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Facts
A search and seizure operation under section 132 of the Income Tax Act was conducted, leading to assessments under section 153C/144 for multiple assessees. The lead assessee, Rolland Enterprises Ltd., is a non-resident BVI-based corporate entity that leases oil exploration equipment to an Indian company. The Assessing Officer completed the assessments without issuing a draft assessment order under Section 144C(1) to the eligible assessees, a procedure mandated by the Act for foreign companies.
Held
The Tribunal held that the procedure of issuing a draft assessment order under Section 144C(1) of the Income Tax Act, 1961, is mandatory for eligible assessees, including foreign companies, if the Assessing Officer proposes any variation prejudicial to their interest. The failure of the Assessing Officer to adhere to this mandatory requirement renders the final assessment orders bad in law, without jurisdiction, null and void, and unsustainable.
Key Issues
Whether the Assessing Officer's failure to issue a mandatory draft assessment order under Section 144C(1) of the Income Tax Act, 1961, to an eligible assessee (a foreign company) vitiates the final assessment orders and renders them invalid and unenforceable.
Sections Cited
Section 6(3)(ii), Section 9(1), Section 124(4), Section 124, Section 127, Section 131, Section 132, Section 143(2), Section 144C, Section 153, Section 153C, Section 154, Section 246, Section 246A, Section 253, Section 92CA
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH D, NEW DELHI
Before: Sh. Saktijit DeyDr. B. R. R. Kumar
ORDER Per Bench: The present appeals by the Revenue and the Cross Objections by the assessee have been filed against the orders of ld. CIT(A)-XXVII, New Delhi.
2. The common grounds raised in 3131 to 3133, 3356 & 3357, 3349 to 3352, 4650 to 4653 & 5396/Del/2015. In ITA No. 3349/Del/2015, following grounds have been raised by the Revenue:
“1. The Ld. Commissioner of Income Tax (Appeals) has erred in law as well as on facts in holding that there is 5 to 3352 & Others/Del/2015 CO Nos. 353 to 356 & Others/Del/2015 Rolland Enterprises Ltd. & Others . substantial force in the submission made by the appellant on the issue of initiating proceedings u/s 153C of Income Tax Act.
2. The Ld. Commissioner of Income Tax (Appeals) has erred in law as well as on facts in holding that assessee company is not resident in terms of provisions under section 6(3)(ii) of the I.T. Act for the purpose of tax liability whereas on the basis of seized documents/e- mails and various statements of Sh. Ajay Kalsi/Sh. Anil Aggarwal, it has been established that control and management of the assessee company is situated wholly in India.
3. The Ld. Commissioner of Income Tax (Appeals) has erred in law as well as on facts in ignoring that underlying assets and sources of revenue of all the overseas companies are the Indian Companies.
4. The Ld. Commissioner of Income Tax (Appeals) has erred in law as well as on facts in ignoring the substantial evidence in form of seized material, E-mails, Share Holding pattern showing the ultimate control and management of Indian companies and overseas companies lies with Sh. Ajay Kalsi and Smt. Mala Kalsi, who have created different verticals of corporate veil under them to avoid taxability in India.
5. The Ld. Commissioner of Income Tax (Appeals) has erred in law as well as on facts in ignoring the provisions of section 9(1) of the I.T. Act as the revenue has been earned because of underlying assets of the assessee wholly and totally situated in India.
6. The Ld. Commissioner of Income Tax (Appeals) has erred in law as well as on facts in deleting the addition of Rs.17,79,28,594/- made by Assessing Officer.”
