Commissioner of Income-tax, Vadodara-2 v. C-Sam (India) Pvt. Ltd
[Citation -2017-LL-0731-32]

Citation 2017-LL-0731-32
Appellant Name Commissioner of Income-tax, Vadodara-2
Respondent Name C-Sam (India) Pvt. Ltd.
Court HIGH COURT OF GUJARAT AT AHMEDABAD
Relevant Act Income-tax
Date of Order 31/07/2017
Assessment Year 2009-10
Judgment View Judgment
Keyword Tags dispute resolution panel • transfer pricing • fresh assessment • natural justice • returned income • draft order
Bot Summary: The Revenue is in appeal against the judgement of the Income Tax Appellate Tribunal dated 29.11.2016 raising the following questions for our consideration: Whether on the facts and circumstances of the case and in law, the ITAT was justified in holding that the CIT(A) was perfectly justified in quashing the assessment order issued under Section 143(3) of the Act without complying the requirement of Section 144C(1) Whether on the facts and circumstances of the case and in law, the ITAT was justified in upholding the order of CIT(A) without appreciating that the interest of natural justice would have been better served if the ITAT had set aside the assessment order u/s. 143(3) of the Act to the file of the Assessing Officer with a direction to make fresh Page 1 of 8 HC-NIC Page 1 of 8 Created On Mon Sep 04 12:40:08 IST 2017 O/TAXAP/542/2017 ORDER assessment after following the procedure laid down in Section 144C of the Act, since the Assessing Officer had merely followed Board s Circular No. 05 of 2010 dated 03.06.2010 which was binding on him and Board s Circular No. 09 of 2013 dated 19.11.2013 was not in existence on the date of passing order u/s. Against the returned income of Nil, the Assessing Officer in the order of assessment dated 22.02.2013 computed the assessee s income at Rs.2.86 crores by making various additions and deletions as per the order of the Transfer Pricing Officer. The Tribunal should have placed Page 3 of 8 HC-NIC Page 3 of 8 Created On Mon Sep 04 12:40:08 IST 2017 O/TAXAP/542/2017 ORDER the matter back before the Assessing Officer for passing a fresh order after following such procedure. Sub-section of Section 144C provides that in case of an eligible assessee, the Assessing Officer shall notwithstanding anything to the contrary contained in the Act forward a draft of the proposed order of assessment to the assessee if he proposes to make on or after 01 st day of October, 2009 any variation in the income or loss returned which is prejudicial to the interest of the assessee. 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. Interestingly, once the DRP gives directions under sub-section of Section 144C, the Assessing Officer is expected to pass the order of assessment in terms of such directions without giving any further hearing to the assessee. Sub-section of Section 144C itself in no uncertain terms provides that the Assessing Officer shall forward a draft order to the eligible assessee, if he proposes to make any variation in the income or loss which is Page 7 of 8 HC-NIC Page 7 of 8 Created On Mon Sep 04 12:40:08 IST 2017 O/TAXAP/542/2017 ORDER prejudicial to the interest of the assessee on or after 01 st day of October 2009.


O/TAXAP/542/2017 ORDER IN HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 542 of 2017 COMMISSIONER OF INCOME TAX, VADODARA-2....Appellant(s) Versus C-SAM(INDIA) PVT. LTD.,....Opponent(s) Appearance: MR KM PARIKH, ADVOCATE for Appellant(s) No. 1 CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MR.JUSTICE BIREN VAISHNAV Date : 31/07/2017 ORAL ORDER (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. Revenue is in appeal against judgement of Income Tax Appellate Tribunal dated 29.11.2016 raising following questions for our consideration: (A) Whether on facts and circumstances of case and in law, ITAT was justified in holding that CIT(A) was perfectly justified in quashing assessment order issued under Section 143(3) of Act without complying requirement of Section 144C(1)? (B) Whether on facts and circumstances of case and in law, ITAT was justified in upholding order of CIT(A) without appreciating that interest of natural justice would have been better served if ITAT had set aside assessment order u/s. 143(3) of Act to file of Assessing Officer with direction to make fresh Page 1 of 8 HC-NIC Page 1 of 8 Created On Mon Sep 04 12:40:08 IST 2017 O/TAXAP/542/2017 ORDER assessment after following procedure laid down in Section 144C of Act, since Assessing Officer had merely followed Board s Circular No. 05 of 2010 dated 03.06.2010 which was binding on him and Board s Circular No. 09 of 2013 dated 19.11.2013 was not in existence on date of passing order u/s. 143(3) of Act i.e. 22.02.2013? (C ) Whether on facts and circumstances of case and in law, ITAT erred in not setting aside assessment order u/s. 143(3) to file with direction to pass fresh assessment order u/s. 143(3) of Act after following procedure laid down in Section 144C in interest of natural justice considering fact that consequent upon clarification issued by CBDT, New Delhi