Cost imposed as order issued u/s. 143(3) wrongly challenged assuming it as draft assessment order u/s. 144C

BT Global Communications India Pvt. Ltd. Vs DCIT (Delhi High Court)

Delhi High Court held that order issued u/s. 143(3) of the Income Tax Act wrongly challenged on the assumption that it is draft assessment order u/s. 144C is untenable in law. Accordingly, cost of ₹1,00,000/- imposed on petitioner.

Facts- The petitioner has filed the present petition impugning an order dated 06.12.2019, passed by the Assessing Officer assessing the petitioner’s total income at ₹5,47,92,27,510/-. According to the petitioner, the impugned order is a draft assessment order issued under Section 144C of the Income Tax Act, 1961. The petitioner claims that the AO has erred in passing the impugned order as the petitioner is not an ‘eligible assessee’; therefore, no such draft assessment order under Section 144C of the Act could be passed in its case.

Conclusion- Held that the challenge to the impugned order on the assumption that it is a draft assessment order under Section 144C of the Act after notwithstanding the clear language of the contents of the impugned order, is unsustainable. There was no scope of raising such a challenge after the AO had amply clarified that the impugned order was issued under Section 143(3) of the Act and the assessee’s contentions to the contrary are insubstantial. In view of the above, the present petition is dismissed with costs, quantified at ₹1,00,000/-. The costs shall be deposited with the Delhi High Court Legal Services Committee within a period of four weeks from date.

FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT

1. The petitioner has filed the present petition impugning an order dated 06.12.2019 (hereafter the impugned order), passed by the Assessing Officer (hereafter AO) assessing the petitioner’s total income at ₹5,47,92,27,510/-.

2. According to the petitioner, the impugned order is a draft assessment order issued under Section 144C of the Income Tax Act, 1961 (hereafter the Act). The petitioner claims that the AO has erred in passing the impugned order as the petitioner is not an ‘eligible assessee’; therefore, no such draft assessment order under Section 144C of the Act could be passed in its case.

3. As is apparent, the aforesaid challenge is founded on the assumption that the impugned order is a draft assessment order under Section 144C of the Act. The Revenue calls into question the said assumption. According to the Revenue, the impugned order is not an order passed under Section 144C of the Act, but an order passed under Section 143(3) of the Act, and therefore, the present petition is ill-founded.

4. It is a common ground that the AO was required to pass an assessment order under Section 143(3) of the Act on culmination of the scrutiny proceedings and no order under Section 144C of the Act could be passed.

5. In view of the above, the short question that falls for consideration is whether the impugned order was passed under Section 143(3) of the Act or is required to be construed as an order under Section 144C of the Act.

6. A plain reading of the contents of the impugned order clearly indicate that it is not an order under Section 144C of the Act, but an order passed under Section 143(3) of the Act. The tabular statement as set out in the opening sheet of the impugned order clearly reflects that the assessment of income chargeable to tax, as is reflected in the order, is made under Section 143(3) of the Act. The said tabular statement is reproduced below:

[emphasis added]

7. The impugned order proceeds to examine the income returned by the assessee and its explanation on various points. The impugned order reflects that the AO had proposed additions to the asseesee’s returned income. The assessee had furnished its explanations and contested the proposal to make the said additions. However, the AO had rejected the assessee’s contentions in regard to certain additions. Accordingly, the AO had proceeded to make certain additions to the income as returned by the assessee.

8. It is be relevant to refer to some of the additions made by the AO in the impugned order, not for the purposes of examining the merits of the said additions but to ascertain whether the impugned order could be construed as a draft assessment order under Section 144C of the Act. The AO had disallowed the license fee of ₹57,32,41,853/-. Paragraph 4.2 of the impugned order, setting out the AO’s conclusion in this regard, is reproduced below:

“4.2 The reply of the assessee has been considered. It is the stand of the Department that variable license fee paid by the assessee under the New Telecom policy is capital in nature as the amount though paid on yearly basis, it gives advantage of enduring nature to the assessee. On this issue Department has filed SLPs in the cases of “CIT Vs. Bharti Hexacom Limited (2013) 40 taxmann.com 40(Delhi)] and Vodafone Mobile Services Limited Vs Delhi High Court [ITA No 730 of 2016]”. Therefore, in view of the above stand of the Department the amount of Rs. 57.32,41,853/- is held to be capital expenditure of the assessee not allowable under section 37 of the IT Act, 1961, hence added back to the taxable income of the assessee.”

