Bombay High Court

Classic Legends Private Limited vs Assessment Unit, National Faceless ... on 9 September, 2025

Author: B. P. Colabawalla

Bench: B. P. Colabawalla

2025:BHC-OS:15225-DB


                                                                                           11.wpl.14748.24.doc



                                   IN THE HIGH COURT OF JUDICATURE AT BOMBAY
                                          ORDINARY ORIGINAL CIVIL JURISDICTION
                                              WRIT PETITION (L) NO. 14748 OF 2025


                       Classic Legends Pvt Ltd                                               .. Petitioner

                                 Versus

                       Assessment Unit & Ors                                                 .. Respondents

                            Mr.Jehangir D. Mistry, Senior Advocate, with Mr. Devendra
                            jain, Shashank Mehta i/b Kashyap Chothani, Advocates for the
                            Petitioner.

                            Mr.Akhileshwar Sharma, Advocates for the Respondent.



                                          CORAM: B. P. COLABAWALLA &
     ANJALI by
            Digitally signed
               ANJALI
     TUSHAR TUSHAR     ASWALE
            Date: 2025.09.16
     ASWALE 11:40:53 +0530                                 AMIT S. JAMSANDEKAR, JJ.
                                          DATE:                SEPTEMBER 9, 2025


                       ORAL JUDGMENT (Per B. P. Colabawalla, J.)

1. Rule. Respondents waive service. With the consent of the parties,

Rule made returnable forthwith and heard finally.

2. The above Writ Petition is filed seeking to quash and set aside

the impugned Draft Assessment Order dated 8 th March 2025 passed under

Section 144C and the Final Assessment Order dated 7 th April 2025 passed

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under Section 143 (3) read with Section 144C and Section 144B of the Income

Tax Act, 1961 ("for short "I. T. Act"). Consequently, the Demand Notice

issued under Section 156 as well as the Show Cause Notice issued for

imposing penalty under Section 270A and Section 271AAC are also

impugned.

3. The short ground on which all these orders and notices are

impugned is that the Assessing Officer has wrongly invoked the provisions of

Section 144C which relate to a reference to the Dispute Resolution Panel.

According to the Petitioner, in the facts of the present case, initially the

Assessing Officer had made a reference to the Transfer Pricing Officer

("TPO") under Section 92CA of the I. T. Act. Pursuant to this reference, the

TPO issued notices to the Petitioner and thereafter passed an order under

Section 92CA(3) accepting that the international transactions entered into by

the Petitioner with its Associated Enterprises were at an Arms Length Price.

In other words, the TPO made no variation. According to the Petitioner, by

virtue of the definition of the words "eligible assessee" appearing in Section

144C(15), the Petitioner could never fall within the aforesaid definition

because the TPO never made any variation. Since no variation was made,

there was no occasion for the Assessing Officer to pass any Draft Assessment

Order and thereafter serve it upon the Petitioner. In other words, the

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Assessing Officer ought to have passed his Assessment Order under Section

143 (3) without invoking the provisions of Section 144C of the I. T. Act.

4. On the other hand, in the affidavit in reply dated 14 th August

2025 filed by the Revenue, it is contention of the Revenue that it is totally

incorrect to submit that the Draft Assessment Order as well as the Final

Assessment Order passed under the provisions of Section 144C read with

Section 143 (3) are without jurisdiction. Though the Revenue admits that the

TPO did not propose any variation, it contends that this would not mean that

the Assessing Officer was powerless to issue a Draft Assessment Order under

Section 144C. According to the Revenue, the Petitioner puts a very restrictive

meaning to the words "eligible assessee" when infact a broader meaning has

to be given which would include all Assessees where a reference to the TPO is

made by the Assessing Officer proposing a variation to the income declared

by the Assessee. As the meaning of income includes loss, similar meaning of

"variation" would also include "no variation" by the TPO, is the submission of

the Revenue.

5. We have heard the learned counsel for the parties at length and

we have also perused the papers and proceedings in the above Writ Petition.

