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2017 (8) TMI 1294 - AT - Income TaxValidity of assessment u/s 143(3) r.w.s. 144C - No draft assessment order but final assessment order passed - no notice u/s. 143(2) was served - initiation of penalty proceedings u/s 271(1)(c) - Held that - The demand got crystallized on passing of the draft assessment order, wherein the Assessing Officer had issued demand notice in ITNS-150 and had also initiated penalty proceedings. Undoubtedly, the said assessment was framed as draft assessment but in actual fact, the Assessing Officer had made the assessment in the hands of assessee by not only assessing the income but also determining the demand payable along with interest u/s 234A B C D and penalty proceedings. In the case of draft assessment order, proposed additions are to be made and the assessee is show caused either to accept the same or file the objections before the DRP. However, in the present facts, there was not a proposal for making addition but final assessment order was passed. Undoubtedly, the Assessing Officer said that he is passing draft assessment order and the assessee was also at liberty to file the objections before the DRP or accept the same, but in actual fact, the order passed by the Assessing Officer was complete assessment order which is not envisaged under section 143(3) r.w.s. 144C of the Act. Accordingly, we hold that draft assessment order passed in the case is invalid in law. - Decided in favour of assessee.
Issues Involved:
1. Validity of service of notice under section 143(2) of the Income-tax Act. 2. Validity of the assessment order passed without following the procedure laid down in section 144C of the Income-tax Act. 3. Merits of the additions made by the Assessing Officer. Detailed Analysis: 1. Validity of Service of Notice under Section 143(2): The Revenue contended that the notice under section 143(2) was served on the assessee's last known address within the due date, fulfilling the statutory requirement. The Dispute Resolution Panel (DRP) held that the notice was not served on the assessee. The assessee cooperated with the assessment proceedings without raising any objection regarding the service of notice under section 143(2), which, according to the Revenue, should be curable under section 292BB of the Income-tax Act. 2. Validity of the Assessment Order under Section 144C: The assessee argued that the assessment order was passed without following the procedure laid down in section 144C, rendering it null and void. Specifically, the Assessing Officer issued the assessment order along with a notice of demand under section 156 and a notice under section 274 r.w.s. 271(1)(c), instead of issuing a draft assessment order. The Tribunal noted that the Assessing Officer referred the case to the Transfer Pricing Officer (TPO), who determined the arm's length price of international transactions. The Assessing Officer then issued a draft assessment order but also issued a demand notice and initiated penalty proceedings, which indicated that the order was not merely a draft but a final assessment order. The Tribunal referred to several precedents, including the decisions in Soktas India (P) Ltd. Vs. ACIT and Agfa India Pvt. Ltd. Vs. ACIT, which established that failure to issue a proper draft assessment order renders the assessment proceedings null and void. The Tribunal emphasized the mandatory nature of section 144C, which requires the issuance of a draft assessment order before finalizing the assessment. The Tribunal concluded that the Assessing Officer's action of issuing a demand notice and initiating penalty proceedings indicated that the assessment was finalized, violating the statutory procedure. 3. Merits of the Additions Made: The Tribunal did not delve into the merits of the additions made by the Assessing Officer, as the preliminary issue of the validity of the assessment order was decided in favor of the assessee. The Tribunal held that since the assessment order was invalid, all other issues, including the merits of the additions, became academic and were dismissed. Conclusion: The Tribunal held that the assessment order passed by the Assessing Officer was invalid due to non-compliance with the mandatory procedure laid down in section 144C of the Income-tax Act. Consequently, the appeal filed by the Revenue was dismissed, and the Cross Objections filed by the assessee were partly allowed. The Tribunal emphasized that the issuance of a proper draft assessment order is a mandatory requirement, and failure to comply with this renders the assessment proceedings null and void.
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