Appeal allowed due to procedural violations by Assessing Officer. Demand and penalty notices improper. Failure to issue draft assessment order violated statutory requirements.

The Tribunal allowed the appeal, setting aside the assessment order dated 28th December 2011 due to procedural violations by the Assessing Officer. The issuance of demand and penalty notices along with the assessment order was improper, rendering the order invalid. The Tribunal held that failure to issue a draft assessment order first violated statutory requirements, making the subsequent proceedings unsustainable. The appeal was allowed on jurisdictional grounds, making other issues raised by the appellant irrelevant.

---

---

Issues Involved:
1. Validity of the Assessment Order dated 28th December 2011.
2. Issuance of demand notice under section 156 and penalty notice under section 271(1)(c) along with the assessment order.
3. Adjustment on account of working capital while computing operating margins of comparables.

Detailed Analysis:

1. Validity of the Assessment Order dated 28th December 2011:
The appellant company challenged the assessment order dated 28th December 2011, claiming it was bad in law and void ab initio due to violations of section 144C of the Income-tax Act, 1961. The appellant argued that the Assessing Officer (AO) issued the order as a final assessment order instead of a draft assessment order, which denied the assessee the opportunity to file objections before the Dispute Resolution Panel (DRP). The Tribunal noted that the AO issued a demand notice under section 156 and a penalty notice under section 271(1)(c) along with the draft assessment order, which effectively made it a final assessment order. This action was deemed a violation of section 144C(1), as the AO failed to follow the mandatory requirement of issuing a draft assessment order first, thereby invalidating the final assessment order and subsequent proceedings.

2. Issuance of Demand Notice and Penalty Notice:
The appellant argued that the AO erred in issuing the demand notice under section 156 and the penalty notice under section 271(1)(c) along with the draft assessment order, instead of following the correct procedure under section 144C. The Tribunal found that the AO's issuance of these notices along with the draft assessment order was improper and rendered the draft assessment order as a final assessment order. This procedural error invalidated the final assessment order and the subsequent proceedings. The Tribunal cited several judgments, including Pr. CIT Vs. Lionbridge Technologies Pvt. Ltd., to support its decision that the final assessment order passed without a proper draft assessment order is unsustainable.

3. Adjustment on Account of Working Capital:
Although the appellant raised an issue regarding the adjustment on account of working capital while computing the operating margins of comparables, the Tribunal did not address this issue in detail. Since the appeal was allowed on the jurisdictional issue, the grounds raised on the merits of the additions became academic and were not dealt with.

Conclusion:
The Tribunal allowed the appeal of the assessee, setting aside the impugned order due to the procedural violations by the AO. The assessment order dated 28th December 2011, issued along with the demand notice and penalty notice, was deemed invalid, and the subsequent proceedings were vitiated. The appeal was allowed on the jurisdictional issue, rendering the other grounds raised by the assessee academic.

---