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TMI Blog2023 (10) TMI 922X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act, was ever framed in the present case. While the CIT exercised the revisionary powers enshrined u/s 263 this action was primarily rooted in the belief that the original assessment was erroneous and potentially detrimental to the revenue s interests. However, on remand, the AO passed the impugned order, revising the Petitioner s income, and increased its tax liability. Thus, the impugned order is clearly prejudicial to the interest of the assessee and a draft order should have been made available to the assessee. The mention of schematic and teleological method of interpretation underscores the significance of understanding the larger purpose behind a provision, rather than adopting a strictly literal interpretation. It must therefore be ascertained whether bypassing the procedures of Section 144C(1) would align with such an interpretative approach. In our opinion, the answer has to be in the negative. The process outlined in Section 144C(1) of the Act is not discretionary, but mandatory. It must be adhered to even when the assessment order is issued in line with directions from a higher authority. While Respondents argued that the provisions of Section 144C shal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 24th June, 2022, respectively.] are assailed on a jurisdictional ground that the mandate of Section 144C for issuance of draft assessment order, was not followed. Case set up by the Petitioner 2. The facts and the arguments laid out by Mr. Ashish Mehta, counsel representing the Petitioner, are detailed below: 2.1 The Petitioner-company, incorporated under the legal framework of Singapore, is primarily engaged in the business of operating ships. It is a tax resident of Singapore, and thus, it filed its return of income in India, declaring its total income as nil for the Assessment Year ( AY ) 2017-18. 2.2 On 23rd August, 2018, the return of income filed by Petitioner was selected for scrutiny under Section 143(2) of the Act and a notice requiring the Petitioner to furnish certain details, such as the nature of business activities, tax residency certificate, copy of agreements with Indian customers, financial statements, details of permanent establishment in India etc., was issued on 08th November, 2019. The Petitioner responded to the above queries vide correspondence dated 15th November, 2019, asserting that it does not have a permanent establishment in India. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assed this statutory mandate. As the Petitioner is a foreign entity incorporated under laws of Singapore, it qualifies as an eligible assessee and Respondent No. 1 ought to have issued a draft assessment order before passing a prejudicial order, in compliance with Section 144C(1) of the Act. The requirement of supplying a draft order affords the assessee a fair opportunity to raise objections before the Dispute Resolution Panel ( DRP ). However, the Petitioner has been deprived of this recourse by Respondent No. 1. Furthermore, pursuant to the impugned order, a notice imposing a staggering demand of INR 10,51,97,960/-, has also been issued to the Petitioner. Penalty proceedings for misreporting the income have also been initiated, in terms of Section 270A of the Act. Given the non-adherence to Section 144C(1) of the Act, such actions are inherently flawed and lack legal standing. 2.7. It is an established legal principle that any order passed by the AO during remand proceedings, or in adherence to instructions of a higher-ranking authority, qualifies as an assessment order under Section 143(3) of the Act. This conclusion is further bolstered by Respondent No. 1 s notice, rai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rpose which lies behind it. 3.4. An efficacious alternate remedy exists, the Petitioner can assail the impugned order or the revisional order passed by the CIT under Section 263 of the Act (pursuant to which the impugned order has been passed), before the Income Tax Appellate Tribunal. Analysis and findings 4. We have deliberated on the afore-noted contentions. The crux of the dispute hinges on the procedural compliance of Section 144C(1) of the Act by Respondent No. 1. The question that arises for consideration is whether the failure to pass a draft assessment order before the final assessment, as required for a foreign company such as the Petitioner, invalidates the impugned order dated 23rd June, 2022 and the ensuing proceedings. 5. For the sake of convenience, relevant portion of Section 144C above is extracted hereunder: 144C. Reference to dispute resolution panel - (1) The Assessing Officer shall, notwithstanding anything to the contrary contained in this Act, in the first instance, forward a draft of the proposed order of assessment (hereafter in this section referred to as the draft order) to the eligible assessee if he proposes to make, on or aft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 144C(1) would align with such an interpretative approach. In our opinion, the answer has to be in the negative. Section 144C commences with a non-obstante clause and overrides other provisions of the Act. It prescribes a special procedure for passing an assessment in case of an eligible assessee. The process outlined in Section 144C(1) of the Act is not discretionary, but mandatory. It must be adhered to even when the assessment order is issued in line with directions from a higher authority. While Mr. Chawla argued that the provisions of Section 144C shall not apply to orders issued under Section 263, in our opinion, the exercise of revisionary powers does not dilute the requirement of compliance with Section 144C of the Act. The exception carved out in Section 144C(14A) extends to assessment/ re-assessment orders passed by the AO with the prior approval of the Principal Commissioner or Commissioner, as per Section 144BA(12) of the Act. The nature of proceedings initiated under Section 144BA differs from the ones commenced under Section 263. Thus, Mr. Chawla s reliance upon this provision is misconceived, and does not aid the Respondents case. Section 144C(14A) does not disp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 1 s omission to pass a draft assessment order is not merely a procedural oversight, but a substantive lapse, which renders the subsequent impugned order devoid of jurisdiction. The question whether the final assessment order stands vitiated for failure to adhere to the mandatory requirement of first passing the draft assessment order in terms of Section 144C(1) of the Act is no longer res integra; there is a long series of decisions where the Court has explained the legal provision/ position. 1 11. For the foregoing reasons, we hold that failure by Respondent No. 1 to adhere to the mandatory requirement of Section 144C(1) of the Act and pass a draft assessment order, would result in invalidation of the final assessment order and the consequent demand notice and penalty proceedings. 12. The present petition is therefore, allowed with following directions: 12.1 Impugned order dated 23rd June, 2022, demand notice dated 23rd June, 2022, and penalty notice dated 24th June, 2022, issued by Respondent No. 1, are quashed. 12.2 The matter is remanded back to AO to proceed in terms of order dated 24th March, 2022 passed by CIT under Section 263 of the Act. 13. Disposed o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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