Assessment order under section 144C(13) invalid without mandatory draft assessment order under section 144C(1)

The ITAT Mumbai held that an assessment order passed under section 144C(13) without issuing a mandatory draft assessment order under section 144C(1) is null and void. The assessee, being a foreign company, qualified as an eligible assessee under section 144C provisions. The tribunal relied on Turner International India Pvt. Ltd. precedent, which established that failure to issue a draft assessment order before passing final assessment invalidates the entire assessment process including demand notices and penalty proceedings. The appeal was decided in favor of the assessee.

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Issues Involved:
1. Permanent Establishment in India under Article 5 of the DTAA between India and the Netherlands.
2. Characterization of Indian hotels as 'dependent agents'.
3. Classification of amounts received under the International Sales and Marketing Agreement.
4. Assumptions regarding expenses, operations, and bank accounts in India.
5. Validity of the assessment order without a draft assessment order under Section 144C of the Income-Tax Act, 1961.
6. Abatement of assessment proceedings due to failure to pass the order within the period of limitation.

Detailed Analysis:

1. Permanent Establishment in India under Article 5 of the DTAA between India and the Netherlands:
The appellant contested the decision of the Commissioner of Income Tax (Appeals) which held that the appellant had a permanent establishment (PE) in India as per Article 5 of the DTAA. The appellant argued that the Indian hotels using the Marriott brand name did not constitute a PE. The Tribunal, however, did not specifically adjudicate this issue as the assessment order was found to be void ab initio.

2. Characterization of Indian hotels as 'dependent agents':
The appellant challenged the characterization of Indian hotels as 'dependent agents' based on the supervision and control exercised by the appellant. The Tribunal did not delve into this issue separately due to the primary issue of the assessment order's validity.

3. Classification of amounts received under the International Sales and Marketing Agreement:
The appellant argued that the amounts received under the International Sales and Marketing Agreement were classified as 'reimbursement of expenses' and not 'royalty'. The Tribunal did not specifically address this issue due to the overarching issue of procedural non-compliance by the AO.

4. Assumptions regarding expenses, operations, and bank accounts in India:
The appellant contested various assumptions made by the AO, including the existence of an office, personnel, lending operations, and a bank account in India. The Tribunal did not provide a specific ruling on these assumptions, focusing instead on the procedural validity of the assessment order.

5. Validity of the assessment order without a draft assessment order under Section 144C of the Income-Tax Act, 1961:
The Tribunal found that the AO failed to issue a draft assessment order as required under Section 144C of the Income-Tax Act, 1961, for a foreign company. Citing precedents such as Dimension Data Asia Pacific PTE Ltd. v. DCIT and Turner International India Pvt. Ltd. v. DCIT, the Tribunal held that the final assessment order dated 30.03.15 was void ab initio. The Tribunal emphasized that the issuance of a draft order is a sine qua non before passing a final assessment order for an eligible assessee.

6. Abatement of assessment proceedings due to failure to pass the order within the period of limitation:
The appellant argued that the assessment proceedings had abated since the AO failed to pass the order within the statutory period. The Tribunal's decision to quash the final assessment order rendered this issue moot.

Conclusion:
The Tribunal allowed the additional grounds raised by the appellant, quashing the final assessment order dated 30.03.15 due to non-compliance with Section 144C of the Income-Tax Act, 1961. Consequently, the main grounds of appeal became infructuous. The Tribunal applied the same findings to the appeals for AY 2004-05 and 2007-08, maintaining judicial consistency. All appeals filed by the appellant were allowed, with no order as to costs.

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