Draft Assessment order u/s 144C with demand and penalty notice is illegal as it partakes the character of final assessment order – ITAT
ABCAUS Case Law Citation:
ABCAUS 3013 (2019) (06) ITAT
Important Case Laws Cited/relied upon by the parties:
Pr. CIT Vs. Lionbridge Technologies Pvt. Ltd.
International Air Transport Association Vs. DCIT, 68 taxmann.com 246 (Bom.)
Vijay Television (P.) Ltd. Vs. Dispute Resolution Panel, 46 taxmann.com 100 (Mad.)
ACIT Vs. Skoda Auto India Pvt. Ltd.
DCIT Vs. M/s. Rehau Polymers Pvt. Ltd.
Soktas India Pvt. Ltd. Vs. Asstt. CIT
The appeal by the assessee was directed against the assessment order passed u/s 143(3) r.w.s. 144C of the Income Tax Act, 1961 (“the Act”).
The assessee apart from challenging the additions on merits, also raised additional grounds assailing validity of Assessment Order (Draft Assessment Order). According to the appellant assessee company, the Assessing Officer (AO) erred in issuing the notice of demand notice u/s 156 and penalty notice u/s. 274 r.w.s. 271(1)(c) of the Act along with the said assessment order.
It was alleged that the assessment order passed was invalid, bad in law and void ab initio as the same has been passed in violation of procedures laid down in section 144C of the Act.
The assessee company was engaged in the business of manufacturing and selling of Passenger Cars and trading in spare parts and accessories thereof.
During the relevant assessment year, the assessee had entered into various international transactions with its Associated Enterprises (AEs). A reference was made to Transfer Pricing Officer (TPO) u/s. 92CA(1) of the Act to benchmark arm’s length price (ALP) of international transactions entered into with AEs.
The TPO made adjustment on international transactions with AEs. Thereafter, the Assessing Officer made additions proposed by the TPO u/s. 92CA and also made further additions on account of Supervision charges and SAP implementation.
Along with the assessment order the Assessing Officer issued notice of demand u/s. 156 of the Act and notice u/s. 271(1)(c) of the Act for initiating penalty proceedings.
The Tribunal observed that it is no more res integra that final assessment order passed without passing Draft Assessment order is unsustainable and the subsequent proceedings if any arising there from are vitiated.
It was noted that in the instant case, the Draft Assessment Order has been passed and thereafter the assessee has filed objection before DRP. After the directions of DRP, final assessment order had also been passed. However, the Assessing Officer committed an error in issuing demand notice u/s 156 and notice of penalty proceedings u/s. 271(1)(c) along with the Draft Assessment Order.
The Tribunal opined that since, the said notices were issued by the Assessing Officer along with the Draft Assessment Order, the said assessment order partook the character of final assessment order. It was also noted that the Assessing Officer at no point of time after issuing notice u/s. 156 and u/s. 271(1)(c) had withdrawn the said notices.
The Tribunal observed that in catena of judgments by Hon’ble High Courts it had been held that passing of final assessment order u/s. 144C(13) r.w.s. 143(3) without passing Draft Assessment Order u/s. 144C(1) is in violating of provisions of section 144C and hence, such final assessment order is unsustainable.
The Tribunal opined that the failure of Assessing Officer to adhere mandatory requirement of section 144C in not first passing the Draft Assessment Order invalidated the final assessment order and subsequent the proceedings arising there from.
Accordingly the Tribunal set aside the assessment order as illegal and invalid.