The short question that falls for consideration in the present Petition is really

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whether the Petitioner is an "eligible assessee". Section 144C provides for a

detailed procedure to be followed in cases where any variation in income or

loss returned, which is prejudicial to the interest of an assessee, occurs on

account of a reference made under Section 92CA of the I. T. Act. The relevant

portion of Section 144C is reproduced hereinbelow:-

"144C (1):The Assessing Officer shall, notwithstanding anything to the contrary contained in this Act, in the first instance, forward a draft of the proposed order of assessment (hereafter in this section referred to as the draft order) to the eligible assessee if he proposes to make, on or after the 1st day of October, 2009, any variation [***] which is prejudicial to the interest of such assessee.

                                          *********

               (15)        For the purposes of this section,-

(a) "Dispute Resolution Panel" means a collegium comprising of three [Principal Commissioner or] Commissioners of Income-tax Constituted by the Board for this purpose.

(b)"eligible assessee" means,-

(i) any person in whose case the variation referred to in sub-section (1) arises as a consequence of the order of the Transfer Pricing Officer passed under sub-section (3) of section 92CA; and

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(ii)any non-resident not being a company, or any foreign company:]

[Provided that such eligible assessee shall not include person referred to in sub-section (1) of section 158BA or other person other person referred to in section 158BD.]"

(emphasis supplied)

6. In the facts of the present case, it is not in dispute that the

Petitioner is not a non-resident or a foreign company as contemplated under

Section 144C (15) (b)(ii). The question is whether the Petitioner would fall

within the definition of "eligible assessee" as contemplated under Section

144C (15) (b) (i). On a plain reading of the said provision, the Petitioner can

be stated to be an "eligible assessee" only if there is a case of variation

referred to in the said sub-section 1 and which arises as a consequence of the

order passed by the TPO under sub-section 3 of Section 92CA. In the facts of

the present case, it is an admitted position that there was no variation in the

income of the Petitioner by virtue of the order of the TPO. That being the

position, the Petitioner cannot be stated to be an "eligible assessee" as

defined in clause (b) of sub-section 15 of Section 144C of the I. T. Act. Once

this is the case, the entire procedure for issuance of a draft order calling for

the Petitioner's objections thereon and taking further steps as laid down

under Section 144C would, therefore, not apply.

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7. We are unable to agree with the contention of the Revenue that

the word "variation" appearing in Section 144C(1) and 144C(15) would also

include "no variation". This is clear from Section 144C(1) itself which

categorically states that the Assessing Officer would have to forward a draft

assessment order to the "eligible assesee", if he proposes to make, on or after

1st October 2009, any variation which is prejudicial to the interest of such

Assessee. When there is no variation, there is no question of any prejudice

being caused to the Assessee which would then entail him to file any

objections to the Draft Order as contemplated under sub-section 2 of Section

144C. We, therefore, find that the arguments canvassed by the Revenue on

this aspect is contrary to the statutory provisions.

8. In the view that we take, we are supported by a decision of the

Hon'ble Gujarat High Court in the case of Pankaj Extrusion Ltd v/s

Assistant Commissioner of Income-tax (OSD) [2011] 10

taxmann.com 17 (Gujarat). The relevant portion of this decision reads

thus:-

"5. Short question that calls for consideration in the present petition is whether the petitioner is an "eligible assessee".

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6. Section 144C provides for a detailed procedure to be followed in cases where any variation in income or Loss returned which is prejudicial to the interest of an assessee occurs on account of reference made in section 92CA of the Act. Relevant portion of section 144C is reproduced here-in-below :

"144C.Reference to Dispute Resolution Panel.-(1) The Assessing Officer shall, notwithstanding anything to the contrary contained in this Act, in the first instance, forward a draft of the proposed order of assessment (hereafter in this section referred to as the draft order) to the eligible assessee if he proposes to make, on or after the 1st day of October, 2009, any variation in the income or loss returned which is prejudicial to the interest of such assessee.

15. For the purposes of this section,--

(b )"eligible assessee" means,--

(i) any person in whose case the variation referred to in sub-section (1) arises as consequence of the order of the Transfer Pricing Officer passed under sub-section (3) of section 92CA; and

(ii) any foreign company."

