2024 (4) TMI 256 - AT - Income Tax

Revision u/s 263 - assessment order passed u/s 254/143(3) r.w.s. 92CA(3) was found to be erroneous and prejudicial to the interests of the Revenue - as argued no draft assessment order u/s 144C prior to passing the final assessment order passed - HELD THAT - When the ld. PCIT himself has formed an opinion that the final assessment order has been passed without taking into account the Board Circular No.05/2010 dated 03.06.2010 and Circular No.09/2013 dated 19.11.2013, which has made it mandatory for the AO to pass a draft assessment order u/s 144C of the Act prior to passing the final assessment order, then, certainly, it cannot be accepted from DR that he would still press that there was no requirement of passing a draft assessment order. Thus the order passes was not in accordance with law. We are of the considered view that every circular or communication of the Board cannot be considered to be issued by the Board u/s 119 of the Act, which are meant for issuing orders, instructions and directions and same when issued u/s 119 of the Act specifically mention the fact that Board has invoked the powers of Section 119 of the Act. The explanatory notes to the provisions of Finance Act only explain the substance of the provisions of the concerned Finance Act relating to Direct taxes and may serve as external aid to interpretation of the Finance Act but cannot be considered to be issued u/s 119 of the Act, so as to say that if anything contained therein in the explanatory notes has not been followed by the assessing officer, it will lead to defiance of orders, instructions and directions issued by the Board u/s 119 of the Act. Thus the exercise of jurisdiction by invoking clause (c) of Explanation 2 of Section 263(1) of the Act, itself was bad. Then reference to any order u/s 263 of the Act is to an assessment order, which otherwise is passed in due course of law and is otherwise a valid and enforceable order and not an order which is void ab initio, being not passed in accordance with due course of law. Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the order passed by Ld. Pr. CIT u/s 263 of the Income Tax Act, 1961.
2. Requirement of passing a draft assessment order u/s 144C of the Act.
3. Invocation of revisionary jurisdiction by Ld. Pr. CIT.

Summary:

1. Validity of the order passed by Ld. Pr. CIT u/s 263 of the Income Tax Act, 1961:
The assessee challenged the order dated 31.03.2021 passed by Ld. Pr. CIT u/s 263 of the Act, arguing that the assessment order dated 12.11.2018 was void ab initio as it was passed without issuance of a draft assessment order. The assessee relied on the judgment of the Hon'ble Supreme Court in Zuari Cement Limited vs. ACIT and other relevant case laws to support their claim that a non est and void order cannot be subject to revisionary proceedings u/s 263 of the Act.

2. Requirement of passing a draft assessment order u/s 144C of the Act:
The Ld. Pr. CIT observed that the final assessment order dated 12.11.2018 was passed without considering CBDT Circulars No. 05/2010 and 09/2013, which mandate the issuance of a draft assessment order u/s 144C of the Act. The Tribunal noted that the TPO had passed an order dated 29.10.2018 in compliance with the Tribunal's remand order, and the assessee was given a fresh opportunity of hearing. The Tribunal distinguished the present case from the judgment of the Hon'ble Madras High Court in Enfinity Solar Solutions (P) Ltd., and relied on the Hon'ble Delhi High Court's judgment in Headstrong Services India (P) Ltd., which mandates the passing of a draft assessment order in remand proceedings.

3. Invocation of revisionary jurisdiction by Ld. Pr. CIT:
The Ld. Pr. CIT invoked revisionary jurisdiction u/s 263 of the Act, considering the assessment order to be erroneous and prejudicial to the interests of the Revenue. The Tribunal held that the exercise of jurisdiction by invoking clause (c) of Explanation 2 of Section 263(1) of the Act was bad, as the circulars relied upon were not issued u/s 119 of the Act. The Tribunal further held that a non est and void order cannot be the subject matter of revisionary proceedings u/s 263 of the Act, citing relevant case laws.

Conclusion:
The appeal of the assessee was allowed, and the impugned order u/s 263 of the Act was quashed. The Tribunal concluded that the final assessment order was not in accordance with the law due to the failure to issue a draft assessment order as mandated by the CBDT Circulars.