High Court held that The failure by the AO to adhere to the mandatory requirement of Section 144C (1) of the Act and first pass a draft assessment order would result in invalidation of the final assessment order and the consequent demand notices and penalty proceedings.
Full Text of the High Court Judgment / Order is as follows:-
1. These are three writ petitions by JCB India Ltd. seeking quashing of an order dated 30th March 2016 passed by the Transfer Pricing Officer (‘TPO’) and the Final Assessment Order dated 31st March 2016 passed by the Assessing Officer (‘AO) under Section 254 read with Section 143(3) of the Income Tax Act, 1961 (‘Act) for three Assessment Years (‘AYs’), 2006-07, 2007-08 and 2008-09 respectively.
2. The Petitioner is a wholly owned subsidiary of JC Bamford Excavators Ltd., U. K. (‘JCB, U.K.’). It is engaged in the business of manufacture of earth-moving/construction equipments. It commenced its operations in India in the year 1979.
AY 2006-07
3. For AY 2006-07, the Petitioner filed its return of income on 19th November 2006, declaring an income of Rs. 214,44,73,701/-. After
making a reference to the TPO, since there were international transactions involving the Petitioner-Assessee and its Associated Enterprise (‘AE’), the AO passed the final assessment order on 25th October 2010 under Section 143 (3) read with Section 144C of the Act. The returned income was enhanced to Rs. 255,45,21,520/-.
4. In the appeal filed by the Assessee, the Income Tax Appellate Tribunal (‘ITAT’) set aside the assessment and matter to the file of the Dispute Resolution Panel (‘DRP’) for a fresh determination after dealing with the objections raised by the Assessee.
5. The DRP concurred with the claim of the Assessee and issued directions dated 22nd December 2011. In pursuance of these directions, the TPO recommended an adjustment of Rs. 38,95,10,668/- by its order dated 23rd December 2011. Thereafter, the AO passed the final assessment order, dated 29th December 2011, in line with the recommendation made by the TPO. Thus, the total income was determined at Rs. 253,39,84,370/-.
6. When the matter went in appeal before the ITAT, the issue of determining the arm’s length price (‘ALP’) was set aside to the file of the AO for fresh adjudication. The ITAT also directed that, “Both the Assessee as well as the revenue are granted liberty to file fresh T.P. study and fresh comparables so as to arrive at the arm’s length price in accordance with law. In the result, this ground of the Assessee is allowed for statistical purposes.”
AY 2007-08
7. As far as AY 2007-08 was concerned, the Assessee filed its return of income declaring an income on 26th October 2007 declaring an income of Rs. 341,45,94,745/- which, by a final assessment order passed by the AO under Section 143 read with Section 144C of the Act, stood enhanced to Rs. 426,63,86,286/-. Similar to the previous AY, the matter was set aside to the file of the DRP for fresh adjudication. The final assessment order was passed by the AO, determining total income at Rs. 426,63,86,286/-, in line with the TPO’s recommended adjustment which, in turn, was in accordance with the DRP’s instructions dated 26th September 2011.
8. An order similar to the one made for AY 2006-07 was made by the ITAT on 18th September 2013 for AY 2007-08.
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