AO's Failure to Issue Draft Assessment Voided Final Order, Tribunal Upholds Decision

The AO's failure to issue a draft assessment order rendered the final assessment order void, as per judicial precedents. The Tribunal upheld this decision, dismissing the revenue's appeal. Additionally, the Ld. Pr. CIT's exercise of revisional jurisdiction was deemed without merit, leading to the nullification of the impugned order and allowing the assessee's appeal. Consequently, the revenue's appeal was dismissed, and the assessee's appeal was allowed.

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Issues Involved:
1. Validity of the assessment order passed by the AO without issuing a draft assessment order.
2. Jurisdiction of the Ld. Pr. CIT to revise the assessment order under section 263 of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Validity of the Assessment Order Passed by the AO Without Issuing a Draft Assessment Order:

The primary issue in ITA No. 115/Pat/2020 is whether the AO could pass a final assessment order under section 143(3) of the Income-tax Act, 1961 without first issuing a draft assessment order under section 144C(1) pursuant to the TPO's order.

It was noted that the assessee, a private limited company engaged in manufacturing TMT Bars, filed its return of income for A.Y. 2015-16, declaring a total income of Rs. 91,66,620/-. The case was selected for scrutiny, and the AO referred the specified domestic transaction to the TPO, who made an adjustment of Rs. 5,30,80,102/-. The AO then passed the final assessment order without issuing a draft assessment order.

The Ld. CIT(A) held that the AO's failure to issue a draft assessment order violated section 144C(1) and vitiated the entire assessment order. This view was supported by judicial precedents, including the Hon'ble Madras High Court in M/s. Vijay Television Vs. DRP and the Hon'ble High Court of Andhra Pradesh in M/s. Zuari Cements Ltd. Vs. ACIT, which established that non-compliance with section 144C(1) renders the final assessment order void.

Section 144C mandates that the AO must issue a draft assessment order if there is a proposed variation in the income or loss returned by the eligible assessee. The assessee then has the option to accept the variation or file objections before the DRP. The AO can only pass the final assessment order after receiving directions from the DRP or if no objections are filed.

Failure to issue a draft assessment order deprives the assessee of the opportunity to object before the DRP, making the final assessment order without jurisdiction and void. The Tribunal upheld the Ld. CIT(A)'s decision, dismissing the revenue's appeal and confirming that the AO's final assessment order dated 23.12.2018 was null and void.

2. Jurisdiction of the Ld. Pr. CIT to Revise the Assessment Order under Section 263 of the Income-tax Act, 1961:

The second issue in ITA No. 31/Pat/2021 concerns the jurisdiction of the Ld. Pr. CIT to revise the assessment order under section 263 of the Act. The Ld. Pr. CIT had set aside the AO's order dated 23.12.2018, directing the AO to frame the assessment de novo after making fresh enquiries and verification.

The assessee contended that the Ld. Pr. CIT's action was without jurisdiction for two reasons:

(a) Section 263 does not permit the Ld. Pr. CIT to exercise revisional jurisdiction on issues that have been considered and decided by the Ld. CIT(A). Since the Ld. CIT(A) had already held the AO's order to be void, the Ld. Pr. CIT could not revise the same order.

(b) The Tribunal had upheld the Ld. CIT(A)'s decision in ITA No. 115/Pat/2020, confirming that the AO's order was void. A void order cannot be revised, as it is non-est in the eyes of the law. Therefore, the Ld. Pr. CIT's order under section 263 was also null and void.

In conclusion, the Tribunal held that the Ld. Pr. CIT's exercise of revisional jurisdiction was without jurisdiction and nullified the impugned order dated 24.03.2021. Consequently, the appeal of the assessee was allowed.

Final Decision:

In the result, the appeal of the revenue (ITA No. 115/Pat/2020) was dismissed, and the appeal of the assessee (ITA No. 31/Pat/2021) was allowed.

Order pronounced in the open court on 5th January, 2022.

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