Https://Hcservices.ecourts.gov.in/Hcservices v. Headstrongservices India (P) Ltd

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 21.06.2021 CORAM THE HONOURABLE MR.JUSTICE S.M.SUBRAMANIAM W.P.No.31165 of 2018andW.M.P.Nos.36367 & 36389 of 2018 M/s.Enfinity Solar Solutions Private Limited,Represented by its Director,Mr.Shalin Shah,No.55, Teachers Colony,Venkatarathnam Nagar,Chennai – 600 020. .. Petitionervs The Deputy Commissioner of Income Tax,Corporate Circle – 2(1),R.No.511, Wanaparthy Block,121, Mahatma Gandhi Road,Nungambakkam,Chennai – 600 034. .. Respondent Prayer: Writ Petition filed under Article 226 of theConstitution of India praying to issue a Writ of Certiorari,calling for the records on the file of the Respondent in PAN: and quash the impugned Assessment Order issued underSection 143(3) r.w.s 254 of the Income Tax act, 1961 dated01.11.2018 passed by the respondent. O R D E R The Assessment order dated 01.11.2018 passed under Section143 (3) read with Section 254 of the Income Tax Act for theAssessment Year 2012-13 is under challenge in the present writpetition. 2. The petitioner is a Private Limited Company engaged inthe business of development and sale of integrated solarinstallations and other related services for solar powerinstallations. The petitioner filed the return of income for the https://hcservices.ecourts.gov.in/hcservices/ Assessment Year 2012-13 on 28.11.2012. The return was dulyprocessed under Section 143(1) and the case was selected forscrutiny under Section 143(2) dated 20.04.2015 and thepetitioner company had international transactions with theAssociated Enterprise and the case was transferred to theTransfer Pricing Officer under Section 92CA of the Act fordetermining the Arm's Length Price. 3. The Transfer Pricing Officer vide his order dated29.01.2016 under Section 92 CA(3) of the Income Tax Act, made anadjustment to the Arm's Length Price of the internationaltransactions undertaken by the petitioner company. Thereafter, aDraft Assessment order was issued on 31.03.2016 under Section144(3) read with Section 144C(1) of the Act. Aggrieved over thesaid order, the petitioner company filed its objections beforethe Disputes Resolution Panel, Bangalore. The DisputesResolution Panel vide its order dated 21.10.2016, in addition tothe adjustments proposed by the Transfer Pricing Officer,directed the authority to make adjustments on the transactionswith Non-Associated Enterprises. Consequently, the AssessingOfficer issued the final assessment order under Section 143(3)read with Section 144(C)(13) incorporating the said adjustment.The petitioner company preferred an appeal before the Income TaxAppellate Tribunal[hereinafter referred to as 'ITAT'], Chennaiin ITA.No.2018/Mds/2018. The Tribunal vide its order dated03.04.2017, remitted back the matter to the Transfer PricingOfficer to examine the selection of most appropriate method fordetermining the Arm's Length Price and also to see whether theAssociated Enterprises has derived any benefit or mark up on theprice charged by the vendor for supply of raw materials topetitioner's Associated Enterprise. The petitioner company onceagain made its submissions before the Transfer Pricing Officer,through its authorized representative. After the entire hearing,the Transfer Pricing Officer vide his order dated 27.10.2018,computed the Arm's Length Price of International transactionswith respect to purchase of materials, which resulted in adownward adjustment. 4. The petitioner states that the order of the TransferPricing Officer would reveal that the authority has failed toconsider several crucial aspects. The respondent under thosecircumstances, instead of issuing a draft assessment order asmandated under Section 144(C)(1) of the Act, has issued thefinal assessment order under Section 143(3) read with Section254 of the Act in proceedings dated 01.11.2018. Thus, thepetitioner is constrained to move the present writ petition. 5. The learned counsel for the petitioner strenuouslycontended that the procedures followed by the respondent forpassing of the impugned order of final assessment is directly in violation of the procedures contemplated under Section 144(C) ofthe Income Tax Act. No draft assessment order has been passedafter remitting the matter back by the ITAT. Thus, thepetitioner is deprived of filing objections before the DisputesResolution Panel by submitting their objections. The denial ofopportunity in this regard is violation of the very provisionitself. Thus, the impugned final assessment order is liable tobe set aside. 