2018 (4) TMI 1785 - AT - Income Tax

Contravention of the provision of Section 144C - AO instead of passing a draft assessment order as required u/s 144C has passed final assessment order u/s 143(3) - corrigendum issued by the Assessing Officer so as to cure the defect - assessment barred by limitation - scope of rectification u/s 154 - HELD THAT - Firstly, AO has to follow the mandatory procedure of Section 144C (1), i.e., to pass a draft assessment order and if such a draft assessment order has not been passed and instead final assessment order has been passed, then such a final assessment order is null and void; Secondly, merely by issuing a corrigendum, final assessment order passed cannot be converted into a draft assessment order especially when such corrigendum has been passed beyond the period of limitation; and Lastly, if the draft assessment order has not been passed in accordance with the procedure laid down in Section 144C (1) and instead final assessment order has been passed though within the limitation time, then such an order cannot be cured after the limitation has expired by any subsequent rectification proceedings or corrigendum and in such a situation all the subsequent proceedings and final assessment order will get invalidated. It is a trite proposition that errors which can be rectified either u/s.154 or some error in the printing work for which a corrigendum has been issued, cannot be resorted for curing the defect of jurisdictional nature and if there is an error of jurisdiction or limitation, then same cannot be validated by such an order. Rectification orders can only be exercised in respect of an order which is valid on the date of proposed rectification and if the order itself was void ab initio for want of following the correct procedure of law then such a rectification cannot revive its legality. Accordingly, we hold that the proposed corrigendum issued by the Assessing Officer so as to cure the defect of the original final assessment order is bad in law and same could not have been done and consequently entire subsequent proceedings and final assessment order dated 30.10.2013 is held to be invalid being barred by limitation and is hereby quashed - Decided in favour of assessee.

Issues Involved:
1. Validity of the final assessment order dated 30th October 2013.
2. Compliance with Section 144C of the Income Tax Act.
3. Issuance and legality of the corrigendum order dated 7th November 2012.
4. Jurisdictional and procedural adherence by the Assessing Officer.
5. Impact of judicial precedents on the case.

Detailed Analysis:

1. Validity of the Final Assessment Order Dated 30th October 2013:
The primary issue revolves around the validity of the final assessment order dated 30th October 2013. The assessee contended that the order was void ab initio as it was passed in contravention of Section 144C. The Tribunal noted that the final assessment order was passed on 2nd November 2012, accompanied by a demand notice under Section 156 and a show cause notice under Section 274. This order was not in accordance with the procedures enshrined in Section 144C, which mandates the issuance of a draft assessment order first.

2. Compliance with Section 144C of the Income Tax Act:
Section 144C mandates that the Assessing Officer must first pass a draft assessment order if any variation in income or loss is proposed. The assessee can then either accept the variations or file objections before the Dispute Resolution Panel (DRP) within 30 days. Here, the Assessing Officer directly passed a final assessment order on 2nd November 2012, violating the mandatory procedure under Section 144C. The Tribunal emphasized that the procedure laid down under Section 144C is mandatory and non-adherence cannot be cured.

3. Issuance and Legality of the Corrigendum Order Dated 7th November 2012:
The Assessing Officer issued a corrigendum on 7th November 2012, attempting to rectify the final assessment order by stating it should be read as a draft assessment order under Section 144C. The Tribunal held that this corrigendum could not be considered as a draft assessment order, nor was it an order under Section 154. Moreover, the corrigendum was issued beyond the limitation period prescribed under Section 153, rendering it invalid. The Tribunal relied on the judgment of the Hon'ble Madras High Court in Vijay Television Pvt. Ltd. vs. DRP, which held that such a corrigendum issued after the limitation period would not cure the defect in the original order.

4. Jurisdictional and Procedural Adherence by the Assessing Officer:
The Tribunal found that the Assessing Officer failed to adhere to the mandatory requirements of Section 144C, resulting in the final assessment order being null and void. The corrigendum issued was beyond the statutory period, making the original final assessment order unsustainable. The Tribunal cited the Hon'ble Jurisdictional High Court's decision in Turner International Pvt. Ltd. vs. DCIT, which held that failure to issue a draft assessment order under Section 144C results in invalidation of the final assessment order and the consequent demand and penalty proceedings.

5. Impact of Judicial Precedents on the Case:
The Tribunal heavily relied on judicial precedents, particularly the judgments of the Hon'ble Madras High Court in Vijay Television Pvt. Ltd. vs. DRP and the Hon'ble Jurisdictional High Court in Turner International Pvt. Ltd. vs. DCIT. These precedents established that non-compliance with Section 144C is a jurisdictional defect that cannot be cured by issuing a corrigendum after the limitation period. The Tribunal also referred to the Hon'ble Supreme Court's decision in Deepak Agro Foods vs. State of Rajasthan, which held that orders passed beyond the statutory period are null and void.

Conclusion:
The Tribunal concluded that the final assessment order dated 30th October 2013 was invalid as it was passed without adhering to the mandatory procedure under Section 144C. The corrigendum issued on 7th November 2012 could not cure the defect, as it was beyond the limitation period. Consequently, the entire subsequent proceedings and the final assessment order were quashed. The assessee's appeal was allowed, and the Revenue's appeal was dismissed, rendering all grounds on merits infructuous.

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