Case Details:

Piramal Enterprises Limited vs. ACIT/JCIT/DCIT/ITO National e-Assessment Centre

Appeal No.:

Writ Petition (L) No. 11040 of 2021

Order pronounced by:

Bombay High Court

Date of order:

30-07-2021

In favour of:

Assessee

The petitioner’s case was selected for scrutiny assessment and during the course of submissions, the petitioner wanted to opt out of e-proceedings and to have physical submission but its case was transferred to e-proceedings/ faceless assessment. The petitioner made timely replies to various show-cause notices issued seeking details.

The Petitioner states that it received a draft assessment order in the form of a show-cause notice dated 25-03-2021 stating that certain additions are proposed to be made while giving opportunity to show cause up to 26-03-2021. The notice also states that the petitioner may file response in writing and may also file request for personal hearing through video conferencing. The notice proposed to disallow a sum of Rs. 167.57 crores u/s 14A of the Income Tax Act, 1961 and an amount of Rs. 430.35 crore based on the difference of turnover disclosed by the petitioner and information received from CBEC and on various other grounds including transfer pricing adjustment.

In its letter dated 26-03-2021, the petitioner asked for time up to 09-04-2021 as one days’ time was not sufficient with respect to issues raised in the proposed draft assessment order. ON 28-03-2021, the petitioner submitted a letter seeking hearing through video conferencing. Further, the petitioner also filed responses to notice on 07-04-2021 and 08-04-2021 giving explanation, particulars and details with respect to the issues.

Despite this, the petitioner received a draft assessment order 22-04-2021 u/s 144C (1) read with 143(3) of the Act disallowing Rs. 167.57 crore u/s 14A of the Act, adding Rs. 362.72 crore to income rejecting submissions of the petitioner stating that the burden was on petitioner to reconcile the data with the service tax returns holding that request of the petitioner for further time for reconciliation is not justifiable and making other additions also.

The L’d senior advocate for petitioner submits that the impugned order is passed in contravention in principles of natural justice and contends that opportunity of personal hearing is an essential requisite before passing an order prejudicial to interest of the assessee. The petitioner had requested for personal hearing in response to notice dated 25-03-2021 through video conferencing.

Submission in respect of addition u/s 14A

He submits that the A.O. cannot proceed to make disallowance u/s 14A by applying Rule 8D of the Income Tax Rules without recording subjective satisfaction. Despite scientific working apportioning the cost to the tune of Rs. 3,26,18,604/- been given, the respondent (National e-assessment centre) proceeded to disallow Rs. 167 crore under Rule 8D. This act is completely arbitrary and irrational and is contrary to binding principles laid down by superior courts. The order is without application of mind.

Submission for difference in turnover between books & service tax return

He further submits that addition of Rs. 362.72 crore is on the basis of alleged information received from CBEC of the service tax returns of the petitioner.  The respondent failed to provide the basis for computing higher income on the basis of service tax returns despite being sought by the petitioner. He submits that reconciliation was not possible unless the petitioner is given proper and relevant information.

Submission for transfer pricing adjustment

In respect of transfer pricing adjustment, he submits that this court as well as other High Courts have consistently taken a view that 0.5% is a reasonable arm’s length price for determination of guarantee fees and as such, finding of the respondent that corporate guarantee fees should be computed at 1.68% is contrary to the decisions of high courts and earlier decision in petitioner’s own case.

Submission in respect of procedure under Faceless Assessment

• Referring section 144B, National Faceless Assessment Centre (NFAC) shall issue a show-cause notice to the assessee if the draft assessment order is prejudicial to interest of the assessee giving him an option for personal hearing. On receipt of show-cause notice, the assessee is supposed to furnish his response within specified time, requesting opportunity for personal hearing.
• In case, no response is furnished, the NFAC can proceed with the draft assessment order/ final draft assessment order. However, if response is furnished and request for hearing is made, the NFAC under clause 144B(1)(xxiii)(b) has to assign responsibility to the Assessment Unit.
• After considering the response and after giving opportunity of being heard, the Assessment Unit shall send a revised draft assessment order to NFAC.  After receipt of the revised draft assessment order, the NFAC, shall, in case of variation in the revised draft assessment order is prejudicial to the interest of the assessee in comparison to the draft assessment order or final draft assessment order, follow the procedure under section 144B(1)(xvi)(b).
• He submits that in the present scenario, an opportunity of hearing as is available and allowed pursuant to section 144B(1)(xvi)(b) is getting lost.

