Assessment order quashed for lack of draft assessment order; assessee's appeal allowed.

The Tribunal quashed the assessment order as it was issued without a draft assessment order, deeming it invalid. The subsequent draft assessment order issued by the Assessing Officer was also considered invalid. The Tribunal emphasized the mandatory nature of issuing a draft assessment order before finalizing the assessment, protecting the assessee's right to file objections. The appeal of the assessee was allowed, and all consequential additions/adjustments were deleted.

---

---

Issues Involved:
1. Validity of the assessment order without a draft assessment order.
2. Jurisdiction of the Dispute Resolution Panel (DRP) over the draft assessment order.
3. Legal consequences of the final assessment order issued without a draft assessment order.

Issue-wise Detailed Analysis:

1. Validity of the assessment order without a draft assessment order:
The appellant argued that the assessment order was null and void because the Assessing Officer (AO) failed to issue a draft assessment order before finalizing the assessment. According to Section 144C of the Income Tax Act, 1961, the AO is required to forward a draft of the proposed assessment order to the eligible assessee if any variation in the income or loss returned is proposed. This procedural step is mandatory to allow the assessee to file objections, either to the AO or the DRP. The AO initially issued a final assessment order on 29.11.2018 without a draft order, which was later withdrawn on 21.12.2018, and a draft assessment order was issued. The appellant contended that once the final assessment order was issued, the AO became functus officio and could not issue a draft assessment order subsequently. The Tribunal agreed with the appellant, citing multiple case laws, including "Jazzy Creations Pvt. Ltd. v/s. ITO" and "Olympus Medical Systems India Pvt. Ltd. v/s. DCIT," which emphasized that the issuance of a draft assessment order is a sine qua non before the final assessment order can be passed. Therefore, the final assessment order issued without a draft assessment order was deemed invalid and liable to be quashed.

2. Jurisdiction of the Dispute Resolution Panel (DRP) over the draft assessment order:
The DRP held that it had no jurisdiction over the draft assessment order issued after the withdrawal of the final assessment order. The DRP's directions stated that the AO is required to pass a draft assessment order incorporating the order of the Transfer Pricing Officer (TPO) before issuing a final assessment order. Since the AO initially issued a final assessment order without a draft order, any subsequent draft assessment order was considered invalid. The DRP declined to entertain objections against such an invalid draft assessment order, asserting that the case was beyond its jurisdiction. The Tribunal upheld this view, emphasizing that the DRP could not interfere or propose adjustments to an invalid draft assessment order.

3. Legal consequences of the final assessment order issued without a draft assessment order:
The Tribunal discussed the relevant provisions of Section 144C, which mandate the issuance of a draft assessment order before a final assessment order. The Tribunal reiterated that any final assessment order issued without a preceding draft assessment order is not in accordance with the law and is liable to be quashed. The subsequent proceedings after the issuance of such a final assessment order are also vitiated and lack legal sanctity. The Tribunal cited the decision of the Hon'ble Madras High Court in "Vijay Television Pvt. Ltd. Vs DRP," which held that an assessment order issued without following the mandatory procedure of issuing a draft assessment order is null and void. The Tribunal concluded that the impugned assessment order was invalid, and all consequential additions/adjustments were deleted.

Conclusion:
The Tribunal quashed the impugned assessment order and allowed the appeal of the assessee. The issuance of a final assessment order without a draft assessment order was deemed an illegality, and the subsequent corrigendum or draft order issued by the AO was considered invalid. The Tribunal's decision emphasized the mandatory nature of the procedural requirements under Section 144C, ensuring that the assessee's right to file objections is protected.

Order Date:
Kolkata, the 6th February, 2023.

---