Bombay High Court Strikes Down Faceless Tax Assessment: Barentz India Wins Big on Transfer Pricing Safeguards

 

The Bombay High Court just dropped a ruling that's got everyone in the tax fraternity buzzing. On October 13, 2025, in Barentz India Private Limited vs. The Assessment Unit, National Faceless Assessment Centre, New Delhi and Anr. (Writ Petition No. 1460 of 2025), the court quashed a final assessment order because the tax authorities skipped a crucial step—serving a draft order to let the company challenge it before the Dispute Resolution Panel (DRP). This isn't just a win for Barentz; it's a reminder that even in the faceless assessment era, your rights as a taxpayer aren't up for grabs.

This case shines a light on how the Income Tax Act's transfer pricing provisions (hello, Sections 144C and 144B) are meant to protect "eligible assessees" like Indian companies tangled in cross-border transactions. If you're an in-house tax pro, CA, or just curious about how courts are keeping the revenue in check, let's break it down step by step. I'll keep it straightforward—no legalese overload, promise.

Quick Brief: What the Court Said (and Why It Matters)

In a nutshell, the Bombay High Court ruled that when a tax assessment involves an "international transaction" and leads to adjustments prejudicial to the taxpayer, the Assessing Officer must first issue a draft assessment order. Only then can the assessee (that's you, the company) decide to object via the DRP or proceed to a final order. Skipping this? Straight-up violation of the law, and the final order gets tossed out.

The court leaned heavily on precedents like Danfoss Fluid Power Private Limited vs. Union of India (decided September 29, 2025) and SHL (India) Pvt. Ltd. vs. Deputy Commissioner of Income Tax (2021), emphasizing that this isn't some optional nicety—it's a mandatory safeguard against arbitrary tweaks to your arm's length pricing. For AY 2022-23, Barentz's final order from February 28, 2025 (plus related demand and penalty notices) was quashed. No remand, but the tax folks can start over if they play by the rules. Bottom line: Faceless doesn't mean faceless justice.

This ruling reinforces that transfer pricing audits can't bulldoze due process, especially post the 2021 faceless scheme rollout. It's a taxpayer's charter in disguise, ensuring you get a fair shot at the DRP before things get finalized.

The Facts: What Went Down in This Tax Tussle

Barentz India Private Limited, a Mumbai-based arm of the global Barentz Group, is no small player. Founded in 2021 as a wholly-owned subsidiary, it distributes life science ingredients—think pharmaceuticals, personal care products, nutritionals, and performance materials—for industries like food, pharma, and cosmetics. With roots tracing back to a 2007 liaison office in Noida (formerly Forum Products Limited), Barentz India has grown into a key distributor in the Indian market, sourcing and supplying specialty chemicals and ingredients to manufacturers across the country. They're all about connecting global suppliers with local needs, often involving cross-border deals that scream "international transaction" under the IT Act.

Fast-forward to Assessment Year 2022-23 (financial year 2021-22). Barentz got roped into a faceless assessment under the National Faceless Assessment Centre (NFAC) in New Delhi. The bone of contention? An international transaction—likely a cross-border purchase, sale, or service with an associated enterprise abroad—that the Transfer Pricing Officer (TPO) scrutinized. Under Section 92 of the IT Act, these deals must be at "arm's length price" to prevent profit-shifting tricks. The TPO apparently spotted a variation: the transaction's value was adjusted upward, hiking Barentz's taxable income in a way that hurt their bottom line.

On February 28, 2025, the NFAC dropped a bombshell—a final assessment order under Section 143(3) read with 144B, slapping on extra tax demands via a Section 156 notice. Oh, and for good measure, penalty notices under Sections 274, 271AA(1) (for transfer pricing documentation lapses), and 270A (under-reporting/understatement penalties) followed suit. No prior heads-up? No draft order served? Barentz was caught off-guard, with zero chance to argue their case before the DRP as per Section 144C.

That's when they dashed to the Bombay High Court, arguing they qualified as an "eligible assessee" under Section 144C(15)(b)(i)—an Indian company hit by a prejudicial transfer pricing adjustment on an international transaction. Without that draft order, the whole process was DOA, they said. And the court? They agreed, loud and clear.

The Players: A Peek at Both Sides

Petitioner's Side: Barentz India – The Global Distributor Fighting for Fair Play

Barentz India isn't just any filer; they're a vital cog in India's supply chain for specialty ingredients. Part of the Netherlands-headquartered Barentz International (a behemoth operating in 70+ countries with billions in revenue), they handle everything from pharma actives to food additives. In 2022, amid post-pandemic supply crunches, international transactions like theirs are the lifeblood—importing from affiliates in Europe or Asia, ensuring compliance with India's stringent transfer pricing rules. Represented by Advocates Vishal Kalra, Saumyendra S. Tomar, Harsh R. Shah (AOR), and Snigdha Gautam, Barentz's pitch was simple: "We're eligible for DRP protection. Deny us that, and you've gutted our statutory rights." Their grievance? The faceless system's rush job robbed them of a key defense against what they saw as an unfair pricing tweak.

