Wp/1706/2023 Of Exxonmobil Company India Pvt. Ltd v. The Deputy Commissioner Of Income-Tax-6-1-I

Digitallysigned byPURTIPURTIPRASADPRASADPARABPARABDate:2024.04.2218:32:50+0530 IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO. 1706 OF 2023 ExxonMobil Company India Pvt. Ltd. V/s.The Deputy Commissioner of IncomeTax – 6(1)(1), Mumbai and Anr. ….Petitioner …Respondents ---- Mr. Paras Savla for Petitioner. Mr. Devvrat Singh for Respondents-Revenue. ---- CORAM : K.R. SHRIRAM & DR. NEELA GOKHALE, JJ. DATED : 16[th] APRIL 2024 P.C. : 1.Since the pleadings in the petition are completed, we havedecided to dispose the petition at the admission stage itself. 2.Rule. Rule made returnable forthwith. 3.Petitioner has challenged an order along with demand noticedated 30[th] January 2023 passed by Respondent No.1 – DeputyCommissioner of Income Tax – 6(1)(1), Mumbai who is also an AssessingOfficer (A.O.) of petitioner giving effect to the order of the Income TaxAppellate Tribunal (ITAT) for the Assessment Year (A.Y.) 2009-10. It ispetitioner’s case that the impugned order is non-est, time barred and resultsin the abatement of the assessment to assessee. Consequently, petitioner is entitled to refund all taxes paid for A.Y. 2009-10 in excess of what waspayable as per the return of income along with applicable interest arising onsuch refund. 4.Petitioner filed its return of income for A.Y. 2009-10 on 25[th]September 2009 declaring an income of Rs.44,59,83,972/-. Petitioner’s casewas selected for scrutiny assessment and the A.O. referred petitioner’s caseto the Transfer Pricing Officer (TPO) for determination of Arm’s LengthPrice (ALP) of the international transactions. The TPO passed an orderunder Section 92CA(3) of the Income Tax Act, 1961 (the Act) on 23[rd]November 2012 recommending an enhancement of Rs.2,38,79,893/- topetitioner’s returned income. 5.The transfer pricing addition was in relation to two activities ofpetitioner, Rs.40,49,175/- concerning provision of technical services andRs.1,98,30,718/- concerning provision of back office support services. TheA.O. in addition to incorporating TPO’s recommendation had also proposeda total disallowance of Rs.4,85,91,645/-. Respondent No.1 thereafter passeddraft assessment order dated 14[th] March 2013 incorporating the transferpricing adjustment and disallowance. Against final assessment order thatwas passed petitioner filed an appeal. The Commissioner of Income Tax(Appeal) [CIT(A)] by an order dated 29[th] March 2017 upheld the transferpricing additions of Rs.2,38,79,893/- and part of the disallowance made. Against the said order of the CIT(A) petitioner approached the Income TaxAppellate Tribunal (ITAT). The ITAT by an order dated 27[th] July 2020 withrespect to the transfer pricing addition in relation to provision of back officesupport services set aside the findings of the CIT(A) as well as the A.O. andremanded the matter to file of the A.O./TPO for fresh adjudication. Paragraph No.7 of the order reads as under : 7. In respect of provision of back-office support services, we findthat similar issue arose before the ITAT ‘K’ Bench, Mumbai in thecase of the appellant for AY 2008-09 (ITA No. 3601/Mum/2014).As mentioned earlier, the Ld. CIT(A) while confirming theadjustment of Rs.1,98,30,718/- has followed the order hispredecessor-in-office for AY 2008-09. The Tribunal vide its orderdated 23.05.2018 for the AY 2008-09 has set aside the order of theLd. CIT(A) and restored the matter to the file of the AO/TPO forfresh adjudication. Facts being identical, we follow the above order of the Co-ordinate Bench and restore the matter in respect of provision ofback-office support services to the file of the AO/TPO for freshadjudication, after affording reasonable opportunity of being heardto the appellant. 6.The A.O. pursuant to the said order of the ITAT dated 27[th] July Facts being identical, we follow the above order of the Co-ordinate Bench and restore the matter in respect of provision ofback-office support services to the file of the AO/TPO for freshadjudication, after affording reasonable opportunity of being heardto the appellant. 6.The A.O. pursuant to the said order of the ITAT dated 27[th] July 2020 with prior approval of the Principal Commissioner of Income Tax – 6,Mumbai made a reference to the TPO on 31[st] December 2021 to give effectto the ITAT’s order. The TPO passed the said order on 4[th] November 2022and further rectification order dated 9[th] January 2023. The TPO in theorder giving effect to tribunal order, suggested a transfer pricing addition ofRs.1,73,51,834/- in relation to provision of back office support services. 