Delhi High Court Directs DRP To Accept Objections To Draft Assessment Order Only With Proof Of Service To Assessment Officer

In order to flag gaps in the income tax faceless assessment regime, the Delhi High Court has directed the Dispute Resolution Panel (DRP) Registry to not accept objections filed by assessees/taxpayers against draft assessment orders unless accompanied by proof that the same have been served on the Assessing Officer (AO) as well.

A Division Bench of Justices Dinesh Mehta and Vinod Kumar passed the direction while dealing with a case in which the AO proceeded to pass the final assessment order under Section 144C(4) of the Income Tax Act, as he was unaware of the objections filed by the petitioner-assessee.

The scheme of Section 144C provides that once a draft assessment order is issued under the faceless assessment mechanism, the assessee has a right to file objections, which are to be considered by the DRP.

The objections filed by the assessee are to be considered by the DRP on the one hand and ordinarily require the Faceless Assessment Officer (FAO) to keep the proceedings in abeyance and await the DRP's directions.

The High Court noted that confusion can arise because, despite Section 144C(2)(b) requiring the assessee to forward a copy of the objections to the AO, the faceless and electronic nature of the assessment framework may lead assessees to presume that objections filed before the DRP would automatically be communicated to the AO. 

In the case at hand, the assessee had presumed that its objections filed before the DRP would be sent to the AO. Conversely, the AO presumed that no objections had been filed against the draft assessment order and therefore proceeded to pass the final order under Section 144C.

In this backdrop the court observed,

"The manner in which the provision has been enacted, may give rise to a confusion in the mind of an assessee, more particularly in the era of e-filing, when the assessments are faceless assessments and in case of failure of the assessee to send copy of the objections, drawing of an inference by the FAO that the objections have not been filed. The consequence of not sending a copy to the Assessing Officer, who too is unknown (faceless) cannot and should not be so drastic."

The consequence of not sending a copy to the Assessing Officer, who too is unknown (faceless) cannot and should not be so drastic. No statute can be expected to leave too many loose ends. Too many presumptions lead to speculations and such interpretation is antithesis to the rule of law.”

The court also clarified that the AO may be legally correct in drawing an inference (that no objection has been filed by the petitioner) because copy of the objection has not been sent to him.

In such circumstances, it wondered what would happen to the proceedings before the DRP.

“Will they be rendered infructuous, or if not, then what will happen to the assessment order, in case the DRP accepts the objection filed by the petitioner, how will that order of the DRP be given effect to?”

To avoid such conundrums in the future, the Court directed “the CBDT or the concerned authorities of the Income Tax Department to ensure (by way of issuing circular or office order, etc) that as and when an assessee files his objections before DRP either physically or electronically (which we are informed is presently in physical mode), the Registry/Secretary of DRP shall not accept the same, unless a proof to the effect that the same has also been sent/served to the AO is enclosed.”

For Petitioner: Advocates Nageswar Rao, Parth, and Ravilochan Daliparthi

For Respondent: Advocates Gaurav Gupta, SSC.