Wp(C)/11952/2019 Of Fci Oen Connectors Limited v. The Deputy Commissioner Of Income Tax

(C.R.) IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR. JUSTICE A.K.JAYASANKARAN NAMBIAR WEDNESDAY, THE 13TH DAY OF NOVEMBER 2019 / 22ND KARTHIKA, 1941 WP(C).No.11952 OF 2019(T) PETITIONER: FCI OEN CONNECTORS LIMITEDXXIX/2089, TRIPUNITHURA ROAD, THYKOODAM, VYTTILA, KOCHI, KERALA-682019, REPRESENTED BY ITS DIRECTOR, G.RAJAMANI. BY ADVS.SRI.JOSEPH MARKOSE (SR.)SRI.V.ABRAHAM MARKOSSRI.ABRAHAM JOSEPH MARKOSSRI.ISAAC THOMASSRI.P.G.CHANDAPILLAI ABRAHAMSHRI.VIPIN ANTO H.M.SHRI.ALEXANDER JOSEPH MARKOSSHRI.SHARAD JOSEPH KODANTHARA RESPONDENTS: 1THE DEPUTY COMMISSIONER OF INCOME TAXCORPORATE CIRCLE 1(1), COCHIN-682018. 2THE INCOME TAX OFFICER(OSD) AND SECRETARY,DISPUTE RESOLUTION PANEL-2, 'A' WING , 4TH FLOOR, KENDRIYASADAN, KORAMANGALA,, BENGALURU-560034. R1-2 BY SRI.JOSE JOSEPH, SC, FOR INCOME TAX OTHER PRESENT: SC JOSE JOSEPH THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 11-11-2019, THE COURT ON 13-11-2019 DELIVERED THE FOLLOWING: 2 JUDGMENT (C.R.) The petitioner is a public limited Company engaged in the business ofmanufacture of connectors and other articles. It is an assessee under theIncome Tax Act on the files of the 1[st] respondent. For the assessment year2015-16, the petitioner filed its returns and as part of the assessmentprocedure, it was served with a S.143(2) notice on 15/04/2016. Thereafter, itwas served with various notices under Section 142(1) of the Income Tax Act,requiring it to produce various documents in connection with the completionof its assessment. It is relevant to note at this stage that, with effect from2017, as part of the Government initiative towards e-Governance, there was amove to shift to e-proceedings facility for completion of assessments. Circularsand instructions were therefore issued by the Government of India, Ministry ofFinance, in the Department of Revenue, requesting assessees to switch over tothe e-proceedings facility available on the integrated platform providedthrough the Income Tax Business Application project, for completion of theirassessments under the Income Tax Act. 2.The e-proceeding facility was introduced initially in seven metrocities, where the said facility was made mandatory for assessees. In Cochin,the e-proceeding facility was permitted as an optional facility for thoseassessees who wanted to opt for the said facility. For others like the petitionerherein, who did not want to opt for the e-proceeding facility, the department 3 permitted a continuation of the manual procedure for completion of theassessments. It is therefore that the petitioner, in response to the noticesreceived by him under Section 142(1) Income Tax Act, manually filed thedocuments sought for by the department through Exts.P5, P7 and P12communications dated 09/10/2017,12/9/2018 and 28/12/2018 respectively. Itwould appear that, on a reference to the Transfer Pricing Officer underSection 92 CA of the Income Tax Act, the said officer by order dated26/10/2018 recommended certain adjustments to the computation of income,in accordance with the Transfer Pricing Norms. Thereafter, the assessingofficer prepared a draft assessment order based on the recommendations ofthe Transfer Pricing Officer, in terms of Section 144(C) of the Act and served acopy of the draft assessment order to the petitioner electronically on31/12/2018 and manually on 05/1/2019. 