Wp/2387/2020 Of Undercarriage And Tractor Parts Pvt. Ltd v. Dispute Resolution Panel-3 ( Wz) Mumbai Through Assi. Commissioner Of Income Tax And Ors

1/13 910.WP-2387-2020.doc IN THE HIGH COURT OF JUDICATURE AT BOMBAYCIVIL APPELLATE JURISDICTION WRIT PETITION NO.2387 OF 2020 Undercarriage and Tractor Parts Pvt. Ltd.)Plot No.D-4, Five Star Industrial Estate,)MIDC Kagal, Kolhapur – 416 236 )….PetitionerPAN No.AAACU8974A) V/s. 1. Dispute Resolution Panel – 3, (WZ))Mumbai, Through Assistant Commissioner of)Income Tax (HQ) to DRP-3, Mumbai,)28[th] Floor, Centre One Building World Trade)Centre, Cuffe Parade, Mumbai – 400 005)2. The Dy. Commissioner of Income Tax)Circle -1, Kolhapur, Aayakar Bhavan, Tarabai)Park, Kolhapur – 416 005)3. The Pr. Commissioner of Income Tax – 1,)Aayakar Bhavan, Tarabai Park, Kolhapur –)416 005)4. Union of India through the Secretary,)Ministry of Finance, North Block, New Delhi)– 110 001)….Respondents ---- Mr. Riyaz Padvekar a/w. Mr. Tanzil Padvekar and Ms. Tejal Kharkar forpetitioner. Mr. Suresh Kumar for respondents. ---- CORAM : K. R. SHRIRAM & DR. N. K. GOKHALE, JJ.DATED : 12[th] SEPTEMBER 2023 ORAL JUDGMENT (PER K.R. SHRIRAM, J.) : 1Rule. Rule made returnable forthwith. By consent, the petition is taken up for final hearing at the admission stage. 2Prayer clause – (a) in this petition reads as under : (a) issue a Writ of Certiorari or Writ in the nature of Certiorarior any other appropriate writ, directions or order under Article 2/13 910.WP-2387-2020.doc 226 of the Constitution of India, declaring the Orders passed bythe Respondent No.1 under Sec. 144C(5) dated 16/09/2019and the Respondent No.2 under Sec. 143(3) r.w.s. 144C(13) dt.31/10/2019 as without valid authority of law, illegal and voidab initio and to pass order quashing both the impugned Orders. 3Petitioner filed its return of income for Assessment Year 2015-2016 under Section 139(1)/(3) of the Income Tax Act, 1961 (the Act) on30[th] September 2015 declaring loss of Rs.11,69,32,126/-. Petitioner alsofiled auditor’s report in Form No.3CEB in respect of international anddomestic transactions entered into by petitioner with the AssociateEnterprises (AE) as defined under Section 92A of the Act. 4Petitioner’s return of income was selected for scrutiny underCASS and respondent no.2 issued notice dated 12[th] April 2016 underSection 143(2) of the Act. In view of the international transactions anddomestic transactions with AE, respondent no.2 referred petitioner’s case tothe Transfer Pricing Officer (TPO) under Section 92CA(1) of the Act. TheTPO passed an order dated 30[th] October 2018 under Section 92CA(3) of theAct proposing an adjustment of Rs.11,92,16,671/- to the reportedinternational and domestic related parties transactions after working outArms Length Price (ALP). After receiving the order of TPO, respondent no.2passed the draft assessment order dated 3[rd] December 2018 under Section143(3) read with Section 92CA(3) read with Section 144C(1) of the Act. Inthe draft assessment order, respondent no.2 assessed income of petitioner atRs.1,24,01,490/- and also proposed to charge interest under Section 3/13 910.WP-2387-2020.doc 3/13 910.WP-2387-2020.doc 234A/B/C of the Act and also initiate penalty proceedings under Section271(1)(c) of the Act. Petitioner, by a letter dated 14[th] December 2018,informed respondent no.2 that petitioner is in the process of filing of anobjection before the Dispute Resolution Panel (DRP), i.e., respondent no.1,and requested not to pass an assessment order under Section 143(3) of theAct till the disposal of the objections by the DRP. On 24[th] December 2018respondent no.2 passed the final assessment order without waiting for themandatory period of 30 days provided under Section 144C(2) of the Actconfirming the draft assessment order. Petitioner has filed an appeal beforethe Commissioner of Income Tax (Appeals) [CIT(A)], Kolhapur, underSection 246A of the Act. The assessment order dated 24[th] December 2018passed by respondent no.2 was received by petitioner only on29[th] December 2018. Unaware of the said order, petitioner filed itsobjections before the DRP on 28[th] December 2018. Once petitioner receivedthe assessment order, petitioner informed the DRP that the assessmentorder albeit illegally has already been passed and, therefore, DRP has nolocus to proceed with the objections filed. Petitioner also informed the DRPthat petitioner has already filed an appeal before the CIT(A) impugning theassessment order dated 24[th] December 2018. Notwithstanding this, DRPproceeded to issue the directions dated 16[th] September 2019 based onwhich another assessment order dated 31[st] October 2019 came to bepassed. The DRP’s directions and this assessment order dated 31[st] October 5It is petitioner’s case that the directions dated 16[th] September2019 passed by respondent no.1 – DRP was in gross violation of theprovisions of the Act in as much as the DRP can hear and pass directionsonly in pending assessment proceedings. When the Assessing Officer haspassed an assessment order dated 24[th] December 2018 albeit illegally,without waiting for the mandatory period of 30 days specified insub-section 2 of Section 144C of the Act, the DRP has no role to play andshould not have passed the directions dated 16[th] September 2019. 