SYNTHITE INDUSTRIES PRIVATE LIMITED, vs. THE ADDITIONAL /JOINT/DEPUTY COMMISSIONER OF INCOMET TAX,

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WP(C)/13860/2021HC KeralaKLHC01037151202107 February 2022Author: HONOURABLE MR.JUSTICE MURALI PURUSHOTHAMAN12 pages
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What did the High Court hold?

The High Court held that the assessment order (Ext.P3) was passed in violation of Section 144C of the Income Tax Act, 1961, and the principles of natural justice. The Court noted that the CBDT's circular (Ext.P2), issued under Section 119 of the Act, extended the time for filing objections to the DRP until May 31, 2021. The assessee had filed its objections on May 28, 2021, which was within the extended period and binding on the revenue authorities, as affirmed by the Supreme Court in Catholic Syrian Bank Ltd. v. Commissioner of Income Tax, Thrissur. The Assessing Officer's failure to consider these objections before passing the final assessment order rendered the order invalid. Consequently, the Court set aside Ext.P3. As Ext.P3 was set aside, the DRP's order (Ext.P8), which rejected the objections on the ground that the final assessment order had already been passed, was also set aside. The Court directed the DRP to consider the assessee's objections afresh after providing an opportunity of hearing. The writ petition was allowed.

What were the facts?

Synthite Industries Private Limited (the assessee) filed a writ petition challenging the assessment order (Ext.P3) passed by the Additional/Joint/Deputy/Assistant Commissioner of Income Tax (the revenue) under Section 143(3) of the Income Tax Act, 1961, and an order (Ext.P8) by the Dispute Resolution Panel (DRP) rejecting its objections. The revenue had issued a Draft Assessment Order (DAO) on April 16, 2021. The Central Board of Direct Taxes (CBDT), through a circular (Ext.P2) due to the Covid-19 pandemic, extended the time for filing objections to the DRP to May 31, 2021. The assessee filed its objections on May 28, 2021, within the extended period. However, the revenue proceeded to pass the final assessment order on May 28, 2021, before the extended deadline for objections expired, stating that no objections were filed. The assessee contended that the assessment order was passed in violation of Section 144C and principles of natural justice. The DRP later rejected the assessee's objections, citing the final assessment order's prior issuance.

What were the issues?

1. Whether the assessment order passed by the Assessing Officer under Section 143(3) of the Income Tax Act, 1961, is valid when it was passed before the expiry of the extended time for filing objections to the Dispute Resolution Panel (DRP) as per the CBDT circular issued under Section 119 of the Act? Assessee's Contention: The assessee argued that the assessment order was passed in violation of Section 144C of the Act and the principles of natural justice. They contended that the CBDT circular extending the time for filing objections was binding on the revenue, and their objections were filed within this extended period. They also argued that the DRP should not have rejected their objections while the writ petition challenging the assessment order was pending. Revenue's Contention: The revenue contended that the assessee had an alternative remedy of appeal before the CIT (Appeals) under Section 246 of the Act. They also argued that the assessee did not file any response within the time provided under Section 144C(2) of the Act and that there was no violation of the principles of natural justice.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 144C,Section 119,Section 246

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE MURALI PURUSHOTHAMAN MONDAY, THE 7TH DAY OF FEBRUARY 2022 / 18TH MAGHA, 1943 WP(C) NO. 13860 OF 2021 PETITIONER: SYNTHITE INDUSTRIES PRIVATE LIMITED, VIII 683-A CORPORATE HOUSE, KADAYIRUPPU, KOLENCHERRY, ERNAKULAM-682 311, KERALA, REPRESENTED BY ITS MANAGING DIRECTOR, MR.VARGHESE JACOB. BY ADVS. JOSEPH MARKOSE (SR.) V.ABRAHAM MARKOS ABRAHAM JOSEPH MARKOS ISAAC THOMAS ALEXANDER JOSEPH MARKOS SHARAD JOSEPH KODIANTHARA RESPONDENTS: 1 THE ADDITIONAL /JOINT/DEPUTY/ASSISTANT COMMISSIONER OF INCOME TAX,INCOME TAX OFFICER, NATIONAL E-ASSESSMENT CENTRE, NEW DELHI-110 001. 2 THE PRINCIPAL CHIEF COMMISSIONER OF INCOME TAX, NATIONAL E-ASSESSMENT CENTRE, NEW DELHI-110 001. 3 DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 2(1), KOCHI-682 018. 4 THE PRINCIPAL COMMISSIONER OF INCOME TAX, KOCHI-682 018. WP(C) NO. 13860 OF 2021 ..2.. 5 THE INCOME TAX OFFICER (OSD) & SECRETARY, DISPUTE RESOLUTION PANEL-2, A WING, 4TH FLOOR, KENDRIYA SADAN, KORAMANGALA, BENGALURU-560 034. BY JOSE JOSEPH, SC, FOR INCOME TAX THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 07.02.2022, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: WP(C) NO. 13860 OF 2021 ..3..