Respondents' Side: The Tax Authorities – Enforcing the Faceless Frontier

Enter the heavyweights: The Assessment Unit at the NFAC, New Delhi (Respondent No. 1), backed by the Income Tax Department (Respondent No. 2). Since 2021, India's gone "faceless" to cut corruption and speed things up—assessments via video calls, no face-to-face, all digitized. Ms. Shilpa Goel argued for the revenue, pointing to Section 144B(1)(xx) and (xxi) tweaks for Indian companies, suggesting a remand for a fresh draft under the faceless protocol. Their stance? The system prioritizes efficiency, and timelines are tight. But the court wasn't buying it—efficiency can't trump mandatory procedure, especially when Section 144B explicitly nods to 144C's DRP safeguards.

This clash highlights the tension: Taxman wants streamlined enforcement; taxpayers want their day in the (virtual) court. Barentz showed that even giants like NFAC must color inside the lines.

The Full Judgment: Straight from the Bench

The hearing was brisk—Rule issued, service waived, and with both sides' consent, it wrapped up the same day before Justices B.P. Colabawalla and Amit S. Jamsandekar. Here's the court's reasoning, woven from the official order, keeping every key beat intact but in a flow that reads like a story:

The petition targeted the February 28, 2025, final assessment order under Sections 143(3) and 144B, plus the demand and penalty notices under 156, 274 r/w 271AA(1), and 270A—all for AY 2022-23. Barentz's core beef: As an eligible assessee under Section 144C(15)(b)(i), thanks to that international transaction, they deserved a draft order first. That would've let them flag objections to the DRP, per Section 144C's playbook. No draft? No final order can stick.

Revenue pushed back, citing Section 144B's sub-clauses (xx) and (xxi) for Indian firms, and floated a remand for a do-over under faceless rules. But after chewing on the arguments, the court zeroed in on the law's fine print.

"Look," the judges essentially said (para 6), "Section 144B(1)(xxi) to (xxix) folds in 144C's requirements lock, stock, and barrel. For eligible assessees, a draft order has to hit the assessee's desk, opening the DRP door. Here, the faceless officer jumped straight to finality—bypassing the draft entirely. That's not just sloppy; it's a blatant breach of 144C and 144B's own provisions. The order crumbles."

They backed it with Danfoss Fluid Power (WP 10403/2025, Sept 29, 2025), where a similar share-buy from Mauritius got a transfer pricing haircut without a draft. The court there quashed it outright, quoting SHL (India) (438 ITR 317, Bom): Skipping the draft isn't a whoopsie—it's a "jurisdictional error," stripping the assessee of a "substantive right" to challenge prejudicial variations before the DRP. No timelines excuse it; extensions exist for a reason. It's not procedural fluff; it's the law's backbone against overreach.

In Danfoss, the bench nailed it: The TPO's arm's length tweak (from Rs. 363.10 to 517.82 per share) screamed "prejudicial," triggering the draft mandate. Direct final order? "Flies in the teeth of Section 144C." Echoing SHL, they called it "incurable illegality"—no Section 292B cure-all applies when jurisdiction's AWOL.

Applying that here, the court quashed the order per prayer (a), no costs, and left the door ajar: "If the AO can lawfully restart with a fresh draft, go for it—we're not opining." Order digitally signed October 13, 2025, by PA Darshan Patil.

The writ? Made absolute. Case closed—for now.

Wrapping It Up: Lessons for Your Tax Playbook

This isn't just Barentz's victory lap; it's a wake-up call for every multinational subsidiary navigating India's transfer pricing maze. Faceless assessments are here to stay, but so are your rights under Sections 144B and 144C. If a TPO adjustment bites, demand that draft—it's your ticket to the DRP.

Got a similar saga brewing? Ping your tax advisor pronto. And hey, if you're in the ingredients game like Barentz, kudos—their resilience just leveled up the playing field.

What do you think—does this curb revenue overreach, or is more reform needed? Drop a comment below. Stay compliant, stay sharp.

Sources: Official Bombay High Court judgment (2025:BHC-OS:18997-DB); company profiles from Barentz website and MCA records.

Disclaimer: - The information provided in this blog is for educational and informational purposes only and is based on the publicly available details. It does not constitute legal, tax, or professional advice. Readers are encouraged to consult qualified professionals for advice tailored to their specific circumstances. The views expressed are derived from the ruling and do not reflect any endorsement or opinion by the blog author or website.