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2023 (3) TMI 503 - AT - Income TaxValidity of final assessment order passed u/s 144C - failure to pass a draft assessment order u/s. 144C(1) - HELD THAT - As in terms of section 144C(1), the Assessing Officer has no right to pass an assessment order pursuant to the order passed by the TPO. AO was mandatorily required to first pass a draft assessment order and communicate to the assessee, it is only after receipt of the draft assessment order the assessee has to accept the variations proposed by the Assessing Officer, it is only in case where the assessee opts to file appeal before the learned CIT (Appeals), the Assessing Officer can pass the final assessment order. In the present case, the Assessing Officer had passed the final assessment order straightaway which is in clear violation of provisions of section 144C of the Act. It is now settled position of law that non-adherence to the provisions of section 144C would result in quashing the assessment proceedings. See M/S SHYAM COLD STORAGE, 2013 (2) TMI 621 - ALLAHABAD HIGH COURT , SRI DURGA ENTERPRISES 2014 (2) TMI 1297 - KARNATAKA HIGH COURT ,JCB INDIA LTD. 2017 (9) TMI 673 - DELHI HIGH COURT and TURNER INTERNATIONAL INDIA PVT. 2017 (5) TMI 991 - DELHI HIGH COURT and VIJAY TELEVISION PRIVATE LTD. 2018 (10) TMI 1125 - MADRAS HIGH COURT . Thus we hold that the assessment order is in the nature of final assessment order passed without adhering to the provisions of section 144C of the Act, is null and void and assessment is hereby quashed. - Decided in favour of assessee.
Issues Involved:
1. Validity of the final assessment order without passing a draft assessment order. 2. Applicability of Section 292B to cure defects in the assessment order. 3. Transfer Pricing adjustments and related procedural errors. 4. Selection and rejection of comparable companies for Transfer Pricing. 5. Treatment of outstanding receivables as a separate international transaction. 6. Deductibility of education cess on income tax. Detailed Analysis: 1. Validity of the Final Assessment Order Without Passing a Draft Assessment Order: The primary issue concerns whether the final assessment order passed by the Deputy Commissioner of Income Tax without issuing a draft assessment order is valid. The appellant argued that as an 'eligible assessee' under Section 144C(15) of the Income Tax Act, the Assessing Officer (AO) was required to first pass a draft assessment order before issuing a final assessment order. The AO's failure to do so, accompanied by a notice of demand, rendered the assessment order null and void. The tribunal concurred, citing multiple precedents, including Zuari Cement Ltd. vs. ACIT, where similar procedural lapses led to the quashing of the assessment order. The tribunal concluded that the AO's order dated 28.12.2018, styled as a draft assessment order but accompanied by a demand notice, should be construed as a final assessment order and is thus void for non-compliance with Section 144C. 2. Applicability of Section 292B to Cure Defects in the Assessment Order: The appellant contended that the defect in the assessment order could not be cured under Section 292B of the Act, which allows for rectification of minor errors. The tribunal supported this view, emphasizing that the procedural lapse of not issuing a draft assessment order is a substantive error, not a mere technicality. This stance aligns with the ruling in ACIT vs. Vijay Television (P) Ltd., where the court held that such a procedural failure is an incurable illegality that cannot be rectified by Section 292B. 3. Transfer Pricing Adjustments and Related Procedural Errors: The appellant challenged the Transfer Pricing Officer's (TPO) adjustments, arguing that the TPO erred in invoking Section 92C(3) and rejecting the Transfer Pricing documentation. The tribunal noted that the AO had adopted the TPO's adjustments without issuing a draft assessment order, thus violating Section 144C. Consequently, the tribunal did not delve into the specifics of the TPO's adjustments, as the entire assessment order was quashed on procedural grounds. 4. Selection and Rejection of Comparable Companies for Transfer Pricing: The appellant raised several grounds regarding the TPO's selection and rejection of comparable companies, arguing that the TPO applied arbitrary filters and failed to consider functionally comparable companies. However, the tribunal did not address these grounds in detail due to the overarching procedural issue that invalidated the assessment order. 5. Treatment of Outstanding Receivables as a Separate International Transaction: The appellant disputed the TPO's treatment of outstanding receivables as a separate international transaction and the imposition of notional interest. This issue was also not specifically addressed by the tribunal, given the quashing of the assessment order on procedural grounds. 6. Deductibility of Education Cess on Income Tax: The appellant contended that the liability of education cess on income tax should be allowed as a tax-deductible expense. This issue, like others related to the specifics of the assessment, was not adjudicated due to the procedural invalidity of the assessment order. Conclusion: The tribunal quashed the assessment order dated 28.12.2018, holding it null and void due to the AO's failure to issue a draft assessment order as mandated by Section 144C. The procedural lapse was deemed an incurable illegality, rendering the final assessment order unenforceable. Consequently, the appellant's appeal was allowed, and the assessment order was set aside.
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