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TMI Blog2023 (11) TMI 230X X X X Extracts X X X X X X X X Extracts X X X X ..... eedings. Though the ld. DR time and again has stated that the conclusion of the AO speaks for the order as a draft assessment order and there should not be any confusion on that point. In our considered view, the impugned order by the AO has bypassed the relevant sub-section i.e. sub-section (3) and (13) to section 144C of the Act. Whether by by-passing mandatory provisions of the Act can assessment survive? - As decided in Dipak Babaria [ 2015 (8) TMI 775 - SUPREME COURT] if the law requires that a particular thing should be done in a particular manner, it must be done in that way and none other. State cannot ignore the policy intent and procedure contemplated by the statute. We are of the considered opinion that by issuing the demand notice on 28.06.2022 itself the Assessing Officer has bypassed all the mandatory sub-sections of section 144C. DR stated that by participating in the subsequent proceedings, the assessee was well aware that the order passes is merely a draft assessment order and not final assessment order and the assessee cannot blow hot and cold in the same breath - As decided in MR. P. FIRM, MAUR. [ 1964 (10) TMI 13 - SUPREME COURT] Approbate and Reprobate is only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of section 144C of the Act. 2. That the Ld. AO has grossly erred in law and on the facts in passing the final order dated 28.06.2022 instead of passing the draft order u/s 143(3) r.w.s 144C (1) of the Act, which is evident from the fact that the notice of demand u/s 156 of the Act was issued along with said purported draft order dated 28.06.2022 and the penalty proceedings u/s 271AAB (1A) (b) r.w.s section 274 of the Act were also initiated therein. 2.1 The so-called draft assessment order dated 28.06.2022 passed by the Ld. AO is in contravention of the provisions of section 144C (1) of the Act, and therefore, the subsequent order passed by the Hon'ble DRP-1 u/s 144C (5) of the Act dated 16.03.2023, as well as the impugned order passed by the Ld, AO u/s 143(3) read with section 144C(13) of the Act dated 27.04.20203, are illegal and void. 2.2 The Hon'ble DRP has also erred in law and on the facts in holding that the order passed by the. AO dated 28.06.2022 was a draft order and omission of words like "Proposed Initiation of Penalty "and "Proposed adjustments" ete. can at best to be considered to be technical irregularity and the same does not vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;ble High Court of Karnataka in the case of CISCO Systems Services BV 293 Taxmann.com 85, Hon'ble High Court of Madras in the case of Vijay Television Pvt Ltd 46 Taxmann.com 113 and Hon'ble High Court of Bombay in the case of SHL (India) Ltd WPL No. 11293 of 2021. 8. The ld. counsel for the assessee also relied on the decision of the Hon'ble High Court of Delhi in the case of Nokia India Pvt ltd, 98 TAxmann.com, Turner International India Pvt Ltd 4260/2015, JCB India Ltd WP(C) 3399/2016 and Control Risk India Pvt Ltd SLP (Civil) 7090/2018 and also the decision of the co-ordinate bench in the case of Perfetti Van Melle [India] Pvt Ltd ITA No. 9116/DEL/2019 9. The ld. counsel for the assessee read the operative part of all the decisions referred to by him during the course of his submissions. 10. Defending the orders of the authorities below, the ld. DR vehemently stated that the order which has been alleged to be not a draft assessment order is in substance, a draft assessment order, which is evident from the language used by the Assessing Officer while proposing the impugned additions. The ld. DR emphatically referred to the concluding para of the impugned order whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions, complete, notwithstanding anything to the contrary contained in section 153 51a[or section 153B], the assessment without providing any further opportunity of being heard to the assessee, within one month from the end of the month in which such direction is received." 17. In light of the aforesaid provisions, let us now consider the facts. The impugned order is dated 28.06.2022. Tax Computation Sheet is dated 28.06.2022. Notice of demand is also dated 28.06.2022 and penalty notice is also dated 28.06.2022. Irrespective of the language of the order for all intent and purposes, keeping in mind the relevant provisions of the Act, it can be said that the proceedings ended on 28.06.2022 and, therefore, any orders passed thereafter are non est. 18. The contentions of the ld. DR that not only the assessee has participated in the proceedings, but has also filed objections before the DRP and also participated thereon. It is the say of the ld. DR that now at this stage, the assessee cannot say that the said order is not a draft order and is in contravention of the provisions of section 144C(1) of the Act. 19. We do not find much force in these contentions of the ld. DR, as, in our co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will be payable by the assessee for the assessment year in question and that the demand notice under section 156 has to be issued in consequence of such an order. The statute does not, however, require that both the computations (i.e., of the total income as well as of the sum payable) should be done on the same sheet of paper, the sheet that is superscribed "assessment order". It does not prescribe any form for the purpose. It will be appreciated that once the assessment of the total income is complete with indications of the deductions, rebates, reliefs and adjustments available to the assessee, the calculation of the net tax payable is a process which is mostly arithmetical but generally time-consuming. If, therefore, the Income-tax Officer first draws up an order assessing the total income and indicating the adjustments to be made, directs the office to compute the tax payable on that basis and then approves of it, either immediately or some time later, no fault can be found with the process, though it is only when both the computation sheets are signed or initialled by the Income-tax Officer that the process described in section 143(3) will be complete" "In our ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt in the case of Dipak Babaria 3SCC 502 wherein the Hon'ble Supreme Court has held as under: "If the law requires that a particular thing should be done in a particular manner, it must be done in that way and none other. State cannot ignore the policy intent and procedure contemplated by the statute. 