2018 (3) TMI 1298 - AT - Income Tax

Invalid Assessment Order Due to Non-Compliance with Section 144C

M/s. Sandvik Asia Pvt. Ltd. Versus The Dy. Commissioner of Income Tax, Circle – 10, Pune and vice-versa

The Tribunal allowed the appeal of the assessee, holding that the assessment order was invalid due to non-compliance with section 144C of the Income-tax ... Validity of assessment u/s 143(3) r.w.s. 144C - No draft assessment order but final assessment order passed - no notice u/s. 143(2) was served - Held that:- Issue arising before us being identical to the issue before Tribunal in DCIT Vs. M/s. Rehau Polymers Pvt. Ltd. (2017 (8) TMI 1294 - ITAT PUNE), we hold that the draft assessment order passed by the AO was complete assessment order which is not envisaged under section 143(3) r.w.s. 144C of the Act. Accordingly, we hold that the draft assessment order passed in the case is invalid in law. - Decided in favour of assessee. Issues Involved:1. Jurisdictional validity of the assessment order issued without following the procedure laid down in section 144C of the Income-tax Act, 1961.2. Issuance of demand notice under section 156 and notice under section 274 read with section 271(1)(c) along with the draft assessment order.3. Merits of the additions made in the hands of the assessee.Detailed Analysis:Issue 1: Jurisdictional Validity of the Assessment OrderThe primary issue raised by the assessee was the jurisdictional validity of the assessment order issued without following the procedure laid down in section 144C of the Income-tax Act, 1961. The assessee argued that the Assessing Officer (AO) erred in completing proceedings under section 143(3) read with section 144C of the Act. Specifically, the AO issued a draft assessment order along with a demand notice under section 156 and a notice for initiation of penalty proceedings under section 274 read with section 271(1)(c) of the Act. The assessee contended that the draft assessment order did not include directions to either accept the adjustment made on account of transfer pricing or file objections before the Dispute Resolution Panel (DRP).The Tribunal noted that the draft assessment order should propose additions and issue a show cause notice to the assessee to either accept the adjustments or file objections before the DRP. However, in this case, the AO assessed the income and issued a demand notice, which crystallized the demand, essentially treating the draft assessment order as a final assessment order. This procedure was found to be contrary to the provisions of section 144C of the Act.The Tribunal cited similar cases, including DCIT Vs. M/s. Rehau Polymers Pvt. Ltd., where it was held that the issuance of a demand notice along with a draft assessment order rendered the assessment invalid. The Tribunal also referred to decisions from the Hon’ble High Court of Delhi in JCB India Ltd. Vs. DCIT and Turner International India (P.) Ltd. Vs. DCIT, which emphasized the mandatory nature of issuing a draft assessment order before a final assessment order.Issue 2: Issuance of Demand Notice and Penalty NoticeThe Tribunal examined the issuance of the demand notice under section 156 and the notice for initiation of penalty proceedings under section 274 read with section 271(1)(c) along with the draft assessment order. It was observed that the AO had issued the demand notice and initiated penalty proceedings, which indicated that the draft assessment order was treated as a final assessment order. This was deemed incorrect as per the statutory requirements, which mandate that the draft assessment order should only propose adjustments and not crystallize the demand.The Tribunal reiterated that the issuance of a demand notice along with the draft assessment order contravened the provisions of section 144C of the Act and rendered the assessment proceedings invalid.Issue 3: Merits of the AdditionsGiven that the Tribunal decided the jurisdictional issue in favor of the assessee, it did not address the merits of the additions made by the AO. The Tribunal held that since the assessment order was invalid due to non-compliance with section 144C, the other grounds of appeal regarding the merits of the additions became academic and were dismissed.Conclusion:The Tribunal allowed the appeal of the assessee on the jurisdictional issue, holding that the draft assessment order was invalid in law. Consequently, the grounds of appeal raised by the Revenue and the Cross Objections filed by the assessee on the merits of the additions were dismissed as academic. The order pronounced on January 25, 2018, concluded that the assessment order and the subsequent proceedings were invalid due to the AO's failure to follow the mandatory procedure under section 144C of the Act.