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Delhi High Court Ruling on Tax Assessment Dispute: Implications of Statutory Provisions and Tribunal Orders

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Delhi High Court Ruling on Tax Assessment Dispute: Implications of Statutory Provisions and Tribunal Orders

Case title:  NEW DELHI TELEVISION LIMITED VS DISPUTE RESOLUTION PANEL 2 & ANR

Case no.: W.P.(C) 2322/2021

Dated on: 20TH May 2024

Quorum: Hon’ble Mr. Justice YASHWANT VARMA and Hon’ble Mr. Justice PURUSHAINDRA KUMAR KAURAV

FACTS OF THE CASE

The writ petitioner impugns the order of the Dispute Resolution Panel1 dated 29 January 2021 and which has negated its objections to the draft assessment order framed on 31 March 2013. The said draft assessment order came to be made pursuant to an order made by the Transfer Pricing Officer on 29 October 2019. Although the TPO had framed an order on 17 October 2017, the record would reflect that no corresponding order as envisaged under Section 92CA (4) of the Income Tax Act, 1961 was framed. The petitioner had urged for the consideration of the DRP that the reference made on 27 December 2018 and the consequential order dated 29 October 2019 framed by the TPO seeking to give effect to the original order of the ITAT dated 14 July 2017 were clearly barred by the prescription of limitation as embodied in Section 153(3) of the Act. The petitioners had argued that the period of nine months when computed from the passing of the order of the ITAT would have come to an end on 31 December 2018. It was in the aforesaid light that it was urged that there was no authority which inhered in the Assessing Officer to pass further orders referable to Section 92CA (4) of the Act. The petitioner filed its Return of Income for Assessment Year 2009-10 on 30 September 2009 declaring a loss of INR 64 crores. Taking note of certain international transactions, the AO after obtaining requisite approvals is stated to have made a reference to the TPO. The TPO proceeded to determine the transfer pricing adjustments liable to be made in terms of an order dated 30 January 2013. Both the respondents as well as the petitioner herein aggrieved by the final assessment order proceeded to institute appeals before the ITAT. The ITAT upon consideration of the challenges so made, by a final order dated 14 July 2017 confirmed the additions made by the AO under Section 69A of the Act. The additions on account of disallowance under Section 14A of the Act as well as those made with the reference to Section 68 of the Act on account of unexplained secured loans were set aside and the matter remitted to the AO for fresh adjudication. Pursuant to the aforesaid order, the AO on 26 July 2017 proceeded to draw an appeal effect order dealing with the subjects and heads which were remitted for its consideration. In terms of this order, the tax demand of the writ petitioner was revised to INR 428,93,32,536/-. The said order of the AO came to be challenged by the writ petitioner by way of W.P.(C) 6483 of 2017 and on which the Court by an order of 01 August 2017, upon finding that the petitioners had been able to establish a prima facie case directed that no coercive steps would be taken pursuant to the demands which had been raised. The said writ petition continues to remain pending on the board of the Court.

ISSUES

whether the objections raised by the writ petitioner against the draft assessment order, which were negated by the Dispute Resolution Panel (DRP), are justifiable?

whether the Transfer Pricing Officer (TPO) and Assessing Officer (AO) had the authority to take certain actions, particularly in light of the orders issued by the Income Tax Appellate Tribunal (ITAT) and statutory provisions?

LEGAL PROVISIONS

  1. Income Tax Act, 1961

Section 92CA: This section deals with the reference to Transfer Pricing Officer (TPO) for computation of Arm’s Length Price (ALP) in case of international transactions or specified domestic transactions.

Section 144C: This section outlines the procedure for making draft assessment orders in cases of transfer pricing adjustments, and the role of the Dispute Resolution Panel (DRP) in resolving objections raised by taxpayers.

Section 153: This section pertains to the time limits for completion of assessments. Subsections (3) and (4) of this section seem particularly relevant in the case, concerning assessments made in accordance with the procedure prescribed by Section 92CA.

Section 69A: This section deals with unexplained money, investment, etc.

Section 14A: This section deals with disallowance of expenditure incurred in relation to income not includible in total income.

