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TMI Blog2018 (5) TMI 942X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstances of the case and in law, the assessment order dated March 26, 2013 issued by the Assessing Officer ("AO") is bad in law and void ab initio as the same has been passed in violation of section 144C of the Income-tax Act, 1961 ("Act".) 2. That on the facts and circumstances of the case and in law, the AO erred in violating the procedure laid down under section 144C of the Act by issuing notice of demand and penalty notice under section 274 read with section 271(1)(c) of the Act along with the assessment order dated March 26, 2013 instead of issuing a draft assessment order." 3. Assessee raises the issue mentioning that the order passed by the AO u/s.144C(1) constitutes an assessment order as the same is followed by issue of the demand notice u/s.156 and penalty notice u/s.274 r.w.s.271(1)(c) of the Act. Such an assessment order is not sustainable as the same is not the product of the proper procedure laid down in the statute. These issues are raised as additional grounds before the Tribunal. On the admission of additional grounds, assessee demonstrated that the issues raised in the said grounds constitute legal in nature and they do not call for any investigation in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 56 of the Act as well as the notice u/s.274 r.w.s.271(1)(c) of the Act. The copies of these notices are available in the records. The demand notice u/s.156 of the Act was issued to the assessee with the tax demand of Rs. 13.93 crores (rounded off) for furnishing inaccurate particulars of income. In the said draft assessment order itself, vide Para No.24, the AO calls it a proposed order of assessment, against which the assessee was given 30 days either to accept the same or file objections before the Dispute Resolution Panel (DRP). He further submitted that objections were raised before the DRP on merits but no such preliminary issue was raised and the said objections were dismissed. The AO thereafter, passed order u/s. 143(3) r.w.s. 144C(13) of the Act, dated 15-01-2014, wherein the said adjustment on account of arm's length price of international transactions was made in the hands of assessee. Ld. AR further submitted that draft assessment order passed by the AO raising the demand notice along with notice for initiation of penalty proceedings is unsustainable. 7. Ld. DR for the Revenue on the other hand relied on the orders of the lower authorities below on this legal issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the plea of learned Departmental Representative for the Revenue in this regard and the same is dismissed. 10. We find similar issue arose before Tribunal in the case of DCIT Vs. M/s. Rehau Polymers Pvt. Ltd. in ITA No.566/PUN/2015, relating to assessment year 2010-11 with CO No.27/PUN/2017, order dated 14.06.2017, wherein it was held as under:- "10. We have heard the rival contentions and perused the record. The issue which arises in the present appeal is in relation to the draft assessment order passed by the Assessing Officer under section 143(3) r.w.s. 144C(1) of the Act. After receipt of the order under section 92CA(3) of the Act from the TPO, the Assessing Officer was supposed to issue draft assessment order proposing to make the addition. However, the Assessing Officer called the said order to be draft assessment order but assessed income in the hands of assessee and further issued demand notice along ITNS- 150, after charging interest under sections 234A, 234B & 234C, etc. He also initiated penalty proceedings under section 271(1)(c) of the Act. Undoubtedly, the assessee on understanding that the same was draft assessment order, made objections to the DRP, who gave ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing Officer also issued demand notice under section 156 of the Act dated 28.02.2014 and also issued notice under section 274 r.w.s. 271 of the Act. The assessee on understanding that it was draft assessment order filed objections before the DRP on 07.04.2014 i.e. within the time allowed under the Statute. However, the said objections of assessee were not considered by the DRP and the same were rejected on the surmise that the order passed by the Assessing Officer was final assessment order since the Assessing Officer had also issued demand notice under section 156 of the Act and show cause notice under section 274 r.w.s. 271 of the Act for levy of penalty. The DRP observed that since the assessment order passed by the Assessing Officer was final assessment order, it did not have any jurisdiction to issue any directions on such final assessment order. After receiving the DRP's order, the assessee filed an application before the Assessing Officer for necessary action. The Assessing Officer in reply, vide letter dated 30.01.2015 stated that the DRP had clearly mentioned that the order passed on 28.02.2014 was final order and not draft order, so the Assessing Officer does not have a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thereafter, if no objections are received and / or the assessee files his acceptance to the variation to the Assessing Officer, then the Assessing Officer is empowered to complete the assessment within one month from the end of the month thereof. In case, the assessee files his objection before the DRP and where the said Panel issues directions as it thinks fit, then the Assessing Officer on receipt of such directions shall complete the assessment in conformity with such directions. In view of the said provisions of the Act, the compliance to section 144C of the Act is mandatory in all such cases, where the TPO proposes variation in the income or loss returned, which is prejudicial to the interests of assessee. Only after complying with the conditions laid down in section 144C of the Act, the Assessing Officer is empowered to pass the order under section 143(3) r.w.s. 144C of the Act completing the assessment on such enhanced income or variation in the loss returned by the assessee. 