9911796707
TMI Blog2024 (12) TMI 495X X X X Extracts X X X X X X X X Extracts X X X X ..... gible assessee by Finance Act, 2020 w.e.f. 1.4.2020. Even the CBDT Explanatory Memorandum of Finance Bill, 2020 clarifies the amendment took place w.e.f. 1.4.2020. This amendment will take effect from 1st April, 2020. Thus, if the AO proposes to make any variation after this date, in case of eligible assessee, which is prejudicial to the interest of the assessee, the above provision shall be applicable. Therefore, all the assessment orders passed subsequently are squarely covered by the above provisions of the Act. There cannot be any dispute on this issue. Hon ble Delhi High Court, in a bunch of writ petitions, led by Principal Commissioner of Income Tax vs Sumitomo Corporation India (P.) Ltd. [ 2024 (9) TMI 157 - DELHI HIGH COURT ] has quashed the final assessment orders passed without a draft order of assessment being passed as per the provisions of section 144C(1) of the Income-tax Act. We hold that the assessment order passed u/s 153A/143(3) without complying with the mandatory provision section 144C of the Act could not be cured in any manner and therefore, is quashed, thus allowing the appeal. - Shri Sandeep Gosain, Judicial Member And Shri Prabhash Shankar, Accountant Mem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. On the facts and circumstances of the case and in law, the Ld. CIT(A) ought to have allowed deduction of Rs. 20,00,000/- u/s 35AC of the Act. E) Ad-hoc addition of cash in hand 5. The Ld. CIT (A) erred in disallowing Rs. 1,00,000/-on ad-hoc basis. On the facts and circumstances of the case and in law, ad-hoc addition made the Ld. CIT ought to be deleted. F) Assessing rental income under the head Income from Other sources 6. The Ld. CIT (A) erred in directing the AO to assess rental Rs. 1,30,360/- under the head income from Other sources as against income from House Property offered by the appellant. On the facts and circumstances of the case and in law, rental income ought to be assessed under the head income from House Property . 7. The Ld. CIT (A) has also erred is not applying Article 22'Other Income of the DTAA between India and UAE for the determination of the Country in which the income is taxable. On the facts and circumstances of the case and in law, Article 22-'Other Income' of the DTAA between India and UAE ought to have been applied and consequently, income ought to have not taxed in India, as the same has not been expressly dealt with in any of the Arti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without jurisdiction, non-curable and a nullity/void and hence the said final assessment order ought to be annulled/cancelled including on the principles of stare decisis. Section 144C of the IT Act, provides as under. 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 after the 1st day of October, 2009, any variation which is prejudicial to the interest of such. We submit that section 144C(1) makes it very clear that the AO has to in the first instance pass a draft assessment order in case there is variation which is prejudicial of the assessee. The term in the first instance under the said section must be understood as the first step the AO has to do in the series of acts that has to be performed under the said section for an eligible assessee. In the context of section 144C(15) an eligible assessee is a separate class of assessee. The eligible assessee has been defined to include (amended by Finance Act, 2020) the following: (a) any person in whose ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n eligible assessee and included any non- resident not being a foreign company or any foreign company as an eligible assessee instead of any foreign company. The relevant extract of the Memorandum explaining the bill of 2020 (with respect to amendment in section 144C) is reproduced as under:- Amendment in Dispute Resolution Panel (DRP) - clause 70 of the Memorandum Section 144C of the Act provides that in case of certain eligible assessees, viz., foreign companies and any person in whose case transfer pricing adjustments have been made under sub-section (3) of section 92CA of the Act, the Assessing Officer (AO) is required to forward a draft assessment order to the eligible assessee, if he proposes to make any variation in the income or loss returned which is prejudicial to the interest of such assessee. Such eligible assessee with respect to such variation may file his objection to the DRP, a collegium of three Principal Commissioners or Commissioners of income-tax. DRP has nine months to pass directions which are binding on the AO. It is proposed that the provisions of section 144C of the Act may be suitably amended to:- (A) include cases, where the AO proposes to make any variat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt order, the definition of eligible assessee included 'any non- resident, as the same was amended w.e.f 01.04.2020 by the Finance Act, 2020 for any order passed after 01.04.2020. The proposition that the provisions of section 144C will apply to any assessment year in the case of an eligible assessee if a variation is proposed by the AO on or after 1st October 2009 is no more res-integra. Reference is drawn to the following judgements: Andhra Pradesh High Court in the case Zuari Cement Ltd v. Asstt. CIT WP No. 5557 of 2012 (Andra Pradesh) held as under: A reading of the above section shows that if the Assessing Officer proposes to make, on or after 01.10.2009, any variation in the income or loss returned by an assessee, then, notwithstanding anything to the contrary contained in the Act, he shall first pass a draft assessment order, forward it to the assessee and after the assessee files his objections, if any, the Assessing Officer shall complete assessment within one month. The assessee is also given an option to file objections before the Dispute Resolution Panel in which event the fatter can issue directions for the guidance of the Assessing Officer to enable him to complet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cedure laid down in section 144C in