Section 68: This section pertains to cash credits.

Section 254: This section relates to orders of Appellate Tribunals and the powers of such tribunals.

 

CONTENTIONS OF THE APPELLANT

Mr. Jolly, learned counsel appearing in support of the writ petition, at the outset, submitted that as would be evident from a reading of the order of the ITAT dated 14 July 2017, the Mr. Jolly, learned counsel appearing in support of the writ petition, at the outset, submitted that as would be evident from a reading of the order of the ITAT dated 14 July 2017, the It was further highlighted by Mr. Jolly that although the respondents on 02 January 2018 preferred appeals against the order dated 14 July 2017 of the ITAT, those appeals stand confined to the merits of the various issues which came to be decided. Even in those appeals Mr. Jolly submitted, the respondents do not assail or question the correctness of the action of the ITAT in remitting the matter to the TPO. Mr. Jolly submitted that as is well settled in law, neither the AO nor the TPO can possibly be recognized to have the authority to act contrary to the terms of the remand as the ITAT may choose to frame. It was his submission that once the ITAT had itself remanded the matter to the TPO, there existed no justification or requirement in law for a reference being made by the AO on 27 December 2018. The fact that the respondents had never questioned the validity of the aforesaid order of the ITAT according to Mr. Jolly is evident from the various notices which were issued by the AO as well as the TPO and are dated 18 August 2017, 22 August 2017, 05 September 2017 and 15 September 2017. Mr. Jolly then argued that a bare reading of the first order of the TPO dated 17 October 2017 would itself establish that the said authority had proceeded to act in terms of the directions of the ITAT and in order to give effect to and implement the order of 14 July 2017. It was then submitted by Mr. Jolly that once the TPO acting in compliance with the direction of the ITAT had proceeded to pass an order on 17 October 2017, it clearly stood divested of any authority or jurisdiction to undertake an identical exercise while purporting to act in terms of the reference which came to be subsequently made by the AO on 27 December 2018. It was pointed out by Mr. Jolly that the second reference which the AO chose to draw on 27 December 2018, was itself more than a year after the first order had been passed by the TPO. In any case, according to learned counsel, such a reference was wholly unnecessary bearing in mind the admitted position of the ITAT itself having remitted identified issues for the consideration of the TPO. The reference and the assumption of jurisdiction by the TPO was then assailed on the ground of limitation as constructed in terms of Section 153 of the Act. Mr. Jolly submitted that undisputedly in terms of the order of 14 July 2017, and which would clearly be liable to be read as requiring a fresh assessment being undertaken, the time frame within which the AO or the TPO could have concluded that exercise would be governed by Section 153(3) of the Act. Viewed in that light, learned counsel submitted that the limitation for drawing up a draft appeal effect order would have expired on 31 December 2018. This, according to Mr. Jolly, would clearly flow from the plain language of Section 153(3) of the Act.

CONTENTIONS OF THE RESPONDENTS

Mr. Zoheb Hossain, learned counsel appearing for the respondents, firstly raised a preliminary objection and contended that the writ petition ought not to be entertained against the directions of the DRP. Mr. Hossain submitted that in terms of the scheme underlying Section 144C of the Act, the statute creates a special mechanism to deal with cases where variations may arise as a result of transfer pricing adjustments. Mr. Hossain submitted that in all such cases, eligible assessees are furnished a draft assessment order against which the statute entitles them to prefer objections before the DRP. It was pointed out that once the DRP disposes of those objections, the matter stands placed before the AO who would then proceed to pass an assessment order. According to learned counsel, it is only when a final assessment order in accordance with the direction of the DRP comes to be framed that an assessee could be recognised to have a right to assail the action of the respondents or take recourse to a legal remedy. Mr. Hossain submitted that the adjudication of objections by the DRP is only a step-in aid of assessment in the case of an eligible assessee and does not result in a creation of a liability. A tax liability, according to learned counsel would arise only once a final assessment order is passed and which is appealable before the ITAT. Mr. Hossain also alluded to courts having noticed the aforesaid distinctive features underlying assessments undertaken in terms of Section 144C of the Act and desisting from invoking their extraordinary jurisdiction, bearing in mind the remedy available to an assessee and which would be available to be pursued once a final assessment order is framed. It was then submitted that the challenge as laid to the directions of DRP is misconceived since the said authority clearly stands denuded of the jurisdiction to examine objections of limitation or other jurisdictional challenges that may be raised. It was submitted that as would be evident from Section 144C (8) of the Act, the power of the DRP stands restricted to “confirming, reducing or enhancing the variations proposed”. That power, according to Mr. Hossain, cannot possibly be recognized as being akin to or equated with a power to set aside. It was the submission of Mr. Hossain that a statutory authority, as is well settled, is bound to exercise its jurisdiction within the four corners of the statute. Mr. Hossain submitted that since the DRP derives its power from Section 144C(8) of the Act, it cannot possibly be construed to have the authority to rule on every portrayed illegality or aspects pertaining to asserted jurisdictional errors.

