Facts of the Case

JCB India Ltd., a wholly owned subsidiary of JC Bamford Excavators Ltd., UK, engaged in manufacturing earth-moving and construction equipment, was subjected to transfer pricing adjustments in respect of international transactions with its Associated Enterprise (AE).

For AYs 2006–07, 2007–08, and 2008–09, the Assessing Officer passed final assessment orders enhancing the returned income based on transfer pricing adjustments. These assessments were challenged before the ITAT, which remanded the transfer pricing issue back for fresh adjudication, allowing both parties to file fresh transfer pricing studies and comparables.

Subsequently, the TPO passed fresh orders quantifying transfer pricing adjustments, and the AO immediately issued final assessment orders without first issuing draft assessment orders under Section 144C. JCB India challenged the legality of such action before the Delhi High Court.

 Issues Involved

  1. Whether issuance of a draft assessment order under Section 144C(1) is mandatory even in remand proceedings after ITAT directions?
  2. Whether failure to follow the procedure under Section 144C invalidates the final assessment order?
  3. Whether such defect can be cured under Section 292B of the Income Tax Act?
  4. Whether the Revenue could rely on Section 153(3)(ii) to bypass Section 144C procedure?

 Petitioner’s Arguments

  • The petitioner argued that Section 144C creates a mandatory statutory safeguard requiring the Assessing Officer to first issue a draft assessment order before finalizing assessment involving transfer pricing adjustments.
  • It was contended that even after remand by ITAT, the statutory mandate continues to apply.
  • Reliance was placed on Turner International India Pvt. Ltd. v. DCIT, where identical facts resulted in quashing of final assessment orders for non-compliance with Section 144C.
  • The petitioner argued that such non-compliance was not a procedural irregularity but an incurable jurisdictional defect.

 Respondent’s Arguments

  • The Revenue contended that an alternative appellate remedy was available, and therefore writ jurisdiction should not be invoked.
  • It argued that after remand by the ITAT, issuance of a draft assessment order was unnecessary since only transfer pricing issues were remanded and not the entire assessment.
  • It further argued that Section 153(3)(ii) governed the remand proceedings.
  • Revenue also relied upon Section 292B, asserting that procedural defects should not invalidate assessment orders.

 Court Findings / Court Order

The Delhi High Court held in favour of JCB India Ltd. and quashed the final assessment orders as well as the TPO orders.

The Court held:

  • Section 144C(1) is mandatory and applies equally in remand proceedings.
  • The statutory language does not carve out any exception for remand cases.
  • Failure to issue a draft assessment order deprives the assessee of the valuable statutory right to approach the DRP.
  • Such failure is a jurisdictional defect and not a curable procedural irregularity.
  • Section 292B cannot cure absence of jurisdiction.

Accordingly, all final assessment orders and consequent proceedings were set aside.

 Important Clarification by Court

The Court clarified that:

  • Remand by ITAT on transfer pricing issues does not dilute compliance requirements under Section 144C.
  • Draft assessment order is a substantive right, not a procedural formality.
  • DRP mechanism is an essential statutory protection in transfer pricing disputes.
  • Any final assessment passed without draft assessment in eligible cases is void ab initio.

 Sections Involved

  • Section 92CA(3A) – Transfer Pricing Officer’s determination
  • Section 143(3) – Regular assessment
  • Section 144C – Draft assessment order and DRP mechanism
  • Section 153(2A) – Time limit for fresh assessment
  • Section 153(3)(ii) – Fresh assessment in consequence of appellate orders
  • Section 156 – Notice of demand
  • Section 271 – Penalty provisions
  • Section 274 – Procedure for penalty
  • Section 292B – Return, notice, etc., not to be invalid on technical grounds 

    Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2017:DHC:5222-DB/SMD07092017CW33992016.pdf

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