assessing the income of the appellant, whereby the final assessment orders are void, bad-in-law, non-est, one without jurisdiction, non-curable and a nullity/void and hence the said final assessment orders ought to be annulled/cancelled. The Hon'ble Madras High Court in the case of GE Oil and Gas India Private Lid vs ACIT 436 ITR 168 (Madras) in Para 4, the Hon' HC has made it clear that, The scheme of assessment in terms of Section 144C statutorily requires the officer to pass a draft assessment order at the first instance and put the same to the assessee for its acceptance or for filing of objections before the Dispute Resolution Panel. The language of Section 144C makes this position more than abundantly clear. Failure to follow the procedure prescribed by the Act invalidates the entire assessment order and is not a curable defect 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. Reference is drawn to Tumer International India Pvt. Ltd. v. Dy. CIT, DHC Neutral Cita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statute, as the provision dearly mandates the Assessing Officer to pass and furnish a draft Assessment Order in the first instance in such a case The legislature, in our view, has intended to give an important opportunity to Petitioner, who is an eligible assessee, which in our view, has been taken away in our view, failure to follow the procedure under section 144C(1) would be a jurisdictional error and not merely procedural error or a mere irregularity. The Assessment Order has not been passed in accordance with the provisions of section 144C of the IT Act This is not an issue, which involves a mistake in the sad order, but it involves the power of the Assessing Officer to pass the order. By not following the procedure laid down in section 144C(1) to pass and furnish a draft Assessment Order to Petitioner and directly passing a final Assessment Order and without giving Petitioner an opportunity to raise objections before the DRP, there is a complete contravention of section 144C, the Assessing Officer having wrongly assumed jurisdiction to straight away pass the final order This is not a mere irregularity but an incurable illegality. Even the provisions of section 2128 of the IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 16-3-2018 ITAT Brightstar Infrastructure Private Limited ITA No. 746/Mum/2022 Deawon Kang UP Co. Ltd vs Deputy Director of Income-tax (International Taxation-1), Chennai Thus, the position of AO to pass a draft assessment order first for an eligible assessee has no legal ambiguity. It is a settled position in low that the decision of the High Court is binding on the Tribunal and the Income Tax Authorities situated in the area over which the High Court has Jurisdiction. The Hon Bombay High Court has also upheld the position that if an assessee is an eligible assessee in terms of the provisions of Section 1440, then, the AO must, at the first instance, forward a draft assessment order. Failure to provide the draft assessment order, being a mandatory requirement, is an incurable defect. The decisions of Hon' Bombay High Court have binding effect In view of the foregoing, it is submitted that: Section 144C(1) of the Act is a non-obstante provision, which requires its compliance, irrespective of the other provisions that may be contained in the Act. The procedure prescribed under section 144C of the Act needs to be mandatorily followed and is not merely directory. Failure to follo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the said section has been brought into effect from 01.04.2020 and is not applicable in respect of earlier assessment years (the AO has not objected the same for AY 2020-21). 4. The appellant's rebuttal against the comments of the AO are as under: 5. Comment No 1 of the AO is as under: The assessing officer had stated that since the case of the assessee was dealt with u/s 153A of the Act as search seizure action was conducted on 22.10.2019 u/s 132 of the Act at the residence of the Petitioner, the provisions of Sec 144C are not applicable to the Petitioner and Sec 153A of the Act prevails over Sec 144C of the Act. 5.1 Appellant's rebuttal 5.1.1 On perusal of it a above comment, Your Honour will appreciate that the Ld AO has not disputed that the draft order was not passed in the case of the appellant The Ld AO has also not disputed that provision of section 144C is applicable; however, contended the case of the appellant is covered u/s 153A and section 153A overrides section 1440. 5.1.2 It is submitted that assessment proceedings for the relevant assessment year under section 153A of the Act were initiated on 02.02.2021 and the impugned assessment order was passed under se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed which is prejudicial to the interest of such assessee. Such eligible assessee with respect to such variation may file his objection to the DRP, a collegium of three Principal Commissioners or Commissioners of Income-tax. DRP has nine months to pass directions which are binding on the Ld. Assessing Officer. It is proposed that the provisions of section 144C of the Act may be suitably amended to:- (A) include cases, where the AO proposes to make any variation which is prejudicial to the interest of the assessee, within the ambit of section 144C; (B) expand the scope of the said section by defining eligible assessee as a non- resident not being a company, or a foreign company. This amendment will take effect from 1st April, 2020. Thus, if the AO proposes to make any variation after this date, in case of eligible assessee, which is prejudicial to the interest of the assessee, the above provision shall be applicable. 6.1.2 From the above, it is clear that that the amended provision of section 144C is applicable to any order passed after 01st April, 2020 irrespective of the assessment year involved. 6.1.3 The question whether section 144C is applicable for any order passed after intro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AO has correctly passed the draft assessment order. 