2023 (2) TMI 1205 - AT - Income Tax

Assessment order void when demand notice issued with draft assessment order under section 144C

Marriott International Licensing Company BVV Versus DCIT (International Taxation) -3 (2) (1), Mumbai.

The ITAT Mumbai held that an assessment order under section 144C was void when the AO issued a draft assessment order simultaneously with demand notice ... Assessment u/s 144C - notice of demand u/s. 156 and notice u/s. 271(1)(c) sent - AR contended that the said draft assessment order was sent by the A.O. along with the demand notice and the penalty notice was also sent, which implies that the A.O. has not followed the mandatory procedures prescribed by the Act and cannot be considered as a mere procedural irregularity - HELD THAT:- As decided in the case of Vijay Television (P.) Ltd. [2014 (6) TMI 540 - MADRAS HIGH COURT] which has held that when there is an omission by the A.O. in following the mandatory procedure prescribed by the law, then the said omission cannot be considered as a mere procedural irregularity and the same cannot be cured. Aker Powergas P. Ltd. (2022 (6) TMI 1118 - ITAT MUMBAI]), which has held that the issuing of draft assessment order along with the demand notice is said to be not following the mandatory provisions of the Act as per section 144C of the Act, wherein the assessment order was treated as void. The said decision by the Tribunal has considered various decisions of the Hon'ble Apex Court and the Hon'ble High Court decision in the case of Sun Engineering Works [1992 (9) TMI 1 - SUPREME COURT]and various other decisions. We would also place our reliance on the decision of Atlas Copco (India) Limited [2019 (8) TMI 1415 - ITAT PUNE] which held that the issuance of notice of demand at the stage of draft order has brought a finality to the assessment at the stage of the draft order itself and the resultant final assessment is vitiated in law and is unsustainable. Thus assessment order passed subsequent to the issue of draft assessment order along with the demand notice has been held to be bad in law and not just mere procedural defect. Appeal of assessee allowed. Issues:1. Taxability of receipts under International Marketing Program Participation Agreement (IMPPA) in India.2. Validity of draft assessment order dated 29.12.2016 passed by the Assessing Officer.Analysis:Issue 1: Taxability of IMPPA receipts in IndiaThe appeal was filed challenging the order of the Commissioner of Income Tax (Appeals) regarding the taxability of receipts under IMPPA in India as 'business income' due to the existence of a permanent establishment in India as per the Double Taxation Avoidance Agreement (DTAA) between India and Netherland. The assessee argued that it was not involved in the operation or management of Indian hotels, only sub-licensing Marriott trademark and providing sales and marketing services. The Assessing Officer (A.O.) treated IMPPA receipts as 'royalty' and expenses as Fees for Technical Services (FTS). The Commissioner upheld the decision, relying on previous tribunal rulings. The Tribunal found that the receipts should be treated as 'business profit' and taxable in India only if the assessee has a permanent establishment in India.Issue 2: Validity of draft assessment orderThe additional ground challenging the draft assessment order dated 29.12.2016 was admitted by the Tribunal. The assessee contended that the A.O.'s action in issuing the draft assessment order along with the notice of demand violated section 144C of the Income Tax Act, making it bad in law. The A.O. had issued the draft assessment order proposing variations to the return filed by the assessee and had sent the notice of demand along with it. The Tribunal referred to various decisions, including Vijay Television (P.) Ltd. case, and held that such action by the A.O. made the subsequent assessment order null and void. The Tribunal found that the assessment order dated 14.02.2017 was unsustainable and declared it null and void.In conclusion, the appeal filed by the assessee was allowed, and the assessment order was deemed null and void due to the procedural irregularity in issuing the draft assessment order along with the notice of demand. The additional ground raised by the assessee was admitted, rendering the need for adjudication on other grounds unnecessary.