Case Law Details
Mavenir UK Holdings Vs ACIT (ITAT Delhi)
The Delhi High Court recently delivered a crucial verdict in the case of Mavenir UK Holdings vs. ACIT (Income Tax Appellate Tribunal, Delhi). The appeal was filed by the assessee against the order dated 27.12.2022, passed by the Assessing Officer (AO) under Section 147 read with Section 144 of the Income Tax Act, 1961.
Grounds of Appeal: The assessee raised various grounds of appeal, challenging the validity and legality of the assessment order. Some of the key grounds included objections related to the assessment order’s timeliness, the alleged existence of a Permanent Establishment (PE) in India, and the taxation of receipts from the sale of software license and support services. The appellant also contested the attribution of 80% of receipts from India to the alleged PE and disputed the addition of business income during the relevant year.
Timeliness of Assessment Order: One critical aspect of the appeal revolved around the timeline for passing the assessment order as per Section 144C(4) of the Income Tax Act. According to the provisions, the AO is required to pass the assessment order within one month from the end of the month in which either the acceptance is received from the assessee or the period for filing objections under sub-section (2) expires.
In this case, the draft assessment order was passed on 04.03.2022, and the assessee filed objections before the Dispute Resolution Panel (DRP) on 06.04.2022, which was after the due date. The due date for passing the final assessment order was 31.05.2022. The AO, however, passed the final assessment order on 27.12.2022, beyond the prescribed timeline.
Delhi HC Ruling: The Delhi High Court, considering the facts and the timeline, held that the order passed by the Assessing Officer was barred by limitation and, therefore, treated as void. The Court emphasized the importance of adhering to the timelines prescribed under Section 144C(4) for the finalization of assessment orders.
Key Provisions of Section 144C: Section 144C outlines the procedure for reference to the Dispute Resolution Panel (DRP) in cases where the AO proposes to make variations in the income or loss returned by the assessee. The section mandates the AO to forward a draft order to the eligible assessee and provides a specific timeline for filing objections and passing the final assessment order.
Conclusion: The judgment in the Mavenir UK Holdings case highlights the significance of adherence to procedural timelines in income tax assessments. Taxpayers and assessing authorities alike should be vigilant in complying with the statutory provisions to ensure a fair and timely resolution of tax disputes.
FULL TEXT OF THE ORDER OF ITAT DELHI
The present appeal has been filed by the assessee against the order dated 27.12.2022 passed by the AO u/ s 147 r.w. s. 144 of the Income Tax Act, 1961.
2. The assessee has raised the following grounds of appeal are as under:-
“1. On the facts and circumstances of the case & in law, the final assessment order passed by the Learned Assessing Officer ( Ld. AO’) under Section 144 read with Section 147 of the Income- tax Act, 1961 ( ‘ the Act’) is invalid, bad in law and liable to be quashed.
2. On the facts and circumstances of the case & in law, the final order passed by the AO is barred by l imitation being in contravention of the provisions of Section 144 C(4) of the Act to mandatorily pass the assessment order within one month from the end of the month in which the statutory period of filing the objections expired.
3. On the facts and circumstances of the case & in law, the draft assessment order passed under Section 144 C read with Section 147 and Section 144 of the Act dated 4 March 2022 is invalid, bad in law and beyond jurisdiction for the reason that section 144 does not warrant passing of a draft order .
4. On the facts and circumstances of the case & in law, the notice under Section 148 of the Act dated 30 March 2021 purportedly delivered at an incorrect and non- existential address is invalid, barred by l imitation, bad in law and beyond jurisdiction for want of a proper and valid service to the Appellant, thereby vitiating the subsequent assessment/ reassessment proceedings .
5. On the facts and circumstances of the case & in law, the Appellant ought to be provided with the copy of sanction obtained under section 151 of the Act prior to initiating the reassessment proceedings and other documents relied upon by the AO in the draft assessment thereby providing an opportunity to the Appellant to rebut the same before confirming the proposed addition under consideration.
6. On the facts and circumstances of the case & in law, the addition by the AO and the draft assessment order passed under Section 144 C of the Act is in gross violation of principles of natural justice for want of proper opportunity.
7. On the facts and circumstances of the case & in law, the communication sent by the AO vide email dated 28 February 2022 were invalid and were not in compliance with Circular No. 19/2019 dated 14 August 2019 in absence of mandatory Document Identification Number ( DIN*).
8. On the facts and circumstances of the case & in law, the AO grossly erred in observing that the Appellant has a Permanent Establishment ( PE*) in India under the provisions of India- UK double taxation avoidance agreement ( DTAA’).
9. On the facts and circumstances of the case & in law, the AO grossly erred in taxing the receipts on account of sale of software license and allied support services on a net basis in absence of such receipts being ‘ effectively connected’ with the alleged PE under the provisions of India- UK DTAA.
10. On the facts and circumstances of the case & in law, the AO erred in making an ad- hoc attribution of 80 % of the receipts from India in the hands of the alleged PE without providing any basis thereof.
11. On the facts and circumstances of the case & in law, the AO grossly erred in making an addition of INR 18 , 97 , 66 , 675 as business income during the year under consideration.