[ emphasis added]

9. It is also relevant to refer to paragraph 4.3 of the impugned order, whereby the AO had recorded its satisfaction that the provisions of Section 270A of the Act are applicable and the penalty proceedings are being initiated separately.

10. Similarly, the AO had also made an addition of ₹23,32,19,868/-, on account of deduction claimed under Section 80IA of the Act. Paragraph 5.10 of the impugned order, which sets out the AO’s conclusion in this regard, is reproduced below:

“5.10 In view of the discussions made above, the amount of Rs.23,32,19,868/- claimed as deduction u/s 80IA of the Income Tax Act, 1961 is disallowed and added back to the total income of the assessee.”

[ emphasis added]

11. Paragraph 6 of the impugned order sets out the final computation of the AO, in regard to the income as assessed. We consider it important to refer to the said paragraph. The same is reproduced below:

“6. Keeping in view of the above, the income of the assessee is computed as under:

12. It is apparent from the above that the contents of the impugned order reflect in unambiguous terms, that it is an assessment order made under Section 143(3) of the Act. As noted at the outset, the opening sheet of the impugned order clearly states that it is an order made under Section 143(3) of the Act.

13. The petitioner’s contention that the aforesaid order was passed under Section 144C of the Act stems from the heading of the impugned order, which reads as: “Draft Order u/s 144C of the Income-tax Act 1961.” However, apart from the said heading, there is nothing else in the said order, which indicates that it is a draft assessment order proposing certain As noted above, the language of the impugned order is unambiguous and clearly reflects that it is an order passed under Section 143(3) of the Act.

14. The learned counsel appearing for the petitioner also points out that the Document Identification Number (DIN) mentioned in the impugned order indicates that it is as an order under Section 144C of the Act. The opening schedule of the impugned order is reproduced below:

15. The said contention is premised on the number of the order, which reads as ITBA/AST/F/144C/2019-20/10218 17903(1). Although, the petitioner is correct that if one scrutinizes the order number, it does mention 144C, however, the assumption that the said number would determine the import of the impugned order, is clearly erroneous. The order number is not dispositive of the question as to under which provision of the statute, an order is passed.

16. In addition, it is submitted that the impugned order was not accompanied by a demand under Section 156 of the Act. The same was generated manually on a subsequent date, and without a DIN. The contention that the demand was generated subsequently establishes that the impugned order is not an assessment order, is insubstantial.

17. After the receipt of the impugned order, the petitioner sent a letter dated 13.01.2020, inter alia, stating that the petitioner had received the draft of the assessment order passed under Section 144C of the Act. The petitioner also submitted that in terms of Section 144C of the Act, the AO is required to pass a draft assessment order, only in cases where the assessee is a foreign company, or in cases where any variation of income proposed as a consequence of an order passed by the Transfer Pricing Officer (TPO). The petitioner stated that since it is an Indian company and the issue of transfer pricing adjustment does not arise, a draft assessment order could not be passed.

18. The AO responded to the said letter by clarifying that the impugned order was passed under Section 143(3) of the Act. The AO pointed out the contents of the impugned order clearly reflected the same. He further clarified that the heading mentioning the order as a draft order under Section 144C of the Act was a result of an inadvertent systemic error, and therefore, the same may be read as an assessment order under Section 143(3) of the

19. Plainly, after the AO had furnished the said clarification, there could be no possible confusion in the mind of the petitioner that the impugned order was passed under Section 143(3) of the Act.

20. The learned counsel for the petitioner also submits that the portal also reflects that an order was issued under Section 144C of the Act and not under Section 143(3) of the Act. In view of the communication dated 13.01.2020, the petitioner could not harbor any confusion in this regard as well, as the AO had clearly pointed out that there was some systemic error in reflecting the impugned order as an order under Section 144C of the Act.

21. In the above circumstances, the petitioner’s claim that the impugned order is passed under Section 144C of the Act is clearly erroneous.

22. As noted at the outset, the petitioner’s challenge to the impugned order is on the ground that it is an order under Section 144C of the Act, which as noted above, is incorrect.

23. The challenge to the impugned order on the assumption that it is a draft assessment order under Section 144C of the Act after notwithstanding the clear language of the contents of the impugned order, is unsustainable. There was no scope of raising such a challenge after the AO had amply clarified that the impugned order was issued under Section 143(3) of the Act and the assessee’s contentions to the contrary are insubstantial. In view of the above, the present petition is dismissed with costs, quantified at ₹1,00,000/-. The costs shall be deposited with the Delhi High Court Legal Services Committee within a period of four weeks from date.