Facts of the Case

The petitioner, Swarovski India Private Limited, filed multiple writ petitions challenging final assessment orders passed for Assessment Years 2007-08, 2008-09, 2009-10 and 2010-11 pursuant to remand proceedings ordered by the Income Tax Appellate Tribunal. The assessments involved transfer pricing adjustments and the petitioner qualified as an eligible assessee under Section 144C of the Income-tax Act, 1961.

In the original round of litigation, assessments were completed after following the draft assessment procedure. Subsequently, the ITAT remanded the matters to the Assessing Officer and the Transfer Pricing Officer for fresh consideration. In the remand proceedings, the Assessing Officer passed final assessment orders directly, without issuing draft assessment orders as mandated under Section 144C(1), and simultaneously issued notices of demand and penalty initiation.

The petitioner challenged the final assessment orders on the ground that the mandatory procedure prescribed under Section 144C was violated and that the assessments were also barred by limitation prescribed under Section 153 of the Act.

Issues Involved

Whether the Assessing Officer was required to mandatorily issue a draft assessment order under Section 144C in remand proceedings
Whether final assessment orders passed without following Section 144C are void and without jurisdiction
Whether the assessments were barred by limitation under Section 153 read with Section 153(4) of the Act

Petitioner’s Arguments

The petitioner contended that Section 144C confers a substantive statutory right upon an eligible assessee to receive a draft assessment order and to approach the Dispute Resolution Panel. It was argued that this requirement applies equally to remand proceedings and cannot be bypassed by the Assessing Officer.

It was further submitted that the limitation period for passing the final assessment orders had expired prior to the dates on which the impugned orders were passed, rendering the assessments time-barred and void ab initio.

Respondent’s Arguments

The Revenue contended that once the matter had been remanded by the ITAT, the Assessing Officer was merely giving effect to the appellate directions and was not required to again follow the draft assessment procedure. It was also argued that Section 144C was not applicable in the manner contended by the petitioner in remand proceedings.

Court Order / Findings

The Delhi High Court examined the statutory scheme of Section 144C and reiterated that issuance of a draft assessment order is mandatory wherever the assessee qualifies as an eligible assessee. The Court held that this mandate applies equally to original as well as remand proceedings and cannot be diluted on the ground that the matter was earlier adjudicated.

Relying on its earlier decisions in Turner International India Pvt. Ltd. v. DCIT and Headstrong Services India Pvt. Ltd., the Court held that failure to issue a draft assessment order strikes at the root of jurisdiction and renders the final assessment order non est in law.

The Court further held that the limitation prescribed under Section 153 is mandatory and cannot be extended by procedural lapses or delays attributable to the Revenue. In the present case, the final assessment orders were passed beyond the statutory limitation period and were therefore unsustainable on this ground as well.

Important Clarification

The High Court clarified that Section 144C embodies a substantive right of the assessee and strict compliance is mandatory. Even in remand proceedings, the Assessing Officer must issue a draft assessment order where the assessee is an eligible assessee. Any final assessment order passed in violation of this requirement or beyond the prescribed limitation period is void, unenforceable, and liable to be quashed.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1770203852_SWAROVSKIINDIAPRIVATELIMITEDVsJOINTCOMMISSIONEROFINCOMETAXOSD.pdf  


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