2024 (4) TMI 940 - HC - Income Tax

Obligation to pass a draft assessment order u/s 144C (1) - whether on remand the A.O. was obliged to pass a draft assessment order u/s 144C (1)? - HELD THAT - The Division Bench of this court in Dimension Data Asia Pacific PTE Ltd. 2018 (7) TMI 1256 - BOMBAY HIGH COURT has considered this issue. The court held that even in partial remand proceedings from the Tribunal the A.O. is obliged to pass a draft assessment order u/s 144C (1) of the Act. In our view this is a clear case of jurisdictional error. The assessment order passed by the A.O. i.e. impugned in this petition is vitiated on account of lack of jurisdiction and requires to be quashed and set aside as void ab initio.

Summary

Issues Involved:
1. Validity of the impugned order dated 30th January 2023.
2. Requirement of a draft assessment order u/s 144C(1) of the Income Tax Act, 1961.

Summary:

1. Validity of the Impugned Order Dated 30th January 2023:
The petitioner challenged the order and demand notice dated 30th January 2023 passed by the Deputy Commissioner of Income Tax, Mumbai, arguing that it was time-barred and non-est, resulting in the abatement of the assessment. The petitioner contended that the taxes paid for A.Y. 2009-10 in excess should be refunded with applicable interest.

The petitioner had filed its return of income for A.Y. 2009-10, which was selected for scrutiny assessment. The Transfer Pricing Officer (TPO) recommended an enhancement of Rs. 2,38,79,893/-, and the Assessing Officer (A.O.) incorporated these recommendations along with additional disallowances. The petitioner appealed against the final assessment order, and the Commissioner of Income Tax (Appeal) [CIT(A)] upheld the transfer pricing additions. The Income Tax Appellate Tribunal (ITAT) remanded the matter for fresh adjudication concerning the provision of back-office support services.

The A.O., following the ITAT's order, made a reference to the TPO, who suggested a transfer pricing addition of Rs. 1,73,51,834/-. The A.O. passed an order giving effect to the ITAT's order, determining a demand of Rs. 2,21,12,400/-. The petitioner argued that this order was barred by limitation and without jurisdiction.

2. Requirement of a Draft Assessment Order u/s 144C(1):
The petitioner argued that the A.O. was obliged to pass a draft assessment order u/s 144C(1) even in remand proceedings from the Tribunal. The Revenue contended that the draft order process is not required ad-infinitum and that a draft order had already been shared during the original assessment proceedings.

The court referred to the Division Bench's decision in Dimension Data Asia Pacific PTE Ltd. vs. Deputy Commissioner of Income Tax, which held that even in partial remand proceedings, the A.O. is obliged to pass a draft assessment order u/s 144C(1). The court emphasized that failure to follow this procedure is not merely procedural but a jurisdictional error.

The court also cited the case of Shell India Market Pvt. Ltd., reiterating that the requirement to pass a draft assessment order is mandatory and provides the assessee a substantive right to object to any prejudicial variation. Failure to follow this procedure results in a jurisdictional error, rendering the assessment order void ab initio.

Conclusion:
The court concluded that the assessment order passed by the A.O. was vitiated due to lack of jurisdiction and required to be quashed and set aside as void ab initio. The rule was made absolute in terms of prayer clause (a)(i), and the petition was disposed of accordingly.