Court Directs Fresh Assessment in Compliance with Dispute Resolution Panel's Directions
In a significant judgment, the Punjab and Haryana High Court has quashed the final assessment order against UCWeb Mobile Private Ltd., a subsidiary of UC Mobile New World Limited, British Virgin Islands, concerning its income tax assessment for the year 2021-22. The division bench, consisting of Justices Mr. Deepak Sibal and Rupinderjit Chahal, ruled that the assessment order dated December 15, 2023, along with the associated notices of demand and penalty initiation, was unsustainable as it was passed without incorporating the directions of the Dispute Resolution Panel (DRP).
UCWeb Mobile Pvt. Ltd., engaged in the distribution and re-selling of UCWeb Singapore Pte Ltd.'s designated services in India, had filed its income tax return on March 15, 2022. The case underwent scrutiny, and due to international transactions with associated enterprises, the matter was referred to the Transfer Pricing Officer (TPO). The TPO ordered an addition of over Rs. 60 crores to the company’s income, leading to a draft assessment order.
The petitioner filed objections to this draft order before the DRP within the stipulated 30 days. However, due to a lapse in communication, the Assessing Officer (AO) was not informed about these objections and proceeded to finalize the assessment. The court recognized this oversight as a bona fide lapse and emphasized that the AO was bound to await the DRP’s directions before finalizing the assessment.
Citing statutory provisions under Section 144C of the Income-Tax Act, the court highlighted the procedural mandate that final assessment orders must align with DRP directions. The DRP had issued directions on August 27, 2024, which were subsequently incorporated into a revised TPO order on September 17, 2024. The court mandated the AO to pass a fresh assessment order in compliance with these directions.
This judgment underscores the binding nature of DRP's directions on the AO and reiterates the procedural safeguards provided under the Income-Tax Act to ensure fair assessment processes. The case references included decisions from the Karnataka and Delhi High Courts, reinforcing the necessity for AOs to respect DRP directions and ensure assessments are conducted following statutory guidelines.
The court’s decision has been welcomed as a step towards ensuring adherence to procedural fairness in income tax assessments, especially in cases involving complex international transactions.
Bottom line:-
Assessment order under Sections 143(3) read with Sections 144C(3) and 144B of the Income-Tax Act, 1961, passed without considering the directions of the Dispute Resolution Panel (DRP), is unsustainable. The Assessing Officer (AO) must conform to the DRP's directions.
Statutory provision(s): Sections 143(3), 144C(3), 144B, 144C(10), 144C(2), 144C(5), 144C(13) of the Income-Tax Act, 1961.
