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2023 (3) TMI 416 - HC - Income TaxValidity of demand notice while issuing draft Assessment order u/s 144C - Curable defect u/s 292B - in the draft assessment order ACIT has ordered issuance of demand notice and to initiate penalty proceeding u/s 271(1)(c) - HELD THAT - Section 144C lays down a detailed procedure. Under Section 144C(1), the AO is required to forward a draft of the proposed order of assessment to the assessee. Assessee may file its acceptance or objection before the DRP and the AO. If assessee intimates its acceptance or no objections are received within 30 days, the AO shall complete the assessment. Where the DRP receives any objection from the assessee, it shall issue necessary directions to the AO to enable him to complete the assessment after considering the documents/material mentioned in Section 144C (6)(a) to (g) which includes the draft order. Before issuing the directions, the DRP may also make such further enquiry by any Income Tax Authority. Upon receipt of the directions from DRP under Sub- Section 5, the AO shall, in conformity with the directions, complete the assessment within one month from the end of the month in which such direction is received. A notice of demand under Section 156 may be issued after completion of the assessment under Section 144C(13). In the case on hand, though it is claimed by the Revenue that order dated December 28, 2018 was a draft assessment order, we may record that the ACIT has directed issuance of demand notice and also initiated penalty proceedings. As in Vijay Television Case 2014 (6) TMI 540 - MADRAS HIGH COURT , the said order along with demand notice was served on the assessee. It is settled that demand notice stems out of an order of assessment and it is enforceable. It meets the assessee with civil consequences. The argument on behalf of the Revenue that the demand notice was not enforced is fallacious and noted only to be rejected. We have carefully considered Section 292B of the Act. The mistake which the ACIT has done in passing the final order at the stage of draft order is not curable under Section 292B of the Act. We have considered the appeals both on delay and merits.
Issues:
Challenging orders passed by ITAT with a delay of 65 days; Questions of law regarding quashing assessment orders, draft assessment order, and final assessment order; Common questions of law in three appeals. Analysis: The High Court of Karnataka addressed three appeals by the Revenue challenging orders passed by the Income Tax Appellate Tribunal (ITAT) with a delay of 65 days. The primary questions of law revolved around the quashing of assessment orders, specifically focusing on the existence of a draft assessment order under Section 144C of the Income Tax Act. The court considered whether the Tribunal erred in quashing the final assessment order based on the absence of a draft assessment order, despite the assessee approaching the Dispute Resolution Panel (DRP) after receiving the draft assessment order. The court also examined whether the Tribunal's decision was perverse in nature regarding the passing of a draft assessment order under Section 144C. The appeals were ITA No. 427/2022, ITA No. 429/2022, and ITA No. 428/2022, challenging specific orders in each case. The facts of the case involved a company providing professional engineering services filing returns for Assessment Years 2011-12, 2012-13, and 2013-14. The Revenue contended that re-assessment for A.Y. 2011-12 was initiated based on survey information, leading to a draft assessment order under Section 147 read with Section 144(C) of the Act. The assessee objected before the DRP, which disposed of the objections before the final assessment order was passed. The Revenue challenged the ITAT's decision to allow the assessee's appeal, leading to the current appeals before the High Court. The arguments presented by the Revenue focused on the understanding of the draft assessment order by the assessee, emphasizing that any defects were curable under Section 292B of the Act. On the other hand, the assessee's representative argued that the ACIT had completed the assessment before passing the draft assessment order, contrary to legal precedents such as the Vijay Television Case. The court analyzed the procedural requirements under Section 144C, emphasizing the need for forwarding a draft assessment order to the assessee and the role of the DRP in issuing directions based on objections raised. In its analysis, the court referred to the Vijay Television Case, highlighting the importance of distinguishing between draft and final assessment orders. It noted that the ACIT's actions, including the issuance of a demand notice and initiation of penalty proceedings, indicated the completion of assessment rather than a mere draft order. The court also cited legal precedents such as the Kalyan Kumar Ray case to underscore the integrated nature of the assessment process, including tax determination. Ultimately, the court concluded that the appeals lacked merit, dismissing them in favor of the assessee and against the Revenue. The court's decision was based on a comprehensive examination of the procedural and substantive aspects of the case, addressing the key legal issues raised by the parties.
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