The Punjab and Haryana High Court has overturned a final income tax assessment that added more than Rs 60 crore to UCWeb Mobile Pvt Ltd’s reported income. Justices Deepak Sibal and Rupinderjit Chahal ruled to annul not only the assessment order but also the subsequent demand notice and any penalties that were initiated as a result. The court instructed the Assessing Officer (AO) to issue a new assessment order based on the guidance from the Dispute Resolution Panel (DRP) and the Transfer Pricing Officer (TPO).
The court noted that UCWeb Mobile, a fully owned subsidiary of UC Mobile New World Ltd located in the British Virgin Islands, is involved in distributing and reselling services for UCWeb Singapore Pte Ltd in India.
For the 2021-22 assessment year, the company submitted its income tax return on March 15, 2022. However, the case came under scrutiny, prompting the AO to issue a notice under Section 143(2) of the Income-Tax Act, to which UCWeb responded. Since international transactions were involved, the AO forwarded the case to the TPO.
It was reported to the Bench that on October 29, 2023, the TPO advised adding Rs 60,09,84,289 to the company’s total reported income. Following this, the AO issued a draft assessment order, which UCWeb challenged within 30 days as an “eligible assessee” through the DRP. However, the company failed to notify the AO about their objections.
Consequently, the AO finalized the assessment on December 15, 2023, along with a demand notice and a notice regarding penalties. At this point, UCWeb filed a petition with the High Court, disputing the final assessment order and related notices.
During the proceedings, the High Court stayed the final assessment order. Meanwhile, the DRP partially accepted UCWeb’s objections in an order dated August 27, 2024, which was served to the TPO. Compliance with the DRP order led the TPO to revise his previous decision. After the TPO submitted his new order to the AO at UCWeb’s request, the AO still declined to issue a new assessment.
The court then posed the critical question of whether the final assessment order and the notices issued on December 15, 2023, could stand based on the circumstances of the case. They emphasized that the AO was supposed to reflect the DRP’s directions in any final assessment order, taking into account the company’s objections.
The court found that the final assessment order was inconsistent with the DRP’s earlier instructions, which were given after evaluating the objections to the draft order. The violations of Sections 144C(10) and 144C(13) of the Income-Tax Act were noted, alongside concerns that the final order contradicted the intent of Section 144C.
The Bench highlighted that the additional amount imposed on UCWeb’s income stemmed solely from the TPO’s initial order, which had since been replaced by a new one. Upholding the final assessment order from December 15, 2023, under these conditions would not make sense.
In conclusion, the court instructed the AO to formulate a fresh final assessment in accordance with the directions of the DRP and the new TPO order.
