Madras High Court
M/S.Enfinity Solar Solutions Pvt Ltd vs The Deputy Commissioner Of Income Tax on 24 June, 2025
W.A.No.2006 of 2022
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 24.06.2025
CORAM :
THE HON'BLE MR.K.R.SHRIRAM, CHIEF JUSTICE
AND
THE HON'BLE MR.JUSTICE SUNDER MOHAN
W.A.No.2006 of 2022
and C.M.P.No.14988 of 2022
M/s.Enfinity Solar Solutions Pvt Ltd
Rep by its Director
Mr.Guy Philemon Roger Baeyens,
No.55, Teachers Colony,
Venkatarathnam Nagar, Chennai-20. … Appellant
Vs
The Deputy Commissioner of Income Tax
Corporate Circle-2(1)
R.No.511, Wanaparthy Block,
121, Mahatma Gandhi Road,
Nungambakkam,
Chennai-600 034. … Respondent
Prayer: Appeal filed under Clause 15 of the Letters Patent against the order
dated 21.06.2021 passed by the learned Single Judge in W.P.No.31165 of
2018.
For Appellant : Mr.Veerapathiran Prasanth
For M/s.R.Sivaraman
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W.A.No.2006 of 2022
For Respondent : Mr.B.Ramanakumar
JUDGMENT
(Delivered by the Hon'ble Sunder Mohan J.)
The Writ appeal impugns the order dated 21.06.2021 passed by the
learned Single Judge, dismissing a petition seeking quashing of the
assessment order dated 01.11.2018 issued under Section 143 (3) read with
Section 254 of the Income Tax Act, 1961 [hereinafter referred to as 'Act'].
2. The writ appeal arises under the following circumstances
(a) Appellant/assessee is a private limited company engaged in the
business of development and sale of integrated solar installations and other
related services for solar power installations.
(b) They filed return of income for assessment year 2012-13 on
28.11.2012. The return was duly processed under Section 143(1) of the
Act and the same was selected for scrutiny under Section 143(2) of the Act.
Since appellant had international transactions with its associated
enterprises, the case was transferred to the Transfer Pricing Officer
[hereinafter referred to as 'TPO'] under Section 92CA of the Act for
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determining the Arm's Length Price.
(c) On 29.01.2016, TPO made an adjustment to the Arm's Length
Price of the international transactions undertaken by appellant amounting
to Rs.7,03,16,975/-. Pursuant to the same, a Draft Assessment Order was
passed on 31.03.2016. Appellant company filed its objections before the
Dispute Resolution Panel [hereinafter referred to as the 'DRP'], Bangalore.
DRP in addition to the adjustments made by TPO had proposed additional
adjustments and directed TPO to re-compute the Arm's Length Price.
(d) Consequent to the directions of DRP, the TPO, vide order dated
20.12.2016, reworked the downward adjustment to the International
Transaction with the associated enterprises at Rs.20,67,02,931/- instead of
the original adjustment determined at Rs.7,03,16,975/-.
(e) Accordingly, Assessing Officer [hereinafter referred to as 'AO']
issued the final Assessment Order on 25.12.2016 under Section 143 (3) r/w
Section 144C(13) adding Rs.20,67,02,931/- to the income of assessee.
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(f) Appellant preferred an appeal before the Income Tax Appellate
Tribunal [hereinafter referred to as 'ITAT'], Chennai. ITAT remanded the
issue to TPO to apply the appropriate method for determining the Arm's
Length Price and also to see whether the associated enterprises had
derived any benefit or mark up on the price charged by the vendor for the
supply of raw materials to assessee's associated enterprises.
(g) TPO by the order dated 27.10.2018 determined the Arm's Length
Price of International Transactions with respect to purchase of materials at
Rs.24,02,00,735/- and made a downward adjustment of Rs.4,60,88,405/-.
(h) AO passed a final order dated 01.11.2018 assessing the income at
Rs.7,59,10,281/-.
(i) Appellant filed writ petition in WP No.31165 of 2018 challenging
the said assessment order, inter alia, on the ground that it was not
preceded by a Draft Assessment Order as mandated under Section 144C(1)
of the Act.
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(j) The learned Single Judge observed that the matter was remanded
by ITAT only to apply the appropriate method for assessing the Arm's
Length Price and also to see whether assessee derived any benefit or mark
up on the price charged by the vendor for the supply of raw materials to
assessee's associated enterprises and held that there was no necessity for
passing of a Draft Assessment Order. The learned Judge therefore,
dismissed the writ petition. Aggrieved by the same, instant Writ appeal is
filed.
