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2019 (6) TMI 658 - AT - Income TaxFailure to pass Draft Assessment order u/s 144C(1) - AO passed the final assessment order without Draft Assessment Order and issued notice u/s. 156 and 271(1)(c) - Nowhere, in the proceedings before DRP or the AO the assessee raised objections challenging the validity of Draft Assessment Order - HELD THAT - The demand notice u/s. 156 and notice initiating penalty proceedings u/s. 271(1)(c) are issued only after passing of final assessment order. Since, the said notices were issued by the AO along with the Draft Assessment Order, the said assessment order partake the character of final assessment order. The AO at no point of time after issuing notice u/s. 156 and u/s. 271(1)(c) has withdrawn the said notices. Failure of AO to adhere mandatory requirement of section 144C in not first passing the Draft Assessment Order invalidates the final assessment order and subsequent the proceedings arising there from. In catena of judgments by Hon ble High Courts it has been held that passing of final assessment order u/s. 144C(13) r.w.s. 143(3) without passing Draft Assessment Order u/s. 144C(1) is in violating of provisions of section 144C and hence, such final assessment order is unsustainable. Thus assessment order issued along with notice of demand u/s. 156 and notice of penalty u/s. 271(1)(c) is passed in violation of mandatory provisions of section 144C of the Act. - Decided in favour of assessee.
Issues Involved:
1. Validity of the Assessment Order dated 28th December 2011. 2. Issuance of demand notice under section 156 and penalty notice under section 271(1)(c) along with the assessment order. 3. Adjustment on account of working capital while computing operating margins of comparables. Detailed Analysis: 1. Validity of the Assessment Order dated 28th December 2011: The appellant company challenged the assessment order dated 28th December 2011, claiming it was bad in law and void ab initio due to violations of section 144C of the Income-tax Act, 1961. The appellant argued that the Assessing Officer (AO) issued the order as a final assessment order instead of a draft assessment order, which denied the assessee the opportunity to file objections before the Dispute Resolution Panel (DRP). The Tribunal noted that the AO issued a demand notice under section 156 and a penalty notice under section 271(1)(c) along with the draft assessment order, which effectively made it a final assessment order. This action was deemed a violation of section 144C(1), as the AO failed to follow the mandatory requirement of issuing a draft assessment order first, thereby invalidating the final assessment order and subsequent proceedings. 2. Issuance of Demand Notice and Penalty Notice: The appellant argued that the AO erred in issuing the demand notice under section 156 and the penalty notice under section 271(1)(c) along with the draft assessment order, instead of following the correct procedure under section 144C. The Tribunal found that the AO's issuance of these notices along with the draft assessment order was improper and rendered the draft assessment order as a final assessment order. This procedural error invalidated the final assessment order and the subsequent proceedings. The Tribunal cited several judgments, including Pr. CIT Vs. Lionbridge Technologies Pvt. Ltd., to support its decision that the final assessment order passed without a proper draft assessment order is unsustainable. 3. Adjustment on Account of Working Capital: Although the appellant raised an issue regarding the adjustment on account of working capital while computing the operating margins of comparables, the Tribunal did not address this issue in detail. Since the appeal was allowed on the jurisdictional issue, the grounds raised on the merits of the additions became academic and were not dealt with. Conclusion: The Tribunal allowed the appeal of the assessee, setting aside the impugned order due to the procedural violations by the AO. The assessment order dated 28th December 2011, issued along with the demand notice and penalty notice, was deemed invalid, and the subsequent proceedings were vitiated. The appeal was allowed on the jurisdictional issue, rendering the other grounds raised by the assessee academic.
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