2019 (8) TMI 1415 - AT - Income Tax

Tribunal allows Cross objections due to filing delay, finds procedural irregularities in assessment orders.

DCIT, Circle-8, Pune Versus Atlas Copco (India) Limited And (Vice-Versa)

The Tribunal condoned the delay in filing Cross objections for the assessment years 2008-09 and 2009-10, citing improper legal advice as the cause. The ... Validity of the order passed u/s. 143(3) r.w.s 144C - effect of issuance of notice of demand & penalty notice with draft order - HELD THAT:- An overview of section 144C deciphers that a draft order passed under sub-section (1) is only a tentative order which does not fasten any tax liability on the assessee. In case variations to the income in the draft order are accepted by the assessee or no objections are received within 30 days, the AO completes the assessment under section 144C(3) on the basis of draft order and the matter ends. In case the assessee objects to the variations in the income as proposed in the draft order and approaches the DRP, the final assessment order is passed by the AO u/s.144C (13) giving effect to the directions given by the DRP under sub-section (5). In case the assessee seeks to take the route of seeking redressal of its grievances through the channel of the CIT(A), in that case, again the AO has to pass a separate assessment order, which is obviously distinct from the draft order. Thus it follows that, irrespective of the course of action followed by the assessee, whether or not accepting the variation in the draft order or choosing the route of the DRP or the CIT(A), a draft order has to be necessarily followed by an assessment order on the basis of which a notice of demand is issued and it is then that the assessment is said to have come to an end. On going through the precedents in KALYANKUMAR RAY VERSUS CIT [1991 (8) TMI 291 - SUPREME COURT] and AUTO AND METAL ENGINEERS AND OTHERS VERSUS UOI [1997 (4) TMI 11 - SUPREME COURT] , it is manifested that the assessment proceedings come to an end on the issue of notice of demand u/s 156. Once a notice of demand is issued, the AO becomes functus officio in so far as the completion of assessment is concerned. It consequently follows that issue of notice of demand marks the completion of the assessment. As the AO in the instant case issued notice of demand at the stage of the draft order, which, actually ought to have been done at the stage of passing the final order, thereby assigning the finality to the assessment at the stage of draft order itself, we hold that the resultant final assessment order got vitiated in the eyes of law and hence cannot stand. To sum up, we set-aside the assessment order by declaring it to be null and void. Thus, the income offered in the return becomes total income of the assessee. Issues Involved:1. Condonation of delay in filing Cross objections2. Validity of the assessment orders passed under section 143(3) read with section 144C of the Income-tax Act, 1961Issue-wise Detailed Analysis:1. Condonation of Delay in Filing Cross Objections:The assessee filed Cross objections for the assessment years 2008-09 and 2009-10, which were delayed by 1965 days and 1018 days, respectively. The assessee sought condonation of delay, arguing that improper legal advice was the cause of the delay. The Revenue opposed the condonation. The Tribunal referred to the judgment of the Hon’ble Bombay High Court in *Vijay Vishin Meghani Vs. DCIT & Anr (2017) 398 ITR 250 (Bom)*, which condoned a delay of 2984 days due to improper legal advice, and the Supreme Court's decision in *Anil Kumar Nehru vs. ACIT (2018) 103 CCH 0231 ISCC*, which condoned a delay of 1662 days under similar circumstances. Given that the legal issue raised by the assessee was fundamental and covered by several orders in the assessee’s favor, the Tribunal condoned the delay and proceeded to dispose of the Cross objections on merits.2. Validity of the Assessment Orders Passed Under Section 143(3) read with Section 144C of the Income-tax Act, 1961:Assessment Year 2008-09:The first legal issue raised by the assessee was the validity of the assessment order passed under section 143(3) read with section 144C. The facts revealed that the Assessing Officer (AO) issued a draft assessment order on 29-12-2011, which included a notice of demand under section 156 and initiation of penalty proceedings under section 274 read with section 271(1)(c). The AO later passed the final assessment order on 27-02-2012. The Tribunal noted that section 144C mandates that the AO must first issue a draft order, and only after the assessee's response or the Dispute Resolution Panel's (DRP) directions, a final assessment order should be passed. The issuance of a demand notice at the draft order stage was found to be a procedural irregularity that rendered the final assessment order invalid. The Tribunal relied on precedents, including *Vijay Television (P) Ltd. Vs. DRP (2014) 369 ITR 113 (Mad.)* and *Skoda Auto India Ltd. Vs. ACIT*, where similar procedural lapses led to the quashing of the assessment orders. Consequently, the Tribunal declared the final assessment order for A.Y. 2008-09 null and void.Assessment Year 2009-10:For A.Y. 2009-10, the assessee raised a similar issue regarding the validity of the assessment order. The AO issued a draft assessment order on 28-03-2013, which included a notice of demand and initiation of penalty proceedings. The final assessment order was passed on 30-04-2013. The Tribunal found that the facts and circumstances were similar to those of the preceding year. Following the same reasoning, the Tribunal declared the final assessment order for A.Y. 2009-10 null and void.Conclusion:Given the Tribunal's decision to quash the assessment orders for both years due to procedural lapses, the income declared by the assessee in the returns became final. Consequently, there was no need to address the merits of the grounds raised by the Revenue in its appeals. The Cross objections were partly allowed concerning the validity of the assessment orders, and the Revenue's appeals were dismissed. The order was pronounced in the open court on 29th August 2019.