 

COURT’S ANALYSIS AND JUDGEMENT

Although we had in the introductory parts of this decision noted that both Mr. Jolly as well as Mr. Hossain had addressed submissions on the basis of Section 153 as it appears on the statute book presently and post the amendments introduced by Finance Act, 2022, we had chosen to briefly digress and examine the various amendments introduced in that provision commencing from Finance Act, 2014 principally to underline the following two fundamental aspects. The TPO while undertaking that evaluation also stands enabled by virtue of Section 92CA(2B) to take into consideration any international transaction which though not disclosed in the report under Section 92E by the assessee may come to its notice. In any case, and as would be evident from the undisputed facts which obtain in the instant matter, the order of the ITAT dated 14 July 2017 and to the extent that certain aspects were remanded for the consideration of the TPO directly were neither questioned nor assailed at any time by the respondents. In fact, and as the writ petitioners have rightly pointed out, the aforesaid directions as framed were duly acknowledged and accepted and which fact becomes evident from not only the various notices which were issued by the jurisdictional AO and form part of our record such as Annexure P-12, P-14, P-15 and P-16 but also by the action of the TPO itself which had proceeded to pass an order on 17 October 2017. It thus becomes apparent that the principal order of the ITAT dated 14 July 2017 had come to be duly implemented by the TPO on 17 October 2017 itself. We are thus of the considered opinion that once the TPO had proceeded to pass the order of 17 October 2017, all that the AO was obliged to do was pass an assessment order in accordance with the procedure prescribed in Section 92CA (4) of the Act. It is pertinent to note that sub-section (4) of Section 153 is concerned with a reference referable to Section 92CA (1). That provision, as noticed hereinabove, is confined to a reference to the TPO that may be made by the AO. The limited application of Section 153(4) is also evidenced from that provision using the expression “made during the course of the proceeding for the assessment or reassessment”. That leaves us to examine the argument of a deemed reference which was advanced by Mr. Hossain. According to Mr. Hossain, the order of 14 July 2017 should be construed as being a reference governed by Section 153(4) of the Act and consequently the expanded period of limitation of twelve months becoming applicable. We find ourselves unable to sustain that submission bearing in mind the indubitable position which emerges from a plain reading of Section 153(3) of the Act and which encompasses and makes adequate provisions for a fresh order under Section 92CA (4) being liable to be made pursuant to an order of the ITAT under Section 254 of the Act. Since the aforesaid contingency is already provisioned for in sub section (3), there would exist no justification for such an order of the ITAT being placed or viewed as traceable to sub-section (4) of Section 153 of the Act. We further find that the judgment rendered by a learned Single Judge of the Karnataka High Court in TE Connectivity was concerned with an order of the ITAT which had remitted the matter to the “Assessing Officer/Transfer Pricing Officer/Dispute Resolution Panel”. In any case the High Court in that case had ultimately held in favour of the assessee. We find ourselves unable to discern any observation or conclusion appearing in that decision which could possibly be viewed as lending credence to the submissions addressed by the respondents in this proceeding. Accordingly, and for all the aforesaid reasons, while we refuse to interfere with the order of the DRP impugned herein, we allow the instant writ petition and hold that the second respondent stands barred in law from passing any further orders of final assessment pertaining to AY 2009-10. The petitioner shall consequently be entitled to all consequential reliefs.

