KENNAMETAL INDIA LIMITED vs. ASSISTANT COMMISSIONER OF INCOME TAX/

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WP/10810/2023HC KarnatakaKAHC01025665202313 July 2023Bench: S SUNIL DUTT YADAV6 pages
AI SummaryRemanded

What did the High Court hold?

The High Court held that even though the remand by the Tribunal was limited to the aspect of Arms Length Price (ALP) of international transactions, the procedure under Section 144C of the Income Tax Act, 1961, was required to be followed. The Court reasoned that if the ALP is to be re-examined after the Transfer Pricing Officer's (TPO) report, the mandate of Section 144C, which confers the right on the assessee to receive a draft of the proposed assessment order, must be extended. This procedure is necessary to ensure that any variation prejudicial to the assessee's interest is communicated through a draft order. Consequently, the assessment order and the demand notice were set aside. The matter was restored to the stage post the TPO's report, with directions to conclude the assessment proceedings by following the procedure under Section 144C, including forwarding a draft assessment order if any variation prejudicial to the assessee was proposed. All other contentions were kept open.

What were the facts?

The petitioner, Kennametal India Limited, filed a writ petition challenging the final assessment order dated 28/02/2023 for Assessment Year 2014-15, passed by the Assistant Commissioner of Income Tax (R-1) under Section 143(3) read with Section 144C and Section 254 of the Income Tax Act, 1961. The petitioner also challenged the demand notice dated 07/03/2023 issued by the Deputy Commissioner of Income Tax (R-2). The core of the petitioner's argument was that the procedure under Section 144C of the Act, specifically the forwarding of a draft assessment order, was not followed after the matter was remanded by the Income Tax Appellate Tribunal (ITAT). The ITAT's earlier order dated 19.02.2021 had remanded the issue of Arms Length Price (ALP) of international transactions for fresh determination.

What were the issues?

1. Whether the Assessing Officer (AO) was required to follow the procedure under Section 144C of the Income Tax Act, 1961, including forwarding a draft assessment order, when the matter was remanded by the Income Tax Appellate Tribunal (ITAT) for a specific issue (Arms Length Price of international transactions) and not the entire assessment? Assessee's Contention: The petitioner argued that the remand by the ITAT necessitated a fresh adherence to the procedure under Section 144C, including the issuance of a draft assessment order, as the determination of ALP was a crucial aspect of the assessment. Failure to do so rendered the final assessment order invalid. Revenue's Contention: The respondents contended that since the ITAT's order had only set aside a portion of the assessment concerning ALP and not the entire assessment, and as the procedure under Section 144C was followed at an earlier stage, there was no requirement to repeat the Section 144C procedure. They argued that the remand was partial, and the AO was not obligated to re-initiate the entire Section 144C process.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 144C,Section 254,Section 156

AI-generated summary — verify with the full judgment below

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NC: 2023:KHC:24305 WP No. 10810 of 2023 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 13TH DAY OF JULY, 2023 BEFORE THE HON'BLE MR JUSTICE S SUNIL DUTT YADAV WRIT PETITION NO. 10810 OF 2023 (T-IT) BETWEEN: KENNAMETAL INDIA LIMITED, A LIMITED COMPANY INCORPORATED UNDER THE COMPANIES ACT, 1956 AND HAVING ITS REGISTERED OFFICE AT 8/9TH MILE, TUMKUR ROAD, NAGASANDRA S.O., BENGALURU NORTH, BENGALURU – 560 073. [PAN: AACCK4472B]. REPRESENTED BY ITS CHIEF FINANCIAL OFFICER, MR. SURESH KUMAR K.V., S/O VENKATARAMA A.REDDY, AGED ABOUT 52 YEARS, OCCUPATION:SERVICE, RESIDING AT #1434, 25TH C CROSS, SECTOR – 2, BENGALURU SOUTH, BENGALURU – 560 102. …PETITIONER (BY SRI. PAI DHUNGAT ANKUR DEEPAK AND SRI. K.R.VASUDEVAN, ADVOCATES) Digitally signed by VIJAYA P Location: High Court of Karnataka

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NC: 2023:KHC:24305 WP No. 10810 of 2023 AND: 1. ASSISTANT COMMISSIONER OF INCOME TAX/ JOINT COMMISSIONER OF INCOME TAX (OSD), CIRCLE 4(3)(1), 4TH FLOOR, BMTC BUILDING (DEPOT), 80 FT ROAD, KORAMANGALA, BENGALURU – 560 095. 2. THE DEPUTY COMMISSIONER OF INCOME TAX DC/ACIT TP 2(1)(1), BMTC BUILDING, 80 FT ROAD, 6TH BLOCK, NEAR KHB GAMES VILLAGE, KORAMANGALA, BENGALURU – 560 095. 3. THE PRINCIPAL COMMISSIONER OF INCOME TAX RANGE 4, BENGALURU, BMTC BUILDING, 80 FT ROAD, 6TH BLOCK, NEAR KHB GAMES VILLAGE, KORAMANGALA, BENGALURU – 560 095. …RESPONDENTS (BY SRI. E.I.SANMATHI, ADVOCATE)

THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA PRAYING TO QUASH THE IMPUGNED FINAL ASSESSMENT ORDER DATED 28/02/2023 IN F.NO.JCIT(OSD)/C-4(3)(1)/AACCK4472B/2022- 23 (ANNEXURE-H) PASSED BY THE R-1 UNDER SECTION 143(3) READ WITH SECTION 144C READ WITH SECTION 254 OF THE IT ACT FOR THE AY 2014-15 ALONG WITH THE DEMAND NOTICE ISSUED UNDER SECTION 156 OF THE IT ACT DATED 07/03/2023 IN DIN AND NOTICE NO. ITBA/COM/F/17/2022-23/1050490468(1) FOR THE AY 2014-15 (ANNEXURE - H1) ISSUED BY R2 AND ETC.

THIS PETITION, COMING ON FOR PRELIMINARY HEARING, THIS DAY, THE COURT MADE THE FOLLOWING:

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NC: 2023:KHC:24305 WP No. 10810 of 2023 ORDER The petitioner has sought for setting aside of the assessment order at Annexure-H dated 28.02.2023 passed by respondent No.1 under Section 143(3) read with Section 144C read with Section 254 of the Income Tax Act, 1961 (for short 'the Act') for the Assessment Year 2014-15 and also sought for setting aside of Demand Notice at Annexure-H1. 2. Learned counsel for the petitioner submits that while passing the Assessment Order at Annexure-H, procedure under Section 144C of the Act regarding forwarding the draft of the proposed order of assessment has not been followed. It is submitted that the matter was remanded in terms of order of the Tribunal at Annexure-F dated 19.02.2021 insofar as the aspect of fresh Arms Length Price of the international transaction undertaken by the assessee. It is submitted that upon such remand by the Authority, the Authority ought to have followed the procedure under Section 144C of the Act afresh including forwarding the draft of the proposed order of assessment and only on this ground, the order at Annexure-H is liable to be set aside.

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NC: 2023:KHC:24305 WP No. 10810 of 2023 3. Learned counsel for the respondents-Revenue would submit that consequent to order of the Tribunal, which has remanded the matter only insofar as Arms Length Price of the international transaction was concerned, the procedure under Section 144C of the Act having been followed at an earlier stage, question of following the procedure under Section 144C of the Act does not arise once again. It is further submitted that as entirety of the assessment was not set aside and order was set aside partially in terms of Para-7.1 of the order of the Tribunal, the question of redoing the procedure as contemplated under Section 144C of the Act does not arise. 4. Heard the learned counsel for the petitioner and learned counsel for the respondents. 5. It must be noted that the Tribunal had remanded the order back with the following observation at Para-7.1 of the order of Tribunal, which reads as follows: "7.1 In view of the above order of the Tribunal, the entire issue raised in this appeal are restored to the files of the AO/TPO to arrive at fresh ALP of the international transaction undertaken by the assessee with its AE. It is ordered accordingly."

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NC: 2023:KHC:24305 WP No. 10810 of 2023 6. It is clear that only a portion of the order of assessment is set aside insofar as the fixation of Arms Length Price of the international transaction undertaken by the assessee. No doubt, it is only a portion of the assessment order, which has been set aside, however, if the aspect of Arms Length Price of the international transaction is to be re-looked into after report of the TPO, procedure to be followed as provided under Section 144C of the Act is required to be extended for completion of the assessment proceedings. The procedure under Section 144C of the Act would have to be made available or followed even where assessment proceedings are sought to be concluded only on certain aspect of the matter afresh upon remand. That would be the only manner of construing the mandate under Section 144C of the Act, which confers right on the assessee to receive a draft of the proposed order of assessment. 7. Accordingly, assessment order at Annexure-H is set aside; the matter is restored to the stage of post report of the TPO and the assessment proceedings to be concluded by following the procedure under Section 144C of the Act and draft of the proposed order of assessment is required to be

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NC: 2023:KHC:24305 WP No. 10810 of 2023 forwarded to the assessee, if the Assessing Officer proposes to make any variation prejudicial to the interest of such assessee. Consequently, the Demand Notice at Annexure-H1 is set aside. In view of the above, petition is disposed off. All other contentions are kept open. Sd/- JUDGE SMJ List No.: 1 Sl No.: 10

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