The common grounds raised in CO Nos. 344 to 347, 353 to 356, 360, 361, 388 & 393 to 396/Del/2015. In CO No. 353/Del/2015 following grounds have been raised by the assessee:
6 to 3352 & Others/Del/2015 CO Nos. 353 to 356 & Others/Del/2015 Rolland Enterprises Ltd. & Others . “1. That on the facts and circumstances of the case, the learned A.O. has erred, both on facts and in law, in assuming jurisdiction over the subject company. 2.(i) On the facts and circumstances of the case, the learned A.O. has erred, both on facts and in law, in proceeding with the assessment proceedings without considering the aspect of jurisdiction in terms of Section 124(4) of the Income Tax Act, 1961 (‘Act’), despite the fact that the company has objected to assumption of jurisdiction. 2.(ii) That on the facts of the case and in law, the alleged jurisdiction assumed by learned A.O. is contrary to the scheme of the Act including provisions of section 124 to 127 of the Income Tax Act. Accordingly, the assessment order passed is void ab initio and liable to be quashed. 3.(i) That on the facts and circumstances of the case, the proceedings initiated by learned A.O. under Section 153C are bad in law and against the statutory provisions. 3.(ii) That without prejudice to the above and in the alternative, the learned A.O. has erred in initiating proceeding under section 153C of the Act for the assessment year under consideration as the proceedings initiated and the consequent assessment is barred by limitation.
4. On the facts and circumstances of the case, the learned A.O. has erred, both on facts and in law in passing the assessment order straightaway while ignoring the statutory provisions of Section 144C of the Act, in terms of which, the learned A.O. ought to have passed a draft assessment order in the case of an eligible company, i.e. a foreign company.
That the assessment framed without issuance of statutory notice under Section 143(2) of the Act after filing of the return is bad in law and therefore, liable to be quashed.”
Heard the arguments of both the parties and perused the material available on record.
7 to 3352 & Others/Del/2015 CO Nos. 353 to 356 & Others/Del/2015 Rolland Enterprises Ltd. & Others . 5. The COs pertaining to A.Y. 2008-09, A.Y. 2009-10, A.Y. 2010-11, and A.Y. 2011-12 are being dealt together.
At the outset, the ld. AR preferred to argue ground no. 4 of the CO which reads as under:
4. On the facts and circumstances of the case, the learned A.O. has erred, both on facts and in law in passing the assessment order straightaway while ignoring the statutory provisions of Section 144C of the Act, in terms of which, the learned A.O. ought to have passed a draft assessment order in the case of an eligible company, i.e. a foreign company.
For the sake of ready reference, the facts from the Assessment Year 2008-09 in the case of M/s Rolland Enterprises Ltd. has been taken as a lead case.
Issues examined:
Facts Provisions of Section 144C Explanatory note to Finance (No.2) Act CBDT Circulars Orders of the ITAT Judgment of Hon’ble Gujarat High Court Judgment of Hon’ble Jurisdictional High Court Facts:
A search & seizure operation u/s 132 of the Income Tax Act, 1961 was conducted by the Investigation Wing of the Income Tax Department on 22.03.2012 in M/s Focus Energy
8 to 3352 & Others/Del/2015 CO Nos. 353 to 356 & Others/Del/2015 Rolland Enterprises Ltd. & Others . Group of cases. In the course of search operation, certain incriminating documents pertaining to the assessee were found and seized. Accordingly, notice u/s 153C was issued on the assessee and assessment has been completed u/s 153C/144 of the Income Tax Act on 28.03.2014.
The pertinent facts are that the assessee is a non-resident corporate entity, BVI based company incorporated in 1994 owns equipments related to exploration and development of oil fields and lease them to company named “Focus Energy Ltd.” which is deducting tax on lease rent paid to assessee as per the provisions of TDS.
It was brought to our notice that the assessee is an ‘eligible assessee’ for the purpose of Section 144C(15)(b) of the Income Tax Act, 1961. The said provision reads as under:
“(15) For the purposes of this section,— (a) "Dispute Resolution Panel" means a collegium comprising of three 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.]”
The fact that the assessee is an ‘eligible assessee’ is not in dispute. The assessee being an ‘eligible assessee’, the procedure prescribed u/s 144C(1) of the Act is applicable and the Assessing Officer should forward a draft of the proposed
9 to 3352 & Others/Del/2015 CO Nos. 353 to 356 & Others/Del/2015 Rolland Enterprises Ltd. & Others . order of the assessment to the eligible assessee if the Assessing Officer proposes to make any variation which is prejudicial to the interest of such assessee. The said provisions of Section 144C(1) of the Income Tax Act, 1961 are 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 in the income or loss returned which is prejudicial to the interest of such assessee.
