2023 (1) TMI 93 - HC - Income Tax

Assessment u/s 143(3) r.w.s 144C - AO jurisdiction to make revised final assessment order without recourse to DRP - omission in re-doing the procedure u/s 144C - Whether, on the facts and in the circumstances of the case and in the initial assessment order being preceded by draft assessment order is not the final assessment order without a prior draft assessment order legal and with jurisdiction? - HELD THAT - This Court has referred to the admitted dates in the orders made by the Assessing Officer in the first round etc. and also the revised final assessment order made in Annexure-E for the purpose of appreciating the legal objection raised by the assessee and now the grounds canvassed by the revenue. The citations relied on by the assessee are to the effect that with the interdiction of assessment order made under Section 143(3) read with Section 144C(5) (13) of the Act by the Tribunal, the matter is remitted to A.O. The issues revisit the table of AO for a decision in the same manner in which the first final assessment order was made by the AO. In cases to which Section 92CA is attracted, the assessment could be completed only by following the procedure under Section 144C - We do not prefer to burden our judgment with reproducing all the portions relied on by the assessee from the decisions cited at the Bar, except the view taken by the Delhi High Court in Nokia India (P) Ltd. 2017 (9) TMI 1838 - DELHI HIGH COURT and the Special Leave Petition filed against the said decision 2018 (5) TMI 1913 - SC ORDER . The requirement of re-doing the same procedure upon remand to the AO u/s 144C is held to be mandatory and omission in following the procedure is held to be an incurable defect. The revenue does not dispute the omissions pointed out in this behalf by the Tribunal. The filing of appeal before the Commissioner of Income Tax (Appeals) cannot be treated as a waiver of an objection available to the assessee in this behalf u/s 144C etc. Section 253(1)(d) provides for appeal only when order has been made under Section 143(3) read with Section 144C of the Act. Annexure-E order is an order made under Section 143(3) of the Act and not a final revised assessment order made in compliance with the directions issued by DRP. The assessee, hence was justified in moving the CIT(Appeals). This Court has difficulty in accepting the argument of the revenue to sustain the order in Annexure-E. The arguments have been confined to the points considered above and we are of the view that the Tribunal has correctly considered the objections of assessee against Annexure-E order and recorded the findings which resulted in the order under appeal. The order of Tribunal is to be understood in the background of what is considered by the AO in Annexure-E and what was not the subject matter before the Assessing Officer, upon the remand in the first round of litigation cannot and could not be understood as made by the Tribunal. We are in agreement with the argument of Mr.Joseph Markos that Annexure-E is limited only to the issues remitted by the Tribunal in Annexure D order dated 21.11.2014 - Decided in favour of the assessee and against the revenue.

Summary

Issues Involved:
1. Legality and jurisdiction of the final assessment order without a prior draft assessment order.
2. Validity of the Tribunal's reliance on a Supreme Court order dismissing the Special Leave Petition.
3. Compliance with Section 144C of the Income Tax Act in the assessment procedure.

Detailed Analysis:

1. Legality and Jurisdiction of the Final Assessment Order:
The core issue revolves around whether the final assessment order, issued without a prior draft assessment order, is legal and within jurisdiction. The Department argued that the assessee, by opting to appeal before the Commissioner of Income Tax (Appeals) instead of the Tribunal, effectively waived the requirement of following the procedure under Section 144C of the Act. However, the Tribunal and the High Court found that the omission of issuing a draft assessment order under Section 144C is an incurable defect, rendering the final assessment order illegal and without jurisdiction. The court emphasized that the procedure under Section 144C is mandatory, and failure to adhere to it cannot be waived by the assessee.

2. Validity of the Tribunal's Reliance on a Supreme Court Order:
The Department questioned the Tribunal's reliance on a Supreme Court order dismissing a Special Leave Petition as a binding authority. The High Court upheld the Tribunal's approach, citing precedents where similar procedural lapses were deemed incurable defects. The court referenced the Delhi High Court's decision in Nokia India Pvt. Ltd. v. Addl. Commissioner of Income Tax, which held that failure to pass a draft assessment order violates Section 144C(1) and is not a curable defect under Section 292B of the Act.

3. Compliance with Section 144C of the Income Tax Act:
The High Court meticulously reviewed the procedural history, noting that the initial assessment involved a draft assessment order and subsequent directions from the Dispute Resolution Panel (DRP). However, in the revised final assessment order dated 2.3.2016, the Assessing Officer failed to follow the mandated procedure under Section 144C, bypassing the draft assessment order and DRP's directives. The court reiterated that the assessment involving transfer pricing issues under Sections 92B and 92CA necessitates strict adherence to Section 144C. The Tribunal's decision to dismiss the Department's appeal and allow the assessee's Cross Objection was based on this procedural non-compliance, which the High Court affirmed as correct.

Conclusion:
The High Court dismissed the Department's appeal, affirming that the final assessment order dated 2.3.2016 was illegal and without jurisdiction due to the failure to follow the mandatory procedure under Section 144C of the Income Tax Act. The court upheld the Tribunal's decision, emphasizing that procedural compliance under Section 144C is not waivable and any deviation constitutes an incurable defect.