6. In support of the said contention, the learned counselfor the petitioner referred the judgment of this Court in thecase of Principal Commissioner of Income Tax-4 Vs. HeadstrongServices India (P) Ltd., reported in [2021] 125 taxmann.com 262(Delhi) and the relevant paragraphs are extracted hereunder: “13. The ITAT while remanding the matter oftransfer pricing adjustment to the Assessing Officervide order dated 17[th] July, 2012 had not only 'restored'the matter "to the file of the Assessing Officer “forfollowing proper procedure" but also to "decide thematter de novo”. 14. This Court is of the view that once the ITATdirected the Assessing Officer to decide the matter denovo, it meant that a new hearing of the matter had tobe conducted, as if the original hearing had not takenplace (See: meaning of "De novo hearing" in Black"s LawDictionary). 15. Consequently, the Assessing Officer had todecide the matter in accordance with the elaborateprocedure mentioned in Section 144C and not de hors it. SECTION 144C ENVISAGES A CHANGE OF FORUM AND IT LEADS TOCOMPLETE CESSATION OF THE JURISDICTION OF THE ASSESSINGOFFICER ON PASSING OF THE DRAFT ORDER. THEREAFTER THEASSESSING OFFICER IS TO GIVE EFFECT TO EITHER THEDIRECTION OF THE DISPUTE RESOLUTION PANEL OR PASS ANORDER ON ACCEPTANCE BY THE ASSESSEE. 17. In the opinion of this Court, Section 144C isa self contained provision which carves out a separateclass of assesses i.e. 'eligible assessee' i.e. anyperson in whose case the variation arises as aconsequence of the order of the Transfer PricingOfficer passed under sub-section (3) of Section 92CA.For this class of assesses, it prescribes a collegiumof three commissioners, once objections are preferred.Dispute Resolution Panel's powers are co-terminous withthe CIT(A), including the power to confirm, reduce orenhance the variation proposed and to consider theissues not agitated by the Assessee in the objections.In fact, under Section 144C, the Dispute ResolutionPanel can issue directions as it thinks fit for the guidance of the Assessing Officer to enable him tocomplete the assessment and the Dispute ResolutionPanel can confirm, reduce or enhance the variationsproposed in the draft order. It is specificallystipulated in Section 144C that every direction issuedby the Dispute Resolution Panel shall be binding on theAssessing Officer. This is akin to the AssessingOfficer giving effect to an order passed by theAppellate Authority or the Courts. guidance of the Assessing Officer to enable him tocomplete the assessment and the Dispute ResolutionPanel can confirm, reduce or enhance the variationsproposed in the draft order. It is specificallystipulated in Section 144C that every direction issuedby the Dispute Resolution Panel shall be binding on theAssessing Officer. This is akin to the AssessingOfficer giving effect to an order passed by theAppellate Authority or the Courts. 18. Consequently, Section 144C envisages a changeof forum and it leads to complete cessation of thejurisdiction of the Assessing officer on passing of thedraft order. Thereafter the Assessing officer is togive effect to either the direction of the DisputeResolution Panel or pass an order on acceptance by theAssessee. THE EXPRESSION IN THE FIRST INSTANCE' HAS BEEN USED INSECTION 144C TO SIGNIFY THE FIRST STEP TO BE TAKEN BYTHE ASSESSING OFFICER IN A SERIES OF ACTS CONTEMPLATEDBY THE SAID SECTION. TO ACCEPT THE APPELLANT'S ARGUMENTWOULD BE TO PERMIT THE ASSESSING OFFICER TO DECIDE THEOBJECTIONS FILED BY THE ASSESSEE - WHICH POWER HAS BEENSPECIFICALLY DENIED BY THE STATUTE.” 7. The learned counsel for the petitioner also cited thejudgment in the case of M/s.Durr India Private Limited, Vs. TheAssistant Commissioner of Income Tax, Corporate Range-I inW.P.No.32751 of 2017 dated 27.05.2021. Further, in the case ofGE Oil & Gas India Private Limited Vs. Assistant Commissioner ofIncome Tax, the Madras High Court passed an order on 05.01.2021in W.P.No.1575 of 2020 and the relevant paragraphs are extractedhereunder: “3. The Officer raises the question ofmaintainability on the ground that a statutory remedyis available before the Assessing Officer forrectification of mistake. The error committed is not atechnical lapse as sought to be explained away, but onethat is substantive. It is an admitted position thatthe assessment of this petitioner involves issues oftransfer pricing and an order has been passed by theTransfer Pricing Officer determining the arms lengthprice. 