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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
Sunil P. Deshmukh, Abhay Ahuja, JJ.
SHL (India) Private Limited - Petitioner
Versus
Deputy Commissioner of Income Tax, Circle-8(2)(1) and ors. – Respondents
Writ Petition (L) No.11293 OF 2021
Decided On : 28-07-2021
Income Tax Act, 1961 - Sections 144C(1), 143(3) r/w 143(3A), 143(3B), 274 r/w 270A and 156 - Companies Act, 1956 - Constitution of India, 1950 - Article 226 - Notice of Demand - Assessment Order - Challenged - National e- Assessment Centre - Whether provisions contained in Section 144C(1) of IT Act are mandatory or directory - Whether failure to give an opportunity of filing objections to Petitioner under Section 144C (2) would be a mere procedural error or a jurisdictional error - Assessment order without issuing a draft assessment order under Section 144C(1), even in case of remand of proceedings and that such an omission is not a mere irregularity, but an incurable illegality, which cannot be saved by Section 292B of IT Act - Petitioner had filed return of income declaring a total income - Petitioner’s case is that during Assessment, Petitioner had entered into an international transaction with its Associated Enterprise whereby it was granted a license to market, distribute and deliver the SHL Solutions to clients in India from its AE, for which Petitioner made payments towards Support Services Charges incurred by the AE.
Finding of the court : Failure on part of Assessing Officer to follow the procedure under Section 144C(1) is not a merely procedural or inadvertent error, but a breach of a mandatory provision. We are also not impressed with arguments of Revenue that Assessing Officer was under pressure of two charges, as there were timelines to adhere to, since said timelines from time to time have been extended, the most recent. Revenue ought to have appreciated that requirement under Section 144C(1) to first pass a draft Assessment Order and to provide a copy thereof to the assessee is a mandatory requirement which gave substantive right to assessee to object to any variation, that is prejudicial to it. In this case, order under Section 92CA (3) of IT Act, proposed to make an adjustment of Rs.107,454,337/- to the arm’s length price considered as Nil by Petitioner and to that extent said adjustment was evidently prejudicial to interest of Petitioner - Petitioner has lost a substantive right due to failure of the Respondents to pass and forward a draft assessment order in first instance on a variance, prejudicial to interest of Petitioner. In our view, this is clearly a case of jurisdictional error. Final assessment order passed by Assessing Officer stands vitiated on account of lack of jurisdiction, which is incurable and deserves to be set aside as void ab initio - Quash and set aside impugned Assessment Order, Demand Notice and Penalty Notice
Result : Writ Petition is allowed
JUDGMENT :
ABHAY AHUJA, J.
1. By this Petition fled under Article 226 of the Constitution of India, 1950, Petitioner is challenging the final Assessment Order dated 6th April, 2021 passed by National e- Assessment Centre, Delhi under Section 143(3) read with Sections 143(3A) and 143(3B) of the Income Tax Act, 1961 (the “IT Act”) and a Notice of Demand under Section 156 of the IT Act, as also Penalty Notice under Section 274 read with Section 270A of the IT Act for the Assessment Year 2017-2018.
2. Petitioner is an Indian Company, incorporated under the Companies Act, 1956. It is submitted that Petitioner is a part of SHL Group, United Kingdom and primarily a trading entity that provides SHL products (psychometric test), assessment, consultancy and training services (‘SHL Solutions’) to clients in India in various industries.
3. Petitioner had fled return of income on 30th March, 2018 declaring a total income of Rs.1,01,31,750/-. Petitioner’s case is that during the Assessment Year 2017-2018, Petitioner had entered into an international transaction with its Associated Enterprise (the “AE”), whereby it was granted a license to market, distribute and deliver the SHL Solutions to clients in India from its AE, for which Petitioner made payments towards Support Services Charges incurred by the AE. It is submitted that alongwith the return of income fled for the said year, in view of the various international transactions with the AEs, Form 3CEB was fled alongwith the return of income. Petitioner’s case was selected under the Computer Assisted Scrutiny Scheme (CASS), pursuant to which, on 5th September, 2018 a notice was issued under Section 143(2) of the IT Act. Thereafter, on 6th August, 2019, a reference was made to the Transfer Pricing Officer (TPO) by the first Respondent. Thereafter, a Notice was issued on 16th August, 2019 by the TPO and an order dated 29th January, 2021 was passed by the TPO proposing transfer pricing adjustments of Rs.10,74,54,337/- considered as Nil by Petitioner. On 10th March, 2021, the second Respondent, viz., National e-Assessment Centre, Delhi requested Petitioner to provide rebuttal to the proposed adjustments to the arm’s length price made by TPO. On 15th March, 2021, Petitioner fled a reply and on 6th April, 2021, a final Assessment Order was passed under Section 143 (3) read with Sections 143(3A) and 143(3B) of the IT Act determining total income at Rs.11,75,86,087/-. A Notice of Demand for Rs.1,17,60,810/- was also issued. Notice initiating penalty proceedings also came to be issued under Section 274 read with Section 270A of the IT Act.
4. Mr. Kaka, Learned Senior Counsel submits on behalf of Petitioner that before passing final Assessment Order, in case of transfer pricing adjustment, as in the case of Petitioner, there is a totally different procedure to be followed pursuant to Section 144C(1) of the IT Act. He submits that in pursuance of Section 144C(1) read with Section 143(3) of the IT Act, the Assessing Officer is necessarily required to forward a draft Assessment Order, in the first instance to the assessee, if he proposes to make any variation in the income or loss returned, which is prejudicial to the interest of such eligible assessee as defined under Section 144(15) (b) of the IT Act.
5. Learned Senior Counsel submits that on receipt of the draft Assessment Order as per Section 144C(1) of the IT Act, Petitioner is entitled to file its objections before the Dispute Resolution Panel (DRP) and the Assessing Officer, as per Section 144C(2) of the IT Act, or it may file its acceptance to such variation by the Assessing Officer. It is submitted that Respondent No.2 is to complete the assessment and pass the final Assessment Order only after directions are issued by the DRP under Section 144C(5) of the IT Act and only thereafter Respondent could have passed the final Assessment Order.
6. He further submits that on receipt of the objections under Section 144C(2) of the IT Act, DRP shall issue direct
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