Assessment – International transactions – Section 144C mandatory – Assessment order passed without following procedure laid down in section 144C – Not a procedural irregularity – Section 292B not applicable – Order not valid

Assessment – International transactions – Section 144C mandatory – Assessment order passed without following procedure laid down in section 144C – Not a procedural irregularity – Section 292B not applicable – Order not valid

The petitioner is an Indian company incorporated under the Companies Act, 1956. It is a part of the SHL Group, United Kingdom, and primarily a trading entity that provides SHL products (psychometric test), assessment, consultancy and training services (‘SHL Solutions’) to clients in India in various industries. The petitioner had filed the return of income on 30th March, 2018 declaring a total income of Rs. 1,01,31,750. Its case is that during the A.Y. 2017-18 it had entered into an international transaction with its associated enterprise (the ‘AE’) whereby it was granted a licence to market, distribute and deliver the SHL Solutions to clients in India from its associated enterprise, for which the petitioner made payments towards support services charges incurred by the associated enterprise. It submitted that along with the return of income filed for the said year, in view of the various international transactions with the associated enterprise, Form 3CEB was filed along with the return of income.

The petitioner’s case was selected under the computer-aided scrutiny selection (CASS) pursuant to which, on 5th September, 2018 a notice was issued u/s 143(2). Thereafter, on 6th August, 2019, a reference was made to the Transfer Pricing Officer (TPO) by the first respondent. A notice was issued on 16th August, 2019 by the TPO and an order dated 29th January, 2021 was passed by the TPO proposing transfer pricing adjustments of Rs. 10,74,54,337 considered as Nil by the petitioner. On 10th March, 2021, the second respondent, viz., National e-Assessment Centre, Delhi requested the petitioner to provide rebuttal to the proposed adjustments to the arm’s length price made by the TPO. On 15th March, 2021, the petitioner filed a reply and on 6th April, 2021, a final assessment order was passed u/s 143(3) read with sections 143(3A) and 143(3B), determining the total income at Rs. 11,75,86,087. A notice of demand for Rs. 1,17,60,810 was also issued. A notice initiating penalty proceedings also came to be issued u/s 274 read with section 270A.

The assessee filed a writ petition and challenged the order and the notices. The Bombay High Court allowed the writ petition and held as under:

‘i) Section 144C(1) is a non obstante provision, which requires its compliance irrespective of the other provisions that may be contained in the Act. The requirement u/s 144C(1) to first pass a draft assessment order and to provide a copy thereof to the assessee is a mandatory requirement which gives a substantive right to the assessee to object to any variation that is prejudicial to it. The procedure prescribed u/s 144C is a mandatory procedure and not directory. Failure to follow the procedure would be a jurisdictional error and not merely a procedural error or irregularity but a breach of a mandatory provision. Therefore, section 292B cannot save an order passed in breach of the provisions of section 144C(1), the same being an incurable illegality.

ii) The assessee was an eligible assessee and there was no dispute as to the applicability of section 144C. It was also not in dispute that the final assessment order had been passed without the draft assessment order as contemplated u/s 144C(1). The order was not valid.’