3. Mr.K.Veerabathiran Prasanth, learned counsel for
appellant/assessee submitted that the issue is covered by several judgments
of this Court and that of Bombay High Court and submitted that even if the
proceedings are remanded to AO, he should scrupulously follow the
provisions under Section 144C of the Act, as assessee would lose his right of
having his case examined by DRP, if no draft assessment order is passed.
4. Learned counsel relied upon a judgment of Delhi High Court in
JCB India Ltd., v. Deputy Commissioner of Income-Tax1 and judgment of
1 (2017) 85 taxmann.com 155
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the Bombay High Court in CWT India (P.) Ltd. v. Assistant
Commissioner of Income-tax1 .
5. Mr.B.Ramanakumar, learned Standing counsel for the revenue per
contra submitted that since the remand was to decide a particular issue, it
was not necessary for AO to once again follow the procedure prescribed
under Section 144C of the Act and therefore, the non issuance of Draft
Assessment Order would not render the assessment order invalid. He
further submitted that assessee had a right to challenge the assessment
order if it is aggrieved and hence, the learned Single Judge was justified in
dismissing the writ petition.
6. ITAT, while remanding the matter to AO, had observed as follows:
“...In view of this, in the interest of justice, we remit
the issue regarding application of the method whether the
CUP Method or TNMM as a most appropriate method, to the
file of AO to see whether the AE derived any benefit or mark
up on the price charged by the vendor for supply of raw
materials to assessee's AE, which it has sold to assessee.
With this observation, we remit the present issue for
selection of appropriate method to the AO for fresh
consideration. Since we have remitted the issue regarding
selection of most appropriate method by the AO/TPO, at this
state it is too premature to decide any other issues raised by
1 (2023) 155 taxmann.com 450
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the assessee. Further, we make it clear that the assessee is at
liberty to raise any other grounds in support of the claim of
asessee in this case.”
7. By the aforesaid order, ITAT had not only remitted the issue
regarding selection of most appropriate method, but also had given liberty
to assessee to raise any other grounds in support of its claim. Thus, by this
remand, ITAT had directed AO/TPO to consider all issues afresh.
Therefore, in effect, the earlier draft assessment order ceased to exist. On
fresh consideration, if AO makes a variation which is prejudicial to the
interest of assessee, the procedure provided in Section 144C(1) of the Act
would take effect. AO, therefore, is bound to forward draft assessment
order to enable the assessee to either accept the variations or file its
objections to the variations with DRP and AO.
8. In our view, it would make no difference whether variation was
made by AO at the first instance or pursuant to a remand by ITAT as
regards the requirement to follow the procedure prescribed under Section
144C of the Act. Any other interpretation would be opposed to the
consistent view taken by the Courts with regard to the interpretation of
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these provisions.
9. In a similar case, where the tribunal had set aside the Transfer
Pricing adjustments and remanded the matter to AO/TPO, for de novo
consideration, the Bombay High Court in CWT India Limited's case
(supra), in which one of us [the Hon'ble Chief Justice] was a member, held
that the failure to forward the draft assessment order would render the
assessment order invalid. The relevant portion of the said judgment reads
as follows:
“7. It is clear that the AO shall, in the first instance, forward a
draft of the proposed order of assessment to the eligible assessee if he
proposes to make any variation is prejudicial to the interest of such
assessee. Certainly there is a variation in the assessment order different
from what was filed in the return of income and since it is by way of an
addition made, the variation is prejudicial to the interest of Petitioner.
In Andrew Telecommunications Private Limited (Supra) also the facts
were identical. The Court relying on the judgments in the case of
International Air Transport Association v. Deputy Commissioner of
Income-tax 3 of this Court and in the case of Zuari Cement Ltd v ACIT 4
of the Division Bench of the Hon'ble Andra Pradesh High Court has held
that 'the failure to pass a draft assessment order under Section 144C(1)
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of the Act would result in rendering the final assessment as one without
jurisdiction." Paragraphs 9,14,17 and 20 of Andrew
Telecommunications (Supra) read as under:
"9. The matter was sent back to the Transfer Pricing
Officer who gave hearing to the Assessee and passed a fresh
order on 30th January 2014. Thereafter, the Assessing
Officer, without issuing any draft assessment order,
proceeded to pass an order on 2nd February 2015. The
Assessee challenged the said order before the Commissioner
of Income Tax (Appeals) and the appeal was partly allowed
by the commissioner of Income Tax (Appeals) by order dated
13th March 2015. As against this order, the Revenue filed the
Income Tax Appeal No. 271/2015 before the Income Tax
Appellate Tribunal and the Assessee filed a Cross Objection
No. 62/2015.
