Tax Assessment Order Quashed for Non-Compliance; Case Remanded for Reevaluation Under Income Tax Act, 1961.

The HC quashed the assessment order dated 23rd June 2022, demand notice, and penalty notice due to non-compliance with Section 144C of the Income Tax Act, 1961. The AO's failure to issue a draft assessment order deprived the Petitioner of a fair opportunity before the DRP. The matter was remanded to the AO for reevaluation, emphasizing adherence to mandatory procedural norms.

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Issues Involved:
1. Jurisdictional challenge regarding non-compliance with Section 144C of the Income Tax Act, 1961.
2. Validity of the assessment order dated 23rd June 2022, and subsequent demand and penalty notices.

Summary of Judgment:

Issue 1: Jurisdictional Challenge Regarding Non-Compliance with Section 144C of the Income Tax Act, 1961

The Petitioner, a foreign entity incorporated in Singapore, contended that the Deputy Commissioner of Income Tax failed to issue a draft assessment order as mandated by Section 144C(1) of the Income Tax Act, 1961. The Petitioner argued that this procedural lapse deprived them of the opportunity to raise objections before the Dispute Resolution Panel (DRP). The High Court found that the Assessing Officer (AO) bypassed the statutory mandate, which is not discretionary but mandatory for foreign companies. The failure to issue a draft assessment order rendered the final assessment order dated 23rd June 2022, and the subsequent demand and penalty notices, void of jurisdiction.

Issue 2: Validity of the Assessment Order Dated 23rd June 2022, and Subsequent Demand and Penalty Notices

The Court analyzed whether the impugned order, passed in compliance with the directions under Section 263 of the Act, required adherence to Section 144C. The Court held that the assessment order was indeed prejudicial to the Petitioner and thus necessitated a draft order. The omission to provide a draft assessment order denied the Petitioner a fair opportunity to contest the assessment before the DRP. The Court emphasized that procedural lapses impacting jurisdiction must be addressed promptly to avoid prolonged litigation. Consequently, the impugned order, demand notice, and penalty proceedings were quashed.

Conclusion:

The High Court allowed the petition, quashing the impugned order dated 23rd June 2022, the demand notice dated 23rd June 2022, and the penalty notice dated 24th June 2022. The matter was remanded back to the AO to proceed in accordance with the directions issued by the Commissioner of Income Tax under Section 263 of the Act. The Court underscored the importance of adhering to mandatory procedural requirements to ensure effective and efficient justice delivery.

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