JUDGMENT The petitioner challenges Ext.P3 assessment order issued by the 1st respondent under Section 143(3) of the Income Tax Act, 1961 (the 'Act' for short) and Ext.P8 order passed by the Dispute Resolution Panel (DRP) under Section 144C (5) of the Act rejecting Ext.P4 objections to the Draft Assessment Order.

2.

The 1st respondent issued Ext.P1 Draft Assessment Order (DAO) dated 16.04.2021 under Section 144C of the Act. As per the provisions of Section 144 C (2), the assessee has to file objections, if any, to the variation proposed in the DAO before the DRP within 30 days of receipt of DAO. Thus, the petitioner had time till 16.05.2021 to file his objection to Ext. P1 DAO.

3.

Taking note of the second wave of Covid-19 pandemic, the Central Board of Direct Taxes (CBDT)

WP(C) NO. 13860 OF 2021 ..4.. issued Ext.P2 circular extending the time for filing objections before DRP under Section 144C of the Act till 31.05.2021. Clause 1 (b) of Ext.P2 Circular reads as follows: “b) Objections to Dispute Resolution Panel (DRP) under Section 144C of the Income-tax Act, 1961, for which the last date of filing under that Section is 1st April 2021 or thereafter, may be filed within the time provided under that Section or by 31st May 2021, whichever is later;

4.

As per Ext.P2 Circular, the petitioner had time till 31.05.2021 to file its objection to Ext. P1 DAO. The petitioner filed Ext.P4 objection dated 25.05.2021 to DAO before the DRP on 28.05.2021. According to the petitioner, Ext.P4 objection was filed within the time provided by Ext.P2 Circular. However, the 1st respondent, without waiting for the expiry of the time for filing objections before DRP, as extended by the CBDT in Ext.P2 Circular, completed the assessment by Ext.P3 order dated 28.05.2021. In paragraph 10 of the WP(C) NO. 13860 OF 2021 ..5.. Ext.P3 Assessment Order, the 1st respondent has stated as follows:

10.

The Draft Assessment Order (DAO) was passed on 16.04.2021. As per the provisions of section 144C(2) of the Act, the assessee had the option of filing objections with the Dispute Resolution Panel (DRP) or file acceptance within 30 days of DAO. However till date the assessee has neither filed acceptance nor intimated about filing of Objections with the DRP. Therefore, the assessment is treated as completed u/s 144C(3) within the time allowed u/s 144C(4) of the Act.

5.

Challenging Ext.P3, the petitioner approached this Court contending, inter alia, that Ext.P3 Assessment Order is passed in violation of the provisions of Section 144 C and in disregard to the principles of natural justice.

6.

At the time of admission of the writ petition, this Court passed interim dated 13.07.2021 staying the operation and implementation of Ext.P3 including recovery of amounts demanded thereunder and the WP(C) NO. 13860 OF 2021 ..6.. initiation of penalty proceedings mentioned therein. The said order was extended from time to time and a Statement dated 31.01.2022 has been filed on behalf of the respondents.

7.

During the pendency of the writ petition, the DRP considered Ext.P4 objection to Ext.P1 DAO and rejected the objections as per Ext.P8 on the ground that it has no juri iction to entertain the same since Ext.P3 final Assessment Order has already been passed. The petitioner has amended the writ petition, incorporating a prayer to quash Ext. P8. 8. According to the petitioner, Ext.P3 order is passed in total violation of Section 144 C and the principles of natural justice. It is further contended that when challenge against Ext.P3 order is pending consideration before this Court, the DRP ought not have disposed of Ext.P4 objections by issuing Ext.P8 order.

WP(C) NO. 13860 OF 2021 ..7..

9.

In the statement filed on behalf of the respondents, it is contended that the petitioner has an effective alternate remedy to file an appeal against Ext.P3 before the CIT (Appeals) under Section 246 of the Act. It is also contended that though the time limit for filing objections with the DRP was extended upto 31.05.2021, the assessee did not file any response within the time provided under Section 144 C(2) of the Act. It was also contended that there is no violation of principles of natural justice in issuing Ext. P3 order.

