DY COMMISSIONER OF INCOME TAX (INT TAX)- 3(2)(1), MUMBAI vs. MARRIOTT INTERNATIONAL INC, MUMBAI

Therefore, it is admitted position that the additions made by the Assessing Officer stood deleted vide Order, dated 20/02/2023, passed by the Tribunal in ITA No.1830/Mum/2021 pertaining to the Assessment Year 2010-2011. During the course of hearing the Learned Authorized Representative for the Assessee had placed on record copy of the aforesaid order of the Tribunal. On perusal of the same we find that the Tribunal had quashed the Assessment Order, dated 29/12/2016, passed by the Assessing Officer for the Assessment Year 2010-2011 holding as under:

Provisions of section 144C of the Act lays down the procedure to be followed under special mechanism. The AO is first required to pass draft assessment order u/s 144C (1) of the Act. On receipt of the draft assessment order, the eligible assessee within 30 days either accepts the variations or may file objections, against such variations before the DRP. If no objections are filed against the draft assessment order, the AO shall pass the final assessment order. In case the objections are filed before the DRP, the DRP shall issue the directions and it is only after the directions of the DRP that the AO shall pass the final assessment order after giving effect to the directions of the DRP.

In the instant case, the Revenue has pointed that the assessment order dated 29/12/2016 was passed to give effect to the directions of the Tribunal, hence, there was no requirement to pass the draft assessment order. It is evident from the cause title of the assessment order dated 29/12/2016 that the assessment order is passed consequent to the directions of the Tribunal. The learned AR of the assessee has placed reliance on the decision of Hon’ble Bombay High Court in the case of Dimension Data Asia Pacific PTE Ltd. Vs. DCIT (supra). In the said case, the petitioner a foreign company challenged the validity of the assessment order as the final assessment order was passed without passing the draft assessment order. The said assessment order was also passed consequent to the directions of the Tribunal. The Department had raised similar objections as was raised by the DR in the present case. The Hon’ble High Court rejected the contentions of the Revenue and held that the draft assessment order has mandatorily to be passed u/s 144C of the Act, even in remand proceedings. The relevant findings of the Hon’ble Court are extracted herein below:

This "fresh adjudication" itself would imply that it would be an order which would decide the lis between the parties, may not be entire lis, but the dispute which has been restored to the Assessing Officer. According to us, the order dated 31st January, 2018 is not an order merely giving an effect to the order of the Tribunal, but it is an assessment order which has invoked Section 143(3) of the Act and also Section 144C of the Act. This invocation of Section 144C of the Act has taken place as the Assessing Officer is of the view that it applies, then the requirement of Section 144C(1) of the Act has to be complied with before he can pass the impugned order invoking Section 144C(13) of the Act. In fact, Section 144C(13) of the Act can only be invoked in cases where the assessee has approached the DRP in terms of sub- Section 144(C)(2)(b) of the Act and the DRP gives direction in terms of Section 144C(5) of the Act. In this case, the assessment order has invoked Section 144C(13) of the Act without having passed the necessary draft Assessment Order under Section 144C(1) of the Act, which alone would make an direction under Section 144C(5) of the Act by the DRP possible. Thus, the impugned order is completely without juri iction.

Moreover, so far as a Foreign Company is concerned, the Parliament has provided a special procedure for its assessment and appeal in cases where the Assessing Officer does not accept the returned income. In this case, in the working out of the order dated 5th May, 2017 of the Tribunal results in the returned income being varied, then the procedure of passing a draft assessment order

In the above view, the impugned order is without juri iction. Thus, the plea of alternate remedy advanced by the Revenue so as to not entertain this petition, does not merit acceptance in the present facts.” (Emphasized by us)

The Hon’ble Bombay High Court in the case of Exxon Mobil Company (P.) Ltd. Vs. DCIT in a recent decision reiterated the legal requirement of passing draft assessment order in proceeding u/s 144C of the Act arising out of remand from the Tribunal. The Hon’ble High Court held that where Tribunal remanded the matter to give effect to transfer pricing issue, assessee’s case would be eligible u/s 144C of the Act and the AO was required to pass draft assessment order before issuance of final assessment order. Similar view was taken by the Hon’ble Delhi High Court in the case of Turner International India (P.) Ltd. Vs. DCIT (supra). The Hon’ble Delhi High Court held that failure of AO to adhere to mandatory requirement of section 144C (1) of the Act, where the final assessment order has been passed without draft assessment order, such final assessment order shall be invalid.

In the instant case, the Tribunal vide order dated 09/03/2018 restored the issue back to AO with following directions:

In the result, assessee succeeds on additional ground of appeal. Since, we have adjudicated legal issue raised as additional ground of appeal in favour of assessee, the grounds in appeal on merits have become academic and thus, are left open.

In the result, appeal of the assessee is allowed.”

On facts and circumstances of the case and in law, the penalty order dated 31 March 2023 passed by the Assessing Officer (‘AO’) under section 271(1)(c) r.w.s.274 of the Income Tax Act, 1961 (‘the Act’) is bad in law.”