12. On the facts and circumstances of the case & in law, the AO erred in not granting credit of Tax Deducted at Source ( TDS) amounting to Rs. 2 , 89 , 34 , 481 in the final assessment order
13 . On the facts and circumstances of the case and in law, the Ld. AO erred in levying interest under section 234 A and 234 B of the Act.”
3. The draft of the Assessment Order, in this case, has been passed on 04.03.2022. The assessee filed objections before ld. DRP on 06.04 .2022, i.e., after the due date of the time allowed for filing of the objections before the ld. DRP. The due date for passing of the final Assessment Order was 31 .05.2022. Since the final Assessment Order has been passed on 27.12.2022 in divergence to due date prescribed u/ s144C of the Income Tax Act, we hold that, the order passed by the Assessing Officer is barred by limitation, and hence, treated as void.
4. For the sake of ready reference the Provisions of section 144C are reproduced as under:
“144 C. Reference to dispute resolution panel.—(1) The Assessing Officer shall, notwithstanding anything to the contrary contained in this Act, in the first instance, forward a draft of the pro- posed order of assessment (hereafter in this section referred to as the draft order) to the eligible assessee if he proposes to make, on or after the 1st day of October, 2009 , any variation in the income or loss returned which is prejudicial to the interest of such assessee.
(2) On receipt of the draft order, the eligible assessee shall, within thirty days of the receipt by him of the draft order,—
(a) file his acceptance of the variations to the Assessing Officer; or
(b) file his objections, if any, to such variation with,—
(i) the Dispute Resolution Panel; and
(ii) the Assessing Officer.
(3) The Assessing Officer shall complete the assessment on the basis of the draft order, if—
(a) the assessee intimates to the Assessing Officer the acceptance of the variation; or
(b) no objections are received within the period specified in sub- section ( 2 ).
(4) The Assessing Officer shall, notwithstanding anything contained in section 153 , pass the assessment order under sub- section ( 3 ) within one month from the end of the month in which,—
(a) the acceptance is received; or
(b) the period of filing of objections under sub- section (2)
(5) The Dispute Resolution Panel shall, in a case where any objection is received under sub- section (2), issue such directions, as it thinks f it, for the guidance of the Assessing Officer to enable him to complete the assessment .
(6) The Dispute Resolution Panel shall issue the directions referred to in sub- section (5), after considering the following, namely:—
(a) draft order;
(b) objections f i led by the assessee;
(c) evidence furnished by the assessee;
(d) report, i f any, of the Assessing Officer, Valuation Officer or Transfer Pricing Officer or any other authority;
(e) records relating to the draft order;
(f) evidence collected by, or caused to be collected by, it; and
( g) result of any enquiry made by, or caused to be made by, it.
(7) The Dispute Resolution Panel may, before issuing any direct ions referred to in sub- section ( 5 ),—
(a) make such further enquiry, as it thinks f it; or
(b) cause any further enquiry to be made by any income- tax authority and report the result of the same to it.
(8) The Dispute Resolution Panel may confirm, reduce or enhance the variations proposed in the draft order so, however, that it shall not set aside any proposed variation or issue any direction under sub- section (5) for further enquiry and passing of the assessment order .
(9) If the members of the Dispute Resolution Panel differ in opinion on any point, the point shall be decided according to the opinion of the majority of the members.
(10) Every direction issued by the Dispute Resolution Panel shall be binding on the Assessing Officer .
(11) No direction under sub- section (5) shall be issued unless an opportunity of being heard is given to the assessee and the Assessing Officer on such directions which are prejudicial to the interest of the assessee or the interest of the revenue, respec- tively .
(12) No direction under sub- section (5) shall be issued after nine months from the end of the month in which the draft order is forwarded to the eligible assessee .
(13) Upon receipt of the directions issued under sub- section (5), the Assessing Officer shall, in conformity with the directions, complete, notwithstanding anything to the contrary contained in section 153, the assessment without providing any further oppor- tunity of being heard to the assessee, within one month from the end of the month in which such direction is received .
(14) The Board may make rules for the purposes of the efficient functioning of the Dispute Resolution Panel and expeditious disposal of the objections f i led under sub- section (2) by the eligible assessee .
(15) For the purposes of this section,—
(a) ” Dispute Resolution Panel” means a collegium comprising of three Commissioners of Income- tax constituted by the Board for this purpose;
(b) ” eligible assessee” means,—
(i) any person in whose case the variation referred to in sub- section (1) arises as a consequence of the order of the Transfer Pricing Officer passed under sub- section (3) of section 92 CA; and
(ii) any foreign company ’.”
5. The assessee vide letter dated 11.04.2022 has filed a letter before the Assessing Officer informing that the assessee has filed objections before the office of DRP-II on 06.04 .2022 against the draft Assessment Order. This clearly proves that the assessee has filed objections before the DRP after the due date. Under such circumstances the AO should have carried the proceedings to finalize the Assessment Order as per the provisions of section 144C(4 ).
6. In the result, the appeal of the assessee is allowed. Order Pronounced in the Open Court on 05/01/2024.
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