Assessment under 144C procedure: final assessment and penalty notices set aside; matter restored to DRP.

Assessment under the Dispute Resolution Panel (DRP) regime was held to have breached mandatory procedure by issuing a final assessment without awaiting the DRP decision; the court therefore set aside the final assessment, the demand notice and the notice initiating penalty proceedings, and restored the matter to the DRP for reconsideration. The respondents were granted liberty to seek variation or modification of the order if material facts were suppressed or misstated by the petitioner. The writ petition and pending applications were disposed of on that basis.

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Issues involved:
Challenging Assessment Order dated 15th May, 2021, notice of demand under Section 156, notice for penalty proceeding under section 271AAC(1) of the Income Tax Act, 1961, violation of mandatory procedure under Section 144C, restoring proceedings at the level of Dispute Resolution Panel (DRP).

Analysis:

1. The petitioner filed a writ petition challenging the Assessment Order, notice of demand, and penalty proceeding initiated under the Income Tax Act, 1961. The petitioner argued that the Assessment Order was passed without waiting for the decision of the DRP, despite filing objections within the prescribed time period. The petitioner contended that the Assessment Order violated the mandatory procedure under Section 144C of the Act and resulted in grave prejudice due to a substantial demand raised.

2. The Court issued notice to the respondents, and the respondent's counsel accepted notice but stated having no instructions in the case. The Court proceeded with the matter, allowing the respondents to seek variation or modification of the order if facts were suppressed or misstated. Upon perusing the documents, the Court found that the Assessment Order was indeed passed in violation of the mandatory procedure under Section 144C and the CBDT Circular, as it was done without waiting for the DRP's decision.

3. Consequently, the Court set aside the final Assessment Order, notice of demand, and penalty proceedings initiated by Respondent No. 1. The proceedings were restored at the level of the DRP, in line with the mandatory procedures prescribed under the Act. The Court disposed of the writ petition and pending applications, directing the order to be uploaded on the website and forwarded to the counsel via email for compliance and further action.

This judgment highlights the importance of adhering to the prescribed procedures under the Income Tax Act, ensuring that taxpayers' rights are protected, and due process is followed in assessment proceedings.

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