In a relief to motorcycle maker Classic Legends Pvt Ltd, the Bombay High Court has struck down a series of income tax assessment orders and penalty notices issued against the company. The bench, comprising Justices B.P. Colabawalla and Amit S. Jamsandekar, held that the Assessing Officer had wrongly invoked Section 144C of the Income Tax Act, which applies only to "eligible assessees".
Background
The dispute arose from assessment proceedings for the financial year in which the Assessing Officer had made a reference to the Transfer Pricing Officer (TPO) to review international transactions undertaken by Classic Legends with its associated enterprises. The TPO, after scrutiny, passed an order confirming that the transactions were at arm's length - meaning they matched market rates and needed no adjustments.
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Despite this, the Assessing Officer went ahead and issued a Draft Assessment Order under Section 144C, followed by a Final Assessment Order and a demand notice under Section 156, as well as show-cause notices proposing penalties under Sections 270A and 271AAC.
Court's Observations
The bench was not impressed with the Revenue's justification. The government argued that once a reference to the TPO is made, the assessee should be treated as "eligible" under Section 144C even if no variation is proposed. It also claimed that "variation" could include "no variation".
The Judges, however, rejected this interpretation outright.
“When there is no variation, there is no question of any prejudice being caused to the assessee," the bench remarked, noting that Section 144C(1) specifically requires a “variation… prejudicial to the interest of such assessee” before triggering the draft assessment procedure.
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They further pointed out that Classic Legends does not fall under the other category of "eligible assessee" - namely foreign companies or non-resident entities. Referring to earlier rulings of the Gujarat High Court (Pankaj Extrusion Ltd) and Delhi High Court (Honda Cars India Ltd), the judges said these cases had already clarified that Section 144C applies only when the TPO actually makes a variation.
"The use of the word 'means' in the definition shows it is a hard and fast definition," the bench noted, echoing the Delhi High Court’s reasoning that the scope of "eligible assessee" cannot be widened by interpretation.
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Decision
Concluding the hearing, the court ruled that the Assessing Officer had acted without jurisdiction. It quashed the Draft Assessment Order dated March 8, 2025, the Final Assessment Order dated April 7, 2025, the accompanying demand notice, and the penalty show-cause notices.
With that, the writ petition filed by Classic Legends was allowed, bringing the matter to a close.
"Rule is made absolute in the aforesaid terms," the bench declared, without awarding costs to either side.
Case Title: Classic Legends Pvt. Ltd. vs Assessment Unit & Ors.
Case No.: Writ Petition (L) No. 14748 of 2025
Date of Judgment: 9 September 2025
