2021 (11) TMI 74 - AT - Income Tax

Tribunal quashes invalid assessment order for failure to propose draft order as required by law

Advance Power Display Systems Ltd. Versus Commissioner of Income Tax (Appeals) -55, Mumbai

The Tribunal allowed the appeal, quashing the invalid assessment order due to the failure to propose a draft assessment order as required by law. Other ... Violation of section 144C(1) - whether the impugned assessment order passed by the AO without proposing a draft assessment order makes it invalid? - HELD THAT:- Undisputedly, the conditions of section 144C(1) of the Act are satisfied in case of the present assessee, as, the assessee has entered into international transaction with the AE and there is a variation to the income which is prejudicial to the interest of assessee. In fact, initially, based on the adjustment proposed by the TPO, the AO had framed the draft assessment order and ultimately the Tribunal restored the issue back to him. However, though, the TPO again proposed adjustment and there is a variation to the income of the assessee which is prejudicial to its interest, the AO without following the mandatory provisions of section 144C(1) of the Act has proceeded to pass a final assessment order making the addition proposed by the TPO. There cannot be any doubt that the AO has not followed the statutory mandate contained under section 144C(1) of the Act. Keeping in view the aforesaid factual position, it has to be decided whether the assessment order so passed is valid in the eye of law. Undoubtedly, by not proposing a draft assessment order, the AO has effectively denied the assessee the remedy available under the statute of raising objections before the DRP. As we find, while deciding identical nature of dispute involving similar facts, the Hon’ble jurisdictional High Court in case of Dimension Data Asia Pacific Pte. Ltd. [2018 (7) TMI 1256 - BOMBAY HIGH COURT] has held that assessment order passed in violation of section 144C(1) is invalid - Hon’ble Delhi High Court in case of Turner International India (P) Ltd. vs. DCIT [2017 (5) TMI 991 - DELHI HIGH COURT] has expressed same view. We hold that the impugned assessment order passed under section 143 (3) r.w.s. 254 of the Act is invalid. Accordingly, we quash it. This ground is allowed. Issues:1. Challenge to the validity of the assessment order passed under section 143(3) r.w.s. 254 of the Income Tax Act, 1961.2. Whether the assessment order passed without proposing a draft assessment order is valid.Issue 1 - Challenge to the validity of the assessment order:The appeal challenged the order dated 15.10.2018 of the Commissioner of Income Tax (Appeals) for the assessment year 2008-09. The additional grounds raised by the assessee questioned the legality and validity of the assessment order passed by the Deputy Commissioner of Income Tax and upheld by the Commissioner of Income Tax (Appeals). The issue raised was a legal and jurisdictional one, going to the core of the matter and could be decided based on existing facts without the need for further investigation. The Tribunal decided to admit the additional ground for adjudication.Issue 2 - Validity of the assessment order without proposing a draft order:The key contention was that the Assessing Officer (AO) did not follow the statutory requirement of proposing a draft assessment order under section 144C(1) of the Act before passing the final assessment order. The AO directly added the adjustment proposed by the Transfer Pricing Officer (TPO) to the income of the assessee without following the prescribed procedure. The Tribunal analyzed relevant legal precedents and highlighted the mandatory nature of proposing a draft assessment order under section 144C(1) when there is a variation in income prejudicial to the assessee's interest. By not following this procedure, the AO effectively denied the assessee the opportunity to raise objections before the Dispute Resolution Panel. Citing decisions by jurisdictional High Courts and other High Courts, the Tribunal concluded that the assessment order passed without proposing a draft order is invalid. Therefore, the impugned assessment order under section 143(3) r.w.s. 254 of the Act was deemed invalid and quashed.Conclusion:The Tribunal allowed the appeal, quashing the invalid assessment order due to the failure to propose a draft assessment order as required by law. Other grounds were considered academic and did not require adjudication. The decision was pronounced in the open court on 6th August 2021.