7.The A.O., i.e., Respondent No.1 passed an order dated 30[th]January 2023 giving effect to the ITAT’s order by making a transfer pricing addition of Rs.1,73,51,834/- and determining a demand ofRs.2,21,12,400/-. Against this order petitioner has filed this petition onvarious grounds. According to petitioner, the impugned order dated 30[th]January 2023 is barred by limitation. 8.Petitioner further states that the Tribunal by its order dated 27[th] July2020 had remanded the transfer pricing issue for determining arm’s lengthprice of provision of back-office support services back to the file of theA.O./TPO. Therefore, in this case, there is no dispute that the provisions ofSection 144C of the Act, read with Section 92CA of the Act were applicable.Section 144C(1) of the Act mandates that a draft assessment order isnecessary before the A.O. can proceed to pass a final assessment order.Even in partial remand proceedings from the Tribunal, the A.O. is obliged topass a draft assessment order under Section 144C(1) of the Act. Absentdraft assessment, the order is without jurisdiction. Therefore, even on thiscount, the order giving effect along with demand notice dated 30[th] January2023 passed by the A.O. is non-est in law and liable to quashed. Hence, theA.O. should forthwith refund the taxes paid by petitioner for the impugnedassessment year in excess of what was payable by petitioner as per thereturn of income along with applicable interest arising on such refund. 9.Affidavit in reply opposing the petition through oneMs.Jayantika Singh, Deputy Commissioner of Income Tax – 6(1)(1), Mumbai affirmed on 14[th] July 2023 has been filed. The stand taken by theRevenue is that the process of draft order is not to be ad-infinitum.According to the Revenue it is nowhere mentioned in the Act that theprovisions of Section 144C of the Act will be attracted while giving effect tothe order of the ITAT. According to the Revenue a draft order under Section144C of the Act had already been shared with assessee on 14[th] March 2013during the original assessment proceedings and just because the case waspartially set aside by the ITAT for further verification on the issue of transferpricing adjustment or a reference under Section 92CA(1) was made throughTPO on 4[th] January 2022 does not mean that the draft assessment orderunder Section 254 read with Section 144C(1) read with Section 143(3) ofthe Act was required to be passed. 10.The issue in short is whether on remand the A.O. was obliged topass a draft assessment order under Section 144C(1) of the Act. 11.The Division Bench of this court in Dimension Data Asia Pacific PTE Ltd. vs. Deputy Commissioner of Income Tax[1] has considered this issue.The court held that even in partial remand proceedings from the Tribunal,the A.O. is obliged to pass a draft assessment order under Section 144C(1)of the Act. Paragraph Nos.8 and 9 of the Dimension Data Asia Pacific PTELtd. (supra) read as under : 1 (2018) 96 taxmann.com 182 (Bombay) Purti Parab 10.The issue in short is whether on remand the A.O. was obliged topass a draft assessment order under Section 144C(1) of the Act. 11.The Division Bench of this court in Dimension Data Asia Pacific PTE Ltd. vs. Deputy Commissioner of Income Tax[1] has considered this issue.The court held that even in partial remand proceedings from the Tribunal,the A.O. is obliged to pass a draft assessment order under Section 144C(1)of the Act. Paragraph Nos.8 and 9 of the Dimension Data Asia Pacific PTELtd. (supra) read as under : 1 (2018) 96 taxmann.com 182 (Bombay) Purti Parab 8. The contention of the Revenue that the requirement of passinga draft Assessment Order under Section 144C of the Act would onlyextend to the orders passed in the first round of proceedings or inrespect of an order passed by the Assessing Officer in remandproceedings by the Tribunal which has entirely set aside theoriginal assessment order. This distinction which is sought to bedrawn by the Revenue is not borne out by Section 144C of the Act.In fact, the Delhi High Court in JCB (India) Ltd. (supra) held that,even in partial remand proceedings from the Tribunal, theAssessing Officer is obliged to pass a draft assessment order underSection 144C(1) of the Act. According to us, the Assessing Officer,is obliged to, in terms of Section 144C of the Act to pass a DraftAssessment Order in all cases where he proposes to assess theForeign Company under the Act by making a variation in thereturned income. In this case, the impugned order dated 31[st]January, 2018 has been passed in terms of Section 143(3) readwith Section 144C read with Section 254 of the Act and it certainlymakes a variation to the returned income filed by the petitioner.This even if, one proceeds on the basis that the returned incomestands varied by the order of the Tribunal in the first round, to theextent the petitioner accepts it. Therefore, the Assessing Officercorrectly invokes Section144C of the Act in the impugned order.Once having invoked Section 144C of the Act, the Assessing Officeris obliged to comply with it in full and not partly.This impugnedorder was passed consequent to the order of the Tribunal dated 5[th]May, 2017 restoring some of the issues before it to the AssessingOfficer for fresh adjudication. 