Assessment order against foreign company null and void for failing to issue mandatory draft order under section 144C(1)

ITAT Visakhapatnam-AT held that the assessment order against a foreign company was null and void for non-compliance with section 144C(1) of the Income Tax Act. The AO failed to issue a mandatory draft assessment order before passing the final assessment order, despite the assessee being an eligible foreign company within the Act's definition. The court ruled that this procedural violation vitiated the final assessment order as one passed without jurisdiction, making it unsustainable in law. The appeal was decided in favor of the assessee.

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Issues Involved:
1. Validity of the final assessment order without issuing a draft assessment order as mandated under section 144C of the Income Tax Act.
2. Adherence to mandatory procedural requirements under section 144C(1) of the Income Tax Act.

Summary:

Issue 1: Validity of Final Assessment Order Without Draft Assessment Order

The assessee, a foreign company, challenged the final assessment order passed by the Assessing Officer (AO) without issuing a draft assessment order as mandated under section 144C of the Income Tax Act. The Tribunal admitted the legal ground raised by the assessee regarding this procedural lapse.

The assessee argued that being a foreign company, it is covered by section 144C(15)(b)(ii) of the Act, which mandates the AO to first pass a draft assessment order. The assessee cited several judgments, including those from the Andhra Pradesh High Court and the Supreme Court, which held that failing to issue a draft assessment order renders the final assessment order null and void.

The Departmental Representative (DR) supported the orders of the Revenue Authorities and cited the judgment of the Madras High Court in the case of Volex Interconnect (India) (P.) Ltd. However, the Tribunal noted that this was a Single Judge decision and not binding.

Issue 2: Adherence to Mandatory Procedural Requirements Under Section 144C(1)

The Tribunal found that the AO did not follow the mandatory procedure under section 144C(1) of the Act, which requires issuing a draft assessment order to the eligible assessee. The Tribunal referenced section 144C and several High Court judgments, including those from the Bombay and Delhi High Courts, which held that failure to issue a draft assessment order results in the final assessment order being without jurisdiction and unenforceable.

The Tribunal concluded that the assessment order passed by the AO was without jurisdiction and in violation of the mandatory provisions of section 144C(1) of the Act. Consequently, the assessment order was declared null and void.

Conclusion:

The Tribunal quashed the assessment order passed by the AO under section 153C of the Act, dated 31/03/2022, as it was found to be without jurisdiction and unsustainable in law. As a result, the original grounds of appeal raised by the assessee on merits were deemed infructuous. The appeal filed by the assessee was allowed.

Result:

The appeal filed by the assessee is allowed. The judgment was pronounced in the open Court on 15th December, 2023.

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