2016 (1) TMI 1453 - AT - Income Tax

Tribunal Declares Assessment Order Null Due to Lack of Draft Order Issuance Under Income Tax Act Section 144C.

The Tribunal quashed the impugned assessment order, declaring it a legal nullity due to the failure to issue a draft assessment order as required by ... Admission of additional grounds of appeal - This is second round of proceedings - As per additional grounds of appeal raised assessee was directly issued an assessment order, without the issuance of a draft assessment order as required by the scheme of Section 144C - HELD THAT:- The issue being raised by the assessee is a purely legal issue. In view of the law laid down by Hon’ble Supreme Court in the case of National Thermal Power Corporation Ltd Vs CIT [1996 (12) TMI 7 - SUPREME COURT] this issue can indeed be even raised for the first time before this Tribunal. Mere fact that this issue was not taken up in the first round of proceedings does not act to the detriment of the assessee. The issue being raised now is a fundamental legal issue which goes to the root of the matter. If the assessment order itself is a legal nullity, as it is claimed to be, the impugned additions are devoid of any legally sustainable basis. We are, therefore, inclined to admit this claim for adjudication on merits. Regular assessment order without issuance of draft assessment order - What is material is that the original assessment order was in form and in substance a regular assessment order, and not a draft assessment order. DR has also submitted that since the assessee has participated in the proceedings before the DRP, it cannot be open to the assessee to raise this question now. It is only elementary that acquiescence does not confer the jurisdiction, and the only issue which can not be raised subsequently, in the light of the specific provisions of Section 292BB, is objections with regard to service, time or manner of service of a notice. That is not the case before us. In the case of Inventors Industrial Corp [1991 (4) TMI 70 - BOMBAY HIGH COURT] as well, the assessee had duly participated in the reassessment proceedings and yet, in the second round of proceedings, the objections were taken to the validity of reassessment itself. In this view of the matter, and in the light of the above discussions, we uphold the grievance of the assessee and quash the impugned assessment order itself. The issuance of a regular assessment order, without issuance of draft assessment order, was an illegality, but once a regular assessment order was so framed, it was also no longer open to the Assessing Officer to issue a corrigendum or the draft assessment order after issuance of the regular assessment order. Issues Involved:1. Validity of the assessment order issued without a draft assessment order as required by Section 144C of the Income Tax Act, 1961.2. Whether the issue of the draft assessment order can be raised for the first time in the second round of proceedings.Detailed Analysis:1. Validity of the Assessment Order:The core grievance of the appellant was that the assessment order dated 24th November 2010 was issued directly without a draft assessment order, contrary to the scheme of Section 144C of the Income Tax Act, 1961. The appellant contended that the assessment order was a regular assessment order in form and substance, as it computed income, demanded tax, and initiated penalty proceedings. The issuance of a draft assessment order is a sine qua non before passing a regular assessment order under Section 143(3). The Tribunal noted that the subsequent letter dated 30th December 2010 by the Assessing Officer, which attempted to convert the regular assessment order into a draft assessment order, was merely a cover-up exercise. The Tribunal emphasized that once a regular assessment order is framed and issued, there cannot be any occasion to turn the clock back and issue a draft assessment order. The Tribunal found guidance from the decision in Capsugel Healthcare Limited Vs ACIT and vice versa [(2015) 152 ITD 142 (Del)], which supported the appellant's contention that the assessment order issued directly without a draft assessment order is contrary to Section 144C and is without jurisdiction, null, and void.2. Raising the Issue in the Second Round of Proceedings:The Tribunal addressed whether the issue of the validity of the assessment order could be raised for the first time in the second round of proceedings. Citing the Hon'ble Supreme Court in National Thermal Power Corporation Ltd Vs CIT [(1998) 229 ITR 383 SC)], the Tribunal affirmed that a purely legal issue could be raised at any stage. The Tribunal also referred to the Hon'ble Bombay High Court's decision in Inventors Industrial Corporation Ltd Vs CIT [(1992) 194 ITR 548 (Bom)], which allowed raising jurisdictional issues even in the second round of proceedings. The Tribunal concluded that the mere fact that the issue was not raised in the first round does not detract from the appellant's right to raise it now, as it goes to the root of the matter.Conclusion:The Tribunal quashed the impugned assessment order, declaring it a legal nullity due to the failure to issue a draft assessment order as mandated by Section 144C. The Tribunal upheld that the subsequent issuance of a corrigendum could not cure this fundamental defect. Consequently, all other issues raised in the appeal were rendered academic and infructuous. The appeal was allowed in these terms, pronounced in open court on 15th January 2016.