DRP Can Give Directions Only In Pending Assessment Proceedings: Bombay High Court

The Bombay High Court has held that the Dispute Resolution Panel (DRP) could give directions only in pending assessment proceedings.

The bench of Justice K. R. Shriram and Justice N. K. Gokhale has observed that once an assessment order is passed, rightly or wrongly, the assessment proceedings come to an end. Therefore, the DRP would have no power to pass any directions contemplated under sub-section 5 of Section 144C of the Income Tax Act.

The petitioner's or assessee's return of income was selected for scrutiny under CASS, and the Dy. Commissioner of Income Tax (DCIT) issued a notice under Section 143(2). In view of the international transactions and domestic transactions with AE, the Dy. The Commissioner of Income Tax referred the petitioner's case to the Transfer Pricing Officer (TPO) under Section 92CA(1).

The TPO passed an order under Section 92CA(3) proposing an adjustment to the reported international and domestic related party transactions after working out the arm's length price (ALP). After receiving the order from TPO, Dy. The Commissioner of Income Tax passed the draft assessment order under Section 143(3) read with Section 92CA(3) read with Section 144C(1). In the draft assessment order, the Dy. Commissioner of Income Tax assessed the income of the petitioner and also proposed to charge interest under Sections 234A, B, and C and also initiate penalty proceedings under Section 271(1)(c).

The petitioner informed DCIT that the petitioner is in the process of filing an objection before the Dispute Resolution Panel (DRP) and requested not to pass an assessment order under Section 143(3) until the DRP disposes of the objections.

On December 24, 2018, DCIT passed the final assessment order without waiting for the mandatory period of 30 days provided under Section 144C(2) to confirm the draft assessment order. The petitioner has filed an appeal before the CIT (A) under Section 246A. The assessment order passed by DCIT was received by the petitioner only on December 29, 2018.

Unaware of the order, the petitioner filed its objections before the DRP. Once the petitioner received the assessment order, the petitioner informed the DRP that the assessment order, albeit illegally, had already been passed and, therefore, the DRP had no locus to proceed with the objections filed. The petitioner also informed the DRP that the petitioner has already filed an appeal before the CIT (A) impugning the assessment order dated December 24, 2018.

However, the DRP proceeded to issue the directions dated September 16, 2019, based on which another assessment order dated October 31, 2019 came to be passed.

The petitioner contended that Section 144C(5) of the Act provides that the DRP shall, in a case where any objection is received under sub-section 2, issue such directions as it thinks fit for the guidance of the Assessing Officer to enable him to complete the assessment. Since the section uses the words "to enable him to complete the assessment", it presupposes that there are pending assessment proceedings. Therefore, when the assessment order has already been passed, there can be no pending assessment proceedings, and, therefore, DRP could not have issued the directions dated September 16, 2019 under Section 144C(5) of the Act. In the circumstances, the directions of the DRP and the consequent assessment order have to go.

The court noted that Sub-section 6 of Section 144C of the Act provides that "the DRP shall issue the directions referred to in Sub-section 5, after considering the following...". The directions referred to in sub-section 5 are those for the guidance of the Assessing Officer to enable him to complete the assessment. Therefore, this also presupposes pending assessment proceedings.

The court quashes and sets directions issued by DRP on September 16th, 2019 and the consequent assessment order dated October 31st, 2019.

Case Title: Undercarriage and Tractor Parts Pvt. Ltd. Versus DRP

Case No.: Writ Petition No.2387 Of 2020

Date: 12/09/2023

Counsel For Petitioner: Riyaz Padvekar

Counsel For Respondent: Suresh Kumar

Click Here To Read The Order