* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment Reserved on: 20th October, 2015
Judgment Delivered on: 17th February , 2016
+ WP(C) 4262/2015
HONDA CARS INDIA LIMITED (FORMERLY M/S HONDA
SIEL CARS INDIA LIMITED ..... Petitioner
versus
DEPUTY COMM. OF INCOME TAX & ANR. ..... Respondents
Advocates who appeared in this case:
For the Petitioner : Mr Deepak Chopra with Mr Amit Srivastava and Ms Manasvini
Bajpai.
For the Respondents: Ms Suruchi Aggarwal with Mr Lakshmi Gurung and Ms
Radhika Gupta.
CORAM:-
HON'BLE MR JUSTICE BADAR DURREZ AHMED
HON'BLE MR JUSTICE SANJEEV SACHDEVA
JUDGMENT
SANJEEV SACHDEVA, J
WP(C) 4262/2015 & CM No.7736/2015(stay)
1. A short question arises for consideration in the present writ
petition, i.e., whether the Assessing Officer was competent to pass a
draft assessment order under Section 144C(1) of the Income-tax Act,
1961 (hereinafter referred to as "the Act")? The question arises in
view of the contention of the petitioner that the petitioner does not fall
WP(C)No.4262/2015 Page 1 of 8
in the category of an "eligible assessee", as defined under Section
144C(15)(b) of the Act.
2. The contention of the petitioner is that firstly the petitioner is
not an eligible assessee, as defined under Section 144C(15)(b) of the
Act as the Transfer Pricing Officer (TPO) had not proposed any
variation in the income or loss return which was to the prejudice of
the petitioner. Secondly, while framing the draft assessment order,
the Assessing Officer was also required to give effect to the Circular
issued by the Central Board of Direct Taxes (CBDT) while making
disallowances under Section 40(a)(i) of the Act whereby the
Assessing Officer could make disallowance of only the net amount
and not the gross amount of purchases made by the petitioner from its
associated enterprise. Thirdly, it is contended that in terms of Section
153(1) third proviso, the assessment could be completed by
31.03.2015 and since only a draft assessment order was passed, which
suffers from jurisdictional defect, the assessment proceedings have
now become time barred.
3. The petitioner is a Company incorporated in India and is
engaged in the business of manufacture and sale of passenger cars.
The petitioner is a subsidiary company of Honda Motors Company
Limited, Japan ("Honda Japan" for short). The petitioner purchases
raw material, spare parts, capital goods etc. from Honda Japan and
cars are manufactured in India under the technical collaboration
WP(C)No.4262/2015 Page 2 of 8
agreements. The petitioner pays royalty to Honda Japan. On
29.11.2011, return of income was filed by the petitioner for the
assessment year 2011-2012 declaring NIL income. Since the
petitioner had entered into international transaction, on 11.11.2013,
the Assessing Officer referred the same to the TPO under Section
92CA(1) of the Act for computing the arm's length price in relation to
the international transaction.
4. On 30.01.2015, the TPO passed an order under Section
92CA(3) of the Act and no variation was proposed to the returned
income of the petitioner and it was held as under:-
"4. The Transfer pricing documentation, which
contains the functional and economic analysis of
comparables and the assessee, has been examined and
placed on record.
5. In view of the functional and economic analysis of
assessee, no adverse inference is drawn in respect of the
international transactions undertaken by the assessee
during the FY 2010-11."
5. On 31.03.2015, the Assessing Officer passed the impugned
draft assessment order under Section 144C of the Act proposing the
total income of the petitioner to be assessed at Rs 1830,07,49,517/-.
While making disallowance under Section 40(a)(i) of the Act in
respect of payments made by the petitioner to non-resident associated
enterprise, the Assessing Officer has proposed to disallow the entire
WP(C)No.4262/2015 Page 3 of 8
payments made by the petitioner for purchasing raw materials, spare
parts etc.
6. The petitioner has impugned the draft assessment order and
raised the three contentions, as noted hereinabove. With regard to the
contention of the petitioner that the Assessing Officer was required to
give effect to the Circular issued by the CBDT while making
disallowance under Section 40(a)(i) of the Act, the respondents in
their counter-affidavit have contended that in terms of the Circular
No.3/2015 dated 12.02.2015 issued by the CBDT disallowance under
Section 40(a)(i) should be made only in the appropriate proportion of
the sum chargeable to tax as per Section 195(1) of the Act and as the
said Circular of CBDT is binding on the Assessing Officer, the benefit
of the Circular would be given to the assessee. In view of the
categorical stand taken by the respondent, conceding to the contention
of the petitioner, we need not dwell further into this issue.
7. With regard to the first contention of the petitioner that the
petitioner is not an "eligible assessee", we may note relevant portion
of Section 144C of the Act which reads as under:
Reference to dispute resolution panel.
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
WP(C)No.4262/2015 Page 4 of 8
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.
xxxx xxxx xxxx xxxx
(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 a consequence of the order of
the Transfer Pricing Officer passed
under sub-section (3) of section
92CA; and
(ii) any foreign company.
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
WP(C)No.4262/2015 Page 5 of 8
Officer passed under section 92CA(3); and (ii) any foreign company.
10. The Supreme Court in P.Kasilingam & Others v.
P.S.G.College of Technology & Ors. : 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
WP(C)No.4262/2015 Page 6 of 8
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 under Section 144C(1).
13. Similar is the view taken by the High Court of Gujarat in
Pankaj Extrusion Limited versus Assistant Commissioner of Income
Tax : (2011) 198 Taxman 6 (Gujarat), which has held as under:-
"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 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 3CE8. 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
WP(C)No.4262/2015 Page 7 of 8
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."
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.
15. Since we have quashed the draft assessment order, the question
that the assessment has now become time barred is left open and it is
open to the parties to take recourse of such remedy, as may be
available to them in law.
16. The petition is accordingly allowed leaving the parties to bear
their own costs.
SANJEEV SACHDEVA, J.
BADAR DURREZ AHMED, J.
February 17, 2016/sn
WP(C)No.4262/2015 Page 8 of 8
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