DEEPALI KIRAN POTNIS,KALYAN vs. ITO. INT. TAX, WARD-3(3)(1), MUMBAI

O R D E R Per B.R.Baskaran (AM) :-

The assessee has filed this appeal for assessment year 2018-19 challenging the assessment order passed by the AO. The assessee has, inter alia, raised a legal contention challenging the validity of the assessment order passed by the AO, as there was violation of the procedure prescribed u/s 144C of the Act.

5. Following chronology of events are relevant for deciding the legal contention raised by the assessee. (a) Draft assessment order passed by the AO on 17-09-2021 (b) Final assessment order passed by the AO on 15.11.2021 under the impression that the assessee did not prefer to file objections before Ld Dispute Resolution Panel (DRP). The following observations made by the AO in this order is relevant here:-

“In this case, the draft order u/s 143(3) r.w.s. 144C(1) of the Income tax Act, 1961 was served on the assessee on 17-09-2021. The assessee preferred not to file objections before DRP. The assessee has not filed any as visible under e processing in respect of draft order passed on 17-09-2021. As the assessee has not brought anything on record regarding filing of objections before DRP and not filed any reply, the assessment order is passed as under:-….”

(c) On the contrary, the assessee has actually filed objections before Ld DRP on 13-10-2021.

(d) It is the submission of the assessee that she has informed the fact of filing of objection before Ld DRP on 14.10.2021.

(e) Ld DRP disposed of objections on 02-06-2022 u/s 144C(5) of the Act.

(f) The assessing officer passed an order dated 31-07-2022 in order to give effect to the directions given by Ld DRP.

7. The short question which needs to be answered is whether the AO could have framed the final assessment order on 27-1-2020 when the admitted facts are that the assessee has received the draft assessment order on 28-12-2019 and the assessee had filed objection before the DRP on 24-1-2020. For answering this legal issue, it would be gainful to refer to the legal provision which governs the issue i.e. section 144C of the Act which is reproduced as under: "144C. Reference to dispute resolution panel.—(1) The Assessing Officer shall, notwithstanding anything to the contrary contained in this Act, in the first instance, forward a draft of the proposed order of assessment (hereafter in this section referred to as the draft order) to the eligible assessee if he proposes to make, on or after the 1st day of October, 2009, any variation which is prejudicial to the interest of such assessee. (2) On receipt of the draft order, the eligible assessee shall, within thirty days of the receipt by him of the draft order,— (a) file his acceptance of the variations to the Assessing Officer; or (b) file his objections, if any, to such variation with,— (i) the Dispute Resolution Panel; and (ii) the Assessing Officer.

(3) The Assessing Officer shall complete the assessment on the basis of the draft order, if— (a) the assessee intimates to the Assessing Officer the acceptance of the variation; or (b) no objections are received within the period specified in sub- section (2). (4) The Assessing Officer shall, notwithstanding anything contained in section 153 or section 153B, pass the assessment order under sub-section (3) within one month from the end of the month in which,— (a) the acceptance is received; or (b) the period of filing of objections under sub-section (2) expires.

(5) The Dispute Resolution Panel shall, in a case where any objection is received under sub-section (2), issue such directions, as it thinks fit, for the guidance of the Assessing Officer to enable him to complete the assessment. (6) The Dispute Resolution Panel shall issue the directions referred to in sub-section (5), after considering the following, namely:— (a) draft order; (b) objections filed by the assessee; (c) evidence furnished by the assessee; (d) report, if any, of the Assessing Officer, Valuation Officer or Transfer Pricing Officer or any other authority; (e) records relating to the draft order; (f) evidence collected by, or caused to be collected by, it; and (g) result of any enquiry made by, or caused to be made by, it.

(7) The Dispute Resolution Panel may, before issuing any directions referred to in sub-section (5),— (a) make such further enquiry, as it thinks fit; or (b) cause any further enquiry to be made by any income-tax authority and report the result of the same to it.

(8) The Dispute Resolution Panel may confirm, reduce or enhance the variations proposed in the draft order so, however, that it shall not set aside any proposed variation or issue any direction under sub-section (5) for further enquiry and passing of the assessment order.