9. This "fresh adjudication" itself would imply that it would be anorder which would decide the lis between the parties, may not beentire lis, but the dispute which has been restored to the AssessingOfficer. According to us, the order dated 31[st] January, 2018 is notan order merely giving an effect to the order of the Tribunal, but itis an assessment order which has invoked Section 143(3) of the Actand also Section 144C of the Act. This invocation of Section 144C ofthe Act has taken place as the Assessing Officer is of the view that itapplies, then the requirement of Section 144C(1) of the Act has tobe complied with before he can pass the impugned order invokingSection 144C(13) of the Act. In fact, Section 144C(13) of the Actcan only be invoked in cases where the assessee has approached theDRP in terms of sub-section 144(C)(2)(b) of the Act and the DRPgives direction in terms of Section 144C(5) of the Act. In this case,the assessment order has invoked Section 144C(13) of the Actwithout having passed the necessary draft Assessment Order underSection 144C(1) of the Act, which alone would make an directionunder Section144C(5) of the Act by the DRP possible. Thus, theimpugned order is completely without jurisdiction. (emphasis supplied) 12.Even in the order dated 27[th] July 2020 passed by the ITAT, theITAT has restored the matter to the file of A.O./TPO “for fresh adjudication”.This court in Shell India Market Pvt. Ltd. vs. Additional/Joint/Deputy/Assistant Commissioner of Income Tax/Income Tax Officer and Ors.[2] hastaken a similar view. Paragraph Nos. 1 and 2 of Shell India Market Pvt. Ltd.(supra) read as under : (emphasis supplied) 12.Even in the order dated 27[th] July 2020 passed by the ITAT, theITAT has restored the matter to the file of A.O./TPO “for fresh adjudication”.This court in Shell India Market Pvt. Ltd. vs. Additional/Joint/Deputy/Assistant Commissioner of Income Tax/Income Tax Officer and Ors.[2] hastaken a similar view. Paragraph Nos. 1 and 2 of Shell India Market Pvt. Ltd.(supra) read as under : 1. Heard learned counsel and what we understood is that theRevenue has in effect, in the affidavit in reply, acknowledgedthat there was failure on the part of the Assessing Officer to followthe procedure prescribed under Section 144C(1) of the Income TaxAct, 1961 (the Act). But according to Mr. Suresh Kumar, it ismerely a procedural or inadvertent error. Paragraph No.27 of thejudgment of this court in SHL (India) Private Limited vs. DeputyCommissioner of Income Tax, Circle 8(2)(1), Mumbai[3]reads asunder : 27.Applying the aforesaid principles to the facts of thiscase, we are of the view that the failure on the part of theAssessing Officer to follow the procedure under Section144C(1) is not a merely procedural or inadvertent error,but a breach of a mandatory provision.We are also notimpressed with the arguments of the Revenue that theAssessing Officer was under pressure of two charges, asthere were timelines to adhere to, since the said timelinesfrom time to time have been extended, the most recent onebeing to 30 th September, 2021. The Revenue ought tohave appreciated that the requirement under Section144C(1) to first pass a draft Assessment Order and to provide a copy thereof to the assessee is a mandatoryrequirement which gave substantive right to the assessee toobject to any variation, that is prejudicial to it. In this case,the order under Section 92CA (3) of the IT Act, proposedto make an adjustment of Rs.107,454,337/- to the arm’slength price considered as Nil by Petitioner and to thatextent the said adjustment was evidently prejudicial to theinterest of Petitioner. Depriving Petitioner of this valuableright to raise objection before DRP would be denial ofsubstantive rights to the assessee, for which, in our view,the Assessing Officer has no power under the statute, asthe provision clearly mandates the Assessing Officer to passand furnish a draft Assessment Order in the first instancein such a case. The legislature, in our view, has intended togive an important opportunity to Petitioner, who is aneligible assessee, which in our view, has been taken away. 2 Writ Petition No. 1802/2021 