Assessment Order Voided Due to Failure to Follow Procedure

The Tribunal held that the Assessing Officer's failure to issue a draft assessment order as required by section 144C of the Income Tax Act rendered the final assessment order void. Consequently, the Principal Commissioner of Income Tax's attempt to revise a non-existent order under section 263 was deemed invalid. The Assessee's appeal was allowed, and the Principal Commissioner of Income Tax's order was set aside.

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Issues Involved:
1. Jurisdiction of the Principal Commissioner of Income Tax (Pr. CIT) under section 263 of the Income Tax Act, 1961.
2. Validity of the assessment order passed by the Assessing Officer (AO) without issuing a draft assessment order under section 144C of the Act.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Principal Commissioner of Income Tax (Pr. CIT) under section 263 of the Income Tax Act, 1961:
The Assessee challenged the jurisdiction of the Pr. CIT to invoke revisional jurisdiction under section 263 of the Act. The core argument was that the assessment order dated 25.09.2017, passed by the AO, was itself non-est in the eyes of law. The Pr. CIT had issued a Show Cause Notice (SCN) dated 30.11.2018 to the Assessee, intending to exercise his power under section 263 of the Act. The Pr. CIT set aside the AO’s order and directed a de novo assessment, citing the AO’s failure to frame a draft assessment order as required under section 144C of the Act. The Tribunal concluded that since the original assessment order was void, the Pr. CIT could not exercise jurisdiction under section 263 to revise a non-existent order. Therefore, the Pr. CIT’s order was also deemed a nullity.

2. Validity of the assessment order passed by the Assessing Officer (AO) without issuing a draft assessment order under section 144C of the Act:
The Tribunal examined whether the AO’s failure to issue a draft assessment order rendered the final assessment order void. Under section 144C of the Act, the AO must issue a draft assessment order if there is any proposed variation in the income or loss returned by the Assessee, which is prejudicial to the Assessee. The Tribunal noted that the AO had not complied with this mandatory procedure, thereby violating the provisions of section 144C. Citing precedents such as Vijay Television vs. DRP and M/s. Zuari Cements Ltd. vs. ACIT, the Tribunal reiterated that non-compliance with section 144C renders the assessment order null and void. The AO’s omission to frame a draft assessment order breached the rule of law, making the final assessment order arbitrary and without jurisdiction. Consequently, the assessment order dated 25.09.2017 was declared non-est and null in the eyes of law.

Conclusion:
The Tribunal held that the AO’s failure to issue a draft assessment order as mandated by section 144C of the Act rendered the final assessment order void ab initio. Consequently, the Pr. CIT’s invocation of section 263 to revise a non-existent order was also invalid. The appeal of the Assessee was allowed, and the impugned order of the Pr. CIT was set aside.

Order Pronouncement:
The order was pronounced in the open court on 15th September 2021.

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