2023 (9) TMI 438 - HC - Income Tax

Transfer pricing upward adjustment requires draft assessment under dispute resolution procedure; failure renders final assessment without jurisdiction, favouring assessee.

Where an assessing officer proposes an upward transfer pricing adjustment prejudicial to the assessee, he must first forward a draft assessment order to ... Validity of order u/s 92CA(3) making upward adjustment - Reference to dispute resolution panel u/s 144C - failure to pass a draft assessment order u/s 144C(1) - HELD THAT:- AO shall, in the first instance, forward a draft of the proposed order of assessment to the eligible assessee if he proposes to make any variation is prejudicial to the interest of such assessee. Certainly there is a variation in the assessment order different from what was filed in the return of income and since it is by way of an addition made, the variation is prejudicial to the interest of Petitioner. In Andrew Telecommunications Private Limited [2018 (8) TMI 575 - BOMBAY HIGH COURT] also the facts were identical. The Court relying on the judgments in the case of International Air Transport Association [2016 (2) TMI 897 - BOMBAY HIGH COURT] has held that 'the failure to pass a draft assessment order under Section 144C(1) of the Act would result in rendering the final assessment as one without jurisdiction. Decided in favour of assessee. Issues Involved:1. Non-issuance of draft assessment order under Section 144C(1) of the Income-tax Act, 1961.2. Jurisdictional validity of the final assessment order.Summary:Non-issuance of Draft Assessment Order:The Petitioner filed returns for Assessment Years 2010-11 and 2009-10, which were processed under Section 143(1) of the Income-tax Act, 1961. Subsequently, the cases were selected for scrutiny, and the Assessing Officer (AO) referred the matter to the Transfer Pricing Officer (TPO) under Section 92CA(2). The TPO made upward adjustments, leading the AO to pass draft assessment orders. The Petitioner objected to these orders before the Dispute Resolution Panel (DRP), which upheld the additions. The final assessment orders were challenged before the Income Tax Appellate Tribunal (ITAT), which set aside the transfer pricing adjustments and remanded the matter for de-novo consideration. The AO, without issuing a draft assessment order under Section 144C(1), passed the final assessment orders, which the Petitioner impugned in these petitions.Jurisdictional Validity of the Final Assessment Order:The Petitioner argued that Section 144C(1) mandates the issuance of a draft assessment order if any variation prejudicial to the assessee's interest is proposed. Failure to issue such an order renders the final assessment order null and void. The Court agreed with this contention, citing previous judgments, including Principal Commissioner of Income-tax v. Andrew Telecommunications (P) Ltd. and ExxonMobil Company Private Limited v. The Deputy Commissioner of Income Tax, which held that non-compliance with Section 144C(1) results in the final assessment order being without jurisdiction.Conclusion:The Court concluded that the AO's failure to issue a draft assessment order under Section 144C(1) rendered the final assessment orders without jurisdiction. Consequently, the Court quashed the impugned final assessment orders and related notices for both assessment years. The petitions were disposed of with no order as to costs.