8. The Hon'ble Madras High Court in the case of Vijay Television Writ Petition Nos.1526 and 1527 of 2014 & M.P. Nos.1 and 1 of 2014, it was held that non-passing of draft assessment order after adju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of the Hon'ble High Court of Andhra Pradesh at Hyderabad in M/s. Zuari Cements Ltd. Vs. ACIT in WP No.5557/2012, vide judgment dated 21.02.2013 and the Hon'ble Supreme Court in ACIT Vs. M/s. Zuari Cement Ltd. vide Special Leave Petition CC No.16694/2013, judgment dated 27.09.2013 and it was held as under:- "20. The Hon'ble High Court of Andhra Pradesh at Hyderabad in M/s. Zuari Cements Ltd. Vs. ACIT (supra) on similar issue where after receipt of the order passed by the TPO under section 92CA(3) of the Act, the Assessing Officer had passed the assessment order under section 143(3) of the Act raising a demand of Rs. 27,40,71,913/- without giving an opportunity to the assessee under section 144C of the Act, observed that where the Assessing Officer proposes to make on or after 01.10.2009, any variation in the income or loss returned by the assessee, then notwithstanding to the contrary contained in the Act, he shall first pass the draft assessment order, forward the same to the assessee and after assessee files his objections, if any, the Assessing Officer shall complete the assessment within one month, in view of the provisions of section 144C of the Act. It was further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taken by the Hon'ble High Court of Andhra Pradesh at Hyderabad has been approved by the Apex Court and any order contradicting the conditions laid down in section 144C of the Act is null and void and unenforceable in law. 22. Further, the Delhi Bench of Tribunal in the case of Capsugel Healthcare Limited in ITA No.1356/Del/2012, vide order dated 30.09.2014 have upheld the similar view that "Failure to pass draft assessment order after TPO's order renders proceedings void. Show cause notice cannot be quoted with draft assessment order". 10. Further, the Hon'ble Bombay High Court in International Air Transport Association Vs. DCIT (supra) have also down the similar proposition and held as under:- "4. The Petitioner had consequent to the assessment order dated 23rd March 2015 filed its objection in terms of Section 144C(2) of the Act to the Dispute Resolution Panel ("DRP"). By an order dated 7th October, 2015, the DRP refused to pass any direction on the objections because the objections had been filed in respect of a final order under Section 143(3) of the Act and not in respect of the draft assessment order passed under Section 144C(1) of the Act. The order dated 7th Octobe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ointed out that the DRP had misinterpreted and the issue may be sent back to the file of DRP. He also pointed out that the facts before the Hon'ble Bombay High Court were different and the said proposition is not applicable. We find no merit in the plea of learned Departmental Representative for the Revenue. The Assessing Officer passed the order on 28.02.2014 along with which it also issued the demand notice and show cause notice for levy of penalty. In other words, the Assessing Officer has crystallized the demand in the case of assessee. Whereas, as per the provisions of the Act where the Assessing Officer proposes to vary the income in the hands of assessee, there was requirement to issue show cause notice to the assessee to the said additions, by way of draft assessment order. The demand does not get crystallized in draft assessment order. Undoubtedly, the Assessing Officer had issued covering letter where it says that it is draft assessment order but in spirit, it had finalized the assessment, wherein the demand was crystallized and demand notice was issued to the assessee. The Assessing Officer has not followed the correct procedure as provided in the Statute and has passed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 292B of the Act. Relying on earlier decision of the said High Court, it was observed that section 292B of the Act could not save an order not passed in accordance with the provisions of the Act, where the issue involved was not about the mistake in the said order but the power of Assessing Officer to pass the order. Further, reference was made to the decision of said High Court itself in Turner International India (P.) Ltd. Vs. DCIT (2017) 82 taxmann.com 125 (Del), wherein it was held that it was mandatory for the Assessing Officer to pass draft assessment order under section 144C of the Act prior to issuing final assessment order. The relevant findings of the Hon'ble High Court are in para 21 which reads as under:- "21. In almost identical facts, in Turner International (supra), this Court held in favour of the Assessee on the ground that it was mandatory for the AO to have passed a draft assessment order under Section 144C of the Act prior to issuing the final assessment order. The following passages from said decision are relevant for the present purposes: "11. The question whether the final assessment order stands vitiated for failure to adhere to the mandatory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te assessment order which is not envisaged under section 143(3) r.w.s. 144C of the Act. Accordingly, we hold that the draft assessment order passed in the case is invalid in law and hence the consequent order passed does not survive. In view of our deciding the jurisdictional issue in favour of assessee, we do not address the issues on merits. The additional grounds of appeal No.1 and 2 raised by the assessee are thus, allowed. 9. The undisputed facts in this case include that the AO issued notice of demand u/s.156 of the Act as well as issue of notice u/s.274 r.w.s. 271(1)(c) of the Act at the stage of making draft assessment order as per the provisions of section 144C(1) of the Act. Normally, such notices are issued at the end of the assessment proceedings and at the time of making assessment order. The fact that demand is raised is evident on the fact of draft assessment order which bears the entry of the demand in the register of Demand Collection and Balance (DCR 02/45, dated 20-2-13). The notice u/s.274 of the Act is found issued for furnishing of inaccurate particulars of income. On law, it is settled legal proposition at the level of High Courts that the assessment orders ..... X X X X Extracts X X X X X X X X Extracts X X X X
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