Facts of the Case

  • The assessee, NT Back Office Services Pvt. Ltd. (formerly Globerian India Pvt. Ltd.), was subject to assessment for AY 2007–08.
  • The Income Tax Appellate Tribunal (ITAT) annulled the assessment order dated 28.03.2014.
  • The annulment was based on failure of the Assessing Officer (AO) to follow Section 144C procedure, specifically not issuing a draft assessment order.
  • Earlier, the matter had been remanded by ITAT (order dated 15.03.2012) directing fresh adjudication after giving opportunity to the assessee.

Issues Involved

  1. Whether the Assessing Officer can pass a final assessment order without issuing a draft assessment order under Section 144C after remand.
  2. Whether the assessee continues to remain an “eligible assessee” under Section 144C after remand proceedings.
  3. Whether non-compliance with Section 144C renders the assessment order invalid.

Petitioner’s Arguments (Revenue)

  • The Revenue contended that:
    • The decision in JCB India Ltd. was distinguishable.
    • In the first round, the assessee failed to file objections before the DRP within limitation.
    • Therefore, the AO was justified in passing the final assessment order without issuing a draft assessment order in the second round.

 

Respondent’s Arguments (Assessee)

  • The assessee argued that:
    • The ITAT remand required fresh adjudication, which necessarily required compliance with Section 144C.
    • The AO was bound to issue a draft assessment order and follow DRP procedure.
    • Failure to follow mandatory statutory procedure invalidates the assessment order.

Court’s Findings / Judgment

  • The Delhi High Court held:
    • Section 144C procedure is mandatory and must be followed strictly.
    • The AO must:
      • First hear the assessee
      • Then issue a draft assessment order
      • Allow the assessee to file objections before DRP
    • No hearing is contemplated after draft order; the process is strictly structured.
  • The Court observed:
    • The ITAT had remanded the matter for fresh assessment on merits, not bypassing Section 144C.
    • Even the DRP had clarified that the AO should follow Section 144C procedure.
    • The assessee remained an “eligible assessee”, as the variation arose from transfer pricing adjustments.
  • Conclusion:
    The appeal of the Revenue was dismissed, and the Tribunal’s order annulling the assessment was upheld.

Important Clarification by the Court

  • Section 144C:
    • Is mandatory and not procedural discretion
    • Applies even in remand proceedings
    • Applies wherever variation arises from Transfer Pricing Officer’s order
  • Failure to issue a draft assessment order = assessment becomes invalid

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2018:DHC:7464-DB/AJB26112018ITA13072018.pdf

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