Facts of the Case

  1. The petitioner was subjected to income tax assessment proceedings for multiple assessment years.
  2. The Income Tax Appellate Tribunal had passed an order on 29.06.2012 regarding attribution of profits.
  3. Pursuant to the ITAT’s remand directions, the Assessing Officer issued draft assessment orders.
  4. The Dispute Resolution Panel also passed directions under Section 144C(5).
  5. However, in separate appeals filed by the petitioner, the Delhi High Court set aside the ITAT order itself on 25.08.2014.
  6. The petitioner contended that once the foundational ITAT order stood quashed, all consequential proceedings became legally unsustainable.

Issues Involved

  1. Whether draft assessment orders passed pursuant to an ITAT order survive after the ITAT order itself has been set aside by the High Court?
  2. Whether directions issued by the Dispute Resolution Panel under Section 144C(5) can remain operative when their very foundation has ceased to exist?
  3. Whether pendency of Special Leave Petitions before the Supreme Court without a stay order affects the enforceability of the High Court’s judgment?

Petitioner’s Arguments

  • The petitioner argued that the Assessing Officer’s draft assessment orders were directly based upon the ITAT’s remand order dated 29.06.2012.
  • Since the Delhi High Court had subsequently set aside that ITAT order by judgment dated 25.08.2014, the very foundation of the draft assessment proceedings ceased to exist.
  • Consequently, every proceeding arising from that order became void, inoperative, and without authority of law.
  • The petitioner therefore sought quashing of both the draft assessment orders and the DRP directions.

Respondent’s Arguments

  • The Revenue submitted that the High Court’s earlier judgment dated 25.08.2014 had been challenged before the Supreme Court by way of Special Leave Petitions.
  • Leave had already been granted by the Supreme Court, and the matter was pending adjudication.
  • Therefore, the Revenue implied that the consequential proceedings should not be interfered with at this stage.

Court Findings / Court Order

The Delhi High Court held that once the ITAT’s order dated 29.06.2012 had been set aside by the High Court itself, any proceedings initiated or continued on the basis of that order became legally unsustainable.

The Court observed that:

  • The draft assessment orders passed by the Assessing Officer pursuant to the ITAT order became inoperative.
  • The directions issued by the Dispute Resolution Panel also became a nullity.
  • Mere pendency of Special Leave Petitions before the Supreme Court does not dilute the binding effect of the High Court’s judgment unless a stay order is granted.

Accordingly, the writ petitions were allowed and the draft assessment orders as well as the DRP directions were set aside.

Important Clarification

The judgment reinforces an important procedural principle:

When the foundational order forming the basis of consequential proceedings is set aside, all derivative proceedings automatically lose legal sanctity unless independently sustainable.

Further, the Court clarified that:

Filing of an SLP or grant of leave by the Supreme Court does not automatically stay the operation of the impugned judgment unless a specific stay order is passed.

Sections Involved

  • Section 144C(5), Income Tax Act, 1961 – Directions by Dispute Resolution Panel
  • Section 143(3), Income Tax Act, 1961 – Assessment proceedings
  • Section 260A, Income Tax Act, 1961 – Appeal to High Court
  • Principles of consequential proceedings and nullity of derivative actions

Link to Download the Order https://delhihighcourt.nic.in/app/case_number_pdf/2015:DHC:11394-DB/BDA08102015CW6582015_150301.pdf

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