3. As per the provisions of sub section 2 of Section 144(C), thepetitioner had to file his objections to the draft assessment order, before theDispute Resolution Panel, within 30 days of receipt by him of the draft order. Itis not in dispute that the objection filed by the petitioner was received by theDispute Resolution Panel on 01/02/2019 as is evident from Ext.P16communication. The Dispute Resolution Panel, however, issued Ext.P17 showcause notice, asking the petitioner to show cause as to why the objectionpreferred by it should not be rejected on the ground that it was received bythe panel more than 30 days, after the service of the draft assessment orderthrough the electronic mode on 31/12/2018. In response to the said showcause notice, the petitioner assessee informed the the Dispute Resolution 4 Panel that the draft assessment order was manually served only on 05/01/2019and hence its objection filed on 01/02/2019 had to be seen as within thepermitted time limit of 30 days from the date of service of the draftassessment order. This contention of the petitioner was however, rejected bythe Dispute Resolution Panel by Ext.P19 order dated 26/02/2019. Much beforethis however, on 22/02/2019 itself, by Ext.P20 order, the 1[st] respondentAssessing Authority passed an assessment order without taking note of theobjection filed by the petitioner to the draft assessment order. This wasprobably on account of the fact that a copy of the objection filed by theassessee to the draft assessment order on 01/02/2019 before the DisputeResolution Panel was received by the Assessing Authority only on 05/02/2019,which was beyond the period of 30 days from 05/01/2019, the date on whichthe draft assessment order in manual mode was served on the petitionerassessee. In the writ petition, Ext.P19 order of the dispute resolution panel,and Ext. P20 order of assessment are impugned, inter alia on the contentionthat the Dispute Resolution Panel, as well as the Assessing Authority, ought tohave considered the objections filed by the petitioner to the draft assessmentorder before completing the assessment of the petitioner under the Act. 4.A statement has been filed on behalf of the respondent wherein,the stand taken is that, in as much as the draft assessment order in electronicformat was served on the petitioner assessee on 31/12/2018 / 01/01/2019, thepetitioner assessee had to file its objection before the Dispute Resolution Panelby 01/02/2019. It is therefore contended that, since the objections of theassessee were admittedly filed only on 05/2/2019, the same was belated vis-a- 5 vis the dispute resolution panel, as also the Assessing Officer and henceExts.P19 and P20 orders cannot be seen as vitiated on account of anyprocedural error occasioned by the respondent. 4.A statement has been filed on behalf of the respondent wherein,the stand taken is that, in as much as the draft assessment order in electronicformat was served on the petitioner assessee on 31/12/2018 / 01/01/2019, thepetitioner assessee had to file its objection before the Dispute Resolution Panelby 01/02/2019. It is therefore contended that, since the objections of theassessee were admittedly filed only on 05/2/2019, the same was belated vis-a- 5 vis the dispute resolution panel, as also the Assessing Officer and henceExts.P19 and P20 orders cannot be seen as vitiated on account of anyprocedural error occasioned by the respondent. 5.I have heard the learned Senior counsel Sri. Joseph Markoseappearing for the petitioner and also Sri. Jose Joseph, the learned StandingCounsel for the Income Tax Department. On a consideration of the facts andcircumstances of the case as also the submissions made across the Bar, I findthat the e-proceeding facility that was introduced as part of the Governmentinitiative towards e-Governance, in the Income Tax Department, was not mademandatory for proceedings initiated against assessees in Kochi city. Save forthe assessees in the seven metro cities specified, of which Kochi is not one, forassessees located elsewhere in the country, the e-proceeding facility was madeoptional, and if the assessees chose not to opt for the electronic facility, theproceedings vis-a-vis the department had to be conducted manually. Theservices of notice under Section 142(1) or 143(2) and the replies/objections bythe assesses had therefore, to be effected manually, although, in the absenceof any objection by the assessee, an electronic service could also have beenresorted to by the department. In the instant