Explanation.—For the removal of doubts, it is hereby declared that the power of the Dispute Resolution Panel to enhance the variation shall include and shall be deemed always to have included the power to consider any matter arising out of the assessment proceedings relating to the draft order, notwithstanding that such matter was raised or not by the eligible assessee. (9) If the members of the Dispute Resolution Panel differ in opinion on any point, the point shall be decided according to the opinion of the majority of the members. (10) Every direction issued by the Dispute Resolution Panel shall be binding on the Assessing Officer. (11) No direction under sub-section (5) shall be issued unless an opportunity of being heard is given to the assessee and the Assessing Officer on such directions which are prejudicial to the interest of the assessee or the interest of the revenue, respectively. (12) No direction under sub-section (5) shall be issued after nine months from the end of the month in which the draft order is forwarded to the eligible assessee. (13) Upon receipt of the directions issued under sub-section (5), the Assessing Officer shall, in conformity with the directions, complete, notwithstanding anything to the contrary contained in section 153 or section 153B, the assessment without providing any further opportunity of being heard to the assessee, within one month from the end of the month in which such direction is received. (14) The Board may make rules for the purposes of the efficient functioning of the Dispute Resolution Panel and expeditious disposal of the objections filed under sub-section (2) by the eligible assessee. The following sub-section (14A) shall be inserted after sub-section (14) of section 144C by the Finance Act, 2013, w.e.f. 1-4-2016. (14A) The provisions of this section shall not apply to any assessment or reassessment order passed by the Assessing Officer with the prior approval of the Principal Commissioner or Commissioner as provided in sub-section (12) of section 144BA. (15) For the purposes of this section,— (a) "Dispute Resolution Panel" means a collegium comprising of three Principal Commissioners or Commissioners of Income-tax constituted by the Board for this purpose; (b) "eligible assessee" means,— (i) any person in whose case the variation referred to in sub- section (1) arises as a consequence of the order of the Transfer Pricing Officer passed under sub-section (3) of section 92CA; and (ii) any foreign company."

