The Tribunal remanded my transfer pricing issue. The Assessing Officer has now passed a final assessment order straight off the TPO's fresh order, without any draft order. Is that good?
No. Section 144C(1) requires a draft assessment order after receipt of the TPO's report, and there is nothing in its language confining that requirement to the first round; it applies equally where the TPO has acted on a remand by the Tribunal. The Delhi High Court held the resulting final assessment orders were without jurisdiction, that the defect was an incurable illegality and not a mere irregularity which s.292B could cure, and that the correct course was not to send the parties back to the draft order stage but to quash.
Decided by the High Court (S. Muralidhar J and Prathiba M. Singh J) on 2017-09-07, reported as W.P.(C) Nos. 3399/2016, 3429/2016 and 3431/2016 (Delhi High Court), Assessment Years 2006-07, 2007-08 and 2008-09. It bears on section 144C, section 144C(1), section 92CA, section 92CA(3A), section 153(2A), section 292B, section 254, section 143(3) of the Income Tax Act 1961, in Assessment & Scrutiny, Appeals and How Tax Law Is Read matters.
Second-round assessments are where this most often goes wrong, because the officer treats the draft order as a formality already gone through in the first round. Two things make this decision worth having over the general s.144C authorities. First, it decides the remand point squarely, which the first-round cases do not. Second, it refuses the Revenue's fallback that the defect is curable and the matter should simply be restored to the draft order stage — that fallback, if accepted, would take the whole value out of the point, and the Court rejected it in terms. The Court also set aside the TPO's orders passed pursuant to the remand, so the relief is not confined to the assessment order alone. Note the judgment also records that the Supreme Court dismissed the Revenue's SLP against Zuari Cement Ltd. on 27 September 2013, which is the foundation of the whole line.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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JCB India Ltd., a wholly owned subsidiary of JC Bamford Excavators Ltd., U.K., had its international transactions with its associated enterprise referred to the TPO for AYs 2006-07, 2007-08 and 2008-09. For each year a final assessment order under s.143(3) read with s.144C was passed, the matter went to the Tribunal, and the Tribunal remanded the determination of arm's length price — for AY 2006-07 and AY 2008-09 to the Assessing Officer for fresh adjudication with liberty to both sides to file a fresh transfer pricing study and fresh comparables, and in the earlier rounds to the DRP. By letter dated 14 February 2014 the Assessing Officer sought the TPO's comments; nothing happened until 10 March 2016, when the TPO issued notice, and on 4 March 2016 the Assessing Officer had pressed the TPO to quantify the adjustment because the assessment had to be framed by 31 March 2016. The assessee's submissions of 17 March 2016 and 30 March 2016 contended the proceedings were barred by limitation under s.92CA(3A) read with s.153(2A). The TPO passed orders on 30 March 2016 determining adjustments of Rs 40,67,16,966, Rs 86,76,93,761 and Rs 134,21,17,779 for the three years. On the very next day the Assessing Officer passed final assessment orders for all three years without any draft assessment order, together with demand notices under s.156 and penalty show cause notices under s.274 read with s.271. The assessee moved the High Court under Article 226.
The writ petitions were allowed with no order as to costs. Section 144C(1) is unambiguous and requires the Assessing Officer to pass a draft assessment order after receipt of the report from the TPO, and nothing in its wording confines that requirement to a first-round exercise or excludes an exercise undertaken by the TPO on remand by the Tribunal. The final assessment orders were therefore without jurisdiction. The failure was an incurable illegality, not a mere irregularity, and s.292B could not protect the orders. The Court declined the Revenue's invitation to treat the defect as curable and restore the matter to the draft order stage, and it also set aside the TPO's orders dated 30 March 2016 passed pursuant to the remand (paragraphs 17, 19, 24 and 25).
