Final Assessment order Must Align with DRP Directives: Delhi HC

Pepsico india holdings private limited Vs Assessment Unit Income Tax Department National Faceless Assessment Centre & Ors (Delhi High Court)

The final assessment order must align with the directives of the DRP, regardless of whether the Assessing Officer was aware of the objections filed before the DRP

Introduction

In the fast-evolving landscape of taxation, the case of Pepsico India Holdings (P.) Ltd. vs. Assessment Unit, Income-tax Department, heard in the High Court of Delhi, raises crucial questions about the procedural fairness in faceless assessments conducted by the National Faceless Assessment Centre. The case centers around the order dated November 21, 2023, passed by  Respondent No.1 under Section 143(3) read with Section 144C(4) of the Income Tax Act, 1961, for the Assessment Year 2020-21.

Petitioner’s defiance and grounds:

The petitioner, Pepsico India Holdings, challenges the final assessment order, computation sheet, and demand notice issued by the Assessing Officer. Additionally, the petitioner contests the penalty proceedings initiated against them through a notice dated November 21, 2023. One of the primary contentions of the petitioner is the failure to intimate the Assessing Officer regarding objections filed before the Dispute Resolution Panel (DRP) in accordance with Section 144C(2)(b)(ii) of the Act.

The petitioner argues that despite timely filing of objections before the DRP, the Assessing Officer proceeded to pass the final assessment order, closing the assessment for the relevant year. The inadvertent lapse on the petitioner’s part has led to a legal challenge, emphasizing the need for procedural clarity and adherence to statutory requirements in faceless assessments.

Legal Precedents and Judicial stance:

The petitioner relies on the judgment of the High Court of Karnataka in Open Silicon Research Private Limited v. The Assessment Unit [W.P. No. 14541 of 2023] and the Bombay High Court in Sulzer Pumps India Private Limited v. Dy. Commissioner of Income Tax [W.P.(L) No. 15811/2021]. In these cases, the courts set aside final assessment orders and consequent notices under similar circumstances, highlighting the importance of following due process in faceless assessments.

The Delhi High Court’s Decision:

The Delhi High Court, in line with the precedents mentioned, holds that once objections have been filed by the assessee against a draft assessment order within the prescribed time under Section 144C(2)(b), the subsequent procedure should be strictly followed. The court agrees with the view expressed by the Bombay High Court that the final assessment order should be passed by the Assessing Officer in accordance with the directions issued by the DRP.

The court emphasizes that the Assessing Officer cannot be faulted for passing the impugned order, but procedural adherence is paramount. The court sets aside the impugned assessment order, computation sheet, and subsequent notices, allowing the petitioner’s writ petition. It underscores that no prejudice would be caused to the Revenue Department, as they retain the right to pass a fresh assessment order post the receipt of directions from the DRP.

Conclusion:

The Pepsico India Holdings case serves as a significant reminder of the importance of procedural fairness and statutory compliance in faceless assessments. While leveraging technology for efficiency, tax authorities must ensure that established procedures are diligently followed to uphold the principles of natural justice. The judgment reiterates that statutory remedies, such as objections before the DRP, must be given due consideration, and final assessment orders should reflect a holistic and procedurally sound approach.

FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT

1. Presentwrit petition has been filed challenging the order dated 21^stNovember, 2023 passed by the Respondent No.1 under Section 143(3) read with Section 144C(4) of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’] for Assessment Year 2020-21 as well as the computation sheet and demand notice issued under Section 156 of the Act. Petitioner also challenges the notice dated 21^stNovember, 2023 issued under Section 274 read with Section 270A of the Act initiating penalty proceedings against the Petitioner. Petitioner also seeks directions to the Respondent No.3- ispute Resolution Panel (‘DRP’), to decide the objections dated 20^th October, 2023 in accordance with law.

