Non-Resident Individual Eligible For Dispute Resolution Panel Route In Tax Reassessment: Madras High Court Clarifies

The Madras High Court has clarified that a non-resident individual falls within the amended definition of an “eligible assessee” under the Income Tax Act, and therefore reassessment proceedings routed through the Dispute Resolution Panel cannot be challenged on that ground.

The court dismissed a writ petition filed by individual taxpayers Motilal Jain and Mahaveer Jain and upheld a reassessment order issued under the Income Tax Act following directions of the Dispute Resolution Panel.

The order was passed by Justice C. Saravanan while examining a challenge to an assessment order for Assessment Year 2017-18.

The dispute arose after the petitioner deposited Rs 10 lakh in cash in his ICICI Bank account during November–December 2016 but had not filed a return of income for that financial year.

The Assessing Officer initially issued a notice under Section 142(1) seeking an explanation. In response, the petitioner filed a return declaring a total income of Rs 9,160 and claimed a refund.

He later informed the department that he was a Non-Resident Indian residing in the United Arab Emirates since 2008 and stated that the cash deposited during the demonetisation period represented money earlier withdrawn by his parents from his NRI account and redeposited during his short visit to India.

Subsequently, the Income Tax Department issued a notice under Section 148 and initiated reassessment proceedings. A draft assessment order under Section 144C was passed, against which the petitioner approached the Dispute Resolution Panel (DRP), Bengaluru.

After considering the DRP's directions, the Assessing Officer passed the final assessment order, which was challenged before the High Court.

Before the Court, the petitioner argued that the proceedings were invalid because he was not an “eligible assessee” under Section 144C(15)(b) and that the reassessment order had been passed without a transfer order under Section 127.

Rejecting these arguments, the High Court observed that the Finance Act, 2020, amended Section 144C(15)(b) to include “any non-resident not being a company” within the definition of “eligible assessee.” Since the petitioner was a non-resident individual, the Court held that the DRP procedure was validly invoked.

The bench opined that,

"The definition of “eligible assessee” in Section 144C(15)(b) of the Income Tax Act, 1961 stood amended by Finance Act, 2020 with effect from 01.04.2020. Section 142(1) Notice was issued on 09.03.2018. At the time when Section 148 Notice was issued by the 1st Respondent on 31.03.2021, the definition of “eligible assessee” was amended to include any non-resident not being a Company with effect from 01.04.2020."

The bench held that "the Petitioner is an “eligible assessee” within the meaning of amended definition “eligible assessee” in Section 144C(15)(b)(ii) of the Income Tax Act, 1961."

The Court further noted that the petitioner had already participated in the proceedings by filing objections before the DRP against the draft assessment order and therefore could not later challenge the jurisdiction of the Assessing Officer.

The bench stated that, "since the matter was taken up before the Dispute Resolution Panel under Section 144C of the Income Tax Act, 1961 the limitation gets extended by virtue of Section 144C read with Section 153 of the Income Tax Act, 1961."

Accordingly, the Court dismissed the writ petition and upheld the reassessment proceedings.

For Petitioner: Advocate, T.V.Muthu Abirami

For Respondent: Senior Standing Counsel, B.Ramanakumar