Cases relied upon by the petitioner in respect of issue of personal hearing in transfer pricing matters:

• Moser Baer Ltd. vs. Additional Commissioner of Income Tax [2009] 176 Taxman 473 (Delhi)
• Travancore Rayon Ltd. vs. Union of India reported in AIR 1971 862 (7)
• Indian Transformers Limited vs. Asstt. Collector reported in 1983 (14) ELT 2293

Cases relied upon by the petitioner in respect of Faceless Assessment:

• Sanjay Aggarwal vs. National Faceless Assessment Centre, Delhi reported in [2021] 127 taxmann.com 637 (Delhi)
• Lemon Tree Hotels Limited vs. National Faceless Assessment Centre, Delhi & Anr. In W.P.(C) 5427/2021 (Delhi High Court)
• Satia Industries Limited vs. National Faceless Assessment Centre, Delhi in W.P.(C) 5587/2021 & CM APPL. 17382/2021 (Delhi High Court)
• YCD Industries vs. National Faceless Assessment Centre, Delhi reported in [2021] 127 taxmann.com 606 (Delhi)
• RKKR Foundation vs. National Faceless Assessment Centre, Delhi reported in [2021] 127 taxmann.com 643 (Delhi)
• Sahara India (Firm) vs. CIT, Central-I reported in [2008] 169 Taxman 328 (SC)

He submits that the impugned order is completely contrary to the principles of natural justice and contrary to law and urges to set aside impugned notices and the impugned order and that there is no equally efficacious remedy against the impugned notices and the impugned order.

Section 144B of the Income Tax Act, 1961 captioned ‘Faceless Assessment’ commences vide its sub-section (1) with a non-obstante clause and compulsively requires assessment u/s 143(3) and 144 shall be by prescribed procedures contained in sub-section (1) of section 144-B in the cases referred to in sub-section (2) thereof.

Sub-section (9) of section 144B declares that assessment made under section 143(3) or u/s 144(4) referable to sub-section (2) other than sub-section (8) on or after 1^st day of April, 2021 shall be non-est if such assessment is not made in accordance with the procedure laid down under section 144B. There is a telling/ pronounced rigour, to follow the procedure under section 144B, lest the assessment would be non-est.

Going by the provisions under section 144B, when hearing has been envisioned and incorporated, it is imperative to observe principles of natural justice as stipulated. In the present matter, it is not disputed that show-cause notice had been issued to the petitioner on 25-03-2021 to which the petitioner has responded from time to time vide letters dated 26-03-2021, 28-03-2021 requesting for personal hearing and by sending responses dated 7^th and 8^th April, 2021. There is nothing to reflect upon that after receipt of response to show-cause notice dated 26^th March 2021, 28^th March 2021, 7^th April, 2021 and 8^th April 2021, prescribed procedure has been followed. The petitioner appears to be losing out an opportunity as would be available to it under clause (xxiii)(b) read with sub-section (7) sub-clause (vii).

In the circumstances, when an assessee approaches with response to show-cause notice, the request made by an assessee, as referred to in clause (vi) of sub-section (7) of section 144B, would have to be taken into account and it would not be proper, looking at the prescribed procedure with strong undercurrent to have hearing on a request after notice to say that petitioner would have opportunity pursuant to section 144C in the present matter, would intercept operation of the scheme contained u/s 144B.

Foregoing discussion leads to that impugned draft assessment order dated 22-04-2021 is unsustainable. The petition is allowed in terms of prayer clause (a) leaving it open to the authorities to carry forward the process in accordance with section 144B of the Income Tax Act by giving opportunity of hearing to the petitioner.