6.1.8 In view of above, it is clear that the relevant criterion is the date on which the assessment order is passed and not the assessment year involved. 6.1.9 in the appellant case, there is no dispute that assessment order has been passed on 28 09 2021 (e. after 01.04.2020) hence the amended provision is very much applicable. In view of the stove, it is therefore submitted that the assessment order passed u/s 153A is without jurisdiction since the draft order ought to have been passed before passing the final assessment order as the amendment brought in section 144C was applicable for all the assessment orders passed on or after 01.04.2020. 5. The ld.CIT(A) has also discussed additional ground of appeal first in paras 12 to 12.17 on pages-22 to 28 of the order. He finally dismissed the ground on following reasoning: 1. The decisions of Hon ble Bombay and other high courts did not apply to the facts of the case where the assessee did not comply and co-operate at any stage of either search or assessment proceedings. 2. It is stated that section 144C was introduced in the staute as an alternate dispute resolution mechanism and not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has relied on the orders of authorities below. It is also pointed that as per sub-section 16 introduced by the Finance (No.2) Act 2024 has now laid down that the provisions of section 144C shall not apply to any proceedings under Chapter XIV-B. 6.1 We have carefully considered the above facts and the position of law. For better appreciation of the contention of the appellant, the provisions of sub-section (15) of section 144C are extracted below :- Reference to dispute resolution panel. 144C. (1) xxxxx xxxxx (15) For the purposes of this section, (a) Dispute Resolution Panel means a collegium comprising of three Principal Commissioners or Commissioners of Income-tax constituted by the Board for this purpose; (b) eligible assessee means, (i) any person in whose case the variation referred to in sub-section (1) arises as a consequence of the order of the Transfer Pricing Officer passed under sub-section (3) of section 92CA; and (ii) any non-resident not being a company, or any foreign company. 6.2 On mere perusal of the above provisions, it would be clear that the Assessing Officer is required to issue a draft assessment order in respect of an eligible assessee. There are two categor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the omission on part of the AO was merely a technical one which could be cured in terms of section 1292B of the Act, more so in the light of the non-compliant attitude of the assessee during income tax proceedings. However, we do not find any merit in his observations in the light of several decisions including that of jurisdictional High Court taking a specific stand that such a defect could not be cured. The allegation regarding lack of compliance would not make any material difference to the case in which specific provisions contained in the statute in this regard. The Ld. DR s reference to sub-section 16 of the Section 144C is not also not found to be of any significance as the said amendment is applicable from 01.9.2024 on prospective basis. 6.5 The assessee has placed reliance on a catena of judicial decisions which are directly applicable to the grounds in this regard i.e. mandatory nature of the provisions relating to NRI assessee and also that any omission on part of the AO is not curable and the provisions of section 292 B cannot come to the rescue of the Revenue.The jurisdictional High Court cited below clinches the issue in favour of the assessee as it is squarely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee to object to any variation, that is prejudicial to it. In this case, the order under Section 92CA (3) of the IT Act, proposed to make an adjustment of Rs. 107,454,337/- to the arm's length price considered as Nil by Petitioner and to that extent the said adjustment was evidently prejudicial to the interest of Petitioner. Depriving Petitioner of this valuable right to raise objection before DRP would be denial of substantive rights to the assessee, for which, in our view, the Assessing Officer has no power under the statute, as the provision clearly mandates the Assessing Officer to pass and furnish a draft Assessment Order in the first instance in such a case. The legislature, in our view, has intended to give an important opportunity to Petitioner, who is an eligible assessee, which in our view, has been taken away. In our view, failure to follow the procedure under Section 144C(1) would be a jurisdictional error and not merely procedural error or a mere irregularity. The Assessment Order has not been passed in accordance with the provisions of Section 144C of the IT Act. This is not an issue, which involves a mistake in the said order, but it involves the power of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oceeding to frame a Final Assessment Order without passing a Draft Assessment Order as per the provisions of section 144C(1) of the Act; and 2. Since the final assessment order was passed after expiry of time limit prescribed under section 153 of the Act, was liable to be quashed. Main observations of the Hon ble Delhi High Court for question (1) above are as follows: Failure to frame an assessment order in draft is clearly violative of the mandatory provisions of section 144C of the Act and any final assessment order framed in violation thereof would be a nullity. Relying upon various judgments and comparing section 144C of the Act with erstwhile section 144B of the Act, the contention of the Revenue that a failure to frame a draft assessment order was a mere procedural irregularity which could be remedied by restoring the file to the AO to pass a draft assessment order was rejected. It was also stated that a failure to frame a draft order of assessment not only curtails the right of the assessee to adopt corrective measures, but also deprives the assessee of a salutary right to challenge the draft in terms of the salutary mechanism laid in place. Accordingly, the writ petitions f ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