The Court identified the short question as whether, after remand proceedings, the Assessing Officer could issue a final assessment order without first issuing a draft order under s.144C (paragraph 14). It rejected the Revenue's argument that the requirement operated only in the first instance and that, because the Tribunal had set aside only the transfer pricing adjustment rather than cancelling the assessment, s.153(3)(ii) governed: the language of s.144C(1) admits no such distinction (paragraphs 16 and 17). On s.292B it applied its own earlier decision in Pr. CIT v. Citi Financial Consumer Finance India Pvt. Ltd., which holds that s.292B cannot confer jurisdiction where none exists and protects only against a mistake in a return, assessment, notice, summons or proceeding that is in substance and effect in conformity with the intent and purposes of the Act; the issue here was not a mistake in the order but the power to pass it (paragraphs 19 and 20). It then followed its own decision in Turner International India Pvt. Ltd., which had collected the line — Zuari Cement Ltd. v. ACIT (Andhra Pradesh High Court, 21 February 2013), holding that failure to pass a draft order renders the final assessment order without jurisdiction, null and void and unenforceable, and whose affirmance is recorded by the dismissal of the Revenue's SLP (C) CC No. 16694/2013 on 27 September 2013; Vijay Television (P) Ltd. v. DRP (Madras); ESPN Star Sports Mauritius S.N.C. ET Compagnie (Delhi); and International Air Transport Association v. DCIT (Bombay) (paragraph 21). It adopted the Gujarat High Court's reasoning in CIT v. C-Sam (India) Pvt. Ltd. that the s.144C procedure is of great importance and mandatory, that the non obstante clause in s.144C(1) overrides anything to the contrary in the Act, and that the draft order confers a substantive right to object before the DRP whose directions bind the Assessing Officer, so the requirement cannot be treated as purely procedural (paragraph 22). Finally it repeated the passage from Turner International refusing the curative course, on the footing that non-compliance results in invalidation of the final assessment order and of the consequent demand notices and penalty proceedings (paragraph 24).
There is nothing in the wording of Section 144C (1) which would indicate that this requirement of passing a draft assessment order does not arise where the exercise had been undertaken by the TPO on remand to it, of the said issue, by the ITAT.
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Handle my notice → Ask a CA on WhatsAppNo. Section 144C(1) requires a draft assessment order after receipt of the TPO's report, and there is nothing in its language confining that requirement to the first round; it applies equally where the TPO has acted on a remand by the Tribunal. The Delhi High Court held the resulting final assessment orders were without jurisdiction, that the defect was an incurable illegality and not a mere irregularity which s.292B could cure, and that the correct course was not to send the parties back to the draft order stage but to quash. This was decided by the High Court (S. Muralidhar J and Prathiba M. Singh J) and bears on section 144C, section 144C(1), section 92CA, section 92CA(3A), section 153(2A), section 292B, section 254, section 143(3) of the Income Tax Act 1961. It is reported as W.P.(C) Nos. 3399/2016, 3429/2016 and 3431/2016 (Delhi High Court), Assessment Years 2006-07, 2007-08 and 2008-09. Second-round assessments are where this most often goes wrong, because the officer treats the draft order as a formality already gone through in the first round. Two things make this decision worth having over the general s.144C authorities. First, it decides the remand point squarely, which the first-round cases do not. Second, it refuses the Revenue's fallback that the defect is curable and the matter should simply be restored to the draft order stage — that fallback, if accepted, would take the whole value out of the point, and the Court rejected it in terms. The Court also set aside the TPO's orders passed pursuant to the remand, so the relief is not confined to the assessment order alone. Note the judgment also records that the Supreme Court dismissed the Revenue's SLP against Zuari Cement Ltd. on 27 September 2013, which is the foundation of the whole line. If it applies to you, the first step is this: Establish that you are an eligible assessee within s.144C(15)(b) for the year — a variation arising from a TPO order, or a non-resident of the class covered — because the whole obligation flows from that.
JCB India Ltd., a wholly owned subsidiary of JC Bamford Excavators Ltd., U.K., had its international transactions with its associated enterprise referred to the TPO for AYs 2006-07, 2007-08 and 2008-09. For each year a final assessment order under s.143(3) read with s.144C was passed, the matter went to the Tribunal, and the Tribunal remanded the determination of arm's length price — for AY 2006-07 and AY 2008-09 to the Assessing Officer for fresh adjudication with liberty to both sides to file a fresh transfer pricing study and fresh comparables, and in the earlier rounds to the DRP. By letter dated 14 February 2014 the Assessing Officer sought the TPO's comments; nothing happened until 10 March 2016, when the TPO issued notice, and on 4 March 2016 the Assessing Officer had pressed the TPO to quantify the adjustment because the assessment had to be framed by 31 March 2016. The assessee's submissions of 17 March 2016 and 30 March 2016 contended the proceedings were barred by limitation under s.92CA(3A) read with s.153(2A). The TPO passed orders on 30 March 2016 determining adjustments of Rs 40,67,16,966, Rs 86,76,93,761 and Rs 134,21,17,779 for the three years. On the very next day the Assessing Officer passed final assessment orders for all three years without any draft assessment order, together with demand notices under s.156 and penalty show cause notices under s.274 read with s.271. The assessee moved the High Court under Article 226. The matter was decided on 2017-09-07 by the High Court (S. Muralidhar J and Prathiba M. Singh J). On those facts the High Court held as follows. The writ petitions were allowed with no order as to costs. Section 144C(1) is unambiguous and requires the Assessing Officer to pass a draft assessment order after receipt of the report from the TPO, and nothing in its wording confines that requirement to a first-round exercise or excludes an exercise undertaken by the TPO on remand by the Tribunal. The final assessment orders were therefore without jurisdiction. The failure was an incurable illegality, not a mere irregularity, and s.292B could not protect the orders. The Court declined the Revenue's invitation to treat the defect as curable and restore the matter to the draft order stage, and it also set aside the TPO's orders dated 30 March 2016 passed pursuant to the remand (paragraphs 17, 19, 24 and 25).
