and after hearing the petitioner, within a further period of three months from the date of receipt of the order of the 2nd respondent. It is made clear that the findings in this judgment have been entered taking note of the peculiar factual circumstances that arose in the instant case, and hence this judgment is not to be cited as a precedent in subsequent cases.

Summary

Issues:
Assessment procedure under the Income Tax Act - E-proceedings facility implementation - Manual vs. electronic service of notices and orders - Objections to draft assessment order timeline compliance - Dispute Resolution Panel's jurisdiction - Assessment order legality based on objection consideration.

Analysis:
The petitioner, a public limited Company, filed returns for the assessment year 2015-16 and received notices under Section 142(1) of the Income Tax Act for document production. The government initiative towards e-Governance introduced the e-proceedings facility, initially mandatory in metro cities but optional in Cochin. The petitioner manually filed documents in response to notices. A Transfer Pricing Officer recommended adjustments, leading to a draft assessment order served electronically on 31/12/2018 and manually on 05/01/2019. The petitioner filed objections to the Dispute Resolution Panel within 30 days, but the panel issued a show cause notice on timeliness. The Assessing Authority passed an assessment order before considering objections, leading to the writ petition challenging the panel and assessment orders.

The respondent argued that objections were belated, as the electronic draft order was served by 01/01/2019, requiring objections by 01/02/2019. The court analyzed the e-proceedings facility's optional nature in Kochi and the manual service chosen by the petitioner. It determined the starting point of the 30-day objection timeline as the receipt of the manual draft assessment order on 05/01/2019. Consequently, objections filed on 01/02/2019 were within the time limit. The court set aside the panel's order as illegal, leading to the assessment order's illegality due to not awaiting the panel's decision.

The court allowed the writ petition, quashing the panel and assessment orders. It directed the panel to reconsider the objections and issue fresh orders within three months. The Assessing Officer was instructed to complete assessment proceedings, considering the panel's order and hearing the petitioner within a further three months. The judgment clarified that its findings were based on specific factual circumstances and should not serve as a precedent in subsequent cases.