Tribunal deems assessment order void for lack of draft order, citing violation of natural justice.

The Tribunal upheld the CIT(A)'s decision to quash the assessment order due to the AO's failure to issue a draft order under section 144C, deeming it a violation of natural justice and statutory provisions. The Tribunal emphasized that such procedural lapses render the assessment order void and without jurisdiction, leading to the dismissal of the appeal without addressing the merits of the adjustments or disallowances made by the Transfer Pricing Officer.

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Issues Involved:
1. Legality of the assessment order under section 143(3) without issuing a draft order under section 144C.
2. Whether the CIT(A) should have dealt with the merits of the adjustments made by the Transfer Pricing Officer (TPO).
3. Consideration of disallowances related to late payment of PF, disallowance under section 40(a)(ia), and interest on TDS on merits.

Detailed Analysis:

1. Legality of the Assessment Order under Section 143(3) without Draft Order under Section 144C:
The primary issue was whether the Assessing Officer (AO) erred in law by not issuing a draft assessment order under section 144C before passing the final order under section 143(3). The AO directly incorporated the arm's length price adjustment recommended by the TPO without providing the assessee the opportunity to object, which the CIT(A) deemed a violation of natural justice and the statutory provisions. The CIT(A) quashed the assessment order on this ground, citing decisions from the High Courts of Andhra Pradesh and Madras, which held that such an omission rendered the order void and without jurisdiction. The Tribunal upheld this view, emphasizing that the issuance of a draft order is mandatory under section 144C(1) when variations prejudicial to the assessee are proposed. The Tribunal referenced the case of Vijay Television Pvt. Ltd. and Zuari Cements Limited, where similar procedural lapses led to the quashing of the final assessment orders.

2. Whether the CIT(A) Should Have Dealt with the Merits of the Adjustments Made by the TPO:
The AO contended that the CIT(A) should have addressed the merits of the TPO’s adjustments. However, since the CIT(A) quashed the assessment order on procedural grounds, it did not delve into the merits of the adjustments. The Tribunal supported this approach, emphasizing that once the assessment order is deemed void due to procedural lapses, addressing the merits becomes redundant.

3. Consideration of Disallowances Related to Late Payment of PF, Disallowance under Section 40(a)(ia), and Interest on TDS on Merits:
The AO argued that the CIT(A) should have considered the issues of disallowance of late payment of PF, disallowance under section 40(a)(ia), and interest on TDS on their merits. However, since the entire assessment order was quashed on the technical ground of non-compliance with section 144C, these issues were not addressed by the CIT(A). The Tribunal upheld this decision, reiterating that procedural compliance is a prerequisite for a valid assessment order, and without it, any substantive issues become moot.

Conclusion:
The Tribunal upheld the CIT(A)’s decision to quash the assessment order due to the AO’s failure to issue a draft order under section 144C, which is a mandatory procedural requirement. The Tribunal emphasized that such procedural lapses render the assessment order void and without jurisdiction, and thus, there was no need to address the merits of the adjustments or disallowances. Consequently, the appeal was dismissed.

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