It was brought to our notice that instead of following the mandatory procedure laid down u/s 144C(1) of the Income Tax Act, 1961, the Assessing Officer has completed the assessment u/s 153C without forwarding any draft of the proposed order of assessment to the assessee, which is in divergence to the procedure laid down in the Act. In this case, the Assessment Order has been passed on 28.03.2014, which is after the amendment brought to the statute by Finance (No. 2) Act, 2009. This fact is not in dispute.
Having gone through the record before us wherein the Assessment Order has been passed on 28.03.2014 and also that no draft order has been issued by the assessee, the legal position on this issue has been examined.
Section 144C:
The provisions of Section 144C introduced by Finance Act, 2009 w.e.f. 01.04.2009 reads as under:
10 to 3352 & Others/Del/2015 CO Nos. 353 to 356 & Others/Del/2015 Rolland Enterprises Ltd. & Others . “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 in the income or loss returned 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, 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:—
11 to 3352 & Others/Del/2015 CO Nos. 353 to 356 & Others/Del/2015 Rolland Enterprises Ltd. & Others . (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. (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,
12 to 3352 & Others/Del/2015 CO Nos. 353 to 356 & Others/Del/2015 Rolland Enterprises Ltd. & Others . notwithstanding anything to the contrary contained in section 153, 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.
(15) For the purposes of this section,— (a) "Dispute Resolution Panel" means a collegium comprising of three 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.]”
A plain reading of Section indicates that it is obligatory on the part of the AO to forward a draft Assessment Order as per the provisions of Section 144C(1) of the Act. The sub-Section (1) of Section 144C being a non-obstante clause overrides all the provisions of the Act if they are contrary to Section 144C of the Act. This provision is applicable from 1st October 2009 in all the cases where the Assessing Officer proposes any variation to the income returned by an ‘eligible assessee’.
We have examined the expression of ‘eligible assessee’ as per the Act. The expression ‘eligible assessee’ has been defined under sub-Section (15) of Section 144C of the Act. As per sub- Section (15)(b)(i) of Section 144C of the Act, ‘eligible assessee’ means any person in whose case the variation referred to in 13 to 3352 & Others/Del/2015 CO Nos. 353 to 356 & Others/Del/2015 Rolland Enterprises Ltd. & Others . sub-Section (1) arises as a consequence of the order of the Transfer Pricing Officer passed under sub-Section (3) of Section 92CA of the Act.
Explanatory Note to Finance (No. 2) Act: CBDT Circulars:
We have gone through the Circular No. 5/2010 dated 03.06.2010 which reads as under:
“45. Provision for constitution of alternate dispute resolution mechanism 45.1 The dispute resolution mechanism presently in place is time consuming and finality in high demand cases is attained after long drawn litigation till Supreme Court. In order to address the concern of the multi- national companies and to provide mechanism for speedy disposal of their cases so as to attain finality, a new section 144C is inserted in the Income-tax Act to facilitate expeditious resolution of disputes.
45.2 The salient features of the alternate dispute resolution mechanism are as under:-
(1) The Assessing Officer shall, forward a draft of the proposed order of assessment (hereinafter 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 in the income or loss returned 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.
14 to 3352 & Others/Del/2015 CO Nos. 353 to 356 & Others/Del/2015 Rolland Enterprises Ltd. & Others . (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, 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 subsection (5), after considering the, -
(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 15 to 3352 & Others/Del/2015 CO Nos. 353 to 356 & Others/Del/2015 Rolland Enterprises Ltd. & Others . (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.
(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 their interest.
(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 the assessment without giving any further opportunity of being heard, within one month from the end of the month in which the direction is received notwithstanding anything to the contrary contained in section 153.
(14) The Board may make rules for the efficient functioning of the Dispute Resolution Panel with a view to expeditiously dispose of the objections filed, under sub-section(2), by the eligible assessee. (15) For the purposes of this section, -
16 to 3352 & Others/Del/2015 CO Nos. 353 to 356 & Others/Del/2015 Rolland Enterprises Ltd. & Others . (a) “Dispute Resolution Panel” means a collegium comprising of three 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 (j) any foreign company.