5. I draw support in this regard from a decisionof this Court in Vijay Television V. Dispute ResolutionPanel (369 ITR 113), confirmed by the Division Bench in407 ITR 642 that reiterates the settled propositionthat Section 144C sets forth a mandatory scheme of assessment and it is incumbent upon the AssessingOfficer to pass an order of draft assessment at thefirst instance before proceeding to finalise theassessment in line with the procedure set out underSection 144C. 7. In Principal Commissioner of Income Tax V.Headstrong Services India Private Limited (I.T.A.No.77of 2019 dated 24.12.2020), the challenge was to anassessment made on remand from an appellate authorityand the issue that arose was whether the assessingauthority would have to pass a draft order ofassessment or a final order of assessment. The phrase‘in the first instance’ in Section 144C was interpretedby the Division Bench to the effect that, be anoriginal order of assessment or an assessment made onremand, the mandate of Section 144C must be followed.” 8. Relying on the above judgments, the learned counsel forthe petitioner reiterated that issuance of draft order ismandatory and contemplated under Section 144(C) of the IncomeTax Act. Thus, the respondents have not only violated theprovisions of the Act, but violated the legal principles settledby various Courts across the country. 8. Relying on the above judgments, the learned counsel forthe petitioner reiterated that issuance of draft order ismandatory and contemplated under Section 144(C) of the IncomeTax Act. Thus, the respondents have not only violated theprovisions of the Act, but violated the legal principles settledby various Courts across the country. 9. The learned Standing counsel appearing on behalf of therespondent disputed the contentions raised on behalf of thepetitioner by stating that the facts in the present case withreference to Section 144C of the Income Tax Act is no wayconnected with the judgments relied upon. In the present case,the draft assessment order was passed by the respondent.Thereafter, an assessment order was passed on 25.12.2016. Thepetitioner preferred an appeal before the Income Tax AppellateTribunal and the appeal was partly allowed and the matter wasremitted back to the Assessing Officer only to decide aparticular issue and therefore, the Assessing officer decidedthat issue and passed the assessment order. In suchcircumstances, if at all, the petitioner is aggrieved from andout of the assessment order passed, he has got a right of anappeal under Section 246A before the Commissioner of Income Tax(Appeals). Even without exhausting the Appellate remedycontemplated under the Act, the present writ petition is filed.Thus, the writ petition is to be dismissed. 10. With reference to the judgments relied upon, thelearned Standing counsel is of an opinion that though thejudgments are on different facts and circumstances andtherefore, the same cannot be relied upon for the purpose ofconsidering the case of the writ petitioner. The facts in thepresent case is entirely different and thus, the writ petition is liable to be dismissed. 11. Let us now consider the spirit of Section 144(C) of theIncome Tax Act, which contemplates procedures by itself. SubClause 1enumerates“TheAssessing Officershall,notwithstanding anything to the contrary contained in this Act,in the first instance, forward a draft of the proposed order ofassessment (hereafter in this section referred to as the draftorder) to the eligible assessee if he proposes to make, on orafter the 1[st] day of October 2009, any variation which isprejudicial to the interest of such assessee.” 12. Sub Clause 2 to Section 144(C) denotes that “On receiptof the draft order, the eligible assessee shall, within thirtydays of the receipt by him of the draft order,- (a) file his acceptance of the variations to the AssessingOfficer; or (b) file his objections, if any, to such variation with,- (i) the Dispute Resolution Panel; and (ii) the Assessing Officer” 13. Sub Clause 3 to Section 144C stipulates that “TheAssessing Officer shall complete the assessment on the basis ofthe draft order, if-(a) the assessee intimates to the Assessing Officer theacceptance of the variation; or(b) no objections are received within the period specifiedin sub-section (2).” 14. Careful perusal of the above provision, as rightlypointed out by the petitioner, the draft order is mandatoryunder Section 144(C) of the Income Tax Act. An Assessingofficer, at the first instance, forward a draft proposed orderof assessment, enabling the assessee to accept the variations tothe Assessing Officer or file his objections, if any, with theDisputes Resolution Panel and the Assessing Officer. Thus, theprocedure of passing of draft assessment order provides a rightto an assessee to file his objections before the DisputesResolution Panel and the Assessing Officer for vindicating hisgrievances and redress the same. It is needless to state thatthe provisions of the Act must be complied with by theexecutives in its letter and spirit. When the procedure ofpassing the draft assessment order is contemplated under theAct, the same is to be scrupulously followed by the authoritiescompetent. 