2023 (10) TMI 563 - HC - Income Tax

Validity of assessment u/s 144C - Draft assessment order got accompanied with the notice of demand and penalty - final assessment or draft assessment order - Tribunal has allowed the appeal of assessee - HELD THAT - A plain reading of sub-Sections 1, 2, 6, 8 and 13 of Section 144-C would clearly spell out the requirement of law. Admittedly in the instant case, in addition to the draft assessment order, there was also a notice of demand and penalty which was enclosed. A plain reading of sub-Section 8 of Section 144-C would further make it amply clear that the demand has to be raised only after the final assessment order is passed, more particularly, for the reason that the dispute resolution panel has got the power to confirm, reduce or enhance the variations proposed in the draft. In the given context, if the draft assessment order is accompanied by a notice of demand and penalty that itself would force one to reach to the conclusion that though it is termed as draft assessment order, in fact, it is the final assessment order and the notice of demand and penalty was accompanying the same. As decided in M/s.Zuari Cement Ltd. as confirmed by SC 2013 (9) TMI 1167 - SC ORDER AO is mandated to first pass a draft assessment order, communicate it to the assessee, hear his objections and then complete assessment. Admittedly this has not been done and the respondent has passed a final assessment order dt.23.12.2011 straight away. Therefore, the impugned order of assessment is clearly contrary to S.144C of the Act and is without jurisdiction, null and void As per legal position as is required under Section 144-C of the Act and also taking note of the contents of the operative part of the so called assessment order, in the considered opinion of this Bench leads to the only conclusion of the order being a final assessment order, more particularly, when the authority concerned has also ordered and directed for initiation of penalty proceedings simultaneously along with the draft assessment order. Hence, this Bench has no hesitation in reaching to the conclusion that the findings arrived at by the Tribunal while allowing the appeal of the respondent/assessee was proper, legal and justified. That the present appeal thus being devoid of merits, deserves to be and is accordingly, rejected.

Summary

Issues Involved:
1. Whether the Tribunal was justified in setting aside the assessment order dated 11.12.2018, treating it as a final assessment order rather than a draft assessment order under Section 144-C of the Income Tax Act, 1961.

Summary:

Issue 1: Tribunal's Justification in Setting Aside the Assessment Order
- The challenge in the appeal is against the order dated 29.07.2022 by the Income Tax Appellate Tribunal, which set aside the order passed by the Commissioner of Income Tax (Appeals) and the assessment order dated 11.12.2018.
- The respondent/assessee, involved in rendering support services in computer-aided engineering, filed its return for the assessment year 2015-16. The assessment was subjected to scrutiny under Section 143(2) of the Act, and a reference was made to the Transfer Pricing Officer (TPO) for determining the Arm's Length Price (ALP) of the international transactions.
- The statutory requirement involves forwarding a draft assessment order to the assessee, calling for objections within thirty days before passing the final assessment order. The dispute arose because the draft assessment order was accompanied by a notice of demand and penalty under Section 271(1)(c) of the Act.
- The respondent/assessee did not respond to the draft assessment order, leading to the final assessment order on 10.01.2019, which was appealed before the CIT (Appeals) and subsequently to the Tribunal. The Tribunal allowed the appeal, setting aside the CIT (Appeals) order.
- The appellant argued that the statutory requirement was complied with, and the draft assessment order inadvertently included a notice of demand and penalty. The Tribunal's reliance on a Supreme Court judgment was also contested as being contextually different.
- The court examined Section 144-C of the Act, which mandates the draft assessment order procedure, and found that the inclusion of a notice of demand and penalty indicated that the draft assessment order was treated as a final assessment order.
- The High Court of Judicature at Andhra Pradesh and the Madras High Court have held that passing a final assessment order without following the draft assessment order procedure is contrary to Section 144-C and renders the assessment order null and void.
- The court concluded that the Tribunal's decision to set aside the assessment order was proper, legal, and justified. The appeal was rejected, with no order as to costs, and miscellaneous petitions, if any, were closed.