2021 (10) TMI 348 - AT - Income Tax

Validity of assessment u/s 144C - no draft order was issued as mandated - HELD THAT - As assessment order framed by the Assessing Officer without passing a draft assessment order which is a mandatory requirement in terms of section 144C - this issue is well settled in favour of the assessee and against the Revenue by the decision of the Hon'ble High Court of Delhi in the case of JCB India 2017 (9) TMI 673 - DELHI HIGH COURT as held final assessment orders passed by the AO are without jurisdiction on account of the failure, by the AO, to first pass a draft assessment order and thereafter, subject to the objections filed before the DRP and the orders of the DRP, to pass the final assessment order - Decided against revenue.

Summary

Issues Involved:

1. Jurisdiction of the Assessing Officer (AO) in passing the final assessment order without issuing a draft assessment order under Section 144C of the Income Tax Act.
2. Adjudication of the issue on merit by the CIT(A).

Issue-wise Detailed Analysis:

1. Jurisdiction of the Assessing Officer (AO):

The primary issue was whether the AO had the jurisdiction to pass the final assessment order dated 28.09.2016 without first issuing a draft assessment order to the assessee, as mandated by Section 144C of the Income Tax Act. The Tribunal had previously set aside the issue of Transfer Pricing (TP) to the AO/TPO with specific directions to reconsider the comparability of Samrat Clearing with the assessee and recompute the Arm's Length Price (ALP) accordingly.

The Tribunal's directions necessitated the AO to follow the procedure under Section 144C, which includes issuing a draft assessment order. The AO's failure to do so was challenged by the assessee, citing the decision of the Hon'ble High Court of Delhi in JCB India Ltd. (398 ITR 189), which held that the requirement of passing a draft assessment order is mandatory and not merely procedural. The High Court emphasized that Section 144C(1) requires the AO to pass a draft assessment order after receiving the TPO's report, irrespective of whether the issue was remanded by the ITAT.

The High Court further clarified that the failure to issue a draft assessment order constitutes an incurable illegality, rendering the final assessment order without jurisdiction, null, and void. This position was supported by several other High Court decisions, including those of the Andhra Pradesh High Court in Zuari Cement Ltd. and the Madras High Court in Vijay Television (P.) Ltd., which held that non-compliance with Section 144C(1) results in the invalidation of the final assessment order.

In the present case, the Tribunal found that the AO's omission to issue a draft assessment order vitiated the final assessment order. Consequently, the Tribunal upheld the CIT(A)'s decision, which followed the jurisdictional High Court's ruling in JCB India Ltd., and dismissed the Revenue's appeal.

2. Adjudication of the Issue on Merit by the CIT(A):

The Revenue contended that the CIT(A) erred by not adjudicating the issue on merit. However, since the CIT(A) based its decision on the jurisdictional defect identified in the AO's procedure, it was unnecessary to delve into the merits of the case. The Tribunal concurred with this approach, emphasizing that the procedural lapse of not issuing a draft assessment order was sufficient to invalidate the final assessment order, thereby rendering any merit-based adjudication redundant.

Conclusion:

The Tribunal dismissed the Revenue's appeal, affirming that the AO's failure to issue a draft assessment order as required under Section 144C invalidated the final assessment order. The decision of the CIT(A) was upheld, following the precedent set by the Hon'ble High Court of Delhi in JCB India Ltd., which established the mandatory nature of issuing a draft assessment order in cases involving transfer pricing adjustments. The Tribunal did not find it necessary for the CIT(A) to adjudicate the issue on merit due to the procedural jurisdictional defect.