45.3 Further, consequential amendments have been made –
(i) in sub-section (1) of section 131 so as to provide that the “Dispute Resolution Panel” shall have the same powers as are vested in a Court under the Code of Civil Procedure, 1908 (5 of 1908); (ii) in clause (a) of sub-section (1) of section 246A so as to exclude the order of assessment passed under sub-section (3) of section 143 or under section 147 in pursuance of the directions of the “Dispute Resolution Panel” as an appealable order and in clause (c) of sub-section (1) of section 246 so as to exclude an order passed under section 154 of such order as an appealable order;
(iii) in sub-section (1) of section 253 so as to include an order of assessment passed under sub-section (3) of section 143 or under section 147 in pursuance of the directions of the “Dispute Resolution Panel” as an appealable order.
45.4 It would be the choice of the assessee whether to file an objection against the draft assessment order before the Dispute Resolution Panel (DRP) or to pursue the normal channel of filing an appeal against the assessment order before the Commissioner of Income Tax (Appeals). In order to approach the DRP, the assessee must file an objection against the draft assessment order within the prescribed time limit. In case the assessee does not file an objection, the assessing officer shall pass the assessment order. The assessee can file an appeal against such 17 to 3352 & Others/Del/2015 CO Nos. 353 to 356 & Others/Del/2015 Rolland Enterprises Ltd. & Others . assessment order before the CIT (Appeals). Once the option of filing an objection against the draft assessment order before the DRP has been exercised, the assessee cannot withdraw the objection and opt for the normal channel of filing appeal before CIT(Appeals).
45.5 Applicability – These amendments have been made applicable with effect from 1 s t October, 2009, and will accordingly apply in relation to assessment year 2010-11 and subsequent assessment years. The Dispute Resolution Panel Rules have been notified by S.O. No. 2958(E) dated 20 th November, 2009.”
Further, we have gone through the Circular No. 9/2013 dated 19.11.2013 where by the AO is required to forward a draft Assessment Order to the ‘eligible assessee’ if it is proposed to make any variation to the returned income after 1st October 2009. The said Circular of CBDT is as under:
Circular No. 09/2013 File No. 142/20/2013-TPL Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes Dated, the 19 t h November, 2013 Sub: Clarification in respect of Circular No.5/2010 – F. No. 142/13/2010 – SO (TPL) dated 03.06.2010- regarding. Section 144C, providing for reference to Dispute Resolution Panel (DRP), was inserted in the Income-tax Act, 1961 by Finance (No.2) Act, 2009. Subsection (1) of section 144C reads as under: “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 (hereinafter in this section referred to as the draft order) to the eligible assessee if he proposes to make, on or after the 1 s t
18 to 3352 & Others/Del/2015 CO Nos. 353 to 356 & Others/Del/2015 Rolland Enterprises Ltd. & Others . day of October, 2009, any variation in the income or loss returned which is prejudicial to the interest of such assessee.”
Explanatory Circular for Finance (No.2) Act, 2009 i.e. Circular No. 5 of 2010 dated 03.06.2010, in para 45 has explained the said new section 144C and the consequential amendments made in other sections of Income-tax Act. Para 45.5 of the Circular No.5/2010 dated 03.06.2010 reads as under:
“45.5 Applicability: These amendments have been made applicable with effect from 1 s t October, 2009 and will accordingly apply in relation to assessment year 2010-11 and subsequent assessment years. The Dispute Resolution Panel Rules have been notified by S.O. No. 2958 (E) dated 20 th November, 2009.” In the above extracted Para 45.5 there has been an inadvertent error in stating the applicability of the provisions of section 144C inserted vide Finance (No.2) Act, 2009 that amendments will apply in relation to the assessment year 2010-11 and subsequent assessment years. Accordingly, para 45.5 is replaced with the following:
45.5. Applicability: Section 144C has been inserted with effect from 1 st April, 2009. Accordingly, the Assessing Officer is required to forward a draft assessment order to the eligible assessee, if he proposes to make, on or after the 1 st day of October, 2009, any variation in the income or loss returned which is prejudicial to the interest of such assessee. In other words section 144C is applicable to any order which proposes to make variation in income or loss returned by an eligible assessee, on or after 1 st October, 2009 irrespective of the assessment year to which it pertains. Amendments to other sections of the Income-tax Act referred to in para 45.3 of the circular 5/2010 dated 3 r d June, 2010 shall also apply from 1 s t October, 2009.