6Mr. Padvekar submitted that : (a) Section 144C(2) of the Act provides that on receipt of thedraft order, the eligible assessee shall, within thirty days of the receipt byhim of the draft order, either file his acceptance of the variations to theAssessing Officer or file his objections, if any, to such variation with the DRPand the Assessing Officer. The time to file the objections was until2[nd] January 2019; (b) Section 144C(3) of the Act provides that the AssessingOfficer shall complete the assessment on the basis of the draft order, if theassessee intimates to the Assessing Officer the acceptance of the variation orno objections are received within the period specified in sub-section 2, i.e.,if no objections are received by 2[nd] January 2019. The Assessing Officerwithout waiting till 2[nd] January 2019 proceeds to pass the assessment order 5/13 910.WP-2387-2020.doc on 24[th] December 2018 which ex-facie is illegal; (b) Section 144C(3) of the Act provides that the AssessingOfficer shall complete the assessment on the basis of the draft order, if theassessee intimates to the Assessing Officer the acceptance of the variation orno objections are received within the period specified in sub-section 2, i.e.,if no objections are received by 2[nd] January 2019. The Assessing Officerwithout waiting till 2[nd] January 2019 proceeds to pass the assessment order 5/13 910.WP-2387-2020.doc on 24[th] December 2018 which ex-facie is illegal; (c) Sub-section 4 of Section 144C of the Act provides for theAssessing Officer to pass the assessment order under sub-section 3 withinone month from the end of the month in which the acceptance is receivedor the period of filing of objections under sub-section 2 expires. Since thetime for filing objections would have expired on 2[nd] January 2019, theAssessing Officer had time till 28[th] February 2019. Notwithstanding this, theAssessing Officer proceeds to pass an invalid order on 24[th] December 2018;(d) Section 144C(5) of the Act provides that the DRP shall, in acase where any objection is received under sub-section 2, issue suchdirections, as it thinks fit, for the guidance of the Assessing Officer to enablehim to complete the assessment. Since the Section uses the words“…………. to enable him to complete the assessment”, it presupposes thatthere is pending assessment proceedings. Therefore, when the assessmentorder has already been passed, there can be no pending assessmentproceedings and, therefore, DRP could not have issued the directions dated16[th] September 2019 under Section 144C(5) of the Act. In thecircumstances, the directions of the DRP and the consequent assessmentorder dated 31[st] October 2019 have to go. 7Mr. Suresh Kumar submitted, relying on the affidavit in replyfiled through one Prajakta P. Thakur affirmed on 26[th] August 2021, that theassessment order dated 24[th] December 2018 was an incorrect order and the 6/13 910.WP-2387-2020.doc Assessing Officer should not have passed the said assessment order.Mr. Suresh Kumar, however, submitted that since the reference had alreadybeen made to DRP and the intimation was given to the Assessing Officer ofthe proposed objections to be filed to DRP vide a communication dated14[th] December 2018, the DRP was well within its jurisdiction to pass thedirections on 16[th] September 2019. Therefore, the assessment order passedon 31[st] October 2019 was correct order. 8We are unable to accept this second limb of Mr. Suresh Kumar’ssubmissions that the second assessment order dated 31[st] October 2019 orthe directions given by DRP on 16[th] September 2019 under Section 144C(5)of the Act are valid. 9Section 144C of the Act reads as under : 144C. Reference to dispute resolution panel. - (1) The Assessing Officer shall, notwithstanding anything to thecontrary contained in this Act, in the first instance, forward adraft of the proposed order of assessment (hereafter in thissection referred to as the draft order) to the eligible assessee ifhe proposes to make, on or after the 1st day of October, 2009,any variation which is prejudicial to the interest of suchassessee. (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 thebasis of the draft order, if - 7/13 910.WP-2387-2020.doc (a) the assessee intimates to the Assessing Officer theacceptance of the variation; or (b) no objections are received within the period specified in