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Judgement Reviewed by – HARIRAGHAVA JP

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Delhi High Court Affirms ITAT’s Authority to Directly Remit Cases to TPO, Renders AO’s Second Reference Redundant

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 Case Name: New Delhi Television Ltd. v. Dispute Resolution Panel 2 & Anr 

Case No.: W.P.(C) 2322/2021 

Dated: May20, 2024 

Quorum: Justice Yashwanth Varma and Justice Purushaindra Kumar Kaurav 

 

FACTS OF THE CASE: 

The writ petitioner challenges the Dispute Resolution panel’s ruling. Panel from January 29, 2021, which has refuted its concerns about the preliminary evaluation order formulated on March 31, 2013. That particular draft the evaluation order was created in response to a directive issued by the Officer of Transfer Pricing on October 29, 2019. It appears that the petitioner to have argued before the DRP that, in essence, the reference to the TPO on December 27, 2018, was a follow-up reference to allegedly implement the Income Tax Appellate Court’s ruling tribunal on July 14, 2017.  

Despite having framed an order on October 17, 2017, the record would show that no equivalent order as required by Income Tax Act, 1961 Section 92CA(4) was framed. In order to give effect to the original ITAT order dated July 14, 2017, the petitioner had urged the DRP to consider that the reference made on December 27, 2018, as well as the consequential order dated October 29, 2019, framed by the TPO, were manifestly barred by the statute of limitations as embodied in Section 153(3) of the Act. 

Nevertheless, the DRP declined to consider the restriction challenge, pointing out that Section 144C(8) limits its authority to verifying, modifying, or improving the changes suggested in the draft order. It seems to have essentially adopted the stance that it could not consider a jurisdictional challenge brought forth as an objection under Section 144C(2) of the Act. It is offended by the aforementioned action, which led to the current writ petition being filed.  

According to the Special Bench’s previously stated opinion, it seems that the appeal itself was instructed to be presented before the suitable ITAT Bench for resolution with regard to the findings as produced. It would be relevant to remember that on July 14, the ITAT when discussing the topic of corporate guarantees in 2017, returned the matter with the warning for the TPO’s consideration. That the aforementioned query will be held until the decision was made by the Particular Bench in the ongoing case.  

 LEGAL PROVISIONS:  

  • Section 92CA(4) of the Income Tax Act, 1961- After receiving the order under sub-section (3), the Assessing Officer will calculate the assessee’s total income under section 92C, sub-section (4), taking into account the arm’s length price that the Transfer Pricing Officer determined under sub-section (3). 
  • Section 153(3) of the Income Tax Act– An order under section 254 or section 263 or section 264, setting aside or cancelling an assessment or an order under section 92CA, as the case may be, may be made at any time before the end of the nine-month period following the end of the fiscal year in which the order under section 254 is received by the Principal Chief Commissioner or Chief Commissioner or Commissioner or, as the case may be, the order under section 263 or section 264 is passed by the Principal Commissioner or Commissioner. 

CONTENTIONS OF THE APPELLANTS: 

The learned counsel for the appellants fiercely and strongly argued that a reading of the ITAT’s order dated July 14, 2017, makes it clear that the parties’ permission was obtained before the TPO was mentioned. Mr Jolly emphasised that the respondents had not contested the order dated July 14, 2017, insofar as it related to the referral to the TPO. As a result, they were ineligible to criticise or raise doubts about the propriety of the process used by the ITAT to make that referral. 

It was also emphasised that while the respondents filed appeals on January 02, 2018, against the ITAT’s order dated July 14, 2017, those appeals are limited to the merits of the several issues that were ultimately decided. Even in those appeals, which The learned counsel filed, the respondents do not criticise or cast doubt on the propriety of the ITAT’s decision to forward the case to the TPO.  