7. Plain reading of clause (b) of sub-section (15) of section 144C would show that an assessee can be stated to be an eligible assessee as referred to in sub- section (1) of section 144C in whose case variation referred to in the said sub-section arises as a consequence of order of Transfer Pricing Officer passed under sub-section (3) of section 92CA. We have

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been taken through the order passed by the Assistant Commissioner of Income-tax dated 29-9-2010, wherein it is held as under:

"3.The assessee is engaged in the business of manufacture of Aluminium Profiles. The details of international transactions in terms of section 92B of the Act between the assessee and its Associate Enterprise are given in Form 3CEB. Relevant details regarding international transactions were produced by the assessee and are kept on record. After discussion and based on records produced, no adjustment is being made to the arm's length price of the transactions." (Emphasis supplied)

8. From the above, it is clear that for assessment year relevant for our purpose, on account of procedure undertaken in section 92CA of the Act, there was no variation in the income by virtue of order of Transfer Pricing Officer. That being the position, the petitioner cannot be stated to be an eligible assessee as defined in clause (b) of sub-section (15) of section 144C of the Act. Procedure for issuance of draft order calling for his objection and taking further steps as laid down under section 144C therefore, would not apply."

(emphasis supplied)

9. The decision of the Hon'ble Gujarat High Court in Pankaj

Extrusion (supra) was thereafter also followed by the Hon'ble Delhi High

Court in the case of Honda Cars India Ltd v/s Deputy Commissioner

of Income-tax [2016] 67 taxmann.com 29 (Delhi). The relevant

portion of the Hon'ble Delhi High Court judgment reads thus:-

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"8. A reading of Section 144C(1) of the Act 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".

9. Section 144C(15)(b) of the Act defines an "eligible assessee" to mean (i) any person in whose case the variation referred to in sub-section (1) arises as a consequence of the order of the Transfer Pricing Officer passed under section 92CA(3); and (ii) any foreign company.

10. The Supreme Court in P. Kasilingam v. P.S.G. College of Technology 1995 (Suppl) 2 SCC 348 has held that the use of word "means" indicates that the definition is a hard and fast definition and no other meaning can be assigned to the expression than is put down in the definition.

11. In Section 144C(15)(b) of the Act, the term "eligible assessee" is followed by an expression "means" only and there are two categories referred therein (i) any person in whose case the variation arises as a consequence of an order of the Transfer Pricing Officer and (ii) any foreign company. The use of the word "means" indicates that the definition "eligible assessee" for the purposes of Section 144(C)(15)(b) is a hard and fast definition and can only be applicable in the above two categories.

12. First of all, the petitioner is admittedly not a foreign Company.

Secondly, the Transfer Pricing Officer has not proposed any variation to the return filed by the petitioner. The consequence of this is that 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. In view of the which, neither of the two conditions are satisfied in the case of the petitioner and thus the petitioner for the purposes of Section 144C(15)(b) is not an "eligible assessee".

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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 under Section 144C(1).

***********

14. In view of the above, it is clear that the petitioner, not being an "eligible assessee" in terms of Section 144C(15)(b) of the Act, the Assessing Officer was not competent to pass the draft assessment order under Section 144C(1) of the Act. The draft assessment order dated 31.03.2015 is accordingly quashed."

(emphasis supplied)

10. In view of the above discussion, it is clear that the Petitioner in

the present case, not being an "eligible assessee" in terms of Section

144C15(b) of the I. T. Act, the Assessing Officer was not competent to pass the

Draft Assessment Order under Section 144C(1) of the I. T. Act. Consequently,

there was no occasion for him to thereafter pass a Final Assessment Order

under Section 143 (3) read with Section 144C (3) read with Section 144B of

the I. T. Act. Accordingly, the Draft Assessment Order dated 8 th March 2025;

the Final Assessment Order dated 7th April 2025 and the Demand Notice

dated 7th April 2025 as well as the Show Cause Notices dated 7 th April 2025

seeking to impose penalty, are all hereby quashed and set aside.

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