Once TPO Passed Order, AO Obliged To Pass An Assessment Order In Accordance With Section 92CA(4): Delhi High Court

The Delhi High Court has held that once the Transfer Pricing Officer (TPO) had proceeded to pass the order of October 17, 2017, all that the AO was obliged to do was pass an assessment order in accordance with the procedure prescribed in Section 92CA(4) of the Income Tax Act.

“The prescription of nine months would also be applicable to a fresh order that is liable to be made in accordance with Section 92CA of the Act. This is since Section 153 of the Act speaks not merely of assessments but also of orders that are liable to be framed under Section 92CA. The order which is spoken of in Section 92CA of the Act, as explained above, is the one which the TPO may come to make in accordance with sub-section (3) thereof. It is thus manifest that the assessment exercise was liable to be concluded within a period of nine months when computed from July 14, 2017,” the bench of Justice Yashwant Varma and Justice Purushaindra Kumar Kaurav observed.

As per Section 92CA, on receipt of the order, the Assessing Officer shall proceed to compute the total income of the assessee under sub-section (4) of Section 92C, having regard to the arm's length price determined under sub-section (3) by the Transfer Pricing Officer.

The writ petitioner has challenged the order of the Dispute Resolution Panel and has negated its objections to the draft assessment order framed on March 31, 2013. The draft assessment order came to be made pursuant to an order made by the Transfer Pricing Officer2 on October 29, 2019. The petitioner appears to have contended before the DRP that the reference to the TPO essentially amounted to a second reference made to purportedly give effect to the order of the Income Tax Appellate Tribunal3 dated July 14, 2017. This was so urged since the TPO had earlier framed an order dated October 17, 2017 to give effect to the aforenoted order of the ITAT.

Although the TPO had framed an order on October 17, 2017, the record would reflect that no corresponding order as envisaged under Section 92CA(4) of the Income Tax Act, 1961 was framed. The petitioner had urged for the consideration of the DRP that the reference made on December 27, 2018 and the consequential order framed by the TPO seeking to give effect to the original order of the ITAT were clearly barred by the prescription of limitation as embodied in Section 153(3).

The petitioners had argued that the period of nine months, when computed from the passing of the order of the ITAT, would have come to an end on December 31, 2018. It was in the aforesaid light that it was urged that there was no authority, which inhered in the Assessing Officer, to pass further orders referable to Section 92CA(4).

The DRP, however, refused to entertain the objection of limitation, noting that Section 144C(8) restricts its jurisdiction to confirming, reducing, or enhancing the variations proposed in the draft order. It essentially appears to have taken the position that a jurisdictional challenge, when raised by way of an objection under Section 144C(2), could not be entertained by it. It is aggrieved by the action that the writ petition has taken to be instituted.

The petitioner contended that the respondents had not challenged the order dated July 14, 2017 insofar as it pertained to the reference made to the TPO, thus consequently being disentitled to assail or question the correctness of the procedure as adopted by the ITAT in making that reference. As is well settled in law, neither the AO nor the TPO can possibly be recognized to have the authority to act contrary to the terms of the remand as the ITAT may choose to frame.

The department contended that it is only when a final assessment order in accordance with the direction of the DRP comes to be framed that an assessee could be recognized to have a right to assail the action of the respondents or take recourse to a legal remedy. The adjudication of objections by the DRP is only a step in aid of assessment in the case of an eligible assessee and does not result in the creation of a liability. A tax liability would arise only once a final assessment order is passed, which is appealable before the ITAT.

The court held that since the contingency is already provisioned for in sub-section (3), there would be no justification for such an order of the ITAT being placed or viewed as traceable to sub-section (4) of Section 153 of the Act.

The court allowed the writ petition and held that the respondent stands barred in law from passing any further orders of final assessment pertaining to AY 2009–10.

Counsel For Petitioner: Sachit Jolly

Counsel For Respondent: Zoheb Hossain

Case Title: New Delhi Television Limited Versus Dispute Resolution Panel 2 & Anr

Citation: 2024 LiveLaw (Del) 633

Case No.: W.P.(C) 2322/2021

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