2021 (4) TMI 120 - AT - Income Tax

Order passed by the AO u/s 143 (3) read with section 144C (1) titling it as Draft Assessment Order - AO while passing the impugned order, issued the demand notice under section 156 of the Act in Form 7, along with penalty notice u/s 274 read with section 271 of the Act on the even date - HELD THAT - As per section 144C of the Act, it is mandatory for the Ld.AO to pass Draft Assessment Order in accordance with the procedure laid down therein. Various decisions relied by the Ld.AR reproduced hereinabove highlight that, it is mandatory for Ld.AO to follow the procedures laid down under section 144C in an assessment that involves assessment of international transaction. AO passed order under section 143(3) read with section 144C(1) of the Act dated 25/02/2015 and along with demand notice issued u/s 156 and penalty notice under section 274 read with section 271 of the Act. Ratio of Hon ble Madras High Court in VIJAY TELEVISION (P.) LTD. VERSUS DISPUTE RESOLUTION PANEL, CHENNAI 2014 (6) TMI 540 - MADRAS HIGH COURT has expressed the view that such orders passed by the Ld.AO without following due process of law are liable to be set aside. We place reliance on the decision of Kaneel Oils Export Inds. Ltd. Vs. JCIT 2009 (8) TMI 806 - ITAT AHMEDABAD-C which is a Third Member decision. As the assessment order passed dated 25/2/2015 has been quashed and set aside.

Issues Involved:
1. Validity of the draft assessment order dated 25/02/2015.
2. Transfer pricing adjustments and comparison with HLL Life Care Limited.
3. Issuance of demand notice along with the draft assessment order.

Issue-wise Detailed Analysis:

1. Validity of the Draft Assessment Order Dated 25/02/2015:

The assessee challenged the validity of the draft assessment order dated 25/02/2015, arguing that it was issued along with a demand notice under section 156 and a penalty notice under section 274 read with section 271, which is contrary to the procedure prescribed under the law. The Tribunal noted that this issue goes to the root of the assessment proceedings and admitted it for consideration. The Tribunal referenced several decisions, including those of the Hon’ble Supreme Court and various High Courts, which emphasize the mandatory nature of following the procedure under section 144C of the Act. The Tribunal concluded that the order dated 25/02/2015 was passed without following the due process of law and thus was liable to be set aside. Consequently, the assessment order dated 25/02/2015, along with the demand notice and penalty notice, was declared null and void.

2. Transfer Pricing Adjustments and Comparison with HLL Life Care Limited:

The assessee raised concerns about the transfer pricing adjustments made by the Transfer Pricing Officer (TPO), specifically the comparison with HLL Life Care Limited. The Tribunal did not delve into the merits of this issue because the assessment order itself was quashed. Therefore, the issues related to transfer pricing adjustments became academic and were not adjudicated upon.

3. Issuance of Demand Notice Along with the Draft Assessment Order:

The Tribunal found that issuing a demand notice along with the draft assessment order is contrary to the procedure prescribed under section 144C of the Act. The Tribunal relied on the decision of the Hon’ble Madras High Court in the case of Vijay Television, which held that such actions by the Assessing Officer (AO) without following due process are liable to be set aside. The Tribunal concluded that the AO's actions in issuing the demand notice and penalty notice along with the draft assessment order were not in compliance with the mandatory procedures, thereby rendering the entire process invalid.

Conclusion:

The Tribunal allowed the assessee's appeal on Ground No. 9, quashing and setting aside the assessment order dated 25/02/2015, and declared all other issues on merits as academic. The appeal filed by the assessee was thus allowed.

Order Pronouncement:

The order was pronounced in the open court on 1st April 2021.

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