Bombay High Court Strikes Down Final Assessment Order Passed Without Draft Order Under Section 144C: SHL (India) Private Limited Vs DCIT

Background and Overview

The Bombay High Court recently adjudicated a significant writ petition under Article 226 of the Constitution of India, 1950, wherein the validity of a final assessment order was squarely challenged on grounds of non-compliance with the mandatory procedural framework prescribed under Section 144C of the Income Tax Act, 1961. The ruling carries far-reaching implications for transfer pricing assessments and the rights of eligible assessees in India.

The petitioner, SHL (India) Private Limited, an Indian company incorporated under the Companies Act, 1956 and part of the SHL Group based in the United Kingdom, was principally engaged in trading psychometric test products and rendering assessment, consultancy, and training services to clients across India. The company had entered into international transactions with its Associated Enterprise (AE) for which it paid Support Services Charges, and had duly filed Form 3CEB along with its return of income.

Facts of the Case

SHL (India) Private Limited filed its return of income on 30th March, 2018, declaring a total income of Rs. 1,01,31,750/- for Assessment Year 2017-18. The case was selected for scrutiny under the Computer Assisted Scrutiny Scheme (CASS), following which a notice under Section 143(2) of the Income Tax Act, 1961 was issued on 5th September, 2018.

Subsequently, on 6th August, 2019, the Assessing Officer referred the matter to the Transfer Pricing Officer (TPO). After due proceedings, the TPO passed an order dated 29th January, 2021 under Section 92CA(3), proposing a transfer pricing adjustment of Rs. 10,74,54,337/-, which had been treated as Nil by the petitioner.

On 10th March, 2021, the National e-Assessment Centre, Delhi issued a show-cause notice requesting the petitioner to rebut the proposed arm's length price adjustment. The petitioner submitted its response on 15th March, 2021. Thereafter, without following the procedure mandated under Section 144C, the National e-Assessment Centre proceeded to pass a final assessment order dated 6th April, 2021 under Section 143(3) read with Sections 143(3A) and 143(3B), determining total income at Rs. 11,75,86,087/-. A demand notice for Rs. 1,17,60,810/- under Section 156 and a penalty notice under Section 274 read with Section 270A were simultaneously issued.

Critical Issue: The Assessing Officer bypassed the mandatory requirement of first forwarding a draft assessment order to the petitioner under Section 144C(1) before passing the final order — a step that is non-negotiable in cases involving transfer pricing adjustments for eligible assessees.

Section 144C of the Income Tax Act, 1961 lays down a structured and elaborate mechanism for handling assessments involving eligible assessees. The provision reads in relevant part:

Section 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 to the eligible assessee if he proposes to make, on or after the 1st day of October, 2009, any variation which is prejudicial to the interest of such assessee.

Section 144C(2) — On receipt of the draft order, the eligible assessee shall, within thirty days:

  • File acceptance of the variation with the Assessing Officer; or
  • File objections with both the Dispute Resolution Panel (DRP) and the Assessing Officer.

Section 144C(5) — Where objections are received, the DRP shall issue directions to guide the Assessing Officer in completing the assessment.

Section 144C(10) — Every direction issued by the DRP shall be binding on the Assessing Officer.

Section 144C(13) — Upon receipt of DRP directions, the Assessing Officer must complete the assessment in conformity with those directions within one month, without providing any further hearing to the assessee.

Section 144C(15)(b) defines "eligible assessee" to include:

  • Any person where the variation arises as a consequence of a TPO order under Section 92CA(3); and
  • Any non-resident (not being a company), or any foreign company.

The scheme under Section 144C is structured as a complete and self-contained code — one that operates with a non-obstante clause overriding all other provisions of the Act.

Petitioner's Arguments

The petitioner's senior counsel placed strong reliance on the following contentions: