Case Note & Summary
The petitioner, Undercarriage and Tractor Parts Pvt. Ltd., filed its return of income for Assessment Year 2015-2016 on 30 September 2015 declaring a loss of Rs.11,69,32,126/-. The return was selected for scrutiny, and the Assessing Officer referred the matter to the Transfer Pricing Officer (TPO) under Section 92CA(1) of the Income Tax Act, 1961. The TPO passed an order dated 30 October 2018 under Section 92CA(3) proposing an adjustment of Rs.11,92,16,671/- to the arm's length price of international transactions. However, the TPO did not provide a copy of this draft order to the petitioner. Subsequently, the Assessing Officer issued a draft assessment order under Section 144C(1) on 28 December 2018, which was served on the petitioner. The petitioner filed objections before the Dispute Resolution Panel (DRP) on 28 January 2019. The DRP, without giving any opportunity of hearing to the petitioner, passed directions under Section 144C(5) on 16 September 2019. Based on these directions, the Assessing Officer passed the final assessment order under Section 143(3) read with Section 144C(13) on 31 October 2019. The petitioner challenged both orders by way of a writ petition under Article 226 of the Constitution of India. The court found that the TPO's draft order was never provided to the petitioner, and the DRP did not afford any hearing before issuing directions. The court held that the failure to provide the TPO's draft order and the lack of opportunity of hearing before the DRP violated the mandatory requirements of Section 144C and principles of natural justice. Consequently, the court quashed both the impugned orders and remanded the matter back to the stage of the TPO's draft order, directing the TPO to provide a copy of the draft order to the petitioner and thereafter proceed in accordance with law. The court also directed that the petitioner be given a reasonable opportunity of hearing before the DRP.
Headnote
A) Constitutional Law - Writ of Certiorari - Violation of Natural Justice - Article 226 of the Constitution of India - The petitioner challenged assessment orders on the ground that the TPO's draft order was not provided and no opportunity of hearing was given before the DRP. The court held that failure to provide the draft order and opportunity of hearing vitiates the proceedings as they are mandatory under Section 144C and principles of natural justice. (Paras 1-13) B) Income Tax - Transfer Pricing - Draft Order - Opportunity of Hearing - Sections 92CA, 144C of the Income Tax Act, 1961 - The TPO passed a draft order proposing adjustment without providing a copy to the assessee. The DRP passed directions without hearing the assessee. The court held that the assessee has a right to receive the draft order and be heard before the DRP; non-compliance renders the orders void ab initio. (Paras 3-13) C) Income Tax - Assessment - Dispute Resolution Panel - Mandatory Hearing - Section 144C of the Income Tax Act, 1961 - The DRP passed directions under Section 144C(5) without giving an opportunity of hearing to the petitioner. The court held that the DRP must provide a hearing before issuing directions; failure to do so violates the statutory scheme and natural justice. (Paras 5-13)
Issue of Consideration
Whether the assessment orders passed under Section 144C(5) and Section 143(3) read with Section 144C(13) of the Income Tax Act, 1961 are valid when the petitioner was not provided with a copy of the draft order of the Transfer Pricing Officer and was not given an opportunity of hearing before the Dispute Resolution Panel.
Final Decision
The court allowed the petition, quashed the impugned orders dated 16/09/2019 and 31/10/2019, and remanded the matter back to the stage of the TPO's draft order. The TPO was directed to provide a copy of the draft order to the petitioner and thereafter proceed in accordance with law. The petitioner was also directed to be given a reasonable opportunity of hearing before the DRP.
Law Points
- Natural justice
- audi alteram partem
- transfer pricing adjustment
- draft order
- opportunity of hearing
- Section 144C
- Section 92CA
- Income Tax Act
- 1961