14. Mr. Pardiwala contended that a draft assessment
order ought to have been issued and upon failure of the
Officer to do so the Assessee has lost a valuable right. Mr.
Pardiwala submitted that, when the Dispute Resolution Panel
sent the proceedings back to the Transfer Pricing Officer,
categorical observations were made that the order was
passed in violation of the principles of natural justice and
exercise had to be taken afresh. He submitted that therefore
the earlier draft assessment order did not exist and a fresh
draft order had to be issued and the failure has vitiated the
further proceedings and, therefore, there is no error in the
order passed by the Tribunal and there is no question of law
arises. Mr. Pardiwala relied upon the decisions in the case of
the Dy.CIT v. Control Risks India (P.) Ltd. [SPL(Civil)
No.7090 of 2018]; Control Risks India (P.) Ltd. v. Dy. CIT
[WP(C) 5722 of 2017 & CM No.23860 of 2017 (Stay), dated
27-7-2017]; International Air Transport Association v. Dy.
CIT [2016] 68 taxmann.com 246/241 Taxman 249 (Bom);
JCB India Ltd. v. Dy. CIT [2017] 85 taxmann.com 155/251
Taxman 143/398 ITR 189 (Delhi) and Turner International
India (P.) Ltd. v. Dy. CIT [2017] 82 taxmann.com 125/398
ITR 177(Delhi).
17. In the case of International Air Transport
Association (supra), the Division Bench of this Court has held
that the order passed by the Assessing Officer without their
being any draft assessment order is illegal and without
jurisdiction. The same view has been reiterated in the case of
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Zuari Cement Ltd. v. ACIT [WP(C) No. 5557 of 2012, dated
21-02-2013] by the Division Bench of Andhra Pradesh High
Court which also held that the failure to pass a draft
assessment order under Section 144C(1) of the Act would
result in rendering the final assessment as one without
jurisdiction. This position of law is settled.
20. In the case of JCB India Ltd. (supra) the Division Bench
of the Delhi High Court in identical circumstances has held
that after the remand on facts, the draft assessment order
was necessary.” (emphasis supplied)
8. In Exxon Mobil Company Private Limited (Supra) where the
facts were also similar, Revenue's counsel conceded that under Sub
section (1) of Section 144C of the Act, the AO ought to have issued
draft assessment order and if such draft assessment order has not been
passed before the final assessment order is passed, the order has to be
set aside.
9. Mr. Suresh Kumar basically reiterated whatever is submitted
in the affidavit-in-reply filed through one Harish Kelkar. In the
affidavitin-reply, reliance has been placed on a judgment of the Hon'ble
Madras High Court in the case of M/s. Enfinity Solar Solutions Private
Limited v. The Deputy Commissioner of Income Tax, Corporate Circle-
2(1), Chennai 5 . In fact, in the said judgment also the position as in
law as noted above has been re-affirmed. Paragraph 14 of the judgment
reads as under:
“14. Careful perusal of the above provision, as rightly
pointed out by the Petitioner, the draft order is mandatory
under Section 144(C) of the Income Tax Act. An Assessing
Officer, at the first instance, forward a draft proposed order
of assessment, enabling the assessee to accept the variations
to the Assessing Officer or file his objections, if any, with the
Disputes Resolution Panel and the Assessing Officer. Thus,
the procedure of passing of draft assessment order provides a
right to an assessee to file his objections before the Disputes
Resolution Panel and the Assessing Officer for vindicating his
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grievances and redress the same. It is needless to state that
the provisions of the Act must be complied with by the
executives in its letter and spirit. When the procedure of
passing the draft assessment order is contemplated under the
Act, the same is to be scrupulously followed by the
authorities competent.” (emphasis supplied).””
10. Similarly, the Delhi High Court on identical facts in JCB India
Limited's case (supra) held as follows:
“14. The short question that arises for consideration is whether,
after the remand proceedings, the AO could have, without issuing a
draft assessment order under Section 144C of the Act, straightway
issued the final assessment order.