15. Let us now consider whether the draft assessment orderhas been passed in the present case or not? 16. It is an admitted fact that the draft assessment order was passed by the respondent for the Assessment Year 2012-13 inproceedings dated 31.03.2016. Thereafter, the petitioner filedhis objections before the Disputes Resolution Panel ascontemplated under Sub Clause 2(b) to Section 144-C of theIncome Tax Act. Subsequently, all these materials wereconsidered by the Assessing Officer and the final assessmentorder was passed under Section 143(3) read with Section 144C(13)in proceedings dated 25.12.2016 for the Assessment Year 2012-13.Thus, it is crystal clear that the procedures contemplated underSection 144C of the Income Tax Act had been followed by therespondents scrupulously, while passing the assessment orderunder Section 143(3) of the Act in proceedings dated 25.12.2016.Once the process under Section 144C has been scrupulouslyfollowed and a final assessment order is passed, then one cannotraise that the procedures were not followed. 17. However, the petitioner is of an opinion that evenafter remand by the Income Tax Appellate Tribunal, such aprocedure is to be followed. In the present case, the petitionerpreferred an appeal before the Income Tax Appellate Tribunal andthe Appellate Tribunal adjudicated the issues on merits andpassed an order on 03.04.2017. The relevant portion of the finalorder in Paragraphs 6 and 7 reads as under: “6. We have heard both the parties and perused thematerial on record. As seen from the order of DRP, theassessee has only filed the purchase invoice relatingto its purchase from its AE and also filed back to backinvoice copies relating to AE purchasing to the tune ofRs.286,289,140.43. However, the assessee had notsubstantiated that AE has not derived any benefit ormark up on the price charged by the vendor for supplyof material to it (AE), which it has sold to thepresent assessee. Unless the assessee filed fulldetails of financial statement to show that theassessee's AE has not derived any benefit, it is notpossible to apply the CUP method. In view of this, inthe interest of justice, we remit the issue regardingapplication of the method whether the CUP Method orTNMM as a most appropriate method, to the file of AO tosee whether the AE derived any benefit or mark up onthe price charged by the vendor for supply of rawmaterials to assessee's AE, which it has sold toassessee. With this observation, we remit the presentissue for selection of appropriate method to the AO forfresh consideration. Since we have remitted the issueregarding selection of most appropriate method by theAO/TPO, at this state it is too premature to decide anyother issues raised by the assessee. Further, we makeit clear that the assessee is at liberty to raise anyother grounds in support of the claim of assessee in this case. 7. In the result, the appeal of assessee is partlyallowed for statistical purposes.” 18. Perusal of the above order clarifies that the IncomeTax Appellate Tribunal remitted the issue regarding applicationof the method whether the CUP method or TNMM as a mostappropriate method to the file of Assessing Officer to seewhether the AE derived any benefit or mark up on the pricecharged by the vendor for supply of raw materials to assessee'sAE, which it has sold to assessee. With these observations, theIncome Tax Appellate Tribunal remitted the issue for selectionof appropriate method to Assessing Officer for freshconsideration. this case. 7. In the result, the appeal of assessee is partlyallowed for statistical purposes.” 18. Perusal of the above order clarifies that the IncomeTax Appellate Tribunal remitted the issue regarding applicationof the method whether the CUP method or TNMM as a mostappropriate method to the file of Assessing Officer to seewhether the AE derived any benefit or mark up on the pricecharged by the vendor for supply of raw materials to assessee'sAE, which it has sold to assessee. With these observations, theIncome Tax Appellate Tribunal remitted the issue for selectionof appropriate method to Assessing Officer for freshconsideration. 