2011 (7) TMI 511 - HC - Income Tax

Court sets aside DRP directions, ruling excess jurisdiction under Section 144C. Writ appeal allows exclusion of specific directions.

The court set aside directions (iv) and (v) issued by the DRP, ruling they exceeded jurisdiction under Section 144C. The writ appeal was allowed, ... Reopening of assessment - municipal tax was paid by the assessee for change of use of the property and the assessee's property was converted into shops and marriage halls consisting of 110 units and in this regard he used the expression 'it is understood', without mentioning as to what was the basis for his understanding - Held that:- The expression used by the AO clearly postulates the height of arbitrariness in the process of reopening the assessment and the fact that the assessment was not made on the strength of the reasons mentioned in the note clearly supports the stand of the assessee that the assessment was sought to reopened merely to harass the assessee - Thus, held that the Assessing Officer had reopened the assessment on arbitrary and flimsy grounds and since no addition was made on the strength of such reasons, the CIT(A) was justified in quashing the re-assessment proceedings - Decided in favour of assessee. Issues Involved:1. Jurisdiction of the Dispute Resolution Panel (DRP) under Section 144C.2. Validity of DRP's directions regarding Section 10A exemption.3. Scope and powers of DRP under Section 144C(5) and (8).Detailed Analysis:Jurisdiction of the Dispute Resolution Panel (DRP) under Section 144C:The appellant challenged the directions issued by the DRP, arguing that they were beyond the jurisdiction conferred by Section 144C. Specifically, the appellant contended that the DRP's findings that the assessee was not entitled to any exemption under Section 10A were not within the scope of the proposed draft order, which only suggested a reduction in the claimed exemption. The court noted that the DRP's power to issue directions is derived from Section 144C(5), which allows the DRP to issue directions as it thinks fit for the guidance of the Assessing Officer. However, Section 144C(8) restricts the DRP from setting aside any proposed variation or issuing directions for further enquiry. The court concluded that the DRP exceeded its jurisdiction by issuing directions (iv) and (v), which were not related to the proposed draft order.Validity of DRP's Directions Regarding Section 10A Exemption:The DRP had directed that the assessee was not entitled to any deduction under Section 10A, which was beyond the scope of the draft order that only proposed a reduction in the claimed exemption. The court observed that the DRP's directions must be based on the proposed variations in the draft order. Since the draft order did not propose to deny the Section 10A benefit entirely but only suggested a reduction, the DRP's direction to deny the benefit altogether was held to be without jurisdiction. The court emphasized that the DRP's role is to confirm, reduce, or enhance the variations proposed in the draft order, not to introduce new issues.Scope and Powers of DRP under Section 144C(5) and (8):The court analyzed the interplay between Section 144C(5) and (8). Section 144C(5) allows the DRP to issue directions for the guidance of the Assessing Officer, while Section 144C(8) restricts the DRP from setting aside any proposed variation or issuing directions for further enquiry. The court held that the DRP's power to issue directions must relate to the proposed variations in the draft order. The court concluded that the DRP's direction to deny the Section 10A benefit was beyond its jurisdiction as it was not related to the proposed variations in the draft order.Conclusion:The court set aside the directions (iv) and (v) issued by the DRP, holding that they were beyond the jurisdiction conferred by Section 144C. The court allowed the writ appeal and directed the Assessing Officer to pass orders as per the directions issued by the DRP, excluding the directions (iv) and (v), which were set aside. The court also observed that it is open to the revenue to take action under Section 147 if it believes that the Section 10A benefit is not applicable to the assessee.