DCIT, NEW DELHI vs. NEWBURY HOLDING LTD., NEW DELHI

5. The ld. Commissioner of Income Tax (Appeals) has erred in holding that the Assessing Officer had no jurisdiction to issue notice under section 148 of the Act by wrongly holding that the assessee company was a non-resident entity.

6. The Ld. Commissioner of Income Tax (Appeals) has erred in holding the provisions of section 124(4) was applicable in this case and also that order should have been passed considering the provisions of section 144C of the Act.

7. (a) The order of the Ld. CIT (Appeals) is erroneous and not tenable in law and on facts. (b) The appellant craves leave to add, alter or amend any/all of the grounds of appeal before or during the course of the hearing of the appeal.”

3. The grounds of the Cross Objection in CO for A.Y. 2007-08is as under:-

“1. On the facts and circumstances of the case the notice u/s 148 issued in this case without jurisdiction, bad-in-law and illegal and therefore such notice and the assessment order made on the foundation of such notice are liable to be quashed. On the facts and circumstances of the case, the alleged reasons recorded in this case, the alleged reasons recorded in this case is against the facts and statutory provisions of the Act.

2. On the facts and circumstances of the case and in law the notice issued under section 148 of the Act and the consequent proceedings initiated in this case is bared by limitation.

3. On the facts and circumstances of the case and in law, the proceedings initiated against the company are contrary to provisions of section 147 to section 151 of the Income tax Act, 1961.

4. On the facts and circumstances of the case and in law, the initiation of assessment proceedings and issue/service of notices are not in accordance with the provisions of law and accordingly

5. Aggrieved by the above assessment orders dated 30/03/2014, the assessee preferred two appeals before the Commissioner of Income Tax (Appeals) by challenging assessment orders on the merits as well as on the legal issue. The Ld. CIT(A) allowed the Appeals of the Assessee on 11/06/2015 finding that the Assessee is a non-resident in India and not liable to pay tax in the year under consideration, passing the Draft Assessment Order as per Section 144C of the Act.

6. As against the orders of the Ld. CIT(A) dated 11/06/2015 pertaining to A.Ys. 2007-08& 2008-09, the Revenue preferred the above Appeals and the Assessee has also filed Cross Objections in support of the order of the Ld. CIT(A) on the Grounds mentioned above.

7. In Grounds of appeal, the Revenue challenged the action of the Ld. CIT(A) in holding that assessee is not a resident in terms of provisions of Section 6(3) (ii) of the Act for the purpose of tax liability and further challenged the action of the Ld. CIT(A) in setting aside the assessment orders on the ground that the assessment orders have been passed without passing the draft assessment orders.

8. The Ld. Departmental Representative submitted that the Ld. CIT(A) committed error in holding that Assessee is not a resident and erroneously held that passing of the assessment order in the absence of the draft assessment orders illegal. Thus, sought for allowing the Grounds of appeal of the Revenue.

“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. --------------------- (15) For the purposes of this section, - (a) -------------- (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 92-CA; and(ii)any foreign company.]” assessment order by in compliance with provisions of section 144C(1) of the Act. The Hon’ble High Courts and Co-ordinate Bench of the Tribunal have laid down the ratio that having failed to pass assessment orders, the final assessment orders passed by the AO stands vitiated for failure to adhere to mandatory requirement of passing of the draft assessment order in terms of section 144C(1) of the Act.

12. The Hon’ble jurisdictional High Court in the case of Turner International India Pvt. Ltd. Vs. DCIT 2017 (5) TMI 991 held as under:

“10. The short ground on which the aforementioned final assessment orders and the consequent demand notices have been challenged is that there was non-compliance with the mandatory provision contained in Section 144C(1) of the Act requiring the AO to first frame draft assessment orders.

12. In Zuari Cement Ltd. v. ACIT (decision dated 21st February, 2013 in WP(C) No.5557/2012), the Division Bench (DB) of the Andhra Pradesh High Court categorically held that the failure to pass a draft assessment order under Section 144C (1) of the Act would result in rendering the final assessment order "without jurisdiction, null and void and unenforceable." In that case, the consequent demand notice was also set aside. The decision of the Andhra Pradesh High Court was affirmed by the Supreme Court by the dismissal of the Revenue's SLP (C) [CC No. 16694/2013] on 27th September, 2013.

13. In Vijay Television (P) Ltd. v. Dispute Resolution Panel [2014] 369 ITR 113 (Mad.), a similar question arose. There, the Revenue sought to rectify a mistake by issuing a corrigendum after the final & 5335/Del/2015 CO Nos. 349 & 350/Del/2015 DCIT Vs. Newbury Holding Ltd. assessment order was passed. Consequently, not only the final assessment order but also the corrigendum issued thereafter was challenged. Following the decision of the Andhra Pradesh High Court in Zuari Cement Ltd. v. ACIT (supra) and a number of other decisions, the Madras High Court in Vijay Television (P) Ltd. v. Dispute Resolution Panel (supra) quashed the final order of the AO and the demand notice. Interestingly, even as regards the corrigendum issued, the Madras High Court held that it was beyond the time permissible for issuance of such corrigendum and, therefore, it could not be sustained in law.