2. Learned counsel for the Petitioner states that though the Petitioner had preferred its objections against the draft assessment  order dated 26^th September, 2023 before the Respondent No.3-DRP within limitation as provided under Section 144C(2)(b)(i) read with Section 144B(1)(xxiv)(b)(I) of the Act, yet the Petitioner inadvertently failed to intimate the Respondent 1- ssessing Officer regarding the objections in terms of Section 144C(2)(b)(ii) of the Act. He states that due to the inadvertent lapse on behalf of the Petitioner, Respondent No.1- Assessing Officer passed the impugned final assessment order dated 21^stNovember, 2023, thereby closing the assessment for the year under consideration.

3. Learned counsel for the Petitioner states that since the Petitioner hadexercised its statutory remedy of filing its objections before the Respondent 3-DRP, the impugned final assessment order should not have been passed by the Respondent No. 1- Assessing Officer before the Respondent No. 3-DRP issued its directions for framing of the assessment.

4. Insupport of his submission, he relies on the judgment dated 19^thJuly, 2023 passed by the High Court of Karnataka in Open Silicon Research Private limited v. The Assessment Unit [W.P. No. 14541 of 2023] and the Bombay High Court in Sulzer Pumps India Private Limited v. Dy. Commissioner of Income Tax [W.P. L)  15811/2021] wherein under identical facts, the Court had set aside the final assessment order and consequent notices. He also relies on the decision of this Court in SRF Ltd. vs. NFAC, [2021] 281 Taxman 574 (Delhi High Court), Anand Nvh Products (P.) Ltd. vs. NFAC, [2021] 282 Taxman 485 (Delhi High Court) and Fiberhome India (P.) Ltd. Vs. National E-Assessment Centre, Additional/ Joint/ Deputy  Assistant Commissioner of Income-tax/Income- tax Officer, (2022) 132 taxmann.com 118 (Delhi) wherein this Court set aside the final assessment order and the consequent notices/ computations that were passed without waiting for the directions issued by the DRP as per the mandate of Section 144C of the Act.

5. Issue Mr.Aseem Chawla, Senior Standing Counsel, accepts notice on behalf of the Respondents.

6. He submits that under Section 144C(2)(b)(ii), the Petitioner on receiptof the draft assessment order was statutorily required to file its objections before the Assessing Officer in addition to the DRP. He further submits that under Section 144C(3)(b) the Assessing Officer was obligated to complete the assessment on the basis of the draft assessment order if no objections were received within the time period specified under Section 144C(2) i.e. within thirty days of the receipt of the draft  He states that the Assessing Officer was well within his right to pass the impugned assessment order dated 21^stNovember, 2023 and he cannot be faulted for finalising the assessment in accordance with the prescribed procedure.

7. Having heard learned counsel for the parties, this Court is of the viewthat the issue at hand is no longer res integra as it has been decided by the Bombay High Court in Sulzer Pumps (supra) wherein it has been held as under:-

“6. In our view since petitioner had already filed a reference raising his objections to the DRP and Section 144C (4) of the Act requires the Assessing Officer to pass the final order including the view expressed by the DRP, we will be justified in setting aside the order of the Assessing Officer dated 28th June, 2021 which is impugned in this petition. We would also observe that the Assessing Officer cannot be faulted for passing the impugned order. At the same time, the Assessing Officer will also have benefit of considering the views of DRP while passing a fresh Assessment Order.”

8. This Court is in agreement with the view expressed by the BombayHigh Court in the aforesaid decision. Once the objections have been filed by the assessee against a draft assessment order within the time limit prescribed under Section 144C(2)(b), the rest of the procedure should be followed as prescribed and the final assessment order ought to be passed by the Assessing Officer in accordance with the directions issued by the

9. This Court is further of the view that no prejudice will be caused to the Respondent-Department if the present petition is allowed and the impugned assessment order is set aside as Respondent-Department would be well within its rights to pass a fresh assessment order post the receipt of direction from the Respondent  3-DRP.

10. Accordingly the impugned assessment order dated 21^st November, 2023, the computation sheet as well as all the subsequent notices are set aside and the writ petition is allowed.