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2022 (6) TMI 1118 - AT - Income TaxPenalty u/s 271(1)(c) - defective notice u/s 274 - Whether draft assessment order accompanied with Notice of Demand, tax Computation sheet and Show Cause Notice for penalty u/s 271 (1) (c) can it be considered as draft assessment order or a final assessment order? - HELD THAT - Admittedly the draft assessment order passed by the learned assessing officer on 21/12/2016 is accompanied with the notice of demand as well as show cause notice u/s 274 r.w.s. 271 (1) (c) of the even date. Issue that arises is whether draft assessment order accompanied with Notice of Demand, tax Computation sheet and Show Cause Notice for penalty u/s 271 (1) (c) can it be considered as draft assessment order or a final assessment order. If it is a final assessment order then naturally the procedure laid down under the act has not been followed by the ld AO. In such circumstances, the assessment order passed by the AO becomes void ab intio and to be quashed. Appeal of assessee allowed.
Issues Involved:
1. Transfer pricing adjustment under section 92CA (3) 2. Short credit of tax deducted at source 3. Interest under section 244A 4. Initiation of penalty proceedings 5. Validity of the draft assessment order Detailed Analysis: 1. Transfer Pricing Adjustment under Section 92CA (3): The appellant contested the income assessment by the Deputy Commissioner of Income Tax (DCIT) and the Dispute Resolution Panel (DRP), which resulted in an increased income of Rs. 14,14,21,940 against the returned income of Rs. 7,20,05,269. The primary contention was the rejection of the appellant's benchmarking approach, leading to an addition of Rs. 6,94,16,669 to the arm's length price of international transactions related to engineering design services. The DCIT/DRP used only the non-associated enterprise (non-AE) export segment for comparison under the internal Transactional Net Margin Method (TNMM), which the appellant argued was economically insufficient. The appellant also claimed that the Advance Pricing Agreement (APA) signed for subsequent years should have persuasive value for the current assessment year. 2. Short Credit of Tax Deducted at Source: The appellant argued that the DCIT erred in granting credit for taxes deducted at source (TDS) of Rs. 8,61,17,614 instead of the claimed Rs. 11,25,94,590, without providing reasons for the shortfall of Rs. 2,64,76,976. 3. Interest under Section 244A: The appellant contended that the DCIT erred in granting interest under section 244A only up to January 2017, despite the final assessment order being passed in October 2017. 4. Initiation of Penalty Proceedings: The appellant challenged the initiation of penalty proceedings under section 271(1)(c), arguing that the DCIT erred in this initiation. 5. Validity of the Draft Assessment Order: The appellant raised an additional ground challenging the validity of the draft assessment order dated 21st December 2016. The appellant argued that the draft assessment order was void ab initio because the DCIT did not follow the procedures laid down in Section 144C of the Income Tax Act, 1961. Specifically, the draft assessment order was accompanied by a notice of demand under section 156 and a penalty notice under section 274 read with Section 271(1)(c), which should not have been issued at the draft stage. Tribunal's Findings: The Tribunal admitted the additional ground raised by the appellant, noting that it was purely legal and went to the root of the matter. Upon examining the facts, the Tribunal found that the draft assessment order was indeed accompanied by a notice of demand and a penalty notice, which should not have been the case. The Tribunal referred to several judicial precedents, including Atlas Copco India Ltd. vs. DCIT and others, which held that issuing a notice of demand and penalty notice along with the draft assessment order rendered the draft order void ab initio. The Tribunal concluded that the assessment order passed by the DCIT was null and void, as it did not follow the mandatory procedures prescribed under the Act. Conclusion: The Tribunal quashed the assessment order, declaring it null and void. Consequently, the income offered in the return became the total income of the appellant. All other grounds of appeal were rendered infructuous and were left unadjudicated. The appeal filed by the appellant was allowed.
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