14. Recently, this Court in ESPN Star Sports Mauritius S.N.C. ET Compagnie v. Union of Indi [2016] 388 ITR 383 (Del.), following the decision of the Andhra Pradesh High Court in Zuari Cement Ltd. v. ACIT (supra), the Madras High Court in Vijay Television (P) Ltd. v. Dispute Resolution Panel, Chennai (supra) as well as the Bombay High Court in International Air Transport Association v. DCIT (2016) 290 CTR (Bom) 46, came to the same conclusion.

15. Mr. Dileep Shivpuri, learned counsel for the Revenue sought to contend that the failure to adhere to the mandatory requirement of issuing a draft assessment order under Section 144C (1) of the Act would, at best, be a curable defect. According to him the matter must be restored to the AO to pass a draft assessment order and for the Petitioner, thereafter, to pursue the matter before the DRP.

16. The Court is unable to accept the above submission. The legal position as explained in the above decisions in unambiguous. The failure by the AO to adhere to the mandatory requirement of Section 144C (1) of the Act and first pass a draft assessment order would result in invalidation of the final assessment order and the consequent demand notices and penalty proceedings.

17. For the aforementioned reasons, the final assessment orders dated 31st March, 2015 passed by the AO for AYs 2007-08 and 2008-09, the consequential demand notices issued by the AO and the initiation of penalty proceedings are hereby set aside.

18. The petitions are allowed in the above terms. No order as to costs.”

2. The Revenue has projected the following questions of law in the present appeals: “2.1 Whether on the facts and in the circumstances of the case, the Ld. ITAT has erred in law in holding that assessment orders passed are unsustainable for not passing the draft assessment order as per the provisions of Section 144C(1) of the Act which is applicable to non-residents and the assessee in this case is a resident of lndia? 2.2 Whether on the facts and in the circumstances of the case, the Ld. ITAT has erred by relying on facts in ignoring statements of Sh. Ajay Kalsil Sh. Anil Aggarwal and the documents seized wherein it was established that the control and management of the assessee company is situated wholly in India with Sh. Ajay Kalsi and Smt. Mala Kalsi, who have created different verticals of corporate veil under them to avoid taxability in India?”

& 5335/Del/2015 CO Nos. 349 & 350/Del/2015 DCIT Vs. Newbury Holding Ltd. 3.3 Pursuant to the notice issued under Section 153C of the Act, the assessments were completed. It is the Assessee’s case that it is an “eligible assessee” and the procedure as prescribed under the Act was not followed. In as much as, the draft assessment order was not issued as required under Section 144C(1) of the Act. 3.4 The Assessing Officer (AO) held that the Assessee’s income was chargeable to tax under the Act, as its control and management is situated in India. The AO held that the Assessee was a resident of India under Section 6(3) of the Act. And, passed assessment orders on 28.03.2014. 3.5 Aggrieved by the assessment orders, the Assessee preferred appeals before the Commissioner of Income Tax (Appeals) [hereafter CIT(A)], which were allowed by the orders dated 27.02.2015. The learned CIT(A) found that the control and management of the affairs of the Assessee was in the hands of its Board of Directors who were not the residents of India. The learned CIT(A) faulted the findings of the AO to treat the Assessee as a resident in terms of provision of Section 6(3)(ii) of the Act. 3.6 The Revenue being aggrieved by the orders passed by the learned CIT(A) preferred appeals in respect of the assessment orders in question before the Income Tax Appellate Tribunal (hereafter ITAT). The Assessee also filed cross objections on the ground that the procedure prescribed under Section 144C of the Act was not complied. 3.7 The cross objections preferred by the Assessee were allowed and accordingly, the appeals preferred by the Revenue were dismissed.

4. Concededly, the provisions of Section 144C(1) of the Act had not been complied with as no draft assessment order was framed.

14. The Co-ordinate Bench of the Tribunal by following the ratio laid down by the Hon’ble jurisdictional High Court (supra), in the case of DCIT Vs. Newbury Oil Company Ltd. 2021(7) TMI 945 held as under:

14. Now we come to the next contention of the assessee that for non- adherence of the provisions of section 144C of the Act, the assessment is bad in law, the first contention of the assessee is that they are foreign company and therefore, falls within the expression "eligible assessee" u/s. 144C of the Act. On this aspect it could be seen from the record that the assessee company incorporated in Cyprus as per laws of Cyprus and have been resident of Cyprus. The assessee has been filing the Income- tax Return with Cyprus Revenue Authorities. Copies of ITRs are also provided by FT & TR Division to the Assessing Officer. On examining these documents, Ld. CIT(A) recorded finding of fact that the information with the Ld. Assessing Officer amply and evidently substantiate as a pointer to the assessee's contention that it is a resident of Cyprus. Learned CIT(A) further referred to the observations of the Assessing Officer of the assessee in Cyprus that the assessee was registered outside India in accordance with the laws of Cyprus and such location was not challenged. CIT(A) found that the submissions made by the assessee tallied with the information and documents provided by FT & TR, more particularly at paragraph No. 5.9 of such an assessment order.

