Assessment order invalidated for non-compliance with procedural requirements under Income-tax Act.

The Tribunal found that the assessment order was invalid as it was issued without following the procedure under section 144C of the Income-tax Act, 1961. The AO's actions of issuing a demand notice and penalty proceedings along with the draft assessment order were deemed contrary to statutory provisions, rendering the assessment null and void. The Tribunal allowed the assessee's appeal on jurisdictional grounds, declaring the draft assessment order invalid and dismissing the Revenue's appeal. The decision was issued on March 26, 2018.

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Issues Involved:
1. Validity of the assessment order issued without following the procedure laid down in section 144C of the Income-tax Act, 1961.
2. Issuance of notice of demand under section 156 and notice under section 274 read with section 271(1)(c) along with the draft assessment order.

Detailed Analysis:

1. Validity of the Assessment Order Issued Without Following the Procedure Laid Down in Section 144C:

The primary issue raised by the assessee was that the assessment order was issued without adhering to the mandatory procedure outlined in section 144C of the Income-tax Act, 1961. The assessee argued that this procedural lapse rendered the assessment order null and void. The Tribunal noted that the additional grounds raised by the assessee were purely legal and did not require any factual investigation, thus admitting them for consideration.

The Tribunal examined the procedure under section 144C, which mandates that in cases involving variations proposed by the Transfer Pricing Officer (TPO), a draft assessment order must be issued first. This draft order should allow the assessee to either accept the proposed variations or file objections before the Dispute Resolution Panel (DRP). In the present case, the Assessing Officer (AO) issued a draft assessment order but simultaneously issued a demand notice and initiated penalty proceedings, effectively finalizing the assessment.

The Tribunal referenced several precedents, including the case of DCIT Vs. M/s. Rehau Polymers Pvt. Ltd., where it was held that issuing a demand notice and initiating penalty proceedings along with the draft assessment order constituted a final assessment, not a draft order. This procedural misstep was found to be contrary to the provisions of section 144C, rendering the assessment order invalid.

2. Issuance of Notice of Demand Under Section 156 and Notice Under Section 274 Read With Section 271(1)(c) Along With the Draft Assessment Order:

The assessee contended that the AO erred by issuing a notice of demand under section 156 and a penalty notice under section 274 read with section 271(1)(c) along with the draft assessment order. This action was argued to be in violation of the procedure mandated by section 144C.

The Tribunal observed that by issuing the demand notice and penalty notice, the AO had crystallized the demand, which should not occur at the draft assessment stage. The Tribunal cited the case of Vijay Television, where the Madras High Court held that the non-passing of a draft assessment order after adjustments by the TPO rendered the proceedings null and void. The Tribunal also referred to the decision in Zuari Cements Ltd. by the Andhra Pradesh High Court, which was upheld by the Supreme Court, stating that any order not adhering to section 144C is without jurisdiction and unenforceable.

In conclusion, the Tribunal held that the AO's actions of issuing a demand notice and initiating penalty proceedings along with the draft assessment order were against the statutory provisions of section 144C. Consequently, the draft assessment order was deemed invalid in law.

Final Judgment:

The Tribunal allowed the appeal of the assessee on the jurisdictional issue, declaring the draft assessment order invalid. Consequently, the grounds of appeal raised by the Revenue were dismissed as infructuous. The order was pronounced on March 26, 2018.

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