2022 (1) TMI 638 - AT - Income Tax

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

Deputy Commissioner of Income Tax, Circle-1 Patna Versus Dina Mahabir Re-Rollers Pvt. Ltd. And Vice- Versa

The AO's failure to issue a draft assessment order rendered the final assessment order void, as per judicial precedents. The Tribunal upheld this ... Curable defect or not - As per CIT(A) AO could not have passed the final assessment order u/s. 143(3) of the Act without passing the draft assessment order u/s. 144(1) of the Act pursuant to the TPO's order - HELD THAT:- We hold that the AO's omission to frame draft assessment order breached the Rule of Law and consequently, his non-action to frame draft assessment order before passing the final assessment order was in contravention of mandatory provision of law as stipulated in section 144C of the Act. Consequently his action is arbitrary & whimsical and such exercise of power by the AO offends Article 14 & 21 of the Constitution of India and therefore framing of final assessment order without framing draft assessment order is held to be an action without jurisdiction and ergo the assessment order dated 23.12.2018 is null in the eyes of law and, therefore, the impugned action of Ld. CIT(A) in holding that the AO could not have passed the final assessment order without first passing a draft assessment order is in violation of section 144(1) of the Act and is not a curable defect and would vitiate the entire assessment order is upheld. Therefore, we uphold the impugned action of Ld. CIT(A) on the reasons aforestated by us and, therefore, we hold that the order of the AO dated 23.12.2018 is null in the eyes of law and so unenforceable. Therefore, the appeal of the revenue stands dismissed. Assessment u/s. 143(3) of the Act has been held to be void/non est - Since the subject matter of the appeal of the assessee was before the Ld. CIT(A) and the Ld. CIT(A) has held the AO's assessment order to be void vide order dated 09.09.2020 the question of Ld. Pr. CIT later revising the same by order dated 24.03.2021 does not arise. 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.