2023 (6) TMI 1376 - AT - Income Tax

AO cannot pass final assessment order under section 144C(1) without mandatory draft assessment order

Marriott International Inc C/o. Marriott Hotels India Private Limited Versus Deputy Commissioner of Income-tax (International Tax) -3 (2) (1), Mumbai

Marriott International Inc C/o. Marriott Hotels India Private Limited Versus Deputy Commissioner of Income-tax (International Tax) -3 (2) (1), Mumbai - ... Issues Involved:1. Taxability of amounts received under the International Sales and Marketing Agreement.2. Entitlement to the benefit of the 'Principle of Mutuality'.3. Validity of the assessment order passed without a draft assessment order, u/s 144C of the Income-tax Act, 1961.Summary:Issue 1: Taxability of Amounts Received under the International Sales and Marketing AgreementThe assessee challenged the assessment order which treated receipts from international sales and marketing as Royalty/Fee for Technical Services (FTS). The CIT(A) upheld the Assessing Officer's findings, characterizing the receipts as royalty and directed the Assessing Officer to follow the Tribunal's order for earlier years. The Tribunal remanded the issue back to the Assessing Officer to address the 'principle of mutuality' raised by the assessee, which was not previously considered.Issue 2: Entitlement to the Benefit of the 'Principle of Mutuality'The Tribunal noted that the principle of mutuality was not addressed by the Assessing Officer in the earlier proceedings. The Tribunal directed the Assessing Officer to consider this issue along with any other issues the assessee may raise in defense of its return of income. The Assessing Officer was required to pass a draft assessment order under section 144C of the Act before issuing the final assessment order.Issue 3: Validity of the Assessment Order Passed Without a Draft Assessment Order, u/s 144CThe assessee raised an additional ground challenging the validity of the assessment order dated 31/12/2019, passed without a draft assessment order, in violation of section 144C of the Act. The Tribunal, following the decision in ITA No. 1830/Mum/2021, held that the final assessment order passed without a draft assessment order is invalid. The Tribunal emphasized that the procedure laid down in section 144C is mandatory, even in remand proceedings, and failure to adhere to it renders the final assessment order invalid.Conclusion:The Tribunal quashed the assessment order dated 31/12/2019 for being passed without a draft assessment order, thereby allowing the appeal of the assessee. The Tribunal reiterated the necessity of following the procedural requirements of section 144C of the Income-tax Act, 1961.