The learned counsel went on to say that a simple reading of the TPO’s first ruling, dated October 17, 2017, would prove beyond a reasonable doubt that the aforementioned authority had acted in accordance with the ITAT’s instructions and to give effect to and carry out the order dated July 14, 2017.  

The TPO’s reference and assumption of jurisdiction were subsequently challenged on the basis of limitation as outlined in Section 153 of the Act. The learned counsel contended that the time frame within which the AO or the TPO could have concluded that exercise would be governed by Section 153(3) of the Act, unquestionably in terms of the order of July 14, 2017, and which would clearly be liable to be read as requiring a fresh assessment to be undertaken.  

When considering this, skilled counsel argued that the deadline for creating a draft appeal effect order would have ended on December 31, 2018. The learned counsel stated that this would logically follow from the Act’s Section 153(3)’s straightforward language.   

CONTENTIONS OF THE RESPONDENTS: 

The arguments put forward by the learned counsel for the appellants were sharply and passionately rejected by the learned counsel for originally filed a preliminary objection, arguing that the writ petition should not be granted in defiance of the DRP’s directives. According to The learned counsel’s submission, Section 144C of the Act establishes a unique method to address situations in which alterations in transfer pricing may lead to variances. According to The learned counsel’s submission, qualified assessees are provided with a draft assessment order in all circumstances whereby they are entitled to file objections with the DRP under the Act. It was mentioned that after the DRP rejects those objections, the issue is brought before the AO, who would then decide whether to issue an assessment order.  

As per the advice of knowledgeable legal counsel, an assessee’s entitlement to challenge the respondents’ actions or pursue legal remedies will only be acknowledged upon the drafting of a final assessment decision that follows the DRP’s directives. The learned counsel argued that the DRP’s resolution of objections does not create a liability and is merely a step towards assessment in the event that the assessee is eligible. According to knowledgeable counsel, a tax liability wouldn’t materialise until after a final assessment decision was approved and was subject to an ITAT appeal.  

Subsequently, it was argued that the challenge to the DRP’s recommendations is misguided because it is evident that the aforementioned authority lacks the authority to consider any potential jurisdictional issues, including objections to limitations. It was argued that the DRP’s authority is limited to “confirming, reducing or enhancing the variations proposed,” as would be clear from Section 144C(8) of the Act. The learned counsel argues that this authority cannot be seen as equivalent to or similar to the authority to set aside.  

 COURT’S ANALYSIS AND JUDGMENT: 

First, the court noted that the provisions included in the Finance Act, 2016 were the first to introduce and structure the “nine” and “twelve” month window governing assessments to be made post remit by the ITAT and in cases where a reference under Section 92CA(1) of the Act may be made during an ongoing assessment. Section 153 of the Finance Act, 2014 fully acknowledged and established provisions regarding assessments that may need to be made in compliance with the method outlined under Section 92CA of the Act. This is the second aspect of some relevance.  

After outlining the main points of contention, we believe it is fair to take a closer look at Mr. Hossain’s preliminary objection. Recall that Mr. Hossain had argued that the petitioner was only contesting a DRP order, which in any event carries no legal consequences. The main argument of the submission was that this Court would not be able to use the Article 226 of the Constitution’s jurisdiction if no corresponding order of assessment had been framed. For the following reasons, we are unable to support that objection.  

The court also noted that the Act’s Section 92CA(1) specifies that the concerned AO alone may refer to the TPO. Nonetheless, we see no reason to question the ITAT’s authority to make such a reference while reviewing an appeal that might be brought before it, given the stature and position that have been bestowed upon it. This is because, according to Section 253 of the Act, an assessee has the right to contest a directive that the DRP issued and that may have been converted into a real assessment order.  

The court also discovered that the ITAT’s order referring the case to the “Assessing Officer/Transfer Pricing Officer/Dispute Resolution Panel” was at issue in the ruling made by a knowledgeable single judge of the Karnataka High Court in the TE Connectivity case.  

In any event, the High Court finally ruled in favour of the assessee in that particular case. We are unable to find any observation or conclusion in that decision that might be interpreted as supporting the arguments made by the respondents in this particular process.  

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Judgment reviewed by Riddhi S Bhora. 

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