Honda Cars India Ltd. vs. Dy. CIT; [2016] 67 taxmann. com 29 (Delhi)
The petitioner, an Indian company, was engaged in the business of manufacture and sale of passenger cars. It was a subsidiary company of Japanese company. It purchased raw material, spare parts, capital goods etc. from Honda Japan and cars were manufactured in India under the technical collaboration agreements and paid royalty. On reference, the TPO passed an order u/s. 92CA(3), but no variation was proposed to the returned income of the petitioner. However, the Assessing Officer passed the impugned draft assessment order u/s. 144C and made disallowance u/s. 40(a)(i) in respect of payments made by the petitioner to non-resident associated enterprise for non-deduction of TDS u/s. 195.
The Delhi High Court allowed the writ petition filed by the assessee and held as under:
“i) A reading of section 144C(1) shows that the Assessing Officer, in the first instance, is to forward a draft of the proposed order of assessment to the ‘eligible assessee’, if he proposes to make any variation in the income or loss return which is prejudicial to the interest of such assessee. The draft assessment order is to be forwarded to an ‘eligible assessee’ which means that for the section to apply a person has to be an ‘eligible assessee’.
ii) Section 144C(15)(b) defines an ‘eligible assessee’ to mean (i) any person in whose case the variation referred to in s/s. (1) arises as a consequence of the order of the Transfer Pricing Officer passed u/s. 92CA(3); and (ii) any foreign company.
iii) In section 144C(15)(b), the term ‘eligible assessee’ is followed by an expression ‘means’ only and there are two categories referred therein. The use of the word ‘means’ indicates that the definition of ‘eligible assessee’ for the purposes of section 144C(15)(b) is a hard and fast definition and can only be applicable in the above two categories.
iv) First of all, the petitioner is not a foreign company and the Transfer Pricing Officer has not proposed any variation to the return filed by the petitioner. The Assessing Officer cannot propose an order of assessment that is at variance in the income or loss return. The Transfer Pricing Officer has accepted the return filed by the petitioner. Neither of the two conditions being satisfied in the case of the petitioner, the petitioner for the purposes of section 144C(15) (b) is not an eligible assessee. Since the petitioner is not an eligible assessee in terms of section 144C(15) (b), no draft order can be passed in the case of the petitioner u/s. 144C(1).
v) In view of the above, it is clear that the petitioner, not being an ‘eligible assessee’ in terms of section 144C(15)(b), the Assessing Officer was not competent to pass the draft assessment order u/s. 144C(1). The draft assessment order dated 31-3-2015 is accordingly quashed.”
