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2022 (1) TMI 1362 - AT - Income TaxValidity of Assessment u/s 144C - mandatory for the AO to pass Draft Assessment Order in accordance with the procedure laid down - intent of the AO while passing the draft assessment order - HELD THAT - In the present case, the Ld.AO passed the draft assessment order u/s. 143(3) r.w.s. 144C (13) of the Act on 28.12.2018 which is accompanied with demand notice issued u/s. 156 of the Act dated 21.12.2016 and it is also noticed that in the draft assessment order itself, the AO recorded the statement as Demand notice issued accordingly. Penalty proceedings u/s. 271(1)(c) are initiated separately for the additions made. Being so, it is observed that the draft assessment order passed by the AO is without following the due process of law as enumerated in the judgment in the case of Vijay Television 2014 (6) TMI 540 - MADRAS HIGH COURT Since the order passed by the AO is without following the due process of law and it cannot survive in the eyes of law, accordingly we quash the impugned assessment order before us - Decided in favour of assessee.
Issues Involved:
1. Reopening under section 147 of the Income Tax Act, 1961. 2. Validity of the draft assessment order. 3. Additions made on the basis of the Form 26AS of income earned by the Head Office from Indian customers. 4. Levying of interest under section 234B of the Act. Issue-wise Detailed Analysis: 1. Reopening under Section 147 of the Act: The assessee challenged the reopening of the assessment under section 147, asserting it was based on a mere change of opinion regarding transactions already scrutinized during the original assessment proceedings. The assessee argued that the reopening was initiated after the expiry of four years from the end of the relevant assessment year, despite having disclosed all material facts fully and truthfully during the original assessment. Furthermore, the assessee contended that the reopening contradicted the third proviso to section 147, as the arm's length price of the disputed income stream was already under appeal before the ITAT in the original assessment proceedings. 2. Validity of the Draft Assessment Order: The assessee argued that the draft assessment order was invalid because it was accompanied by a notice of demand under section 156 and a notice initiating penalty proceedings under section 271(1)(c), effectively making it a final order. This, according to the assessee, violated the provisions of section 144C of the Act. The tribunal agreed with the assessee, citing the mandatory procedure under section 144C, which requires the issuance of a draft assessment order without a demand notice or penalty initiation. The tribunal referenced several judgments, including the Madras High Court's ruling in Vijay Television Pvt. Ltd., to support its conclusion that the draft assessment order was invalid and thus, the final assessment order was null and void. 3. Additions Based on Form 26AS: The assessee contested the additions made to the returned income based on receipts reflected in Form 26AS, arguing that this resulted in double taxation. The assessee contended that it had correctly computed the profits attributable to the Indian Branch Office's operations in accordance with the India-Netherlands DTAA and had already undergone a detailed review by the Transfer Pricing Officer and Assessing Officer. The assessee also highlighted an arrangement between the Head Office and Branch Office, where the Branch Office was remunerated at arm's length for services rendered to Indian clients, ensuring no income escaped taxation in India. The tribunal, however, did not address these contentions in detail, as it quashed the assessment order on procedural grounds. 4. Levying of Interest under Section 234B: The assessee challenged the levy of interest under section 234B amounting to INR 24,06,03,134, which was imposed due to the additions made to the returned income. Given that the tribunal quashed the assessment order, the issue of interest under section 234B became moot and was not adjudicated separately. Conclusion: The tribunal quashed the assessment order due to procedural lapses, specifically the issuance of a draft assessment order accompanied by a demand notice and initiation of penalty proceedings, which violated the mandatory procedure under section 144C. Consequently, the tribunal did not address the substantive grounds of appeal related to the additions and interest levied. The appeal by the assessee was allowed, and the assessment order was declared null and void.
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