Precedents Cited

The judgment extensively referenced pivotal cases that shaped the interpretation of Section 144C:

• Vijay Television Ltd. v. DRP [2014] 46 taxmann.com 100 (Madras High Court): This case established that non-compliance with Section 144C is not a curable defect and renders the assessment order illegal.
• Zuari Cements Ltd. v. ACIT (Andhra Pradesh High Court): Reinforced the stance taken in Vijay Television, affirming that procedural lapses under Section 144C cannot be overlooked.
• ESPN Star Sports Mauritius S.N.C. Et Compagnie v. Union of India and Another [2016] 388 ITR 383 (Delhi High Court): While not directly on point, this case was referenced to emphasize that Assessing Officers must comply with the Dispute Resolution Panel's (DRP) directions, further illustrating the binding nature of procedural mandates.

These precedents collectively reinforced the judiciary's commitment to ensuring that procedural safeguards under the Income Tax Act are strictly adhered to, thereby safeguarding the assessee's rights.

Legal Reasoning

The Court meticulously dissected the statutory provisions of Section 144C, highlighting their non-obstinate nature, which mandates compliance "notwithstanding anything to the contrary contained in the Act." This clause underscores the supremacy of the procedural requirements over any conflicting statutory provisions. The Court reasoned that the Assessing Officer's deviation from the prescribed procedure nullified the assessment order, rendering it illegal.

Furthermore, the Court addressed the Revenue’s argument that non-compliance was a curable defect. By analyzing the legislative intent behind Section 144C, the Court determined that the procedure was designed to provide the assessee with substantive rights, not merely procedural safeguards. The failure to follow these protocols could not be excused as a minor oversight, especially in the context of transfer pricing where the stakes are significantly higher.

The Court also examined the applicability of the circulars referenced by the Revenue, finding them irrelevant in altering the fundamental mandatory nature of Section 144C. The statutory language provided clear directives, and any discrepancies in circular interpretations did not negate these provisions.

Impact

This judgment has profound implications for future transfer pricing assessments and the broader taxation landscape:

• Strict Adherence to Procedures: Tax authorities must meticulously follow the procedural requirements outlined in Section 144C, failing which their assessment orders can be rendered void.
• Reinforcement of Assessee Rights: The decision reinforces the assessee's right to procedural fairness, ensuring that any variation in income declarations undergoes a transparent and just process.
• Judicial Scrutiny: Courts are likely to continue scrutinizing procedural compliance rigorously, diminishing the scope for authorities to treat procedural missteps as mere formalities.
• Precedential Value: This judgment serves as a precedent, guiding lower tribunals and courts in handling similar cases, thereby promoting consistency in judicial outcomes.

Section 144C of the Income Tax Act

Section 144C outlines the procedure an Assessing Officer must follow when proposing to vary an assessee's declared income or loss under the transfer pricing regime. The key points include:

• Draft Order: The AO must prepare a draft order indicating any proposed variation and share it with the assessee.
• Objection Period: The assessee has 30 days to file objections against the proposed changes.
• Dispute Resolution Panel (DRP): Upon receiving objections, the DRP reviews and issues directions to the AO, which are binding.
• Final Assessment: The AO must finalize the assessment based on the DRP's directions without providing further opportunity for the assessee to be heard.

The essence is to ensure that any increase or decrease in assessed income undergoes a fair and structured review process, safeguarding the assessee's interests.

Natural Justice

Natural justice refers to the fundamental legal principles ensuring fair treatment. In this context, it implies that the assessee is given a genuine opportunity to present their case and challenge any variations in the proposed income declarations. By mandating procedural compliance under Section 144C, the Act ensures that assessments are not arbitrary and that taxpayer rights are upheld.