Draft Assessment Order Mandatory for Foreign Company Under Section 144C: Delhi HC

CIT Vs Rolland Enterprises Ltd. (Delhi High Court)

Summary: Delhi High Court dismissed the Revenue’s appeals challenging the ITAT’s decision that assessments against Rolland Enterprises Ltd. were unsustainable for failure to issue draft assessment orders under Section 144C of the Income Tax Act, 1961.

The assessee was incorporated under the laws of the British Virgin Islands and owned equipment relating to exploration and development of oil fields that was leased to Focus Energy Limited. Following search proceedings, assessments for AYs 2008-09 to 2011-12 were completed under Section 153C/144. The AO treated the assessee as resident in India under Section 6(3), holding that its control and management was situated in India.

The CIT(A), however, found that control and management was with the Board of Directors, who were not residents of India. Before the ITAT, the assessee raised cross-objections that the mandatory procedure under Section 144C had not been followed because no draft assessment order was issued.

The High Court held that the Revenue’s contention proceeded on the basis that the assessee was taxable as an Indian resident, but it was undisputed that the assessee was incorporated in the British Virgin Islands and was therefore a foreign company falling within the definition of “eligible assessee” under Section 144C(15)(b). Relying on Pr. Commissioner of Income Tax-7 v. Sumitomo Corporation India (P) Ltd., 2024 SCC OnLine Del 6125, the Court held that the AO was required to follow Section 144C. Finding no infirmity in the ITAT’s decision and no substantial question of law, the Revenue’s appeals were dismissed.