10.

Heard Sri. Joseph Markos, the learned senior counsel instructed by Sri. Abraham Joseph Markos for the petitioner and Sri. Jose Joseph, the learned Standing Counsel for the Government of India (Taxes) for the respondents.

11.

Though Section 144 C (2) of the Act stipulates that on receipt of the DAO, the assessee shall, within 30 days of the receipt of the draft order, file his

WP(C) NO. 13860 OF 2021 ..8.. objections, if any, to the variations before the DRP, the time for filing objections to the DRP under Section 144 C of the Act was extended till 31.05.2021 by Ext.P2 Circular issued by CBDT. Ext.P2 Circular was issued by CBDT in view of severe Covid-19 pandemic providing certain relaxation in respect of income tax compliances by the tax-payers including extension of time limit to file objections before the DRP. Ext.P2 Circular is issued by CBDT in exercise of its powers under Section 119 of the Act, which provides for powers of the CBDT to issue Circulars and the Assessing Authority is bound to observe and follow such circulars and instructions. The Hon'ble Supreme Court, in Catholic Syrian Bank Ltd. v. Commissioner of Income Tax, Thrissur [2012 (3) SCC 784: 2012 KHC 4121], has held that circulars issued by the CBDT under Section 119 of the Act are binding on the Income Tax Authorities and the same

WP(C) NO. 13860 OF 2021 ..9.. has to be followed for a uniform and proper administration and application of the provisions of the Act. The petitioner filed its objections before the DRP on 28.05.2021, which is well within the extended time for filing objections as per Ext.P2 Circular issued by the CBDT. Ext.P2 Circular is binding on the respondents.

12.

Section 144C (1) to (3) of the Act reads as under: "144C. (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 WP(C) NO. 13860 OF 2021 ..10.. (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).

13.

Section 144 C of the Act thus mandates that an assessment order under Section 143 (3) of the Act shall be passed only after the assessee is granted an opportunity to file objections to the Draft Assessment Order. The petitioner has filed its objections to Ext.P1 DAO, within the extended time as per Ext.P2 Circular, which is binding on the respondents. However, the 1st respondent without considering the same, has passed Ext.P3 final assessment order. I find that Ext.P3 is issued in violation of the principles of natural justice and against the provisions of Section 144C and Ext.P2 Circular issued by CBDT. Accordingly, Ext.P3 Final

WP(C) NO. 13860 OF 2021 ..11.. Assessment Order is set aside.

14.

During the pendency of this writ petition, the DRP, by Ext.P8 order, considered and rejected Ext.P4 objection to DAO on the ground that it has no juri iction to entertain the same since Ext.P3 Final Assessment Order has already been passed. Since Ext.P3 order is set aside, consequently, Ext.P8 also stands set aside. The 5th respondent shall consider Ext.P4 objection afresh in accordance with law, after affording an opportunity of hearing to the petitioner. The writ petition is allowed. No order as to costs. MURALI PURUSHOTHAMAN JUDGE SB

WP(C) NO. 13860 OF 2021 ..12..

Appendix — schedule of exhibits
APPENDIX OF WP(C) 13860/2021 PETITIONER’S EXHIBITS: Exhibit P1 TRUE COPY OF THE DRAFT ASSESSMENT ORDER DATED 16.04.2021 ISSUED BY THE 1ST RESPONDENT. Exhibit P2 TRUE COPY OF THE CIRCULAR NO.08/2021 DATED 30.04.2021 ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES. Exhibit P3 TRUE COPY OF THE ASSESSMENT ORDER DATED 28.05.2021 PASSED BY THE 1ST RESPONDENT. Exhibit P4 TRUE COPY OF THE OBJECTIONS DATED 25.05.2021 FILED BEFORE THE DRP. Exhibit P5 TRUE COPY OF THE CONFIRMATION RECEIVED REGARDING RECEIPT OF THE EMAIL BY THE DRP. Exhibit P6 TRUE COPY OF THE PROOF OF DISPATCH/POSTAL RECEIPT ISSUED FOR THE SPEED POST. Exhibit P7 TRUE COPY OF THE JUDGMENT DATED 08.01.1993 IN WA NO.15 OF 1993 OF THIS HON'BLE COURT. Exhibit P8 TRUE COPY OF THE ORDER DATED 10.1.2022 PASSED BY THE 5TH RESPONDENT DISPUTE RESOLUTION PANEL

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