Facts of the Case

The assessee, Wickwood Development Ltd., is a company incorporated in the British Virgin Islands. A search and seizure operation under Section 132 of the Income-tax Act, 1961 was conducted on 22 March 2012 in the Focus Energy Group. Consequent thereto, notices under Section 153C were issued to the assessee on 18 November 2013 for Assessment Years 2008-09 and 2009-10.

The Assessing Officer made a reference to the Transfer Pricing Officer to verify the correctness of exploration expenses paid by the assessee. The assessee objected to the assumption of jurisdiction and thereafter filed its return of income in response to the notice under Section 153C.

The Assessing Officer passed final assessment orders under Section 153C read with Section 144 without issuing a draft assessment order under Section 144C. Additions of substantial amounts were made. The Commissioner of Income Tax (Appeals) allowed the assessee’s appeal. The Revenue challenged the same before the ITAT, while the assessee filed cross-objections.

The ITAT allowed the assessee’s objections holding that issuance of a draft assessment order was mandatory. Aggrieved, the Revenue filed appeals before the Delhi High Court.

 

Issues Involved

Whether Section 144C of the Income-tax Act applies to assessments framed under Section 153C.

Whether the assessee qualified as an “eligible assessee” under Section 144C(15)(b) of the Act.

Whether failure to issue a draft assessment order renders the final assessment order void.

Whether the ITAT was justified in allowing the assessee’s objections without adjudicating the merits of additions.

 

Petitioner’s (Revenue’s) Arguments

The Revenue contended that Section 144C was not applicable to the assessee since income was deemed to accrue in India only due to underlying assets or source of income. It was argued that the assessee did not qualify as an “eligible assessee” within the meaning of Section 144C(15).

The Revenue further submitted that the ITAT erred in allowing the assessee’s objections solely on procedural grounds without examining the merits of the additions made in the assessment orders.

 

Respondent’s (Assessee’s) Arguments

The assessee argued that being a non-resident company and having been subjected to transfer pricing reference, it squarely fell within the definition of “eligible assessee” under Section 144C(15)(b).

It was contended that issuance of a draft assessment order under Section 144C is mandatory and confers a substantive right to approach the Dispute Resolution Panel. Failure to follow this procedure constitutes a jurisdictional defect rendering the final assessment order null and void.

The assessee relied on binding precedent of the Delhi High Court in Turner International India Pvt. Ltd. v. DCIT to submit that such defect is incurable.

 

Court Order / Findings

The Delhi High Court dismissed the Revenue’s appeals and upheld the order of the ITAT. The Court held that Section 144C applies mandatorily to eligible assessees, including non-residents subjected to transfer pricing reference, even in proceedings under Section 153C.

The Court reiterated that issuance of a draft assessment order is a jurisdictional requirement and not a procedural formality. Failure to comply with Section 144C vitiates the entire assessment proceedings, leaving no scope for adjudication on merits.

The Court further held that the ITAT was justified in allowing the assessee’s objections without examining the merits, as the assessment itself was rendered void ab initio.

 

Important Clarification

This judgment authoritatively clarifies that:

Section 144C applies to assessments framed under Section 153C.

Non-resident assessees subjected to transfer pricing reference qualify as “eligible assessees”.

Issuance of a draft assessment order is mandatory and jurisdictional.

Failure to comply with Section 144C cannot be cured and nullifies the final assessment order.

Merits of additions need not be examined once jurisdictional infirmity is established.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1770194707_PR.COMMISSIONEROFINCOMETAX7VsWICKWOODDEVELOPMENTLTD..pdf

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