sub-section (2). (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 thebasis of the draft order, if - 7/13 910.WP-2387-2020.doc (a) the assessee intimates to the Assessing Officer theacceptance of the variation; or (b) no objections are received within the period specified in sub-section (2). (4) The Assessing Officer shall, notwithstanding anythingcontained in section 153[or section 153B], pass the assessmentorder under sub-section (3) within one month from the end ofthe 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 anyobjection is received under sub-section (2), issue suchdirections, as it thinks fit, for the guidance of the AssessingOfficer to enable him to complete the assessment. (6) The Dispute Resolution Panel shall issue the directionsreferred to in sub-section (5), after considering the following,namely - (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 orTransfer 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 anydirections 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-taxauthority and report the result of the same to it. (8) The Dispute Resolution Panel may confirm, reduce orenhance the variations proposed in the draft order so, however,that it shall not set aside any proposed variation or issue anydirection under sub-section (5) for further enquiry and passingof the assessment order. [Explanation – For the removal of doubts, it is hereby declaredthat the power of the Dispute Resolution Panel to enhance thevariation shall include and shall be deemed always to haveincluded the power to consider any matter arising out of the 8/13 910.WP-2387-2020.doc assessment proceedings relating to the draft order,notwithstanding that such matter was raised or not by theeligible assessee]. (9) If the members of the Dispute Resolution Panel differ inopinion on any point, the point shall be decided according tothe opinion of the majority of the members. (10) Every direction issued by the Dispute Resolution Panel shallbe binding on the Assessing Officer. (11) No direction under sub-section (5) shall be issued unlessan opportunity of being heard is given to the assessee and theAssessing Officer on such directions which are prejudicial to theinterest of the assessee or the interest of the revenue,respectively. (12) No direction under sub-section (5) shall be issued afternine months from the end of the month in which the draft orderis 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, notwithstanding anything to the contrary contained insection 153 [or Section 153B], the assessment withoutproviding any further opportunity of being heard to theassessee, within one month from the end of the month in whichsuch direction is received. xxxxxxxxxxxxxxxxxxxx (15) For the purposes of this section, - (12) No direction under sub-section (5) shall be issued afternine months from the end of the month in which the draft orderis 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, notwithstanding anything to the contrary contained insection 153 [or Section 153B], the assessment withoutproviding any further opportunity of being heard to theassessee, within one month from the end of the month in whichsuch direction is received. xxxxxxxxxxxxxxxxxxxx (15) For the purposes of this section, - (a) "Dispute Resolution Panel" means a collegium comprising ofthree [Principal Commissioners or] 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 TransferPricing Officer passed under sub-section (3) of section 92CA;and [(ii) any non-resident not being a company, or any foreigncompany.] 10Section 144C(5) of the Act provides “the DRP shall, in a case where any objection is received under sub-section 2, issue such directions, 9/13 910.WP-2387-2020.doc as it thinks fit, for the guidance of the Assessing Officer to enable him tocomplete the assessment”. Therefore, it is quite obvious, when it says“…….. to enable him to complete the assessment”, it presupposes pendingassessment proceedings. Sub-section 6 of Section 144C of the Act provides “the DRPshall issue the directions referred to in sub-section 5, after considering thefollowing ……….”. The directions referred to in sub-section 5 are thosedirections for the guidance of the Assessing Officer to enable him tocomplete the assessment. Therefore, this also presupposes pendingassessment proceedings. Sub-section 7 of Section 144C of the Act provides “the DRPmay, before issuing any directions referred to in sub-section 5 …………….”