Is Dispute resolution Panel (Section 144C) applicable for remand back matters? - Delhi HC judgment - India Income Tax perspective.

Is Dispute resolution Panel (Section 144C) applicable for remand back matters?

Currently there are various queries revolving  around applicability of DRP proceedings (Section 144C) for year AY 2009-10 and prior years. The same is in light of the judgement of madras high court in case of Vedanta Limited. The copy of judgement can be obtained from the link here.

Amidst these queries, the Hon'ble Delhi High Court, has recently cleared the air in relation with applicability of DRP proceedings for remand back matters.

You can access the link of the judgement by clicking on the link here.

A short summary of the judgement along with relevant facts of the case, Appellant's (Revenue in our case) contention and the High Court's judgement is produced below for easy reference.

Relevant Assessment year - AY 2007-08

Facts of the Case:

• The Assessee’s had filed objections before the DRP against the draft Assessment order issued by the AO.
• The Final Assessment order was passed by the AO wherein the additions pertaining to Section 10A and transfer pricing adjustment was made by the TPO.
• Aggrieved by the AO’s order, the Assessee preferred an appeal before the tribunal. During the first round of appeal, the matter was set aside to the file of the AO; whereby the AO was directed to conduct a fresh assessment.
• During the remand back proceedings / 2^nd Assessment order, AO had not followed the process mentioned in Section 144C of the Act; whereby the said remand back order was challenged before the CIT(A), which partly allowed the appeal.
• Before the ITAT, Assessee raised the ground of non-compliance of section 144 during the remand back proceedings; which was allowed by the ITAT without dwelling into the merits. The ITAT held that the remand back order passed by the AO is void ab initio and is liable to be quashed.
• The Revenue has now preferred an appeal before the High Court 

Revenue’s contention before the High Court:

• The provisions of section 144C is applicable only ‘in first instance’ , whereby the remand back proceedings was not required to be routed through the DRP.
• Without prejudice to the same, the said order should be treated as procedural irregularity and not an illegality. 

High court’s judgement

• Once the matter is set aside (consider the matter de novo) a new hearing has to be conducted in a way as if the original hearing has not taken place.  Consequently, the AO had to follow the procedure mentioned in section 144C and not dehors it.
• The DRP direction are binding on the AO, and the same is akin to AO giving effect to an order passed by the appellate authority / courts.
• Further the high court has observed that when a power is given to do certain thing in a certain way, it must be done in that way or not at all and other methods of performance are forbidden.
• Also failure to adhere to the mandatory procedure prescribed under section 144c would vitiate the entire proceedings and the same cannot be treated as an irregularity or curable defect.
• Till the Income Tax Department ensures the AO follows the mandate of law (Section 144C) and eschew filing of unnecessary appeals rather than in nearly all matters where the AO has taken a view against the Assessee, the assessments will not achieve finality for a number of years like in the present case where the case of assessment year 2007-08 stands remanded and restored to the file of the AO.
• Further cost of Rs. 11,000 was charged to the appellant to be paid to the High Court.

Author's note - In case of any comments / queries in the comment section below.