Facts of the Case

• Ericsson AB challenged a draft assessment order passed under Section 144C(1) of the Income-tax Act, 1961 for Assessment Year 2007-08.

• The petitioner contended that the Assessing Officer had failed to comply with the proviso to Section 92C(3)(d) while framing the draft assessment order.

• It was further argued that the Transfer Pricing Officer (TPO) had accepted the transfer pricing methodology and determined that no transfer pricing adjustment was required.

• Despite the TPO's findings, the Assessing Officer proceeded with variations in the draft assessment order.

• The petitioner approached the Delhi High Court directly under Article 226 seeking quashing of the draft assessment order instead of filing objections before the Dispute Resolution Panel.

Issues Involved

1.      Whether a writ petition challenging a draft assessment order under Section 144C(1) is maintainable when an effective statutory remedy before the Dispute Resolution Panel is available.

2.      Whether the Assessing Officer is bound by the findings of the Transfer Pricing Officer under Section 92CA(4) of the Income-tax Act.

3.      Whether the assessee should first exhaust the remedy provided under Section 144C before invoking the extraordinary writ jurisdiction of the High Court.

Petitioner’s Arguments

• The Assessing Officer failed to consider the mandatory requirement contained in the proviso to Section 92C(3)(d) of the Income-tax Act.

• Reliance was placed upon the judgment of Moser Baer India Ltd. & Others v. Additional Commissioner of Income-tax & Another [2009] 316 ITR 1 (Delhi).

• The Transfer Pricing Officer had accepted the transfer pricing arrangements and concluded that no transfer pricing adjustment was necessary.

• Under Section 92CA(4), the findings of the Transfer Pricing Officer are binding upon the Assessing Officer.

• Therefore, the draft assessment order was liable to be quashed.

Respondent’s Arguments

• The Revenue submitted that the petitioner had an adequate and effective statutory remedy under Section 144C.

• The assessee could file objections before the Dispute Resolution Panel as well as the Assessing Officer under Section 144C(2).

• The Dispute Resolution Panel is empowered to consider all objections and issue appropriate directions under Section 144C(5).

• Since the statutory mechanism was available, the writ petition should not be entertained at the draft assessment stage.

Court Findings

• The Delhi High Court examined the scheme of Sections 92C, 92CA(4), and 144C of the Income-tax Act.

• The Court observed that the Dispute Resolution Panel has wide powers to consider objections, examine evidence, review records, and issue directions to the Assessing Officer.

• The Court held that the remedy before the Dispute Resolution Panel cannot be regarded as redundant, ineffective, or illusory.

• Where the legislature has created an intermediate statutory remedy, the assessee is ordinarily required to avail such remedy before approaching the High Court.

• The Court granted liberty to the petitioner to file objections before the Dispute Resolution Panel within one week.

• The Dispute Resolution Panel was directed to provide adequate opportunity of hearing and pass a reasoned speaking order dealing with all issues raised by the assessee.

• The writ petition was disposed of without interfering with the draft assessment order.

Important Clarification

• The Delhi High Court emphasized that the Dispute Resolution Panel is a substantive statutory forum and not a mere procedural formality.

• The Court clarified that assessees should not apprehend that proceedings before the Dispute Resolution Panel are perfunctory in nature.

• The DRP is expected to independently apply its mind, consider objections in detail, and pass a reasoned speaking order.

• The judgment reinforces the principle that writ jurisdiction should ordinarily not be exercised where an effective statutory remedy is available.

Sections Involved

• Article 226 of the Constitution of India

• Section 92C of the Income-tax Act, 1961

• Section 92CA(4) of the Income-tax Act, 1961

• Section 144C(1) of the Income-tax Act, 1961

• Section 144C(2) of the Income-tax Act, 1961

• Section 144C(5) to 144C(7) of the Income-tax Act, 1961

Link to download the order - https://delhihighcourt.nic.in/app/case_number_pdf/2011:DHC:704-DB/SKN04022011CW6892011.pdf 

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