Tax Assessment Void Due to Procedural Lapse: Draft Order Mistakenly Treated as Final, Demand Notice Flawed.

The ITAT's decision to set aside the assessment order dated 11.12.2018 was upheld, as the order was improperly treated as a final assessment rather than a draft under Section 144-C of the Income Tax Act, 1961. The court found that the inclusion of a demand and penalty notice indicated a procedural lapse, rendering the assessment order null and void. The appeal was dismissed, affirming the Tribunal's decision as proper and justified, with no order as to costs.

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Issues Involved:
1. Whether the Tribunal was justified in setting aside the assessment order dated 11.12.2018, treating it as a final assessment order rather than a draft assessment order under Section 144-C of the Income Tax Act, 1961.

Summary:

Issue 1: Tribunal's Justification in Setting Aside the Assessment Order
- The challenge in the appeal is against the order dated 29.07.2022 by the Income Tax Appellate Tribunal, which set aside the order passed by the Commissioner of Income Tax (Appeals) and the assessment order dated 11.12.2018.
- The respondent/assessee, involved in rendering support services in computer-aided engineering, filed its return for the assessment year 2015-16. The assessment was subjected to scrutiny under Section 143(2) of the Act, and a reference was made to the Transfer Pricing Officer (TPO) for determining the Arm's Length Price (ALP) of the international transactions.
- The statutory requirement involves forwarding a draft assessment order to the assessee, calling for objections within thirty days before passing the final assessment order. The dispute arose because the draft assessment order was accompanied by a notice of demand and penalty under Section 271(1)(c) of the Act.
- The respondent/assessee did not respond to the draft assessment order, leading to the final assessment order on 10.01.2019, which was appealed before the CIT (Appeals) and subsequently to the Tribunal. The Tribunal allowed the appeal, setting aside the CIT (Appeals) order.
- The appellant argued that the statutory requirement was complied with, and the draft assessment order inadvertently included a notice of demand and penalty. The Tribunal's reliance on a Supreme Court judgment was also contested as being contextually different.
- The court examined Section 144-C of the Act, which mandates the draft assessment order procedure, and found that the inclusion of a notice of demand and penalty indicated that the draft assessment order was treated as a final assessment order.
- The High Court of Judicature at Andhra Pradesh and the Madras High Court have held that passing a final assessment order without following the draft assessment order procedure is contrary to Section 144-C and renders the assessment order null and void.
- The court concluded that the Tribunal's decision to set aside the assessment order was proper, legal, and justified. The appeal was rejected, with no order as to costs, and miscellaneous petitions, if any, were closed.

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