Draft assessment order mandatory in case of foreign company : High Court

By | April 27, 2016

Held

“There is no dispute that the assessee is a foreign company”. Therefore, in view of Section 144C(15) of the Act which defines eligible assessee to whom Section 144C(1) of the Act applies to inter alia mean any foreign company. Therefore, a draft assessment order under Section 144C(1) of the Act is mandated before the Assessing Officer passes a final order under Section 143(3) of the Act in case of eligible assessee. An draft assessment order passed under Section 144C(1) of the Act bestows certain rights upon an eligible assessee such as to approach the DRP with its objections to such a draft assessment order. This is for the reason that an eligible assessee’s grievance can be addressed before a final assessment order is passed and appellate proceedings invoked by it. However, these special rights made available to eligible assessee under Section 144C of the Act are rendered futile, if directly a final order under Section 143(3) of the Act is passed without being preceded by draft assessment order.

In the above view, the assessment order dated 23rd March, 2015 passed by the Assessing Officer for the assessment year 2012-13 is completely without jurisdiction. This is so as it has not been preceded by a draft assessment order.

HIGH COURT OF BOMBAY

International Air Transport Association

v.

Deputy Commissioner of Income-tax

M.S. SANKLECHA AND B.P. COLABAWALLA, JJ.

WRIT PETITION (L) NO. 351 OF 2016

FEBRUARY  18, 2016

P.F. Kaka, Sr. Adv. and Divesh Chawla for the Petitioner. Charanjeet Chanderpal for the Respondent.

ORDER

1. At the request of the parties, the Petition is disposed of finally at the stage of admission.

2. This Petition under Article 226 of the Constitution of India challenges the following orders:—

(a) The assessment order dated 23rd March, 2015 passed by the Assessing Officer under Section 143(3) of the Income Tax Act, 1961(the “Act”);
(b) The order dated 30th April, 2015 rejecting the Petitioner’s rectification application made under Section 154 of the Act; and
(c) The order dated 29th September, 2015 imposing penalty under Section 271(1)(c) of the Act consequent to the Assessment order dated 23rd March, 2015.

3. It is the case of the Petitioner that it is a foreign company. Therefore, governed by Section 144C(1) of the Act. In terms thereof, the Assessing Officer is required to pass a draft assessment order under Section 144C(1) before he passes a final order under Section 143(3) of the Act. In this case, the assessment order dated 23rd March, 2015 was passed under Section 143(3) of the Act without having been preceded by a draft assessment order as mandated by Section 144C(1) of the Act. In the above view, the assessment order dated 23rd March, 2015 and the consequent order on rectification as well as on penalty, according to the Petitioner, is without jurisdiction and need to be quashed and set aside.

4. The Petitioner had consequent to the assessment order dated 23rd March, 2015 filed its objection in terms of Section 144C(2) of the Act to the Dispute Resolution Panel(“DRP”). By an order dated 7th October, 2015, the DRP refused to pass any direction on the objections because the objections had been filed in respect of a final order under Section 143(3) of the Act and not in respect of the draft assessment order passed under Section 144C(1) of the Act. The order dated 7th October, 2015 of the DRP holds that its jurisdiction is only to entertain objections with regard to draft assessment order passed under Section 144C(1) of the Act.

5. However, it is pertinent to note that the order dated 7th October, 2015 of the DRP in paragraph (3) thereof records that “There is no dispute that the assessee is a foreign company”. This position is undisputed even before us. Therefore, in view of Section 144C(15) of the Act which defines eligible assessee to whom Section 144C(1) of the Act applies to inter alia mean any foreign company. Therefore, a draft assessment order under Section 144C(1) of the Act is mandated before the Assessing Officer passes a final order under Section 143(3) of the Act in case of eligible assessee. An draft assessment order passed under Section 144C(1) of the Act bestows certain rights upon an eligible assessee such as to approach the DRP with its objections to such a draft assessment order. This is for the reason that an eligible assessee’s grievance can be addressed before a final assessment order is passed and appellate proceedings invoked by it. However, these special rights made available to eligible assessee under Section 144C of the Act are rendered futile, if directly a final order under Section 143(3) of the Act is passed without being preceded by draft assessment order.

6. In the above view, the assessment order dated 23rd March, 2015 passed by the Assessing Officer for the assessment year 2012-13 is completely without jurisdiction. This is so as it has not been preceded by a draft assessment order. Hence, the foundational/basic order viz. the assessment order dated 23rd March, 2015 is set aside and quashed as being without jurisdiction. Consequent orders passed on rectification application as well as on penalty are also quashed and set aside being unsustainable.

7. The view we have taken in the present facts also finds support from the unreported decision of the Andhra Pradesh High Court in Zuari Cement Ltd. v. ACIT (Writ Petition No.5557 of 2012) dated on 21st February, 2013 from which an SLP preferred by the Revenue has also been dismissed by the Apex Court by an order dated 27th September, 2013.

8. Thus, we set aside the assessment order dated 23rd March, 2015, the order dated 30th April, 2015 on the Petitioner’s rectification application and the order dated 29th September, 2015 imposing penalty upon the Petitioner. However, it is made clear that the parties are free to take such action and/or defenses as are available to them in law. All contentions of both the parties are kept open.

9. Petition disposed of as above. No order as to costs.

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