HC flaks AO for passing draft assessment order against a Mauritian firm by treating it as a foreign Co.

Facts:

a)    Assessee (“ESPN Star Sports”), a partnership firm established under the laws of Mauritius, entered into an agreement with “Star Sports India Private Limited” for allotting advertisement slots to various advertisers and advertising agencies in India.

b)    Assessing Officer (AO) passed draft assessment order as per section 144C(1) of the Income tax Act (‘Act’) treating assessee as “Foreign company”.

c)    Assessee filed objection before Dispute Resolution Panel (DRP) that it wasn’t an ‘eligible assessee’ as per section 144C(15) because it was neither a ‘foreign company’ nor any TP adjustment was made in its case. Therefore, no draft assessment order could be passed against it.

d)    DRP accepted the plea of assessee and declined to issue any direction but AO proceeded to pass final order on basis of such draft assessment order.

e)    Aggrieved assessee filed the instant writ petition before the High Court challenging the final assessment order passed by the AO.

The High Court held in favour of assessee as under-

1)    The provisions of Section 144C provide that DRP shall issue directions as it thinks fit, for the guidance of the AO to enable him to complete the assessment and that every direction issued by the DRP shall be binding on the AO.

2)    Section 144C(10), read with Section 144C(13) makes it abundantly clear that the AO is bound by the  orders of the DRP. Although DRP declined to issue any direction, yet its finding that assessee wasn’t an ‘eligible assessee’ couldn’t be ignored by the AO.

3)    Therefore, the AO had erred in not passing the final assessment order in conformity with the above findings of the DRP- [2016] 68 taxmann.com 377 (Delhi)