case, the issue that arises for theconsideration is whether, the service of the draft assessment order on theassessee, in terms of Section 144(C) of the Income Tax Act, was effected on31/12/2018 / 01/01/2019 as contended by the department or only on05/01/2019 as contended by the petitioner assessee. It is not in dispute thatthe draft assessment order in electronic format was sent to the petitioner 6 assessee on 31/12/2018 / 01/01/2019. The department, however, chose to senda manual version of the draft assessment order also to the petitioner assessee,and this was received by the petitioner on 05/01/2019. In terms of Section144(C)(2) of the Income Tax Act, the petitioner assessee was to submit hisobjections to the draft assessment order within 30 days of the receipt of thesame, and the said objections were to be simultaneously sent to both theDispute Resolution Panel as also to the Assessing Officer. It is trite, that inmatters involving transfer pricing, and where a reference is made to theTransfer Pricing Officer, the final assessment must await the decision of theTransfer Pricing Officer, or in applicable cases, that of the Dispute ResolutionPanel. The relevant date in the instant case, which involved a reference to thetransfer pricing officer, has to be the date on which the objections werereceived by the Dispute Resolution Panel and the question to be answered iswhether, the objections filed by the petitioner on 1/2/2019 was within the timecontemplated under Section 144(C) of the Income Tax Act. 6. In my view, when the petitioner had not opted for the e-proceedingfacility, and had chosen to have its assessment proceedings continued in themanual mode, the receipt of the draft assessment order in the manual modehas to be seen as the date of service of the draft assessment order. This wouldbe so because, an assessee that did not opt for the electronic mode for thecompletion of his assessment proceedings, virtually expresses his lack ofconfidence in the said facility and thereby chooses to opt for the manualfacility in which he reposes greater confidence. Till such time as the electronic 7 6. In my view, when the petitioner had not opted for the e-proceedingfacility, and had chosen to have its assessment proceedings continued in themanual mode, the receipt of the draft assessment order in the manual modehas to be seen as the date of service of the draft assessment order. This wouldbe so because, an assessee that did not opt for the electronic mode for thecompletion of his assessment proceedings, virtually expresses his lack ofconfidence in the said facility and thereby chooses to opt for the manualfacility in which he reposes greater confidence. Till such time as the electronic 7 facility is made mandatory for assessees, therefore, the wishes of the assesseehave necessarily to be respected by the department. It would also be an aspectof fairness in tax administration that the assessee is not prejudiced on accountof service of an order, through a mode that he did not opt for. This court mustalso remind itself that, in the event of an ambiguity in construing theprovisions in a taxing statute, it has to take a view that favours the assessee. Iam therefore of the view that it is the receipt of the draft assessment order on05/01/2019 through the manual mode, that determines the starting point oflimitation for the period of 30 days under Section 144(C)(2) of the Income TaxAct, for the petitioner to have submitted his objections before the DisputeResolution Panel. On reckoning the period of 30 days from 05/01/2019 asaforesaid, I find that the objection filed by the petitioner on 01/02/2019 beforethe Dispute Resolution Panel was within time. Ext.P19 order of the DisputeResolution Panel must, on that reasoning, be set aside and I do so. As alreadynoticed, in matters involving transfer pricing, the assessment order by theAssessing Officer must necessarily follow the findings of the DisputeResolution Panel and hence, based on the finding that Ext.P19 order of theDispute Resolution Panel is illegal,I have to hold that Ext.P20 order ofassessment, that did not await the decision of the Dispute Resolution Panel onmerits, is also illegal. The writ petition is therefore allowed by quashing Exts.P19 and P20orders and directing the 2[nd] respondent Dispute Resolution Panel to considerthe objections of the petitioner to the draft assessment order on merits, and 8 pass fresh orders in lieu of Ext.P19 within a period of three months from thedate of receipt of a copy of this judgment. The 1[st] respondent Assessing Officershall thereafter, complete the assessment proceedings, taking note of theorder of the 2[nd] respondent, and after hearing the petitioner, within a furtherperiod of three months from the date of receipt of the order of the 2[nd]respondent. It is made clear that the findings in this judgment have beenentered taking note of the peculiar factual circumstances that arose in theinstant case, and hence this judgment is not to be cited as a precedent insubsequent cases. SD/- A.K.JAYASANKARAN NAMBIARJUDGE 9 APPENDIX PETITIONER'S/S EXHIBITS:EXHIBIT P1EXHIBIT P1 TRUE COPY OF NOTICE ISSUED UNDER SECTION 143(2) DATED 15.04.2016 BY THE 1ST RESPONDENT.143(2) DATED 15.04.2016 BY THE 1ST RESPONDENT. EXHIBIT P2TRUE COPY OF THE CIRCULAR DATED 29.09.2017 ISSUED BY THE CBDT.ISSUED BY THE CBDT. EXHIBIT P3TRUE COPY OF THE INSTRUCTION NO.01/2018 DATED 12.02.2018 ISSUED BY CBDT.DATED 12.02.2018 ISSUED BY CBDT. EXHIBIT P4TRUE COPY OF THE NOTICE DATED 21.09.2017 ISSUED BY THE 1ST RESPONDENT U/S.142(1).ISSUED BY THE 1ST RESPONDENT U/S.142(1). EXHIBIT P5TRUE COPY OF THE LETTER DATED 09.10.2017 OFTHE PETITIONER.THE PETITIONER. EXHIBIT P6TRUE COPY OF THE NOTICE DATED 30.08.2018 ISSUED BY THE 1ST RESPONDENT U/S. 142(1).ISSUED BY THE 1ST RESPONDENT U/S. 142(1). EXHIBIT P7TRUE COPY OF THE PETITIONER'S LETTER DATED 12.09.2018.12.09.2018. TRUE COPY OF NOTICE ISSUED UNDER SECTION 143(2) DATED 15.04.2016 BY THE 1ST RESPONDENT.143(2) DATED 15.04.2016 BY THE 1ST RESPONDENT. EXHIBIT P2TRUE COPY OF THE CIRCULAR DATED 29.09.2017 ISSUED BY THE CBDT.ISSUED BY THE CBDT. EXHIBIT P3TRUE COPY OF THE INSTRUCTION NO.01/2018 DATED 12.02.2018 ISSUED BY CBDT.DATED 12.02.2018 ISSUED BY CBDT. EXHIBIT P4TRUE COPY OF THE NOTICE DATED 21.09.2017 ISSUED BY THE 1ST RESPONDENT U/S.142(1).ISSUED BY THE 1ST RESPONDENT U/S.142(1). EXHIBIT P5TRUE COPY OF THE LETTER DATED 09.10.2017 OFTHE PETITIONER.THE PETITIONER. EXHIBIT P6TRUE COPY OF THE NOTICE DATED 30.08.2018 ISSUED BY THE 1ST RESPONDENT U/S. 142(1).ISSUED BY THE 1ST RESPONDENT U/S. 142(1). EXHIBIT P7TRUE COPY OF THE PETITIONER'S LETTER DATED 12.09.2018.12.09.2018. EXHIBIT P8TRUE COPY OF THE NOTICE DATED 19.09.2018 ISSUED BY THE TRANSFER PRICING OFFICER.ISSUED BY THE TRANSFER PRICING OFFICER.EXHIBIT P9TRUE COPY OF THE SHOW CAUSE NOTICE DATED 17.10.201817.10.2018 EXHIBIT P10TRUE COPY OF THE ORDER DATED 26.10.2018. EXHIBIT P11TRUE COPY OF THE NOTICE DATED 16.11.2018 ISSUED UNDER SECTION 142(1).ISSUED UNDER SECTION 142(1). EXHIBIT P12TRUE COPY OF THE OBJECTIONS DATED 28.12.2018 FILED BY THE PETITIONER.28.12.2018 FILED BY THE PETITIONER. EXHIBIT P13TRUE COPY OF THE INSTRUCTION NO.03/2018 DATED 20.08.2012 ISSUED BY THE CBDT.DATED 20.08.2012 ISSUED BY THE CBDT. EXHIBIT P14TRUE COPY OF THE DRAFT ASSESSMENT ORDER DATED 31.12.2018.DATED 31.12.2018. EXHIBIT P15 TRUE COPY OF THE DRAFT ASSESSMENT ORDER DATED 31.12.2018 SENT TO THE EMAIL ADDRESS DATED 31.12.2018 SENT TO THE EMAIL ADDRESS 10 EXHIBIT P16 EXHIBIT P17 EXHIBIT P18 EXHIBIT P19 EXHIBIT P20 OF THE EXECUTIVE DIRECTOR OF THE PETITIONER. TRUE COPY OF THE OBJECTIONS DATED 30.01.2019 FILED BY THE PETITIONER. TRUE COPY OF THE NOTICE DATED 08.02.2019 ISSUED BY THE 2ND RESPONDENT. TRUE COPY OF THE OBJECTIONS DATED 12.02.2019 FILED BY THE PETITIONER. TRUE COPY OF THE ORDER DATED 26.02.2019 PASSED BY THE 2ND RESPONDENT. TRUE COPY OF THE ASSESSMENT ORDER DATED 22.02.2019 PASSED BY THE 1ST RESPONDENT.