. These directions are for the guidance of the Assessing Officer to enable himto complete the assessment, which also presupposes pending assessmentproceedings. Sub-section 8 of Section 144C of the Act provides “the DRPmay confirm, reduce or enhance the variations proposed in the draft order……………” which means the assessment proceedings are still pending. Sub-section 11 of Section 144C of the Act provides “nodirection under sub-section 5 shall be issued unless an opportunity of beingheard is given to the assessee and the Assessing Officer on such directionswhich are prejudicial to the interest of the assessee or the interest of the 10/13 910.WP-2387-2020.doc revenue, respectively” which also presupposes pending assessmentproceedings. Similarly under sub-section 12 of Section 144C of the Actwhich says “no direction under sub-section 5 shall be issued after ninemonths from the end of the month in which the draft order is forwarded tothe eligible assessee”; and Under sub-section 13 of Section 144C of the Act which says“upon receipt of the directions issued under sub-section 5, the AssessingOfficer shall, in conformity with the directions, complete,……………. theassessment …………...”. Therefore, the DRP could give directions only in pendingassessment proceedings. Once assessment order is passed, rightly orwrongly, the assessment proceedings come to an end. Therefore, the DRPwould have no power to pass any directions contemplated under sub-section 5 of Section 144C of the Act. Similarly under sub-section 12 of Section 144C of the Actwhich says “no direction under sub-section 5 shall be issued after ninemonths from the end of the month in which the draft order is forwarded tothe eligible assessee”; and Under sub-section 13 of Section 144C of the Act which says“upon receipt of the directions issued under sub-section 5, the AssessingOfficer shall, in conformity with the directions, complete,……………. theassessment …………...”. Therefore, the DRP could give directions only in pendingassessment proceedings. Once assessment order is passed, rightly orwrongly, the assessment proceedings come to an end. Therefore, the DRPwould have no power to pass any directions contemplated under sub-section 5 of Section 144C of the Act. 11While concluding, Mr. Suresh Kumar submitted that in view ofwhat is stated in the affidavit in reply where respondents have admittedthat the assessment order dated 24[th] December 2018 could not have beenpassed, the appeal pending before the CIT (A) will naturally getallowed/the assessment order would get set aside. That would result in theRevenue not able to pass assessment order under Section 143(3) of the Actor even under Section 147 of the Act. 11/13 910.WP-2387-2020.doc The Rajasthan High Court in Sudesh Taneja V/s. ITO[1] held that(a) taxing statute must be interpreted strictly. Equity has no place intaxation. Nor while interpreting taxing statute intendment would have anyplace. (b) There is nothing unjust in the tax payer escaping if the letter ofthe law fails to catch him on account of the legislature’s failure to expressitself clearly. (c) It is axiomatic that taxation statute has to be interpretedstrictly because the State cannot at their whims and fancies burden thecitizens without authority of law. (d) In the matter of interpretation ofcharging section of a taxation statute, strict Rule of interpretation ismandatory and if there are two views possible in the matter ofinterpretation of a charging section, the one favourable to the assessee needto be applied. Paragraph 31(i) of Sudesh Taneja (Supra) reads as under : (a) taxing statute must be interpreted strictly. Equity has no place intaxation. Nor while interpreting taxing statute intendment would have anyplace. (b) There is nothing unjust in the tax payer escaping if the letter ofthe law fails to catch him on account of the legislature’s failure to expressitself clearly. (c) It is axiomatic that taxation statute has to be interpretedstrictly because the State cannot at their whims and fancies burden thecitizens without authority of law. (d) In the matter of interpretation ofcharging section of a taxation statute, strict Rule of interpretation ismandatory and if there are two views possible in the matter ofinterpretation of a charging section, the one favourable to the assessee needto be applied. Paragraph 31(i) of Sudesh Taneja (Supra) reads as under : 1. 442 ITR 289 31. We may now attempt to answer these questions ourselveswith the aid of statutory provisions and law laid down in variousdecisions cited before us we may summarise certain principlesapplicable in the field of taxation and which principles would beinvoked in the course of the judgment :- 1. 