2020 (10) TMI 76 - AT - Income Tax

Proceedings initiated u/s 144C - legality of the order by framing the so-called draft assessment order - AO has completed proceedings by issuing demand notice and initiating penalty proceedings simultaneously - upward adjustment on TP matter and additions on corporate tax matter - HELD THAT - Assessment proceedings concluded on 21.12.2018 and, therefore, any orders passed thereafter are non-est. Provisions of section 144C of the Act triggers a series of steps prescribed in sub-section (2) to section 12 and as can be seen from the most relevant sub-sections (3) and (13) the assessment is complete either under subsection (3) or sub section (13). Facts on record show that on 21.12.2018, the Assessing Officer quantified the taxable income and determined tax payable by issuing and serving demand notice u/s 156 of the Act. In our considered opinion, this action of the Assessing Officer has brought the proceedings to an end and the proceedings initiated u/s 144C of the Act stand concluded. A perusal of Section 144C shows that AO shall, at the first instance, forward a draft of the proposed order of assessment and on receiving such order, the assessee may approach the DRP by raising objections. If the assessee accepts the variation, then the AO shall proceed by framing the final assessment order and if the objections are raised before the DRP, then, upon receipt of directions issued by the DRP, the assessee shall complete the assessment. However, we find that while framing the said draft assessment order, the AO not only issued and served demand notice, but has also initiated the penalty proceedings. As relying on PERFETTI VAN MELLE (INDIA) PVT. LTD VERSUS THE A.C.I.T CIRCLE 3 (1) GURGAON 2020 (8) TMI 273 - ITAT DELHI no hesitation to hold that the proceedings culminated on 21.12.2018 when the demand notice was issued and served upon the assessee and penalty proceedings were simultaneously initiated making all subsequent proceedings and orders non-est. Ground No. 1 of assessee allowed

Summary

Issues Involved:
1. Legality of the draft assessment order dated 21.12.2018.
2. Merits of the upward adjustment on Transfer Pricing (TP) and corporate tax additions.

Detailed Analysis:

1. Legality of the Draft Assessment Order:
The assessee challenged the legality of the draft assessment order dated 21.12.2018, arguing that the Assessing Officer (AO) issued a demand notice and initiated penalty proceedings simultaneously, which concluded the assessment proceedings. The Tribunal, after reviewing the facts and legal precedents, held that the AO's action of issuing a demand notice along with the draft assessment order effectively concluded the proceedings on 21.12.2018. This action bypassed the mandatory provisions of Section 144C of the Income Tax Act, which requires a draft assessment order to be issued first, allowing the assessee to raise objections before the Dispute Resolution Panel (DRP). The Tribunal cited several judicial decisions, including the Hon'ble High Court of Gujarat in CIT Vs. Purshottam Das T Patel and the Supreme Court's ruling in Kalyan Kumar Ray Vs. CIT, to support its conclusion that the assessment process is incomplete without the determination of tax and issuance of a demand notice. Consequently, the Tribunal declared all subsequent proceedings and orders as non-est (invalid).

2. Merits of the Upward Adjustment on TP and Corporate Tax Additions:
Given the Tribunal's decision on the first issue, it found it unnecessary to delve into the merits of the upward adjustment on TP and corporate tax additions. The Tribunal's ruling that the assessment proceedings were concluded on 21.12.2018 rendered all subsequent actions, including the DRP's directions and final assessment orders, invalid. Therefore, the grounds raised in the appeal concerning the merits of the additions were not addressed.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, holding that the proceedings culminated on 21.12.2018 when the demand notice was issued and served, making all subsequent proceedings and orders non-est. The Tribunal did not find it necessary to address the merits of the additions due to the invalidity of the subsequent proceedings. The order was pronounced in the open court on 28.09.2020.