The Court identified the short question as whether, after remand proceedings, the Assessing Officer could issue a final assessment order without first issuing a draft order under s.144C (paragraph 14). It rejected the Revenue's argument that the requirement operated only in the first instance and that, because the Tribunal had set aside only the transfer pricing adjustment rather than cancelling the assessment, s.153(3)(ii) governed: the language of s.144C(1) admits no such distinction (paragraphs 16 and 17). On s.292B it applied its own earlier decision in Pr. CIT v. Citi Financial Consumer Finance India Pvt. Ltd., which holds that s.292B cannot confer jurisdiction where none exists and protects only against a mistake in a return, assessment, notice, summons or proceeding that is in substance and effect in conformity with the intent and purposes of the Act; the issue here was not a mistake in the order but the power to pass it (paragraphs 19 and 20). It then followed its own decision in Turner International India Pvt. Ltd., which had collected the line — Zuari Cement Ltd. v. ACIT (Andhra Pradesh High Court, 21 February 2013), holding that failure to pass a draft order renders the final assessment order without jurisdiction, null and void and unenforceable, and whose affirmance is recorded by the dismissal of the Revenue's SLP (C) CC No. 16694/2013 on 27 September 2013; Vijay Television (P) Ltd. v. DRP (Madras); ESPN Star Sports Mauritius S.N.C. ET Compagnie (Delhi); and International Air Transport Association v. DCIT (Bombay) (paragraph 21). It adopted the Gujarat High Court's reasoning in CIT v. C-Sam (India) Pvt. Ltd. that the s.144C procedure is of great importance and mandatory, that the non obstante clause in s.144C(1) overrides anything to the contrary in the Act, and that the draft order confers a substantive right to object before the DRP whose directions bind the Assessing Officer, so the requirement cannot be treated as purely procedural (paragraph 22). Finally it repeated the passage from Turner International refusing the curative course, on the footing that non-compliance results in invalidation of the final assessment order and of the consequent demand notices and penalty proceedings (paragraph 24). In the words reproduced by the source cited on this page: "There is nothing in the wording of Section 144C (1) which would indicate that this requirement of passing a draft assessment order does not arise where the exercise had been undertaken by the TPO on remand to it, of the said issue, by the ITAT." The decision followed or applied Turner International India Pvt. Ltd. v. DCIT, W.P.(C) No. 4260/2015 (Delhi High Court, 17 May 2017) — followed; Zuari Cement Ltd. v. ACIT, W.P.(C) No. 5557/2012 (Andhra Pradesh High Court, 21 February 2013) — relied on; Revenue's SLP (C) CC No. 16694/2013 dismissed on 27 September 2013; Vijay Television (P) Ltd. v. Dispute Resolution Panel [2014] 369 ITR 113 (Mad.) — relied on; ESPN Star Sports Mauritius S.N.C. ET Compagnie v. Union of India [2016] 388 ITR 383 (Del.) — relied on; International Air Transport Association v. DCIT (2016) 290 CTR (Bom) 46 — relied on; CIT, Vadodara-2 v. C-Sam (India) Pvt. Ltd., Tax Appeal No. 542 of 2017 (Gujarat High Court, 31 July 2017) — relied on; Pr. CIT v. Citi Financial Consumer Finance India Pvt. Ltd., ITA No. 275/2015 (Delhi High Court, 17 July 2015) — applied on s.292B.