dated 22[nd] December 2021 3 (438) ITR 317 (BOM) 2 Writ Petition No. 1802/2021 dated 22[nd] December 2021 3 (438) ITR 317 (BOM) In our view, failure to follow the procedure under Section144C(1) would be a jurisdictional error and not merelyprocedural error or a mere irregularity. The AssessmentOrder has not been passed in accordance with theprovisions of Section 144C of the IT Act. This is not anissue, which involves a mistake in the said order, but itinvolves the power of the Assessing Officer to pass theorder. By not following the procedure laid down in Section144C(1) to pass and furnish a draft Assessment Order toPetitioner and directly passing a final Assessment Orderand without giving Petitioner an opportunity to raiseobjections before the DRP, there is a completecontravention of Section 144C, the Assessing Officerhaving wrongly assumed jurisdiction to straight away passthe final order. This is not a mere irregularity but anincurable illegality. Even the provisions of Section 292B ofthe IT Act would not protect such an order as Section 292Bof the IT Act cannot be read to confer jurisdiction on theAssessing Officer, where none exists. The Supreme Courtdecision in the case of Income-Tax Officer Vs. M. PiraiChoodi; [2011] 334 ITR 262 (SC) referred to in theRevenue’s reply is also not applicable to the issue at handas that was a case where the assessee was not given anopportunity to cross-examine the concerned witness andwhich assessee also had a statutory appellate remedywhich the assessee had failed to avail of, whereas there isno such right available to Petitioner in this case. In fact,Petitioner has lost a substantive right due to the failure ofthe Respondents to pass and forward a draft assessmentorder in the first instance on a variance, prejudicial to theinterest of Petitioner. In our view, this is clearly a case ofjurisdictional error. The final assessment order passed bythe Assessing Officer stands vitiated on account of lack ofjurisdiction, which is incurable and deserves to be set asideas void ab initio. 2. Therefore, argument of Mr. Suresh Kumar that failure on thepart of the Assessing Officer to follow the procedure under Section144C(1) is merely a procedural or inadvertent error cannot beaccepted. The requirement under Section 144C(1) of the Act tofirst pass the draft assessment order and to provide a copy thereofto the assesee is mandatory requirement that gave substantive rightto the assessee to object to any variation, that is prejudicial to theassessee. Depriving petitioner of this valuable right to raiseobjection before DRP would be denial of substantive right to theassessee. As held in SHL (India) Private Limited (supra), failure tofollow the procedure under Section 144C(1) of the Act would be ajurisdictional error and not merely procedural error or a mereirregularity. Therefore, the Assessing Officer has assumedjurisdiction to straight away pass the final order without followingthe mandatory procedure prescribed under Section 144C of the Act.It is held in SHL (India) Private Limited (supra) that this is not amere irregularity but an incurable irregularity. (emphasis supplied) 13.Therefore, in our view this is a clear case of jurisdictional error. The assessment order passed by the A.O., i.e., impugned in this petition is vitiated on account of lack of jurisdiction and requires to be quashed and set aside as void ab initio. 14.In the circumstances, Rule made absolute in terms of prayer clause – (a)(i) which reads as under : (a) that this Hon’ble Court be pleased to call for all papers andproceedings for AY 2009-10 and after examining the validity,legality and propriety of the Petitioner’s claim, (i)to issue a Writ of Certiorari or any otherappropriate writ, order or direction under Article 226in the Constitution of India quashing the order givingeffect along with the demand notice dated 30 January2023 (Exhibit I-1 and I-2) passed by the RespondentNo.1; and 15.Petition disposed. (DR. NEELA GOKHALE, J.) vitiated on account of lack of jurisdiction and requires to be quashed and set aside as void ab initio. 14.In the circumstances, Rule made absolute in terms of prayer clause – (a)(i) which reads as under : (a) that this Hon’ble Court be pleased to call for all papers andproceedings for AY 2009-10 and after examining the validity,legality and propriety of the Petitioner’s claim, (i)to issue a Writ of Certiorari or any otherappropriate writ, order or direction under Article 226in the Constitution of India quashing the order givingeffect along with the demand notice dated 30 January2023 (Exhibit I-1 and I-2) passed by the RespondentNo.1; and 15.Petition disposed. (DR. NEELA GOKHALE, J.) (K.R. SHRIRAM, J.)