Case Law Details
PHI Seeds Pvt. Ltd. Vs DCIT (ITAT Delhi)
The assessee’s assessment was completed through the draft assessment/DRP mechanism under section 144C after a reference to the Transfer Pricing Officer (TPO). However, the TPO, in his order under section 92CA(3), accepted that all international transactions were at arm’s length and made no variation to the returned income.
Raising an additional legal ground before the Tribunal, the assessee contended that in the absence of any TPO variation, it did not qualify as an “eligible assessee” under section 144C(15). Therefore, the Assessing Officer had no jurisdiction to follow the draft order–DRP procedure and the final assessment framed under section 143(3) read with section 144C was void ab initio.
The Tribunal admitted this additional ground as a pure question of law going to the root of jurisdiction. Relying on the Bombay High Court decision in Classic Legends (P) Ltd., it held that where the TPO proposes no adjustment, the assessee cannot be treated as an “eligible assessee” and the entire section 144C procedure becomes inapplicable.
Since the Assessing Officer nevertheless issued a draft order and completed the assessment through the DRP route, the assessment suffered from lack of jurisdiction. Accordingly, the entire assessment order was quashed, and other issues on merits, including denial of exemption under section 10(1) for agricultural income from hybrid seed activities, were rendered academic. The assessee’s appeal was allowed.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal filed by the Assessee against the order of the Ld. CIT(A)-7, New Delhi dated 03.10.2017 relating to assessment year 2012-13 on the following grounds:-
1. That on the facts and in the circumstances of the case, the Ld. CIT(A) erred in law in upholding the order passed by the AO rejecting the assessee’s claim of deduction u/s. 10(1) of the Act.
2. That the CIT(A) has passed the order without application of mind and without considering the evidence on record by merely relying upon the findings of the CIT(A) for the earlier years.
3. That the CIT(A) in law and on the facts erred in not passing a reasoned order.
4. That the orders passed by the AO and the CIT(A) are illegal as these orders have been passed without application of mind and in gross violation of principles of natural justice.
2. At the time of hearing, the Assessee has filed an application under Rule 11 of the ITAT Rules, 1963 for admission of additional ground by stating as under:-
“The appellant craves leave to raise additional ground of appeal as under:-
1. That on the facts and circumstances of the case and in law, the assessing officer erred in passing draft assessment order under sections 143 (3)/144C(1) of the Income Tax Act, 1961 without appreciating that Appellant does not qualify as an ‘eligible assessee’ under section 144C(15) of the Act, consequently final assessment order passed under section 143 r.w.s. 144(C) of the Act for the captioned assessment year is without jurisdiction, invalid, illegal and void abinito.
The aforesaid additional ground of appeal raise purely legal issues. In view of the above, the aforesaid additional ground of appeal call for being admitted and adjudicated on merits in terms of the discretion vested in your honours under Rule 11 of the Income tax (Appellate Tribunal) Rules, 1963 and the decision of the Supreme Court in the case of National Thermal Power Co. Ltd. vs. CIT 229 ITR 383 SC and also the decision of in the case of Jute Corporation of India vs. CIT 187 ITR 688 (SC).”
3. We have carefully considered the prayer for admission of additional ground and heard both the counsels on the issue. In our considered opinion in the light of the Hon’ble Apex Court decision in the case of NTPC Ltd. vs. CIT (1998) 229 ITR 0383 (SC), we admit the aforesaid additional ground raised by the assessee as the same is a purely legal ground and goes to the root of the matter.
4. Brief facts of the case are that the assessee filed its return of income on 30.11.2012 for the assessment year 2012-13 declaring the income of Rs. 24,25,31,318/-. The case was selected for scrutiny assessment. Order u/s. 143(3) was passed on 23.3.2016, by assessing the income at Rs. 128,32,21,949/- after addition of Rs. 100,87,51,183/- as business income as against exempt agricultural income claimed by the assessee u/s. 10(1) of the Act and income from other sources. Against the above, assessee preferred the appeal before the Ld. CIT(A), who vide his impugned order dated 03.10.2017 by following his predecessor’s order in earlier years where assessee company’s claim of exemption u/s. 10(1) for agricultural income is not allowable, as assessee is deriving income from manufacturing / processing and sale / purchase of hybrid seeds and income claimed as agricultural income was assed as income from business activities and upheld the action of the AO. Aggrieved, assessee is in appeal before us and both the parties argued the additional ground raised by the assessee and filed their respective written submissions on the issue.
5. At the outset, Ld. Sr. Counsel for the assessee in support of the aforesaid Additional Ground has submitted that AO has wrongly invoked the provisions of section 144C which related to a reference to the Dispute Resolution Panel. He further submitted that AO had made a request to the TPO u/s. 92CA of the Act and the TPO issued the notice to the assessee. However, the TPO has not made any variation. During the arguments of the Appeal, Ld. Sr. Counsel for the assessee filed the copy of order passed u/s. 92CA(3) of the Act which shows that the no variation has been made by the TPO. In order to support his contention, he relied upon the decision of the Hon’ble Bombay High Court in the case of Classic Legends (P) Ltd. vs. Assessment Unit [2025] 178 com 457 (Bombay) dated 9.9.2025. He requested to follow the aforesaid decision and additional ground raised by the assessee may be allowed.
6. Per contra, Ld. CIT(DR) relied upon the order of the authorities below.
7. After hearing both the sides and perusing the relevant records, we find considerable cogency in the contention of the Ld. Sr. Counsel for the assessee that AO has wrongly invoked the provisions of section 144C which related to a reference to the Dispute Resolution Panel. In the instant case AO had made a request to the TPO u/s. 92CA of the Act and the TPO issued the notice to the assessee. However, the TPO has not made any variation. We find that similar issue has been decided in favour of other assessee by the Hon’ble Bombay High Court in the case of Classic Legends (P) Ltd. vs. Assessment Unit [2025] 178 com 457 (Bombay) dated 9.9.2025 wherein, in the Head Notes it has been observed as under:-
“Section 144C, read with section 92CA, of the Income Tax Act, 1961 – Transfer pricing Dispute Resolution Panel (Eligible assessee) – Writ petition was filed against reference to DRP and consequential draft assessment order passed under section 144C on ground that Assessing Officer had wrongly invoked provisions of section 144C – It was undisputed that TPO had issued notices to assessee and thereafter passed an order under section 92CA(3) accepting that international transactions entered into by assessee with its Associated Enterprises were at Arms Length Price, without making any variation – Whether since there was no variation in income of assessee by virtue of order of TPO, assessee could not be stated to be an “eligible assessee” as defined in section 1444C(15)(b) and entire procedure for issuance of draft order calling for assessee’s objections thereon and taking further steps as laid down under section 144C would not apply – Held, yes [Paras 6, 7 and 10] [in favour of assessee].”
8. Respectfully following the aforesaid precedent, we hold that the present assessee is not an ‘eligible assessee’ under section 144C where no variation is proposed by the TPO. Thus, we quash the assessment order passed by the Assessing Officer.
9. Since we have quashed the impugned assessment order as aforesaid, hence, the other grounds on merits need not be adjudicated.
10. In the result, the appeal of the Assessee is allowed.
Order Pronounced in the Open Court on 28/01/2026.
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