Assessment order invalid when demand and penalty notices issued simultaneously with draft assessment order under section 144C

ITAT Delhi held that an assessment order u/s 144C was invalid where the AO issued demand and penalty notices simultaneously with the draft assessment order. The tribunal ruled that mandatory provisions of section 144C were bypassed, as the AO must first issue a draft order allowing the assessee to approach DRP before finalizing assessment. The defect was not curable under section 292B, and principles of estoppel cannot override statutory provisions. All subsequent proceedings were declared non est, with the case decided in favor of the assessee.

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Issues Involved:
1. Legality of the assessment order passed by the Assessing Officer (AO) under section 143(3) read with section 144C(13) of the Income Tax Act, 1961.
2. Whether the AO's order dated 28.06.2022 was a draft assessment order or a final assessment order.
3. Validity of the demand notice and penalty proceedings initiated by the AO.

Summary:

Legality of the Assessment Order:
The assessee contended that the order passed by the AO under section 143(3) read with section 144C(13) of the Act dated 27.04.2023 is illegal, bad in law, and void as it contravenes section 144C of the Act. The AO erred in passing a final order instead of a draft order, evident from the issuance of a demand notice under section 156 and initiation of penalty proceedings under section 271AAB(1A)(b) read with section 274 of the Act.

Draft or Final Assessment Order:
The underlying issue was whether the AO's order dated 28.06.2022 was a draft assessment order or a final assessment order. The AO titled the order as "Assessment order" and directed to calculate tax and charge interest, which brought the proceedings to an end. The assessee argued that this action violated section 144C of the Act, as the AO's actions indicated the conclusion of the assessment process, not a draft order.

Validity of Demand Notice and Penalty Proceedings:
The assessee argued that the issuance of a demand notice and initiation of penalty proceedings with the draft order indicated that the AO treated it as a final assessment order. The Tribunal agreed, stating that the AO's actions on 28.06.2022 concluded the proceedings, making any subsequent orders non est. The Tribunal emphasized that the assessment process is one integrated process involving both the assessment of total income and the determination of tax, and both steps must be completed within the prescribed time limit.

Conclusion:
The Tribunal held that the AO's issuance of the demand notice and initiation of penalty proceedings on 28.06.2022 bypassed the mandatory provisions of section 144C of the Act. The Tribunal found that the AO's actions concluded the proceedings, rendering all subsequent orders non est. The Tribunal allowed the assessee's appeal, declaring the order of the DRP and the final assessment order as non est and unnecessary to dwell into other grounds raised in the appeal.

The appeal of the assessee in ITA No. 1818/DEL/2023 was allowed, and the order was pronounced in the open court on 17.10.2023.

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