15. There is no challenge to the observation of the CIT(A) that the assessee is a resident in Cyprus. Learned CIT(A) examined the & 5335/Del/2015 CO Nos. 349 & 350/Del/2015 DCIT Vs. Newbury Holding Ltd. material available before her in the light of the provisions of section 6(3) of the Act and also the orders passed by TPO in the case of Focus Energy Ltd for the assessment years 2006-07 to 2012-13. All these materials had shown that M/s. Focus Energy Ltd. had international transactions with the assessee. M/s. Focus Energy Ltd. is undisputedly an Indian Company. It is, therefore, inferred that since the transaction between Focus Energy Ltd. with the assessee was accepted as an international transaction continuously over a period of time, it goes without saying that other party, i.e., the assessee is a foreign company. Any transaction between Indian Company and Indian company cannot be an international transaction and therefore, the international transaction of Focus Energy Ltd. which is an Indian Company, will necessarily be with the foreign company. On this premise also, CIT(A) concluded that it an unmistakable pointer that the assessee is a foreign company and such a fact is admitted by the Assessing Officer while dealing with the transactions of Focus Energy Ltd. with its foreign AEs continuously over a period of time. Basing on these facts, learned CIT(A) concluded that the material on record is more than enough to conclude that the assessee is a foreign company and therefore, under the provisions of section 144C, the Assessing Officer shall, in the first instance, forward a draft order of the proposed assessment to the assessee if he proposes to make any variation which is prejudicial to the interest of assessee.

16. Evidently, no draft order was passed in this case. Hon'ble Delhi High Court in the case of Turner International India Pvt. Ltd. vs. DCIT (supra) held as under - "10. The short ground on which the aforementioned final assessment orders and the consequent demand notices have been challenged is that there was non-compliance with the mandatory provision contained in Section 144C(1) of the Act requiring the AO to first frame draft assessment orders.

11. The question whether the final assessment order stands vitiated for failure to adhere to the mandatory requirements of first passing draft assessment order in terms of Section 144C(1) of the Act is no longer res integra. There is a long series of decisions to which reference would be made presently.

13. In Vijay Television (P) Ltd. v. Dispute Resolution Panel [2014] 369ITR 113 (Mad.), a similar question arose. There, the Revenue sought to rectify a mistake by issuing a corrigendum after the final assessment order was passed. Consequently, not only the final assessment order but also the corrigendum issued thereafter was challenged. Following the decision of the Andhra Pradesh High Court in Zuari Cement Ltd. v. ACIT (supra) and a number of other decisions, the Madras High Court in Vijay Television (P) Ltd. v. Dispute Resolution Panel (supra) quashed the final order of the AO and the demand notice. Interestingly, even as regards the corrigendum issued, the Madras High Court held that it was beyond the time permissible for issuance of such corrigendum and, therefore, it could not be sustained in law.

16. The Court is unable to accept the above submission. The legal position as explained in the above decisions in unambiguous. The failure by the AO to adhere to the mandatory requirement of Section 144C (1) of the Act and first pass a draft assessment order would result in invalidation of the final assessment order and the consequent demand notices and penalty proceedings.

17. For the aforementioned reasons, the final assessment orders dated 31st March, 2015 passed by the AO for AYs 2007-08 and 2008-09, the consequential demand notices issued by the AO and the initiation of penalty proceedings are hereby set aside.

18. The petitions are allowed in the above terms. No order as to costs."

& 5335/Del/2015 CO Nos. 349 & 350/Del/2015 DCIT Vs. Newbury Holding Ltd. 19. It is, therefore, clear that the assessment order is bad for invoking the jurisdiction u/s. 153C without proper satisfaction and also for not passing the draft assessment order as required u/s. 144C, and as explained by Hon'ble Delhi High Court.”

15. In view of the above facts and circumstances as the Assessing Officer has passed the Final Assessment orders without adhering to the provisions of section 144C(1) of the Act, the impugned Final Assessment orders passed by the AO stands vitiated. Therefore, we find no error or infirmity in the order of the CIT(A) in setting aside the Final Assessment orders. Accordingly, the grounds of the Revenue are dismissed.

17. Since, we have dismissed the appeal of the Revenue by upholding the impugned orders of the CIT(A), the Cross Objections No. 349 & 350/Del/2015 have become in-fructuous. Accordingly, COs of the Assessee are dismissed.

Order pronounced in the open court on September, 2025