442 ITR 289 31. We may now attempt to answer these questions ourselveswith the aid of statutory provisions and law laid down in variousdecisions cited before us we may summarise certain principlesapplicable in the field of taxation and which principles would beinvoked in the course of the judgment :- (i) A taxing statute must be interpreted strictly. Equity has noplace in taxation nor while interpreting taxing statuteintendment would have any place. In case of State of W.B. Vs.Kesoram Industries Ltd. And Ors., (2004) 10 SCC 201, referringto Article 265 of the Constitution which provides that no taxshall be levied or collected except by authority of law, it wasobserved that in interpreting a taxing statute, equitableconsiderations are entirely out of place. Taxing statutes cannotbe interpreted by any presumption or assumption. A taxingstatute has to be interpreted in light of what is clearlyexpressed; it cannot imply anything which is not expressed; itcannot import provisions in the statute so as to supply anydeficiency. Before taxing any person it must be shown that hefalls within the ambit of charging section by clear words used inthe section and if the words are ambiguous and open to twointerpretations, the benefit of interpretation is given to thesubject. There is nothing unjust in the tax payer escaping if the letter of the law fails to catch him on account of the legislature'sfailure to express itself clearly. A Constitution Bench in the case of Commissioner of Customs(Import), Mumbai Vs. Dilip Kumar And Company And Ors.,(2018) 9 SCC 1, had reiterated these principles. It was a casewhere on a reference to the Larger Bench the Supreme Courtwas considering a question whether an ambiguity in a taxexemption provision or notification, the same must beinterpreted so as to favour the assessee. Making a cleardistinction between a charging provision of a taxing statute andexemption notification which waives a tax or a levy normallyimposed, the Supreme Court observed as under :- 14. We may, here itself notice that the distinction ininterpreting a taxing provision (charging provision) and inthe matter of interpretation of exemption (98 of 113) notification is too obvious to require anyelaboration. Nonetheless, in a nutshell, we may mentionthat, as observed in Surendra Cotton Oil Mills Case, in thematter of interpretation of charging Section of a taxationstatute, strict Rule of interpretation is mandatory and ifthere are two views possible in the matter ofinterpretation of a charging section, the one favourable tothe Assessee need to be applied. There is, however,confusion in the matter of interpretation of exemptionnotification published under taxation statutes and in thisarea also, the decisions are galore. 24. In construing penal statutes and taxation statutes, theCourt has to apply strict Rule of interpretation. The penalstatute which tends to deprive a person of right to life andliberty has to be given strict interpretation or else manyinnocent might become victims of discretionary decisionmaking. Insofar as taxation statutes are concerned, Article265 of the Constitution prohibits the State from extractingtax from the citizens without authority of law. It isaxiomatic that taxation statute has to be interpretedstrictly because the State cannot at their whims andfancies burden the citizens without authority of law. Inother words, when the competent Legislature mandatestaxing certain persons/certain objects in certaincircumstances, it cannot be expanded/interpreted toinclude those, which were not intended by the legislature. 12We should also note that factually, as recorded in its directions dated 16[th] September 2019, the DRP has stated as under : During the course of proceedings before the DRP, the assesseehas filed a letter dated 26.08.2019 intimating that the AO after 13/13 910.WP-2387-2020.doc 12We should also note that factually, as recorded in its directions dated 16[th] September 2019, the DRP has stated as under : During the course of proceedings before the DRP, the assesseehas filed a letter dated 26.08.2019 intimating that the AO after 13/13 910.WP-2387-2020.doc passing draft order on 03.12.2018 has passed final order on24.12.2018, which was served on the assessee by email on29.12.2018. Meanwhile, the assessee had already filedapplication before the DRP on 28.12.2018 which were in time.The assessee has also intimated that the assessee has alreadyfiled appeal before the CIT(A) against the aforesaid final order ofthe AO. The assessee has requested that in view of the final orderalready passed by the AO, the application before the DRP hasbeen infructuous and therefore, it wishes to withdraw theapplication filled before the DRP. We have considered the aboveletter dated 26.08.2019 filed by the assessee. Since, theobjections filed by the assessee are in time as prescribed underthe Act and AO's draft order is as per the Act, we, thereforeproceed to issue directions to the AO/TPO as per the Act.Discussion and Direction of the DRP are as under. Notwithstanding this, the DRP has proceeded to issue thedirections which it should not have done. 13In the circumstances, we hereby quash and set aside thedirections issued by DRP on 16[th] September 2019 and the consequentassessment order dated 31[st] October 2019. 14Petition disposed. No order as to costs. (DR. N. K. GOKHALE, J.) (K. R. SHRIRAM, J.)