It was decided by the High Court on 2017-09-07 and is reported as W.P.(C) Nos. 3399/2016, 3429/2016 and 3431/2016 (Delhi High Court), Assessment Years 2006-07, 2007-08 and 2008-09. Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 144C, section 144C(1), section 92CA, section 92CA(3A), section 153(2A), section 292B, section 254, section 143(3), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The writ petitions were allowed with no order as to costs. Section 144C(1) is unambiguous and requires the Assessing Officer to pass a draft assessment order after receipt of the report from the TPO, and nothing in its wording confines that requirement to a first-round exercise or excludes an exercise undertaken by the TPO on remand by the Tribunal. The final assessment orders were therefore without jurisdiction. The failure was an incurable illegality, not a mere irregularity, and s.292B could not protect the orders. The Court declined the Revenue's invitation to treat the defect as curable and restore the matter to the draft order stage, and it also set aside the TPO's orders dated 30 March 2016 passed pursuant to the remand (paragraphs 17, 19, 24 and 25). It arises in Assessment & Scrutiny, Appeals and How Tax Law Is Read matters, on section 144C, section 144C(1), section 92CA, section 92CA(3A), section 153(2A), section 292B, section 254, section 143(3) of the Income Tax Act 1961, and was decided by S. Muralidhar J and Prathiba M. Singh J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Fix the exact sequence on the record: date of the TPO's order on remand, date of the final assessment order, and the absence of any draft order or s.144C(1) notice in between. Ask for quashing, not for a remand to the draft order stage; cite paragraphs 23 and 24, where exactly that curative course was pressed by the Revenue and refused. Ask in the same breath for the consequential demand notice and any s.271 penalty proceedings to go, and for the TPO's remand order to be set aside as well, which is what the Court did in paragraph 25. If the department invokes s.292B, meet it with paragraphs 19 and 20 — s.292B protects against a mistake in an order, not against the absence of power to pass it. Keep the limitation argument alive alongside: the assessee here had also contended that the remand proceedings were barred under s.92CA(3A) read with s.153(2A), and although the Court decided the case on s.144C the point remains available.
Validity check could not be completed. Validity check could not be completed — no search for later treatment of this judgment was carried out and none is claimed. What can be said is confined to the four corners of the judgment: it follows an unbroken line of High Court authority (Andhra Pradesh, Madras, Delhi, Bombay, Gujarat) and rests on Zuari Cement Ltd., against which the Revenue's special leave petition is recorded in paragraph 21 as having been dismissed by the Supreme Court on 27 September 2013. A later pass should check the treatment of the remand-specific holding in particular, since that is the part of the decision on which the Revenue has most to gain by distinguishing. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
There is a date conflict inside the report. Paragraphs 1 and 13 give the final assessment orders as passed on 31 March 2016, the day after the TPO's orders of 30 March 2016; the operative paragraph 25 describes them as 'the impugned final assessment orders dated 30th March 2016'. The 31 March 2016 date is the one consistent with the narrative, which records that the AO had told the TPO the assessment had to be framed by 31 March 2016. Paragraph 16 of the report also renders the Revenue's argument as denying that it was mandatory to pass a draft order — the negative construction is as printed. The judgment was retrieved twice from the same URL and paragraphs 17 to 20, 25 and 26 came back word for word identical on both passes. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The writ petitions were allowed with no order as to costs. Section 144C(1) is unambiguous and requires the Assessing Officer to pass a draft assessment order after receipt of the report from the TPO, and nothing in its wording confines that requirement to a first-round exercise or excludes an exercise undertaken by the TPO on remand by the Tribunal. The final assessment orders were therefore without jurisdiction. The failure was an incurable illegality, not a mere irregularity, and s.292B could not protect the orders. The Court declined the Revenue's invitation to treat the defect as curable and restore the matter to the draft order stage, and it also set aside the TPO's orders dated 30 March 2016 passed pursuant to the remand (paragraphs 17, 19, 24 and 25).
Every entry in this library links to where it was found, so you can check it yourself rather than take our word for it.
We charge fees for our public utility work. Does that cost us charitable status under s.2(15)?
My return was only processed under 143(1). Does that stop the department reopening it later?
Has the Supreme Court settled whether the s.144C nine-month DRP process runs over and above the s.153 limitation?
No s.143(2) notice was issued at all. Does s.292BB save the assessment?