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

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 Income Tax Act was invalid and a legal nullity. The Tribunal emphasized that the Assessing Officer's failure to follow the mandatory procedure deprived the assessee of the opportunity to file objections before the final order. Consequently, the assessment order was quashed, allowing the assessee's appeal while dismissing the Assessing Officer's appeal as infructuous.

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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.

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