2023 (12) TMI 775 - AT - Income Tax

Validity of assessment order against appellant/foreign company without issuing a draft assessment order as mandated u/s 144C - Scope of term eligible assessee - Reference to dispute resolution panel - HELD THAT - It is an admitted fact that the assessee-company is a Foreign Company within the meaning of the provisions of section 144C(15)(b)(ii) of the Act. Further, the assessee-company is also an eligible assessee as defined in section 144C(15) of the Act. It is the case of the Ld. AO that the Place of Effective Management POEM lies in India and hence the assessee shall be subjected to tax in India as per the Indian Income Tax provisions. However, while making the assessment, the Ld. AO has not followed the procedure mandated u/s. 144C of the Act in the case of the assessee. It is a fact that the assessee is a foreign company. Therefore, as per section 144C(1) of the Act, the Ld. AO is duty bound to pass the Draft or Proposed Assessment Order and shall forward the same to the eligible assessee to enable the assessee to file the objections, if any, before the Dispute Resolution Panel. However, in the instant case, the Ld. AO has not passed the Draft Assessment Order, as mandated u/s. 144C(1) of the Act, before making the assessment and passed the Final Assessment Order. Therefore, AO has not followed the procedure laid down u/s. 144C(1) of the Act and passed the final assessment order. It was incumbent on the part of the Ld. AO to have passed a Draft Assessment Order to adhere to the mandatory requirement of section 144C(1) of the Act otherwise it would result in invalidation of the final assessment order and the consequent demand and penalty also. Failure on the part of the Ld. AO to pass a draft assessment order u/s. 144C(1) of the Act would vitiate the final assessment order as one without jurisdiction. Assessment order passed by the Ld. AO in the case of the assessee is without jurisdiction and in violation of the mandatory provisions of section 144C(1) of the Act and therefore the assessment order passed u/s. 153C of the Act is null and void and unsustainable in law. Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the final assessment order without issuing a draft assessment order as mandated under section 144C of the Income Tax Act.
2. Adherence to mandatory procedural requirements under section 144C(1) of the Income Tax Act.

Summary:

Issue 1: Validity of Final Assessment Order Without Draft Assessment Order

The assessee, a foreign company, challenged the final assessment order passed by the Assessing Officer (AO) without issuing a draft assessment order as mandated under section 144C of the Income Tax Act. The Tribunal admitted the legal ground raised by the assessee regarding this procedural lapse.

The assessee argued that being a foreign company, it is covered by section 144C(15)(b)(ii) of the Act, which mandates the AO to first pass a draft assessment order. The assessee cited several judgments, including those from the Andhra Pradesh High Court and the Supreme Court, which held that failing to issue a draft assessment order renders the final assessment order null and void.

The Departmental Representative (DR) supported the orders of the Revenue Authorities and cited the judgment of the Madras High Court in the case of Volex Interconnect (India) (P.) Ltd. However, the Tribunal noted that this was a Single Judge decision and not binding.

Issue 2: Adherence to Mandatory Procedural Requirements Under Section 144C(1)

The Tribunal found that the AO did not follow the mandatory procedure under section 144C(1) of the Act, which requires issuing a draft assessment order to the eligible assessee. The Tribunal referenced section 144C and several High Court judgments, including those from the Bombay and Delhi High Courts, which held that failure to issue a draft assessment order results in the final assessment order being without jurisdiction and unenforceable.

The Tribunal concluded that the assessment order passed by the AO was without jurisdiction and in violation of the mandatory provisions of section 144C(1) of the Act. Consequently, the assessment order was declared null and void.

Conclusion:

The Tribunal quashed the assessment order passed by the AO under section 153C of the Act, dated 31/03/2022, as it was found to be without jurisdiction and unsustainable in law. As a result, the original grounds of appeal raised by the assessee on merits were deemed infructuous. The appeal filed by the assessee was allowed.

Result:

The appeal filed by the assessee is allowed. The judgment was pronounced in the open Court on 15th December, 2023.