2023 (3) TMI 1032 - AT - Income Tax

Validity of assessment u/s 144C - Mandation to pas draft of the proposed order of assessment to the eligible assessee - HELD THAT - The assessee would come to know of any variation which is prejudicial to its interest only by way of forwarding of a draft of the proposed order of assessment by the AO. Without forwarding a draft of the proposed order of assessment by the AO, assessee has given its waiver that it did not intend to file objection which does not meet mandatory compliance requirement of the provisions of section 144C of the Act. In the present set of facts, we note that principles of estoppels will not operate against the Act. It is obligatory on the part of the ld. AO to comply with the mandatory procedural requirements of completing the assessment. AO straightaway passed the assessment order, without passing any draft of the proposed order of assessment for which he noted, In view of above, final order is being passed without making any draft assessment order . As held in various decision of the Tribunal, a final assessment order without passing of the draft of the proposed order of assessment, being not in accordance with the provisions contained in section 144C of the Act, is liable to be quashed. Decided in favour of assessee.

Summary

Issues Involved:
Jurisdictional issue regarding the failure to serve draft assessment order to the appellant as required by section 144C of the Income Tax Act, 1961.

Detailed Analysis:

1. The appellant challenged the order of Ld. CIT(A)-22, Kolkata against the assessment order by DCIT, Circle-11(1), Kolkata under section 143(3)r.w.s. 144C(3) of the Income-tax Act, 1961. The appellant raised various grounds of appeal, including the arbitrary nature of lower authorities' orders and the failure to consider different methods for determining Arm's Length Price.

2. Additional grounds of appeal were submitted, emphasizing the failure of the Assessing Officer to forward a draft of the proposed assessment order to the appellant, as mandated by section 144C. The Tribunal admitted these additional grounds for consideration.

3. During the hearing, the appellant decided not to press the main grounds of appeal on merits but focused solely on the additional grounds related to the jurisdictional issue under section 144C. The appellant highlighted the importance of this section in cases involving Transfer Pricing Adjustments.

4. The Assessing Officer's failure to serve the draft assessment order was a critical procedural error. The appellant argued that this mandatory requirement could not be waived by the appellant during the assessment proceedings. The waiver given by the appellant did not absolve the Assessing Officer of the obligation to comply with section 144C.

5. The Tribunal agreed with the appellant's contention that the failure to pass the draft assessment order violated the provisions of section 144C. The Tribunal cited previous decisions emphasizing the necessity of passing the draft order before finalizing the assessment.

6. The Tribunal held that the failure to comply with the mandatory procedural requirements rendered the final assessment order unsustainable. The appellant's additional grounds were allowed, and the assessment order was quashed in favor of the appellant.

7. As the jurisdictional issue was decided in favor of the appellant, the Tribunal did not adjudicate on the merits of the case. The appellant's appeal was allowed, and the order was pronounced on 24th February 2023.

This detailed analysis showcases the significance of procedural compliance in tax assessments and the consequences of failing to adhere to statutory requirements, as exemplified in this judgment.