8. So, in order to answer the legal issue, we need to understand the legal provision/mechanism envisaged in section 144C of the Act to the fact of the case. We note that section 144C of the Act is a complete code in itself which has set out a separate assessment mechanism for eligible assessee's whose income are subject to transfer pricing variation or who are non- residents or foreign companies. This code entitles these eligible assessee's to first receive a draft assessment order from the AO, and gives them the option to decide the forum to prefer objection against the draft assessment order or to accept the draft order so that they retain their right to pursue regular appeal against the final order before the Ld. CIT(A). As per section 144C of the Act once the assessee receives the draft assessment order from AO u/s 144C(1) of the Act, the AO is duty bound to thereafter give the assessee 30 days time to make-up its mind either to accept the draft order or to object to such order (draft assessment order of AO) before the DRP as per sub-section (2) (b) of section 144C of the Act. And if the assessee chooses to file objection before the DRP, then the AO is duty bound to wait for the direction of the DRP; and then only on receipt of the DRP direction u/s. 144C(5) of the Act that AO is legally empowered to pass the final assessment order as per section 144C(13) of the Act. So, we note that as per the scheme/mechanism envisaged in section 144C of the Act, once the AO passes the draft assessment order, the assessee has 30 days time period for approaching the DRP to file objection if it desire; and the 30 days starts from the date on which the assessee receives the draft assessment order; and in case if the assessee files the objection before the DRP within 30 days, then the AO has to await the decision/direction of the DRP and thereafter the AO can frame the final assessment order in conformity with the direction given by the DRP as per sub-section (5) of section 144C read with 144C(13) of the Act. In the alternatives, if the assessee accepts the draft assessment order as per section 144C(2)(i)(a) of the Act or if it does not file objection before the DRP within 30 days of receipt of the draft assessment order, then the AO is empowered to pass the final assessment order under sub-section (3) of section 144C of the Act (which the AO in this case had erroneously done). However, it has to be kept in mind that there is a time period prescribed within which only the AO can frame the final order u/s. 144C(3) of the Act. The time period to legally frame final assessment order u/s. 144C(3) of the Act is prescribed in sub-section (4) of section 144C of the Act i.e. within one month from the end of the month in which the AO receives the acceptance from the assessee regarding the draft assessment order or the period of filing of objection before the DRP expires. So in the present case on a perusal of the dates of event as discerned from a perusal of the chart it is clear that the draft assessment order in this case was passed by the AO under sub- section (1) of section 144C of the Act on 28-12-2019 and it is admitted by the assessee that it had received it on the same date i.e. on 28-12-2019. Then, as per sub-section (2) of section 144C of the Act, the AO is duty bound to give the assessee 30 days of time to either file objection before the DRP (against the draft order) or to accept the draft order. Either ways the statute prescribes 30 days to the assessee to accept the draft order or to go before the DRP. However, as aforestated, this 30 days prescribed in sub-section (2) of section 144C of the Act is not the time limit to pass the final assessment order even under sub-section (3) of section 144C of the Act as erroneously done by the AO by framing the impugned final assessment order u/s. 144C(3) of the Act on 27-1-2020 within 30 days of receipt by assessee of the draft order. Even in such a scenario i.e. in the event the assessee accepts the draft order or does not prefer to go before the DRP within 30 days and time expires, then also the time prescribed to the AO to frame final order u/s. 144C(3) of the Act is given in sub-section (4) of section 144C of the Act which in the facts of this case AO can legally do between 1-2-2020 to 28/29-2-2020. So even if for argument sake, we accept the contention of the Ld. DR, that since the assessee having received the draft order on 28-12-2019 did not turn up before the AO within 30 days and 30 days expires on 27-1-2020 the AO is legally entitled to frame the final assessment order on 27-1-2020 u/s. 144C(3) of the Act and if the assessee turned up later on the same date i.e. 27-1-2020 before the AO after the AO had framed the final order, does not affect the legality of the order cannot be countenanced because it is erroneous. Because even if the assessee had accepted the draft order or the period of 30 days expired or as suggested by Ld. DR or in the event of the assessee's failure to bring to the notice of AO of it's filing the objection before DRP before AO has passed the final order on 27-1-2020, then also AO could not have passed the final order u/s. 144C(3) of the Act as per the time limit prescribed in sub-section (4) of section 144C of the Act. In that event also the AO could have passed the final assessment order u/s 144C(3) only within the time period as prescribed in section 144C(4) of the Act i.e. within one month from the end of the month i.e. in this case AO can pass only final order only u/s. 144C(3) of the Act from 1-2-2020 to 28/29-2-2020. So, the AO erred in passing the final order on 27-1-2020. So the contention of the Ld. DR fails. However, that is not the case of the assessee before us. We note that in this case the draft assessment order as per section 144C (1) of the Act was passed on 28-12-2019 and the assessee had time of 30 days from the date of receipt of draft order to file objection before the DRP as per sub-section (2)(b) of the Act or acceptance of the draft assessment order as per sub-section (2)(a) of the Act. In any case, this period of time i.e. 30 days gets over on 27-1-2020. Meanwhile, we note that the assessee had preferred an objection before the DRP (Delhi) within 30 days of receipt as per sub-section (2)(b) of section 144C of the Act on 24-1-2020 which fact was intimated to the AO by physically filing the letter dated 27-1-2020 at the office of AO (On query the Ld. AR explained that the reference/objection had to be filed before DRP (Delhi) on 24-1-2020 which was Friday and 25th January & 26th January being Saturday and Sunday, the assessee physically filed the acknowledgment of filing objection at DRP before AO on 27-1-2020). So in this case, the AO ought to have awaited the decision of the DRP as envisaged under sub- section (5) of section 144C of the Act and which direction of DRP was binding on the AO as per sub-section (13) of section 144 of the Act and it is to be noted that after the direction of DRP, the AO could have framed the assessment without providing any opportunity to the assessee as envisaged in sub-section (13) of section 144C of the Act. In this case, the AO failed to await for the direction of the DRP and has arbitrarily framed the final assessment order which vitiates the final assessment order passed by him. Thus, we note that AO had no jurisdiction to frame the final assessment order on 27-1-2020 u/s. 144(3) of the Act, since he was divested of jurisdiction to pass final order between 27-1-2020 to 31-1- 2020. And thus we find that even the AO could not have framed the final order u/s. 144C(3) on 27-1-2020 because the assessee had filed its objection before the DRP on 24-1-2020, the DRP is in seisn of the case of assessee and between 24-1-2020 and till the DRP gives direction as per section 144C(5) of the Act, the AO does not enjoy jurisdiction over the assessee's case for AY 2016-17. Therefore, the assessee succeeds in its challenge which it has raised against the jurisdiction of AO to frame the final assessment order u/s. 144(3) of the Act dated 27-1-2020 along with demand notice u/s. 156 of the Act is therefore, null in the eyes of law and is quashed.”