2018 (5) TMI 737 - AT - Income Tax

Tribunal allows appeals for invalid assessment orders due to ineligibility criteria under Income-tax Act

ESS Distribution (Mauritius) SNC ET Compagnie Versus ADIT, Circle-1 (2), International Taxation, New Delhi

The Tribunal allowed all appeals based on the invalidity of the draft and final assessment orders due to the assessee not meeting the criteria of being an ... Eligible assessee within the meaning of section 144C(15)(b) - whether AO erred in passing invalid draft order and thereafter issuing an order which was barred by limitation? - Held that:- The forwarding of a draft order as stipulated in subsection (1) of section 144C(1) of the Act is required only in the case of an ‘eligible assessee’. Going by the definition of the eligible assessee it is clear that such assessee must either be a foreign company or any person in whose case variation is made in the income or loss returned as a consequence of the order passed by the TPO u/s 92CA(3) of the Act. As referring to present case we find that the Assessing Officer has himself recorded that the assessee is a Non-resident (Foreign partnership firm). Since the assessee is a non-resident partnership firm, it cannot be characterized as an Indian company and, hence, sheds the character of a ‘domestic company’ and, consequently, a ‘foreign company’ as well. Thus, it is clear that the second condition to qualify for ‘eligible assessee’ in terms of section 144C (15)(b) is not fulfilled. Referring to the first condition, being, ‘any person’ though the assessee is ‘any person’, but admittedly, the TPO has not proposed any variation in the income arising from the international transactions. Thus, it becomes manifest that the assessee has not fulfilled any of the conditions to become ‘eligible assessee’ in terms of section 144C(15)(b). Assessing Officer passed draft assessment order u/s 144C(1) on receipt of the order from the TPO. Final assessment order was passed after routing the matter through the DRP. As the assessee is not an ‘eligible assessee’, the assessment should have been completed u/s 143(3) instead of adopting the path of passing the draft assessment order u/s 144C(1). The facts and circumstances for the assessment year under consideration are identical to those considered and decided by the Hon'ble High Court in writ petition for the assessment year 2010-11 [2016 (4) TMI 45 - DELHI HIGH COURT]. Respectfully following the binding precedent, we set aside the final assessment order. The additional ground is, therefore, allowed to this extent. Issues Involved:1. Validity of draft assessment order and final assessment order.2. Eligibility of the assessee under section 144C(15)(b) of the Income-tax Act, 1961.Analysis:Issue 1: Validity of Draft and Final Assessment Order- The appeals relate to the assessment years 2005-06, 2006-07, and 2007-08, with a common issue raised. The additional ground challenged the validity of the draft order and final order due to the assessee not being an 'eligible assessee' under section 144C(15)(b) of the Act.- The Tribunal admitted the additional ground for consideration and decision based on the judgment of the Supreme Court in a similar case. The contention against admitting the ground was rejected.- The assessment order was passed within the limitation period as per the relevant provisions, thus not barred by limitation.- The assessee failed to qualify as an 'eligible assessee' as it did not meet the criteria of being a foreign company or a person subject to variation due to a TPO order. The draft assessment order was found to be invalid, following a similar precedent set by the High Court in a previous case.Issue 2: Eligibility of the Assessee under Section 144C(15)(b)- Section 144C(1) mandates forwarding a draft order to an 'eligible assessee' for any prejudicial variation in income. The definition of 'eligible assessee' includes a person affected by a TPO order or a foreign company.- The assessee, a non-resident partnership firm, did not meet the criteria of a foreign company or a person affected by TPO orders, thus not qualifying as an 'eligible assessee.'- The Tribunal referred to a previous judgment where a similar situation led to the setting aside of the draft and final assessment orders. Following this precedent, the Tribunal set aside the final assessment order for the assessment year in question.Conclusion:- The Tribunal allowed all appeals based on the invalidity of the draft and final assessment orders due to the assessee not being an 'eligible assessee' under section 144C(15)(b) of the Income-tax Act, 1961.- The orders for all assessment years were set aside on this legal issue, and there was no need to address the grounds on merits.This detailed analysis of the judgment highlights the issues, legal provisions, factual background, and the Tribunal's decision based on the arguments presented.