2021 (12) TMI 1496 - HC - Income Tax

Obligation to pass a draft assessment order u/s 144C (1) - merely procedural or inadvertent error or breach of a mandatory provision - whether curable defect? - HELD THAT - Argument of Respondents that failure on the part of the AO to follow the procedure u/s 144C(1) is merely a procedural or inadvertent error cannot be accepted. The requirement under Section 144C(1) of the Act to first pass the draft assessment order and to provide a copy thereof to the assesee is mandatory requirement that gave substantive right to the assessee to object to any variation, that is prejudicial to the assessee. Depriving petitioner of this valuable right to raise objection before DRP would be denial of substantive right to the assessee. As held in SHL (India) Private Limited ( 2021 (7) TMI 1208 - BOMBAY HIGH COURT failure to follow the procedure under Section 144C(1) of the Act would be a jurisdictional error and not merely procedural error or a mere irregularity. Therefore, the Assessing Officer has assumed jurisdiction to straight away pass the final order without following the mandatory procedure prescribed u/s 144C.

Summary

Issues: Failure to follow procedure under Section 144C(1) of the Income Tax Act, 1961.

Analysis:
1. The court noted that the Revenue acknowledged a failure by the Assessing Officer to follow the procedure under Section 144C(1) of the Income Tax Act, 1961. The court emphasized that this failure was not a mere procedural error but a breach of a mandatory provision. The failure to pass a draft Assessment Order and provide a copy to the assessee deprived the assessee of the right to object to any prejudicial variation. The court held that this constituted a jurisdictional error, not a procedural one, as the Assessing Officer wrongly assumed jurisdiction to pass the final order without following the prescribed procedure.

2. The court rejected the argument that the failure to follow the procedure under Section 144C(1) was merely a procedural or inadvertent error. It reiterated that this failure was a jurisdictional error, depriving the assessee of the right to object before the Dispute Resolution Panel (DRP). The court emphasized that this failure was not a mere irregularity but an incurable illegality, as it vitiated the final assessment order passed by the Assessing Officer.

3. Consequently, the court quashed and set aside the impugned assessment order dated 15th June, 2021, due to the failure to follow the mandatory procedure under Section 144C(1) of the Act. The court made no order as to costs, disposing of the petition.

This detailed analysis of the judgment highlights the court's interpretation of the failure to follow the prescribed procedure under Section 144C(1) of the Income Tax Act, emphasizing the distinction between procedural errors and jurisdictional errors, ultimately leading to the quashing of the assessment order.