19. Thus, it is not the case, where the entire order is setaside and a direction is issued, remanding the matter to conducta fresh adjudication of the entire issues by following theprocedures contemplated under Section 144C of the Income TaxAct. The Income Tax Appellate Tribunal, in clear terms, directedthe Assessing Officer to decide regarding the application ofmethod i.e., whether CUP method or TNMM as a most appropriatemethod. Thus, a specific issue was directed to be decided by theAssessing Officer and a direction was issued to the AssessingOfficer to make it clear that the assessee is at liberty toraise any other grounds in support of the claim of the assesseein this case. The ITAT further held that the matter wasremitted. The issue regarding selection of most appropriatemethod by the Assessing Officer / Transfer Pricing Officer andhas not decided other issues raised by the assessee. 20. Considering the above findings of the ITAT, this Courtis of the considered opinion that once again following theprocedures right from the beginning as contemplated underSection 144C of the Income Tax Act would not arise at all.Admittedly, the procedures contemplated under Section 144C ofthe Act in the present case had been scrupulously followed bythe respondent by passing a draft assessment order on 31.03.2016and the assessee filed an objection before the DisputesResolution Panel, who in turn, also passed an order andthereafter, a final assessment order under Section 143(3) waspassed on 25.03.2016. Thus, once again commencing from thebeginning is not the idea behind the provision and therefore,the very principles mooted out by the petitioner to commence theproceedings right from the initial stage deserves no meritconsideration and stands rejected. Once the procedure has beenfollowed and the Appellate Tribunal remitted the matter back todecide the particular issue with a specific finding, then it issufficient if the remitted issue was decided by the Assessing Officer / Transfer Pricing Officer and a final assessment orderis passed. Repetition of the same procedures would become anempty formality, which is not intended under the provision andtherefore, this Court is of the considered opinion that when thematter was remitted with reference to a particular issue to beclarified or decided by the competent authority, it issufficient if such an issue is decided and thereafter, a finalassessment order is passed. Even in such circumstances, theassessee is having a right of appeal under the provisions of theAct and therefore, in the event of any grievance with referenceto an assessment order subsequent passed after remitting thematter by the ITAT, the petitioner is at liberty to file anappeal and thus, the grounds raised once again to pass the draftassessment order would not arise at all. 21. The procedures as contemplated under Section 144C ofthe Act must be meaningfully followed and constructiveinterpretation is to be adopted. Repeatedly passing draftassessment order is not the spirit of the provision. Thelegislative intention is to provide an opportunity to anassessee before passing the final assessment order. Thus, suchan opportunity is already provided and the assessee also availedof the opportunity by submitting an objection before theDisputes Resolution Panel and the Assessing Officer andthereafter, a final assessment order is passed and afterremitting the matter by ITAT to decide a particular issue, thesame procedure in entirety contemplated under Section 144 C ofthe Act need not be followed and such a repetition is not onlyunnecessary, but not contemplated. The very intention of theprovision is to provide an opportunity to the assessee. Theopportunity has already been provided. Further, the opportunityis made available before the Appellate authority to redress thegrievances. Thus, in the event of again directing theauthorities to follow the procedures right from the beginning,the proceedings would not only be prolonged, it will beprotracted, which would provide an undue advantage to theassessee in the matter of payment of income tax. 22. This being the principles to be followed, which all areconsidered by this Court with reference to the facts andcircumstances of the writ on hand, this Court has no hesitationin forming an opinion, the petitioner has not made out anyacceptable ground for the purpose of considering the relief assuch sought for in the present writ petition. If at all, thepetitioner is aggrieved by the assessment order, which isimpugned in this writ petition, he is at liberty to prefer anappeal before the Appellate authority namely the Commissioner ofIncome Tax (Appeals) by following the procedures as contemplated. 2018 stands dismissed. No costs. Consequently, connectedmiscellaneous petitions are closed. Sd/- Assistant Registrar (CS-VIII) //True Copy// Sub Assistant Registrar KakToThe Deputy Commissioner of Income Tax,Corporate Circle – 2(1),R.No.511, Wanaparthy Block,121, Mahatma Gandhi Road,Nungambakkam,Chennai – 600 034. +1cc to Mr.Hema Muralikrishnan, Advocate, S.R.No. 28693 W.P.No.31165 of 2018 CP(CO)GN(22/07/2021)