Facts of the Case

The petitioner, JCB India Ltd., a wholly owned subsidiary of JC Bamford Excavators Ltd., UK, was engaged in manufacturing earth-moving and construction equipment in India. For Assessment Years 2006-07, 2007-08, and 2008-09, transfer pricing adjustments were made by the Transfer Pricing Officer (TPO), resulting in enhancement of taxable income.

The assessee challenged the assessment orders before the Income Tax Appellate Tribunal (ITAT), which remanded the matter back for fresh determination of Arm’s Length Price (ALP), permitting both sides to submit fresh transfer pricing studies and comparables.

Upon remand, instead of issuing a draft assessment order under Section 144C, the Assessing Officer directly passed final assessment orders based on fresh TPO orders, leading to the present writ petitions challenging the legality of such action.

 Issues Involved

  1. Whether the Assessing Officer can pass a final assessment order directly after remand by ITAT without issuing a draft assessment order under Section 144C?
  2. Whether the omission to issue a draft assessment order is a curable procedural defect?
  3. Whether Section 292B can validate such defective final assessment orders?

 Petitioner’s Arguments

The petitioner contended that:

  • Section 144C makes issuance of a draft assessment order mandatory before finalizing assessment where transfer pricing adjustments are proposed.
  • The remand by ITAT does not dilute the statutory requirement under Section 144C.
  • Failure to issue a draft assessment order deprives the assessee of the valuable statutory remedy of approaching the Dispute Resolution Panel (DRP).
  • Such failure is not a mere procedural irregularity but a jurisdictional defect rendering the final order invalid.
  • Proceedings were also challenged on limitation grounds under Sections 92CA(3A) and 153(2A).

 Respondent’s Arguments

The Revenue argued that:

  • The assessee had an alternative remedy of appeal against the final assessment order.
  • Since the matter was in the second round after ITAT remand, issuance of a draft assessment order under Section 144C was not mandatory.
  • ITAT had remanded only the transfer pricing issue and not the entire assessment.
  • Section 153(3)(ii) governed such remand proceedings.
  • Even if there was a defect, it was curable and protected under Section 292B.

 Court Findings / Court Order

The Delhi High Court held:

  • Section 144C(1) is mandatory and unambiguous.
  • The requirement to issue a draft assessment order applies equally even after remand proceedings.
  • There is no statutory exception exempting remanded matters from Section 144C compliance.
  • Non-issuance of draft assessment order is not a procedural irregularity but an incurable jurisdictional illegality.
  • Section 292B cannot cure absence of jurisdiction.
  • The final assessment orders and TPO orders passed after remand without draft assessment procedure were quashed.

The writ petitions were allowed.

 Important Clarification

This judgment clarifies that:

  • Section 144C compliance is mandatory at every stage where transfer pricing variation is proposed, even after remand by ITAT.
  • Remand proceedings do not dilute procedural safeguards granted to eligible assessees.
  • Section 292B cannot be used to validate jurisdictional defects.
  • Right to approach DRP is a substantive statutory right.

  

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

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