2014 (11) TMI 134 - AT - Income Tax

Tribunal invalidates assessment order for failure to follow mandatory procedure under Income Tax Act

Capsugel Healthcare Ltd. Versus Assistant Commissioner of Income-tax, Rewari Circle, Rewari

The Tribunal ruled in favor of the assessee, holding that the assessment order passed without issuing a draft assessment order under Section 144C of the ... Validity of corrigendum issued to the order passed u/s 144C - TPO instead of passing a provisional order or a draft assessment order, has passed a final assessment order - Whether the AO has failed to failure to forward a draft of the proposed order of assessment to the company and thereby not following the procedure laid down in Section 144C – Held that:- Following the decision in Vijay Television Pvt Ltd Vs DRP [Vijay Television (P.) Ltd. Versus Dispute Resolution Panel, Chennai] - in and by the order dated 15.04.2013, the second respondent granted thirty days’ time to enable the assessee to file their objections. On receipt of the corrigendum dated 15.04.2013, the assessee company approached the first respondent, but the first respondent declined to issue any direction to the assessment officer on the ground that the first respondent has got jurisdiction only to entertain such an appeal if the order passed by the second respondent is a pre-assessment order - the first respondent declined to entertain the objections raised by the assessee company on the ground that the order passed is not a draft assessment order, rather it is a final order. Where there is an omission on the part of the AO to follow the mandatory procedures prescribed in the Act, such an omission cannot be termed as a mere procedural irregularity and it cannot be cured - the website of the department indicate the amount determined by the second respondent payable by the company inspite of issuance of the corrigendum on 15.04.2013 as a tax due amount - while issuing the corrigendum, the second respondent did not even withdraw the taxable amount determined by him or updated the status in the website - such an order passed by the second respondent can only be construed as a final order passed in violation of the statutory provisions of the Act - The corrigendum dated 15.04.2013 is also beyond the period prescribed for limitation - Such a defect or failure on the part of the second respondent to adhere to the statutory provisions is not a curable defect by virtue of the corrigendum dated 15.04.2013 – CIT(A) was clearly in error in equating the show cause notice with a draft assessment order against, and rationalizing the assessment order - In a case in which no draft assessment order is furnished to the assessee, to which assessee is entitled u/s 144C (15), the assessment order passed by the AO is to be held is illegal – Decided in favour of assessee. Issues Involved:1. Validity of the assessment order passed without issuance of a draft assessment order under Section 144C of the Income Tax Act, 1961.Detailed Analysis:1. Validity of the Assessment Order:- Grievance of the Assessee: The assessee contended that the assessment order passed under Section 143(3) of the Income Tax Act, 1961 was invalid because the Assessing Officer (AO) did not forward a draft assessment order as required under Section 144C. This deprived the assessee of the opportunity to approach the Dispute Resolution Panel (DRP).- CIT(A)'s Observation: The CIT(A) rejected the assessee's grievance, equating the show cause notice issued by the AO to a draft assessment order. The CIT(A) noted that the assessee did not file objections before the DRP and AO but instead submitted a brief note summarizing the TPO's adjustments.- Tribunal's Analysis: The Tribunal found the issue in favor of the assessee, citing the judgment of the Hon'ble Madras High Court in the case of Vijay Television Pvt Ltd Vs DRP. The Tribunal noted that the AO is required to pass only a draft assessment order based on the TPO's recommendations and give the assessee an opportunity to file objections before passing the final order. The Tribunal emphasized that the AO's failure to follow this mandatory procedure rendered the assessment order a legal nullity.- Relevant Judicial Precedents:- Vijay Television Pvt Ltd Vs DRP: The Hon'ble Madras High Court held that passing a final order without issuing a draft assessment order violates Section 144C and is a jurisdictional defect that cannot be cured by a corrigendum.- Zuari Cement Ltd Case: The Andhra Pradesh High Court declared an assessment order passed without issuing a draft assessment order as null and void, a decision upheld by the Supreme Court.- Tribunal's Conclusion: The Tribunal quashed the impugned assessment order, declaring it illegal and a legal nullity due to the AO's failure to issue a draft assessment order. The Tribunal dismissed the CIT(A)'s rationale of equating the show cause notice with a draft assessment order.Outcome:- The assessee's appeal was allowed, and the assessment order was quashed.- The appeal filed by the Assessing Officer was dismissed as infructuous, given the quashing of the assessment order.Pronouncement: The judgment was pronounced in the open court on 30th September 2014.