AO not required to issue draft rectification order for assessment completed u/s 144C

AO not required to issue draft rectification order for assessment completed u/s 144C. Only a proposed “order of assessment” can be challenged before DRP

ABCAUS Case Law Citation:
ABCAUS 3014 (2019) (06) ITAT

Important Case Laws Cited/relied upon by the parties:
CIT Vs C Sam India Pvt Ltd [(2017) 398 ITR 182 (Guj)]
Dimension Data Asia Pacific Pte Ltd Vs DCIT 
S Sankappa Vs ITO [(1968) 68 ITR 760 (SC)]
Karsandas Bhagwandas Patel Vs ITO [(1975) 98 ITR 255 (Guj)]
Arvind N Mafatlal Vs ITO [(1957) 32 ITR 350 (Bom)]

By way of this appeal, the appellant assessee had challenged correctness of the order passed by the respondent Assessing Officer under section 154 r.w.s. 143(3) and 144C of the Income Tax Act, 1961 (the Act).

The assessee had raised objections, against the draft assessment order passed u/s 144C, before the Dispute Resolution Panel (DRP) and as per the DRP directions, the TPO had recomputed the ALP adjustment and held that no adjustment was required. Accordingly, a final assessment order was passed by the Assessing Officer without any ALP adjustment.

Later, The TPO, on a consideration of the material on record, recommended an ALP adjustment. To give effect to this stand of the TPO, the Assessing Officer passed a rectification order order making the said ALP adjustment.

The assessee was aggrieved by the rectification order. The assessee raised an additional ground of appeal, dealing with a fundamental issue, i.e. whether the rectification order could have been at all passed by the respondent Assessing Officer without issuing a draft order first.

The basic stand pf the assessee was that the Assessing Officer ought to have issued a draft rectification order under section 154. It was submitted that the rectifications proceedings u/s 154 are nothing but an extension of the assessment proceedings, and what holds good for the assessment proceedings must hold good in this context as well.

In support of his contentions, the assessee relied upon a large number of judicial precedents.

The Tribunal observed that section 253(1)(d) clearly provides that “an order passed by an Assessing Officer under sub-section (3), of section 143 or section 147 or section 153A or section 153C in pursuance of the directions of the Dispute Resolution Panel or an order passed under section 154 in respect of such order” is appealable before this Tribunal. The scheme of the Act is unambiguous. Once the DRP has given its directions, the order passed in pursuance of such directions, or rectification order in respect thereof, can only be appealed before the Tribunal.

The Tribunal opined that whether the directions of the DRP have been correctly implemented or not cannot, at any stage, be challenged before the DRP, unlike, for example, the situations with respect to the appellate authorities. What can be challenged before the DRP under section 144C is only a proposed “order of assessment”.

Regarding the observations made by Hon’ble Supreme Court/High Courts to the effect that a rectification order is also an order of assessment, the Tribunal distinguished them as being made in a materially different context.

The Tribunal opined that once the DRP gives the directions in respect of a particular assessment, it is functus officio and one can not go back to the DRP for grievance against the proper effect not being given to the DRP directions. As the law specifically provides, the order giving effect to these directions, as also orders under section 154 in respect of such order, can only be appealed in the Income Tax Appellate Tribunal.

Accordingly, the dismissed plea of the assessee on this count and held that the Assessing Officer was not required to issue a draft order for rectifying the mistake apparent on record under section 154.

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