Assessment orders that go beyond DRP directives may be revoked

Fact and issue of the case

Briefly the facts relating to the issue in dispute are, the assessee is a non-resident corporate entity incorporated in United States of America (USA). From the information generated through Annual Information Report (AIR) of the department, it was noticed that certain income earned by the assessee during the year was not offered to tax. Further, form the internal system developed by the department, viz., I-Taxnet; it was found that the assessee’s name appears in the list of Non-Filers Monitoring System (NMS). Meaning thereby, the assessee had not filed any return of income for the impugned assessment year. From the system generated information, it was noticed by the Assessing Officer that in the year under consideration, the assessee had entered into transaction of sale and purchase in National/Multi-commodity exchange, amounting to Rs.27,05,30,735/- and has made foreign remittances amounting to Rs.79,70,54,971/-. As observed by the Assessing Officer, in absence of any details due to non-filing of return of income, NMS notice was sent to the assessee to furnish necessary information on financial transaction/activities made during the year. However, the notice remained un-complied. Thus, ultimately, the Assessing Officer, forming a belief that income chargeable to tax in the year under dispute has escaped assessment, reopened the assessment under section 147 of the Act by issuing a notice under section 148 of the Act. As alleged by the Assessing Officer, neither the assessee complied with the notice issued under section 148 of the Act, nor to the notice issued under section 142(1) of the Act. Due to this reason, the Assessing Officer issued notices under section 133(6) of the Act to M/s DSP Merrill Lynch Ltd., M/s. City Bank Ltd. and M/s. Bombay Stock Exchange Ltd. From the information received from M/s DSP Merrill Lynch Ltd., which acted as a broker in respect of share transaction entered by the assessee, the Assessing Officer found that in the year under consideration the assessee had remitted aggregate amount of Rs.79,70,54,971/- in three trenches. He further found that the assessee has sold shares of Rain Commodities and Rain Industries Ltd. held by it in demat account with M/s DSP Merrill Lynch Ltd. for a consideration of Rs.26,57,84,295/- on 14.11.2011, which was reflected in the client statement of account provided by M/s DSP Merrill Lynch Ltd. Thus, stating that out of total remittances of Rs.79,70,54,971/- source of Rs.26,56,35,337/- could be identified, whereas, the source of the balance amount of Rs.53,14,19,634/- could not be identified, nor explained by the assessee due to non-furnishing of details, the Assessing Officer added back the amount of Rs.53,14,19,634/- at the hands of the assessee by invoking the provisions of section 69A of the Act, while framing a draft completing the assessment order to the best of his judgment under section 144 read with section 147 and 144C(1) of the Act.

Against the draft assessment order so proposed, the assessee raised objections before learned DRP. In course of proceeding before learned DRP, the assessee explained the reason for non-compliance in assessment proceeding by stating that since it did not have any login id on the Income Tax e-filing portal, wherein notices under section 148 and 142(1) of the Act were issued, it could not respond to such notices.

In the facts of the present appeal, the only direction of learned DRP is to delete the addition made in the draft assessment order. Therefore, the clear mandate given to the Assessing Officer by learned DRP is to restrict himself to delete the addition of Rs.53,14,19,634/-. Whereas, the Assessing Officer has travelled beyond the direction given by learned DRP and made addition of Rs.26,56,35,337/-, which he himself accepted as explained in the draft assessment order. Thus, the impugned assessment order has been passed in clear violation of the directions of learned DRP. Therefore, the assessment order is a nullity in the eyes of law as it is against the provisions contained under sub-section (10) and (13) of section 144C of the Act. That being the factual and legal position, we quash the final assessment order.

Observation of the court

Before parting, we must observe, in recent times, we have come across several instances of open defiance and non-implementation of directions issued by DRP by the Assessing Officers. This, in our view, is a very disturbing trend and reflects poorly on the credibility of the department and shakes the confidence of tax payers. Therefore, it goes against the Government’s policy of adopting taxpayer friendly approach. In any case of the matter, the DRP is constituted by three senior Commissioner level officers of the department and is a dispute resolution mechanism set up by the Government under the statute. As per the Statute, the Assessing Officer is duty-bound to implement the directions of the DRP. The Assessing Officer, being a statutory authority, is bound to act in accordance with the procedure laid down in Statute and cannot deviate. Since, we have come across several instances of non-implementation of directions given by the DRP to the Assessing Officers, it is high time to take appropriate corrective measures to stem the deficiencies. Therefore, we direct the matter to be brought to the notice of the concerned higher Authorities so that necessary advisory/guidelines are issued to sensitize the Assessing Officers in the matter of implementation of directions of the DRP. We leave the matter at this.

In the result, the appeal is allowed, as indicated above.