2012 (11) TMI 1109 - AT - Income Tax

Appeal reinstated by ITAT, errors in dismissal corrected, overseas tax issues to be reconsidered

The ITAT set aside the CIT(A)'s dismissal of the appeal ad-limine, directing consideration of the appeal on merits. The ITAT held the CIT(A) erred in not ... - ISSUES PRESENTED AND CONSIDERED 1. Whether an appeal before the Commissioner of Income Tax (Appeals) was properly dismissed as inadmissible where the assessee had earlier filed objections before the Dispute Resolution Panel (DRP) and subsequently sought to withdraw those objections in order to file an appeal. 2. Whether the DRP, after receipt of a request for withdrawal of objections, retained jurisdiction to issue directions under section 144C(5) (i.e., confirm, reduce or enhance proposed variations) and thereby authorize a subsequent assessment order, or whether a DRP order dismissing objections as withdrawn precludes any direction and renders any subsequent AO order without jurisdiction. 3. Whether a later assessment order passed by the Assessing Officer (AO) after the DRP accepted withdrawal of objections is void for lack of jurisdiction and whether multiplicity of assessment orders is impermissible where an earlier valid assessment order already exists. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Admissibility of appeal where objections to DRP were earlier filed and then withdrawn Legal framework: The statutory scheme grants an assessee the option to file objections before the DRP against a draft assessment order or to avail the normal appellate channel by preferring an appeal to the Commissioner of Income Tax (Appeals) against the assessment order passed under section 143(3). Section 144C contemplates the filing of objections (sub-sec. (2)), DRP directions (sub-sec. (5)), and the power of the DRP to make further inquiry or enhance/reduce variations (sub-sec. (7) & (8)). A CBDT clarification confirmed that an assessee has a choice between DRP objections and the normal appellate route. Precedent treatment: The Tribunal noted that a Coordinate Bench had earlier treated a subsequent AO order as invalid in related proceedings; the coordinate bench's finding that a second AO order was without jurisdiction was accepted as relevant to the present adjudication. Interpretation and reasoning: The Court reasoned that mere filing of objections before the DRP does not automatically preclude withdrawal; however, withdrawal does not ipso facto terminate DRP proceedings because the DRP possesses statutory powers (enquiry and power to enhance variations). Where the DRP, however, expressly accepts the assessee's request and dismisses the objections as withdrawn without issuing any directions under sub-sec. (5), there remains no pending objection for the DRP to decide and the assessee is entitled to pursue the normal appellate remedy. The Tribunal emphasized that the DRP's own order is determinative: if it accepts withdrawal and does not exercise its direction-making power, the AO has no further jurisdiction under sub-sec. (13) to pass another assessment order premised on DRP directions. Ratio vs. Obiter: Ratio - where a DRP accepts withdrawal of objections and issues no directions under sub-sec. (5), the assessee may validly pursue an appeal to the Commissioner (Appeals) and an appeal filed in time is not rendered inadmissible solely because objections had earlier been filed. Obiter - commentary that an assessee may not unilaterally withdraw objections to deprive DRP of its statutory powers when DRP has chosen to exercise those powers. Conclusions: The CIT(A)'s dismissal of the appeal as null and void at the admission stage was erroneous where the DRP had dismissed the objections as withdrawn and issued no directions; the appeal before the CIT(A) was properly filed within the prescribed time and must be admitted. Issue 2 - Extent of DRP's jurisdiction after a request for withdrawal and consequences for AO's power to pass assessment orders Legal framework: Section 144C empowers the DRP to make enquiries (sub-sec. (7)) and to confirm, reduce or enhance proposed variations (sub-sec. (8)), and contemplates issuance of directions (sub-sec. (5)). The AO may pass assessment orders in conformity with DRP directions (sub-sec. (3) and (13) as applicable). Precedent treatment: The Tribunal relied on analysis that where DRP exercises its power to accept withdrawal without issuing directions, there is no operative DRP direction upon which an AO's subsequent order under sub-sec. (13) can validly rest; a Coordinate Bench decision quashing a later AO order for absence of DRP direction was held persuasive and followed in reasoning. Interpretation and reasoning: The Tribunal parsed the DRP order which recorded attendance, the assessee's confirmation of withdrawal, and the statement that objections were 'dismissed as withdrawn' and the AO was 'directed to complete assessment as proposed in the draft order.' The Court distinguished between (a) a DRP exercising its statutory direction-making function on merits and (b) a DRP accepting withdrawal and making no direction under sub-sec. (5). In the latter scenario, there is no subsisting objection to be decided; consequently, the AO lacks jurisdiction to pass an order under sub-sec. (13) based on DRP directions that were never issued. The Tribunal concluded that the DRP's acceptance of withdrawal effectively foreclosed further DRP action, and absent any direction the AO's later order was without jurisdiction. Ratio vs. Obiter: Ratio - where the DRP accepts withdrawal of objections and does not issue directions under section 144C(5), the DRP has not exercised its powers to vary the draft order and the AO has no jurisdiction to pass a subsequent order under section 144C(13) premised on DRP directions. Obiter - observations on the scope of DRP enquiry powers when an assessee attempts unilateral withdrawal while the DRP may seek further enquiry. Conclusions: The DRP, having dismissed objections as withdrawn and not having issued directions on merits, left no basis for the AO to validly pass a subsequent 144C(13) order; such an AO order is without jurisdiction and invalid. Issue 3 - Validity of multiple assessment orders and effect of earlier assessment passed under section 144C(3) Legal framework: The statutory scheme contemplates completion of assessment in accordance with DRP directions or, where appropriate, by the AO under section 144C(3). The principle against multiplicity of litigation and the requirement of jurisdiction for each assessment order are implicit in the scheme. Precedent treatment: The Tribunal observed that where an AO has already passed a valid assessment order under section 144C(3), a later purported assessment on the same matters resulting from a DRP direction that did not exist would create multiplicity and is impermissible; this reasoning is consistent with prior tribunal consideration of related orders. Interpretation and reasoning: The Tribunal found that an assessment order dated earlier (10.02.2010) passed by the AO in conformity with the draft was validly in existence after the assessee withdrew DRP objections and that a second, later, identical AO order (20.08.2010) was invalid for want of jurisdiction because the DRP had not issued any direction on merits. The Court treated the later order as leading to multiplicity of orders and quashed it. Ratio vs. Obiter: Ratio - a later AO order replicating an earlier assessment but made without proper DRP direction is invalid; multiplicity of assessment orders on the same subject-matter is unacceptable where jurisdictional preconditions are absent. Obiter - remarks on the correctness of administrative practice when an assessee pays the tax demand and the interplay with appellate remedies. Conclusions: The later AO order premised on DRP action that did not occur was quashed for want of jurisdiction; the earlier AO order (passed after withdrawal) stands as the operative order for appeal purposes and the CIT(A) must admit and adjudicate the appeal on merits. Disposition and operative direction (as applied to the issues) Where the DRP accepted the withdrawal of objections and issued no directions, the appeal filed in time before the Commissioner (Appeals) was held to be maintainable; the CIT(A)'s dismissal at admission stage was set aside and the matter was remitted to the CIT(A) with a direction to admit the appeal and decide the substantive grounds on merits. The Tribunal quashed the subsequent AO order that was passed without jurisdiction and allowed the appeal for statistical purposes to restore adjudication on merits.