Facts of the Case

The petitioner, JCB India Ltd., a wholly owned subsidiary of JC Bamford Excavators Ltd., UK, engaged in manufacturing earth-moving and construction equipment, filed income tax returns for Assessment Years 2006-07, 2007-08, and 2008-09.

During scrutiny assessment, transfer pricing adjustments were made in respect of international transactions with its Associated Enterprise (AE). The Assessing Officer passed final assessment orders based on Transfer Pricing Officer (TPO) recommendations.

The petitioner challenged the assessment before the Income Tax Appellate Tribunal (ITAT), which remanded the transfer pricing issue back for fresh determination and permitted both parties to submit fresh transfer pricing studies and comparables.

After remand, the TPO passed fresh transfer pricing adjustment orders and the Assessing Officer directly passed final assessment orders without first issuing a draft assessment order under Section 144C. This action was challenged before the Delhi High Court.

 Issues Involved

  1. Whether the Assessing Officer can pass a final assessment order directly after remand from the ITAT without issuing a draft assessment order under Section 144C?
  2. Whether compliance with Section 144C remains mandatory even in remand proceedings involving transfer pricing adjustments?
  3. Whether Section 292B can cure non-compliance with mandatory procedural requirements under Section 144C? 

Petitioner’s Arguments

The petitioner contended that:

  • Section 144C imposes a mandatory obligation upon the Assessing Officer to first issue a draft assessment order before finalizing assessment where transfer pricing variations are proposed.
  • The omission to issue a draft assessment order deprived the petitioner of its statutory right to approach the Dispute Resolution Panel (DRP).
  • The failure was not a procedural irregularity but a jurisdictional defect rendering the final assessment order invalid.
  • Reliance was placed on the Delhi High Court decision in Turner International India Pvt. Ltd. v. DCIT and other judicial precedents.

 Respondent’s Arguments

The Revenue argued that:

  • An alternative appellate remedy existed against the final assessment orders.
  • Since the matter was remanded only on transfer pricing issues and not the entire assessment, fresh issuance of a draft assessment order was unnecessary.
  • Section 153(3)(ii) governed the proceedings after remand.
  • Failure to issue a draft assessment order was merely procedural and curable under Section 292B.

 Court Findings / Observations

The Delhi High Court held that:

  • Section 144C(1) is mandatory and unambiguous.
  • There is no distinction in the statutory language between original assessment proceedings and remand proceedings.
  • Even after remand from ITAT, if transfer pricing adjustments are proposed, the Assessing Officer must first issue a draft assessment order.
  • The right to object before the DRP is a substantive statutory right and cannot be bypassed.
  • Non-compliance with Section 144C is not a curable defect.
  • Section 292B cannot validate an order passed without jurisdiction.

 Court Order / Final Decision

The Delhi High Court quashed:

  • The final assessment orders passed by the Assessing Officer for AY 2006-07, AY 2007-08, and AY 2008-09.
  • The transfer pricing orders passed by the TPO pursuant to ITAT remand.

The Court held that the impugned orders were without jurisdiction due to failure to comply with the mandatory requirement of issuing a draft assessment order under Section 144C.

 Important Clarification

The judgment clarifies that:

Issuance of a draft assessment order under Section 144C is mandatory even in remand proceedings arising from ITAT directions, where transfer pricing adjustments are proposed. Failure to do so renders the final assessment order void and without jurisdiction.

This is a significant precedent safeguarding the assessee’s right to DRP adjudication.

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

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