Assessee wins appeal citing procedural error under Section 144C; final assessment order deemed null and void

The Tribunal allowed the appeal of the assessee due to the procedural violation of not following the mandatory procedure under Section 144C, where the Assessing Officer directly issued the final assessment order without providing a draft assessment order. The Tribunal held that this procedural error rendered the final assessment order and subsequent proceedings null and void. The additional ground raised by the assessee was admitted, and the appeal was decided in favor of the assessee, with the order pronounced on 26.08.2020.

---

---

Issues Involved:
1. Adjustment made in relation to Advertisement, Marketing, and Promotion (AMP) expenses.
2. Protective adjustment using Cost Plus Method and Bright Line Test.
3. Interest on outstanding receivables.
4. Legality of the final assessment order dated 07.12.2018 issued directly without following the draft order procedure under Section 144C.

Detailed Analysis:

Issue 1: Adjustment Made in Relation to AMP Expenses
The appeal by the assessee challenges the adjustment made concerning AMP expenses. The Tribunal, however, did not delve into the merits of this issue due to the resolution of the additional ground.

Issue 2: Protective Adjustment Using Cost Plus Method and Bright Line Test
Similarly, the protective adjustment using the Cost Plus Method and Bright Line Test was raised by the assessee. This issue was also not examined in detail due to the primary resolution of the procedural ground.

Issue 3: Interest on Outstanding Receivables
The assessee contested the interest on outstanding receivables. This matter was not further analyzed as the procedural ground was found to be decisive.

Issue 4: Legality of the Final Assessment Order
Admission of Additional Ground:
The assessee sought to admit an additional ground of appeal, arguing that the Assessing Officer (AO) erred by directly passing the final assessment order dated 07.12.2018, thus violating Section 144C of the Act. The Tribunal admitted this additional ground, stating it was purely a legal issue that did not require verification of facts outside the record.

Procedural Violation:
The Tribunal focused on whether the AO followed the mandatory procedure under Section 144C, which requires issuing a draft assessment order before the final order. The Tribunal referenced a similar case, Perfetti Van Melle (India) (P) Ltd., where it was held that issuing a demand notice and initiating penalty proceedings along with the draft assessment order concluded the assessment proceedings.

Relevant Provisions and Judicial Precedents:
The Tribunal cited Section 144C(1) and relevant sub-sections, emphasizing that the AO must first forward a draft assessment order. The Tribunal noted that on 27.12.2018, the AO quantified the taxable income and issued a demand notice, effectively concluding the proceedings. This action bypassed the mandatory steps outlined in Section 144C.

Case Law References:
The Tribunal referred to several judicial precedents:
- CIT Vs. Purshottam Das T Patel: This case established that the assessment process involves both assessing total income and determining tax, and both steps must be completed within the prescribed time.
- Dipak Babaria: The Supreme Court held that if the law requires a particular procedure, it must be followed exactly.
- JCB India Ltd: The Delhi High Court ruled that failing to issue a draft assessment order under Section 144C renders the final assessment order invalid.

Tribunal's Conclusion:
The Tribunal concluded that by issuing the demand notice on 27.12.2018, the AO bypassed the mandatory provisions of Section 144C. The Tribunal held that the final assessment order and subsequent proceedings were non est (null and void). The additional ground was allowed, and the appeal was decided in favor of the assessee.

Result:
The Tribunal did not address the merits of the other issues raised by the assessee, as the procedural ground was decisive. The appeal of the assessee was allowed, and the order was pronounced in the open court on 26.08.2020.

---