15. Mr. Syali, learned Senior Counsel for the Assessee, referred
to the decision of this Court dated 17th May 2017 passed in W.P. (C)
No. 4260/2015 (Turner International India Pvt. Ltd. v. Deputy
Commissioner of Income Tax, Circle 25(2), New Delhi) to urge that the
AO could not have passed the final assessment order without complying
with the mandatory requirement under Section 144C of the Act
whereby first a draft order had to be issued in respect of which an
objection can be filed by the Assessee before the DRP. The failure to do
so, according to Mr. Syali, was not a mere irregularity. He further
referred to a decision of the Gujarat High Court dated 31st July 2017 in
Tax Appeal No. 542 of 2017 (Commissioner of Income Tax, Vadodara-2
v. C-Sam (India) Pvt. Ltd.).
16. In response, Mr. Sanjay Jain, learned Additional Solicitor
General of India appearing for the Revenue, submitted that there was
an efficacious alternative remedy available to the Petitioner to file
appeals against the impugned final assessment orders passed by the AO.
It is denied that it was mandatory on the part of the AO to pass a draft
assessment order since this was a second round before the TPO
pursuant to remand by the ITAT. Moreover, it was not as if the ITAT
had set aside the entire assessment order of the AO. The setting aside
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was only in respect of the transfer pricing adjustment and that too with
a specific direction to the AO for determining the arms length price
"after considering fresh comparables." Since the assessment itself was
not cancelled by the ITAT or completely set aside, it is the provisions of
Section 153(3)(ii) of the Act which would apply. Mr. Jain submitted
that the requirement of passing a draft assessment order under Section
144C was only in the first instance and not after the remand by the
ITAT.
17. The Court is unable to agree with the submissions made on
behalf of the Revenue by Mr. Jain. Section 144C (1) of the Act is
unambiguous. It requires the AO to pass a draft assessment order after
receipt of the report from the TPO. There is nothing in the wording of
Section 144C (1) which would indicate that this requirement of passing
a draft assessment order does not arise where the exercise had been
undertaken by the TPO on remand to it, of the said issue, by the ITAT.
18. It was then contended by Mr. Jain that the assessment order
passed by the AO should not be declared to be invalid because of the
failure to first pass a draft assessment order under Section 144C of the
Act. In this regard, reference is made to Section 292B of the Act.
19. As already noted, the final assessment order of the AO stood
vitiated not on account of mere irregularity but since it was an
incurable illegality. Section 292B of the Act would not protect such an
order. This has been explained by this Court in its decision dated 17th
July 2015 passed in ITA No. 275/2015 (Pr. Commissioner of Income
Tax, Delhi-2, New Delhi v. Citi Financial Consumer Finance India Pvt.
Ltd.) where it was held:
"Section 292B of the Act cannot be read to
confer jurisdiction on the AO where none exists. The
said Section only protects return of income, assessment,
notice, summons or other proceedings from any mistake
in such return of income, assessment notices, summons
or other proceedings, provided the same are in
substance and in effect in conformity with the intent of
purposes of the Act."
11. Therefore, we are of the considered view that the remand by
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ITAT to AO/TPO to consider the issues afresh, would not dispense with the
mandatory procedure under Section 144C of the Act, since the variation on
the reconsideration by AO is prejudicial to the interest of the assessee.
Therefore, the statement of counsel for Revenue that draft assessment order
need not be passed cannot be countenanced.
12. Further, it is well settled that where the assessment order is
passed without a draft assessment order, it would be vitiated, as it is not a
mere irregularity, but is an incurable illegality. This position of law has
been reiterated in the judgments extracted supra.
13. In the result, the Writ Appeal is allowed and the impugned order
dated 21.06.2021 is hereby quashed and set aside. Consequentially, the
Assessment order dated 01.11.2018, which is impugned in the Writ Petition
is quashed. There shall be no order as to costs. Consequently, interim
application stands closed.
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(K.R.SHRIRAM, CJ.) (SUNDER MOHAN, J.)
24.06.2025
Index : Yes/No
NC : Yes/No
ars
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THE HON'BLE CHIEF JUSTICE
AND
SUNDER MOHAN,J.
ars
To
The Deputy Commissioner of Income Tax
Corporate Circle-2(1)
R.No.511, Wanaparthy Block,
121, Mahatma Gandhi Road,
Nungambakkam,
Chennai-600 034.
24.06.2025
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