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IN THE HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD
UJJAL BHUYAN, P. MADHAVI DEVI, JJ.
Mylan Laboratories Limited – Petitioner
Versus
Additional/Joint/Deputy/Assistant Commissioner of Income Tax/Income Tax Officer National Faceless Assessment Centre, Income Tax Department, Delhi – Respondent
W.P. No. 26279 of 2021
Decided On : 04-01-2022
Depreciation - Assessment Order - Income Tax Act, 1961 - Section 143(2), Section 142(1), Section 144C - The court discussed the provisions of Section 144C of the Income Tax Act, 1961, which deals with the reference to Dispute Resolution Panel. The court highlighted the powers and jurisdiction of the Dispute Resolution Panel and emphasized that the final say in the assessment rests with the Dispute Resolution Panel. The court also emphasized the binding effect of the orders of the higher appellate authorities on the subordinate authorities and the duty of all authorities to follow the law declared by the Supreme Court.
Fact of the Case:
The petitioner, a company engaged in pharmaceutical business, filed a petition seeking to quash the draft Assessment Order passed by the Income Tax Department for the Assessment Year 2018-19, which disallowed depreciation claimed on goodwill. The petitioner contended that the order disregarded the decision of the Income Tax Appellate Tribunal and the judgment of the Supreme Court in C.I.T. vs. SMIFS Securities Ltd.
Finding of the Court:
The court found the approach of the Assessing Officer problematic and objectionable, particularly in disregarding the decision of the Income Tax Appellate Tribunal and trying to evade the binding effect of a Supreme Court decision. The court held that the decision of the Income Tax Appellate Tribunal is binding on all income tax authorities within its jurisdiction and emphasized the duty of all authorities to follow the law declared by the Supreme Court. The court also refrained from interfering at that stage, as the draft Assessment Order was yet to be placed before the Dispute Resolution Panel.
Issues: The issues revolved around the validity of the draft Assessment Order, the disregard of the decision of the Income Tax Appellate Tribunal, and the attempt to evade the binding effect of a Supreme Court decision.
Ratio Decidendi: The court emphasized the powers and jurisdiction of the Dispute Resolution Panel, the binding effect of the orders of the higher appellate authorities, and the duty of all authorities to follow the law declared by the Supreme Court.
Final Decision: The court disposed of the Writ Petition with the observation that it had not expressed any opinion on merit, but directed the Dispute Resolution Panel to consider the objections raised by the petitioner, particularly regarding the decision of the Income Tax Appellate Tribunal and the judgment of the Supreme Court in SMIFS (supra).
ORDER :
1. Heard Mr. Eashwar, learned Senior Counsel for the petitioner and Mr. Prasad, learned Standing Counsel for Revenue, appearing for the respondents.
2. The matter was heard on 23.12.2021 and yesterday was fixed for delivery of judgment. For unavoidable circumstances, judgment could not be delivered yesterday and is now being dictated in the open Court.
3. By filing this petition under Article 226 of the Constitution of India, petitioner seeks quashing of order dated 28.09.2021 passed by respondent No. 1 and further seeks a direction to respondent No. 1 to pass a speaking and reasoned order dealing with all the objections raised by the petitioner.
4. Petitioner is a company engaged in the business of manufacturing active pharmaceutical ingredients, finished dosage formulations, injectable formulations, besides conducting research and development activities. It is an assessee under the Income Tax Act, 1961 (briefly ‘the Act’ hereinafter).
5. For the Assessment Year 2018-19, petitioner filed return of income on 27.11.2018 declaring loss of Rs. 458,26,55,237.00. The case of the petitioner was selected for scrutiny under the Computer Aided Scrutiny Selection (C.A.S.S.) system of the Income Tax Department.
6. Pursuant thereto, notice dated 23.09.2019 was issued to the petitioner under Section 143(2) of the Act which was responded to by the petitioner vide its letters dated 15.10.2019 and 20.07.2020. Further, notice dated 10.12.2020 was issued by respondent No. 1 to the petitioner under Section 142(1) of the Act. This was also responded to by the petitioner on 24.12.2020.
7. Petitioner was asked to justify liability of depreciation on goodwill by further notices dated 13.08.2021 and 24.08.2021 issued under Section 142(1) of the Act. These notices were again responded to by the petitioner vide letters dated 18.08.2021 and 26.08.2021.
8. Finally, show-cause notice was issued to the petitioner by the respondent no. 1 on 16.09.2021 calling upon the petitioner to show-cause as to why the proposed variation should not be made as per the draft Assessment Order (copy of which was enclosed with the show-cause notice). Petitioner was asked to file its response on or before 21.09.2021.
9. Owing to the short period for submitting response i.e. five days, petitioner submitted executive summary of its responses on 20.09.2021 calling upon respondent No. 1 to drop the show-cause notice while accepting the explanation of the petitioner. It was pointed out that in the draft Assessment Order respondent no. 1 had erred in seeking to disallow depreciation on goodwill. It was further pointed out that the Transport Pricing Officer in his order for the same Assessment Year, i.e. 2018-19 had treated depreciation on goodwill as ‘operative expenditure’ of the petitioner, while computing the arm’s length price of the international transactions undertaken by the petitioner. It was contended that if the very same depreciation on goodwill was disallowed by respondent No. 1 it would lead to an anomalous situation.
10. Pursuant to further notice dated 21.09.2021 of respondent no. 1, petitioner filed detailed submissions on 23.09.2021 and also requested for a personal hearing. Personal hearing was granted through videoconferencing on 27.09.2021 at 03:00 p.m.
11. Thereafter, respondent no. 1 passed the impugned order dated 28.09.2021 which has been impugned in the present Writ Petition. The impugned order is a draft Assessment Order under Section 144C of the Act. It is dated 28.09.2021.
11.1 After elaborate discussion, depreciation claimed on goodwill to the extent of Rs. 1247,45,31,301.00 was disallowed whereafter the total income was computed at Rs. 3071,11,53,860.00 further recording that penalty proceedings would be initiated separately under Section 270A of the Act for under-reporting of income.
12. The impugned challenge has been made on the ground that respondent No. 1 while passing the draft Assessment Order had completely overlooked the decision in the petitioner’
AI
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Timelines established in taxation statutes, particularly under Section 144C(13) of the Income Tax Act, are mandatory and essential for the validity of assessment proceedings.
Assessment orders beyond mandatory statutory timelines are invalid and liable to be quashed.
The assessing officer must await the Dispute Resolution Panel's decision before proceeding with the final assessment, as outlined in Section 144C of the Income Tax Act, ensuring adherence to procedur....
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