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2018 (6) TMI 146 - AT - Income TaxValidity of corrigendum issued to the order passed u/s 144C - AO instead of passing a provisional order or a draft assessment order, has passed a final assessment order - Whether the AO has failed to forward a draft of the proposed order of assessment to the company and thereby not following the procedure laid down in Section 144C - Held that - There is an omission on the part of the AO to follow the mandatory procedures prescribed in the Act, such an omission cannot be termed as a mere procedural irregularity and it cannot be cured - AO has failed to follow the mandate of the provisions of section 144C whereby he was required to pass a draft assessment order - thus the final assessment order passed by the Assessing Officer u/s 143(3) is without jurisdiction - also the issuance of a show-cause notice cannot be equated and treated as a draft assessment order - we quash and set aside the impugned assessment order - Decided in favor of assessee.
Issues Involved:
1. Legality of the assessment order passed without providing a draft assessment order as per Section 144C of the Income Tax Act, 1961. 2. Addition of ?46,53,648/- made by the AO under Section 92C of the IT Act, 1961. 3. Addition of ?31,84,607/- on account of alleged notional interest on outstanding receivables in respect of transactions with AE. Issue-wise Detailed Analysis: 1. Legality of the Assessment Order Passed Without Providing a Draft Assessment Order: The assessee challenged the legality of the assessment order on the grounds that the AO did not provide a draft assessment order as required under Section 144C of the Income Tax Act, 1961. The assessee argued that the term "shall" in Section 144C(1) mandates the AO to forward a draft order before passing the final assessment order. The assessee cited the case of Vijay Television (P.) Ltd. vs. Dispute Resolution Panel, Chennai, where it was held that failure to issue a draft assessment order renders the final order void. The AO contended that a show cause notice was issued, giving the assessee adequate opportunity to object to the ALP adjustments. However, the Tribunal noted that the scheme of Section 144C is clear and unambiguous, requiring the issuance of a draft order. The Tribunal found no evidence in the assessment records of a draft assessment order being prepared or furnished to the assessee. The Tribunal also referred to the case of Capsugel Healthcare Ltd. vs. Assistant Commissioner of Income Tax, where it was held that failure to furnish a draft assessment order renders the proceedings illegal. The Tribunal concluded that the AO's failure to issue a draft assessment order violated the mandatory provisions of Section 144C, rendering the final assessment order void ab initio. Consequently, the Tribunal quashed the assessment order, rendering other grounds raised by the assessee and the Revenue's appeal infructuous. 2. Addition of ?46,53,648/- Made by the AO Under Section 92C of the IT Act, 1961: The Revenue appealed against the deletion of the addition of ?46,53,648/- made by the AO under Section 92C. The AO had applied the Comparable Uncontrolled Price (CUP) method for determining the Arm's Length Price (ALP) and made the addition. The CIT(A) deleted the addition, and the Revenue contended that the assessee's claim was self-contradictory, as it claimed both a better average sale price for AE and a bulk discount without evidence. Since the Tribunal quashed the entire assessment order due to the procedural lapse of not issuing a draft assessment order, the specific grounds related to the addition under Section 92C were not addressed on merits. 3. Addition of ?31,84,607/- on Account of Alleged Notional Interest on Outstanding Receivables in Respect of Transactions with AE: The assessee appealed against the addition of ?31,84,607/- on account of alleged notional interest on outstanding receivables. The CIT(A) had confirmed the AO/TPO's action in making this addition. The assessee argued that the AO/TPO did not provide a draft of the proposed assessment order as required under Section 144C, making the assessment order illegal and void. Given that the Tribunal quashed the entire assessment order due to the procedural lapse, the specific grounds related to the addition of notional interest were also rendered infructuous and were not addressed on merits. Conclusion: The Tribunal quashed the assessment order for the Assessment Year 2011-12 on the grounds that the AO failed to issue a draft assessment order as mandated by Section 144C of the Income Tax Act, 1961. This procedural lapse rendered the final assessment order void ab initio. Consequently, the Tribunal did not address the specific grounds related to the additions under Sections 92C and the alleged notional interest on outstanding receivables, as the entire assessment order was rendered void. The appeal filed by the assessee was partly allowed, and the appeal filed by the Revenue was dismissed as infructuous.
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