Failure To Follow Procedure U/s 144C Income Tax Act Vitiates Entire Proceeding: Bombay High Court
The Bombay High Court ruled that the failure on the part of department to follow the procedure under Section 144C of the Income tax Act is not merely a procedural irregularity, but an illegality that vitiates the entire proceeding.
The court observed thus while holding that an assessment order passed by Faceless AO two years after the DRP directions, is time barred and cannot be sustained.
The Division Bench comprising of Justice K. R. Shriram and Dr. Neela Gokhale observed that “Once the statute has prescribed a limitation period for the final order, it is expected that the internal procedure of the department should mould itself to give meaning to and act in aid of the provision. Any procedural defect (there is none in this case) in the internal mechanism of the working of E-assessment Scheme, cannot operate against the interest of assessee. Hence, the FAO cannot be believed that the DRP direction was received by him only on 23rd August 2023 despite being uploaded on the ITBA portal on 25th March 2021”.
Senior Advocate J. D. Mistri appeared for the Petitioner/ Assessee while the Respondent/ Revenue was represented by ASG Devang Vyas.
As per the brief facts of the case, the Assessee company for the AY 2016-17, had filed its return declaring loss, and claimed a refund which comprises of TDS and Advance Tax. The Assessee was subjected to scrutiny proceedings resulting in transfer pricing adjustment. Challenging the same, the Assessee filed its objections before DRP pursuant to which the directions were issued and uploaded on ITBA portal. Even though the directions were received by the Assessee on Apr 6, 2021 by email, the FAO passed the assessment order on Aug 31, 2023.
After considering the submission, the Bench reiterated that Section 144C is a self-contained provision and if the provisions of Section 144C as mandated by the Statute are not strictly adhered the entire object of providing for an alternate redressal mechanism in the form of DRP stand defeated.
“That is not the intention of the legislature when the provision was introduced in the Act. Section 144C(10) of the Act provide that the directions of DRP are binding on the AO. By failing to pass any order in terms of the provision, the AO cannot be permitted to defeat the entire exercise and render the same futile”, added the Bench.
The Bench therefore clarified that when a Statute prescribes the power to do a certain thing in a certain way, then the thing must be done in that way and other methods of performance are forbidden.
The Bench also find it unbelievable that FAO received DRP directions two years after being uploaded on the ITBA portal, and reiterated that the moment the Assessing Officer receives the directions under Sub-section (5), he has to straightaway complete the assessment and he does not even have to hear the assessee.
The Assessing Officer shall simply comply with the directions received from the DRP within one month from the end of the month in which such directions is received, added the Bench.
Thus, the High Court held that once the E-assessment Centre is in receipt of the DRP directions, the period of limitation runs from that day.
Lastly, the High Court also ordered for strict action against persons responsible for the laxity and lethargy displayed which has caused a huge loss to the exchequer and in turn to the citizens of this country.
Cause Title: Vodafone Idea Limited v. Central Processing Centre and Ors. [Neutral Citation: 2023: BHC-OS:13305-DB]
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