vide Circular No. 09 of 2013 dated 19.11.2013, Assessing Officer could not have suo motu withdrawn order u/s 143(3) dated 21.02.2013 and pass fresh assessment order after following procedure laid down in section 144C of Act? (D) Whether on facts and circumstances of case and in law, ITAT was justified in quashing assessment order in assessee s case for A.Y. 2009-10 by relying on decision of Madras High Court in case of Vijay Television Ltd. vs. DRP reported in [2014] 46 taxman 100 (Mad) without appreciating that case of Vijay Television (supra) was distinguishable with facts of instance case? (E) Whether on facts and circumstances of case and in law, ITAT erred in not appreciating that Revenue s ground of appeal requesting High Court to set aside assessment order passed by Assessing Officer to file of Assessing Officer with direction to pass fresh assessment order after following procedure laid down in section 144C of Act, in interest of natural justice, since Assessing Officer had no powers to suo motu withdraw assessment order after following procedure laid down in Section 144C of Act was not before consideration of Madras High Court in case of Vijay Television Page 2 of 8 HC-NIC Page 2 of 8 Created On Mon Sep 04 12:40:08 IST 2017 O/TAXAP/542/2017 ORDER (supra) and Andhra Pradesh High Court in case of Zuari Cement Ltd vs. ACIT respectively? 2. facts are not in dispute and can be summarized as under: 2.1 For assessment year 2009-10, return of assessee was taken in scrutiny by Assessing Officer. assessee was subjected to transfer pricing regime on account of its international transactions with associated persons. Against returned income of Nil, Assessing Officer in order of assessment dated 22.02.2013 computed assessee s income at Rs.2.86 crores (rounded off) by making various additions and deletions as per order of Transfer Pricing Officer. assessee challenged such additions on ground that procedure laid down under Section 144C of Act was not followed by Assessing Officer. Tribunal relying on decisions of Madras High Court in case of Vijay Television Ltd. vs. DRP reported in [2014] 46 taxmann.com 100 (Mad) and that of Andhra Pradesh High Court in case of Zuari Cements Ltd vs. ACIT rendered in Writ Petition No. 5557 of 2012 confirmed view of CIT(Appeals) and dismissed Revenue s appeals. 3. Counsel for Revenue did not dispute factual aspects namely that upward revision was made in income of assessee on basis of order of TPO sand same was done without following procedure laid down under Section 144C of Act. He, however, submitted that this was mere procedural requirement and therefore curable defect. Tribunal, therefore, should have placed Page 3 of 8 HC-NIC Page 3 of 8 Created On Mon Sep 04 12:40:08 IST 2017 O/TAXAP/542/2017 ORDER matter back before Assessing Officer for passing fresh order after following such procedure. 4. Learned Single Judge of Madras High Court in case of Vijay Television Ltd. (supra) has taken view that procedure laid down under Section 144C of Act is mandatory and order passed by Assessing Officer without following such procedure is illegal and defect is not curable defect. This view has also been taken by Andhra Pradesh High Court in case of Zuari Cements Ltd. (supra) against which we are informed that SLP has been dismissed. We notice that Delhi High Court in case of ESPN Star Sports Mauritius S.N.C. Et Compagnie and ESS Distribution (Mauritius) S.N.C. Et Compagnie vs. Union of India and Another reported in [2016] 388 ITR 383 (Delhi) though was not strictly concerned with issue at hand, however, held and observed that Assessing Officer is bound by orders passed by Dispute Resolution Panel and order passed by Assessing Officer disregarding such order is ab-initio void. 5. Section 144C of Act refers to Dispute Resolution Panel. Sub-section (1) of Section 144C provides that in case of eligible assessee, Assessing Officer shall notwithstanding anything to contrary contained in Act forward draft of proposed order of assessment to assessee if he proposes to make on or after 01 st day of October, 2009 any variation in income or loss returned which is prejudicial to interest of assessee. Under sub-section (2) of Section 144C, assessee gets opportunity to file his objections within thirty days of such Page 4 of 8 HC-NIC Page 4 of 8 Created On Mon Sep 04 12:40:08 IST 2017 O/TAXAP/542/2017 ORDER variation before Dispute Resolution Panel as well as before Assessing Officer. As per sub-section (3) of Section 144C, Assessing Officer would complete assessment on basis of draft order if assessee either intimates his acceptance of variation or does not raise objections within time prescribed. Under sub-section (5) of Section 144C, Dispute Resolution Panel could issue such directions to Assessing Officer as it thinks fit for his guidance to enable him to complete assessment in case assessee has raised objection. Under sub-section (7) of Section 144C, it is open for Dispute Resolution Panel to make further inquiries or have such inquiries made before issuing directions referred to in sub-section (5). Sub- section (8) of Section 144C recognizes wide powers of DRP to confirm, reduce or enhance variations proposed in draft order subject to limitation that it shall not set aside any proposed variation or issue any direction under sub- section (5) for further inquiry. As per sub-section (10) of Section 144C, every direction issued by DRP would be binding on Assessing Officer. Sub-section (13) of Section 144C further provides that upon receipt of directions issued by DRP under sub-section (5), Assessing Officer shall in conformity with directions complete assessment without providing any further opportunity of being heard to assessee. 