Introduction

The case of Tevapharm India Pvt. Ltd. v. Acit Special Range-9 New Delhi adjudicated by the Income Tax Appellate Tribunal (ITAT) on February 16, 2018, brings to the forefront significant procedural aspects under the Income Tax Act, specifically concerning transfer pricing adjustments and the issuance of draft assessment orders. The appellant, Tevapharm India Pvt. Ltd., contested the final assessment order for the assessment year 2012-13, challenging the manner in which the Assessing Officer (AO) handled the transfer pricing adjustments and the subsequent assessment process.

Summary of the Judgment

The appellant contended that the final assessment order issued by the AO was ex-facie illegal, null, and void as it bypassed the mandatory procedure of forwarding a draft assessment order under Section 144C of the Income Tax Act. The AO had made significant upward adjustments based on transfer pricing in various segments without issuing a draft for the appellant’s review and objection. The Tribunal, considering the precedents and statutory provisions, found the final assessment order to lack jurisdiction and dismissed the appellant's case as non-maintainable before the Tribunal. The decision emphasized adherence to procedural mandates, directing the appellant to seek remediation through appropriate appellate authorities.

Analysis

Precedents Cited

The Judgment extensively referenced several key precedents that underscore the mandatory nature of procedural compliance under Section 144C:

• Turner International India Private Ltd. v. DCIT: Affirmed that failure to issue a draft assessment order under Section 144C results in the nullification of the final assessment order.
• Zuari Cement Ltd. v. ACIT: The Andhra Pradesh High Court held that neglecting to pass a draft assessment order renders the final order unenforceable.
• Vijay Television (P) Ltd. v. Dispute Resolution Panel: Highlighted that corrigenda issued post-final assessment order are invalid if procedural norms were not followed initially.
• International Air Transport Association v. DCIT: Reinforced that non-compliance with Section 144C procedures invalidates assessment orders.
• C-Sam (India): The Gujarat High Court emphasized that procedural steps under Section 144C are of substantive importance and not mere formalities.

These precedents collectively establish a robust judicial stance that procedural integrity under Section 144C is paramount and non-negotiable.

Legal Reasoning

The Tribunal's legal reasoning hinged on the explicit requirements of Section 144C, which mandates the AO to issue a draft assessment order before finalizing any adjustments. The appellant's failure to receive a draft order deprived them of the opportunity to object within the stipulated timeframe, thus violating procedural fairness. The Tribunal scrutinized the AO's actions post-remand, noting that the AO bypassed the draft order phase entirely, directly issuing a final order. Citing the aforementioned precedents, the Tribunal concluded that such an omission constitutes an incurable illegality, rendering the final order void ab initio.

Impact

This Judgment reinforces the necessity for strict adherence to procedural mandates under the Income Tax Act, particularly Section 144C concerning transfer pricing adjustments. It serves as a cautionary tale for Assessing Officers to meticulously follow statutory procedures to avoid the nullification of assessment orders. Furthermore, it delineates the appellate hierarchy, clarifying that appeals against such procedural lapses should be directed to the Commissioner of Income Tax (Appeals) rather than the Tribunal. This decision is poised to influence future assessments and appeals, ensuring that procedural compliance is not overlooked in tax administration.

Complex Concepts Simplified

• Section 144C of the Income Tax Act: A provision dealing with transfer pricing adjustments where the Assessing Officer determines the arm's length price (ALP) for international transactions to ensure that the transactions are conducted fairly and at market rates.
• Draft Assessment Order: A preliminary version of the assessment that is sent to the taxpayer, allowing them to review and object to any proposed adjustments before the final order is issued.
• Dispute Resolution Panel (DRP): An authority that reviews objections raised by taxpayers against transfer pricing adjustments and provides directions to the Assessing Officer.
• Remand: When a higher authority, such as the Tribunal, sends back a case to the lower authority (AO/TPO) for further action or reconsideration.
• Ex-facie Illegal: A legal term indicating that something is inherently illegal or null without the need for further examination.

These simplified explanations aim to demystify the legal jargon used in the Judgment, making the procedural intricacies more accessible to a broader audience.

Conclusion

The Tribunal's decision in Tevapharm v. ACIT underscores the non-negotiable nature of procedural compliance within the Income Tax Act, particularly concerning transfer pricing assessments under Section 144C. By mandating the issuance of a draft assessment order, the judgment ensures that taxpayers are afforded due process, allowing them an opportunity to contest and rectify potential discrepancies before finalization. This ruling not only upholds the principles of fairness and transparency in tax administration but also delineates clear appellate pathways for grievances arising from procedural lapses. Consequently, this Judgment stands as a pivotal reference point for future cases, reinforcing the judiciary's commitment to upholding statutory mandates and protecting taxpayer rights.