2021 (11) TMI 381 - HC - Income Tax

Applicability of provision of section 144C - breach to pass draft assessment order before issuing the final order - HELD THAT - It was mandatory for the Assessing Officer to have passed draft assessment order under Section 144C of the Act prior to issuing of the final assessment order, issuance of final assessment order sans the draft order is bad in law. In the light of these judgments and perusing the circular instructions, which has been relied upon by the learned counsel for the Revenue that the provisions of Section 144C of the Act would be applicable to any order which proposed to be variation in income or loss returned by the eligible assessee, irrespective of the Assessment Year to which it pertains, it is mandatory that the draft of the proposed order of assessment has to be passed by the Assessing Officer even after remand from the Tribunal. The interpretation of the Revenue inasmuch as the phrase at the first instance , is wholly misconceived. The mandatory requirement of passing draft order has to be strictly adhered to, irrespective of the remand order passed by the Tribunal. Having regard to the language employed by the legislature under Section 144C of the Act, it is mandatory to the Assessing Officer to pass draft assessment order before issuing the final order, breach of the same would result in violation of the principles of natural justice making the order itself void ab-initio. It is well settled law, if the order of the assessment itself is not valid then the further action of the Commissioner in initiating revision proceedings under Section 263 is not valid in the eye of law - substantial questions of law No.1 and 2 are answered in favour of the assessee and against the Revenue Revision u/s 263 - Whether Tribunal is right in law in dismissing Revenue s appeal by holding that assessment order itself has been quashed and as such order passed under section 263 of the Act does not arise? - HELD THAT - Issue decided in favour of assessee as relying on M/S. CISCO SYSTEMS CAPITAL (INDIA) PVT. LTD., 2021 (7) TMI 121 - KARNATAKA HIGH COURT

Summary

Issues Involved:
1. Perverse nature of the Tribunal's order regarding the procedure under Section 144C of the Income Tax Act.
2. Validity of the Tribunal's decision to quash the assessment order dated 30.03.2016.
3. Dismissal of Revenue’s appeal concerning the order passed under Section 263 of the Income Tax Act.

Detailed Analysis:

Issue 1: Perverse Nature of Tribunal's Order
The core question was whether the Tribunal's order was perverse for holding that the assessing authority did not follow the due procedure under Section 144C of the Income Tax Act. The Tribunal quashed the assessment order on the grounds that the assessing authority failed to issue a draft assessment order after remand from the Tribunal. The Revenue argued that it was not mandatory to pass a draft order after remand, citing Section 292B and 292BB to claim any procedural mistake was curable. However, the Tribunal's decision was supported by precedents from the Delhi High Court in DCIT Vs. JCB India Ltd., which mandated the issuance of a draft assessment order even after remand. The court upheld this interpretation, emphasizing that the failure to issue a draft order renders the final assessment order void ab initio.

Issue 2: Validity of Tribunal's Decision to Quash the Assessment Order
The Tribunal quashed the assessment order dated 30.03.2016, citing non-compliance with Section 144C. The Revenue contended that the order was not in the first instance and thus did not require a draft order. The court referred to multiple judgments, including those from the Andhra Pradesh High Court and the Madras High Court, which consistently held that the issuance of a draft assessment order is mandatory, even in remand proceedings. The court concluded that the mandatory requirement under Section 144C must be adhered to, and any breach results in a violation of natural justice, making the order void ab initio.

Issue 3: Dismissal of Revenue’s Appeal Concerning Section 263 Order
The Tribunal dismissed the Revenue's appeal, holding that the assessment order itself was quashed, making the order under Section 263 irrelevant. The court noted that a prior ruling in ITA No.27/2019 had already dismissed a similar appeal by the Revenue, affirming the Tribunal's decision. The ruling emphasized that if the assessment order is invalid, any subsequent revision under Section 263 is also invalid. Thus, the substantial question of law regarding the order under Section 263 was rendered moot.

Conclusion:
The court dismissed the Revenue's appeal, affirming the Tribunal's decision. The substantial questions of law were answered in favor of the assessee, reinforcing the mandatory nature of issuing a draft assessment order under Section 144C, even after remand, and invalidating any final assessment order issued without it.