Income Tax Tribunal Invalidates Assessment Order & Penalties, Citing Section 144C Violation

The Tribunal found the draft assessment order invalid due to the accompanying demand and penalty notices, breaching Section 144C of the Income Tax Act. Citing legal precedents, including the Skoda Auto India Pvt. Ltd. case, the Tribunal declared the assessment order null and void. Consequently, the appeal for the assessment year 2009-10 was allowed, rendering all other grounds moot.

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Issues Involved:
1. Violation of Section 144C of the Income Tax Act, 1961.
2. Validity of the draft assessment order.

Issue-wise Detailed Analysis:

1. Violation of Section 144C of the Income Tax Act, 1961:
The primary issue raised by the assessee was that the assessment order dated 15.01.2013 was invalid and void ab initio due to non-compliance with Section 144C of the Income Tax Act, 1961. The assessee argued that the assessment order was a draft assessment order, as indicated by its heading, and was accompanied by a notice of demand under Section 156 and a penalty notice under Section 274 read with Section 271(1)(c) of the Act. This procedure, according to the assessee, violated Section 144C, which mandates that upon receipt of a draft order, the eligible assessee must file acceptance or objections within thirty days, and only then should the final assessment order be completed.

The assessee relied on several judicial precedents, including decisions from the Supreme Court and High Courts, to support the contention that the issuance of a demand notice along with the draft assessment order contravenes the mandatory procedure outlined in Section 144C.

2. Validity of the Draft Assessment Order:
The Tribunal examined the facts of the case and the relevant judicial precedents. It was noted that the Assessing Officer (AO) had issued a draft assessment order along with a demand notice and a penalty notice, which led to the crystallization of the demand. This action was deemed contrary to the provisions of Section 144C, which require the AO to first issue a draft assessment order and then, based on the assessee's response, finalize the assessment.

The Tribunal referenced the case of Skoda Auto India Pvt. Ltd. vs. ACIT, where a similar issue was adjudicated. In that case, the Tribunal held that the issuance of a demand notice along with the draft assessment order rendered the proceedings null and void. The Tribunal also cited the decision in the case of DCIT, Circle 10, Pune vs. Rehau Polymers (P) Ltd., where it was held that the AO's actions violated the mandatory provisions of Section 144C, making the assessment order invalid.

The Tribunal further referred to multiple High Court decisions, including those from the Madras High Court and the Andhra Pradesh High Court, which consistently held that non-compliance with Section 144C renders the assessment order null and void. The Hon’ble Supreme Court's dismissal of the Special Leave Petition in the case of Zuari Cements Ltd. was also highlighted, reinforcing the mandatory nature of Section 144C compliance.

Conclusion:
The Tribunal concluded that the draft assessment order issued in the present case was invalid in law due to the accompanying demand notice and penalty notice, which violated the procedure mandated by Section 144C. Consequently, the additional ground raised by the assessee was allowed, and the draft assessment order was declared bad in law and void ab initio. As a result, all other grounds in the appeal became academic in nature.

Final Order:
The appeal of the assessee for the assessment year 2009-10 was allowed, and the order was pronounced on 26th August 2019.

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