AO wrongfully assumed the jurisdiction and passed the final assessment order without passing a draft assessment order: Delhi HC [Read Judgment]

The Delhi High Court held that the Assessing Officer (AO) wrongfully assumed the jurisdiction and passed the final assessment order without passing a draft assessment order.

The respondent-assessee, Headstrong Services India Pvt. Ltd. a wholly owned subsidiary of Headstrong Services LLC, USA, had filed its return of income declaring income of Rs.30,64,480 for the relevant assessment year. Thereafter, revised return of income was filed on 30thJanuary, 2009 that was processed under Section 143(1) of the Income Tax Act, 1961 and subsequently, case of the respondent-assessee was selected for scrutiny assessment and notice under Section 143(2) of the Act was issued.

During the scrutiny assessment, the Assessing Officer made a reference to the office of Transfer Pricing Officer (TPO) in relation to the international transaction between the respondent-assessee and its Associated Enterprise (AE).

Draft assessment order under Section 144C(1) of the Act was passed on 31st December, 2010 and the respondent-assessee filed objections before the Dispute Resolution Panel (DRP).

Thereafter, assessment under Section 143(3)/144C of the Act was completed in pursuance to directions issued by the DRP, wherein addition was made on account of excess claim of deduction under Section 10A of the Act and transfer pricing adjustment made by the TPO.

The respondent-assessee filed an appeal before the ITAT, where the additions on account transfer pricing and deduction under Section l0A of the Act were set aside and the Assessing Officer was directed to frame the assessment afresh.

The division bench of Justice Manmohan and Sanjeev Narula held that in complete contravention of Section 144C, the Assessing Officer wrongfully assumed the jurisdiction and passed the final assessment order without passing a draft assessment order and without giving the respondent/assessee an opportunity to raise objections before the Dispute Resolution Panel.

The Court further held that the Income Tax Department ensures that the Assessing Officers follow the mandate of law, in particular, binding provisions like Section 144C and eschew filing of unnecessary appeals rather than in nearly all matters where the Assessing Officer has taken a view against the Assessee, the assessments will not achieve finality for a number of years like in the present case where the case of assessment year 2007-08 stands remanded and restored to the file of the Assessing Officer.

The court while confirming the impugned order of the ITAT with costs of Rs.11,000 to be paid to Delhi High Court Legal Services Committee.