25. In light of the above ratio laid down by the Hon'ble Supreme Court, we are of the considered opinion that by issuing the demand notice on 28.06.2022 itself the Assessing Officer has bypassed all the mandatory sub-sections of section 144C of the Act. 26. The ld. DR has vehemently stated that by participating in the subsequent proceedings, the assessee was well aware that the order dated 28.06.2022 is merely a draft assessment order and not final assessment order and the assessee cannot blow hot and cold in the same breath. 27. The question whether participation in subsequent proceedings would estop the assessee from challenging the validity of the order dated 27.04.2023 has been answered by the Hon'ble Supreme Court in the case of V Mr. T.P. Firm MUAR in 56 ITR 67 wherein the Hon'ble Supreme Court has laid down the ratio : "Approbate and Reprobate" is only species ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the DRP. The failure to do so, according to Mr. Syali, was not a mere irregularity. He further referred to a decision of the Gujarat High Court dated 31st July 2017 in Tax Appeal No. 542 of 2017 (Commissioner of Income Tax, Vadodara-2 v. C-Sam (India) Pvt. Ltd.) 16. In response, Mr. Sanjay Jain, learned Additional Solicitor General of India appearing for the Revenue, submitted that there was an efficacious alternative remedy available to the Petitioner to file appeals against the impugned final assessment orders passed by the AO. It is denied that it was mandatory on the part of the AO to pass a draft assessment order since this was a second round before the TPO pursuant to remand by the ITAT. Moreover, it was not as if the ITAT had set aside the entire assessment order of the AO. The setting aside was only in respect of the transfer pricing adjustment and that too with a specific direction to the AO for determining the arms length price "after considering fresh comparables." Since the assessment itself was not cancelled by the ITAT or completely set aside, it is the provisions of Section 153 (3) (ii) of the Act which would apply. Mr Jain submitted that the requirement of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on whether the final assessment order stands vitiated for failure to adhere to the mandatory requirements of first passing draft assessment order in terms of Section 144C(1) W.P.(C) Nos. 3399/2016, 3429/2016 & 3431/2016 Page 9 of 12 of the Act is no longer res intregra. There is a long series of decisions to which reference would be made presently. 12. In Zuari Cement Ltd. v. ACIT (decision dated 21st February, 2013 in WP(C) No.5557/2012), the Division Bench (DB) of the Andhra Pradesh High Court categorically held that the failure to pass a draft assessment order under Section 144C (1) of the Act would result in rendering the final assessment order "without jurisdiction, null and void and unenforceable." In that case, the consequent demand notice was also set aside. The decision of the Andhra Pradesh High Court was affirmed by the Supreme Court by the dismissal of the Revenue's SLP (C) [CC No. 16694/2013] on 27th September, 2013. 13. In Vijay Television (P) Ltd. v. Dispute Resolution Panel [2014] 369 ITR 113 (Mad.), a similar question arose. There, the Revenue sought to rectify a mistake by issuing a corrigendum after the final assessment order was passed. Consequently, not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is thus of great importance. When an Assessing Officer proposes to make variations to the returned income declared by an eligible assesses he has to first pass a draft order, provide a copy thereof to the assessee and only thereupon the assessee could exercise his valuable right to raise objections before the DRP on any of the proposed variations. In addition to giving such opportunity to an assessee, decision of the DRP is made binding on the Assessing Officer. It is therefore not possible to uphold the Revenue's contention that such requirement is merely a procedural. The requirement is mandatory and gives substantive rights to the assessee to object to any additions before they are made and such objections have to be considered not by the Assessing Officer but by the DRP. Interestingly, once the DRP gives directions under sub-section (5) of Section 144C, the Assessing Officer is expected to pass the order of assessment in terms of such directions without giving any further hearing to the assessee. Thus, at the level of the Assessing Officer, the directions of the DRP under subsection (5) of Section 144C would bind even the assessee. He may of course challenge the order of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of Nokia India Pvt Ltd has said that :
"Once there is a clear order of setting aside of an assessment order with the requirement of the Assessing Officer/TPO to undertake fresh exercise of determining the arm's length price, failure to pass draft assessment order would violate the provisions of section 144(1) of the Act. This is not a curable defect in terms of section 292 B of the Act."
34. Considering the facts of the case in totality, in the light of the decisions discussed hereinabove, we have no hesitation to hold that the proceedings culminated on 28.06.20228 when the demand notice was issued and served upon the assessee along with penalty notice u/s 274 of the Act and, therefore, all the subsequent proceedings and orders become non est.
35. Ground Nos. 1 and 2 with its sub-grounds argued before us are allowed.
36. Since we have held that the order of the DRP and final assessment order are non est, therefore, we do not find it necessary to dwell into the other grounds raised in the Appeal Memo.
37. In the result the appeal of the assessee in ITA No. 1818/DEL/2023 is allowed.
The order is pronounced in the open court on 17.10.2023. X X X X Extracts X X X X X X X X Extracts X X X X
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