6. These statutory provisions make it abundantly clear that procedure laid down under Section 144C of Act is of great importance and is mandatory. Before Assessing Officer can make variations in returned income of eligible assessee, as noted, sub-section (1) of Section 144C Page 5 of 8 HC-NIC Page 5 of 8 Created On Mon Sep 04 12:40:08 IST 2017 O/TAXAP/542/2017 ORDER lays down procedure to be followed notwithstanding anything to contrary contained in Act. This non- obstante clause thus gives overriding effect to procedure notwithstanding anything to contrary contained in Act . Sub-section (5) of Section 144C empowers DRP to issue directions to Assessing Officer to enable him to complete assessment. Sub-section (10) of Section 144C makes such directions binding on Assessing Officer. As per sub-section (13) of Section 144C, Assessing Officer is required to pass order of assessment in terms of such directions without any further hearing being granted to assessee. 7. procedure laid down under Section 144C of Act is thus of great importance. When Assessing Officer proposes to make variations to returned income declared by eligible assessee he has to first pass draft order, provide copy thereof to assessee and only thereupon assessee could exercise his valuable right to raise objections before DRP on any of proposed variations. In addition to giving such opportunity to assessee, decision of DRP is made binding on Assessing Officer. It is therefore not possible to uphold Revenue s contention that such requirement is merely procedural. requirement is mandatory and gives substantive rights to assessee to object to any additions before they are made and such objections have to be considered not by Assessing Officer but by DRP. Interestingly, once DRP gives directions under sub-section (5) of Section 144C, Assessing Officer is expected to pass order of assessment in terms of such directions without giving any further hearing to assessee. Page 6 of 8 HC-NIC Page 6 of 8 Created On Mon Sep 04 12:40:08 IST 2017 O/TAXAP/542/2017 ORDER Thus, at level of Assessing Officer, directions of DRP under sub-section (5) of Section 144C would bind even assessee. He may of course challenge order of Assessing Officer before Tribunal and take up all contentions. Nevertheless at stage of assessment, he has no remedy against directions issued by DRP under sub-section (5). All these provisions amply demonstrate that legislature desired to give important opportunity to assessee who is likely to be subjected to upward revision of income on basis of transfer pricing mechanism. Such opportunity cannot be taken away by treating it as purely procedural in nature. 8. Reference by Revenue to circulars dated 03.06.2010 and 19.11.2013 in this regard would be of no avail. First of these circulars was explanatory circular issued by Finance Ministry in which it was provided that these amendments (which included Section 144C of 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 latter clarificatory circular dated 19.11.2013, it was provided that in earlier circular there was inadvertent error and Section 144C would apply to any order which is being passed after 01.10.2009 irrespective of concerned assessment year. latter circular was thus merely in nature of clarificatory circular and clarified which all along was correct position in law. Sub-section (1) of Section 144C itself in no uncertain terms provides that Assessing Officer shall forward draft order to eligible assessee, if he proposes to make any variation in income or loss which is Page 7 of 8 HC-NIC Page 7 of 8 Created On Mon Sep 04 12:40:08 IST 2017 O/TAXAP/542/2017 ORDER prejudicial to interest of assessee on or after 01 st day of October 2009. statute was thus clear, permitted no ambiguity and required procedure to be followed in case of any variation which Assessing Officer proposed to make after 01.10.2009. earlier circular dated 03.06.2010 did not lay down correct criteria in this regard. assessee cannot be made to suffer on account of any inadvertent error which runs contrary to statutory provisions. No question of law arises. Tax appeal is therefore dismissed. (AKIL KURESHI, J.) (BIREN VAISHNAV, J.) divya Page 8 of 8 HC-NIC Page 8 of 8 Created On Mon Sep 04 12:40:08 IST 2017 Commissioner of Income-tax, Vadodara-2 v. C-Sam (India) Pvt. Ltd
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