2024 (1) TMI 912 - AT - Income Tax

Section 144C final assessment order void for exceeding statutory time limit despite late DRP objections

Mavenir UK Holdings Versus The ACIT, (International Taxation) Circel INT Tax 2 (2) (1), New Delhi

The ITAT Delhi held that a final assessment order passed under section 144C was void due to limitation. The draft assessment order was passed on ... Validity of final assessment order passed u/s 144C - Period of limitation - as argued as due date prescribed u/s 144C the order passed by the AO is barred by limitation, and hence, treated as void - HELD THAT:- The draft of the Assessment Order, in this case, has been passed on 04.03.202. The assessee filed objections before ld. DRP on 06.04.2022, i.e., after the due date of the time allowed for filing of the objections before the ld. DRP. The due date for passing of the final Assessment Order was 31.05.2022. Since the final Assessment Order has been passed on 27.12.2022 in divergence to due date prescribed u/s 144C of the Income Tax Act, we hold that, the order passed by the Assessing Officer is barred by limitation, and hence, treated as void. The assessee vide letter dated 11.04.2022 has filed a letter before the Assessing Officer informing that the assessee has filed objections before the office of DRP-II on 06.04.2022 against the draft Assessment Order. This clearly proves that the assessee has filed objections before the DRP after the due date. Under such circumstances the AO should have carried the proceedings to finalize the Assessment Order as per the provisions of section 144C(4). Issues involved:The judgment involves issues related to the validity of the final assessment order, the timeliness of passing the assessment order, jurisdiction of passing a draft assessment order, validity of notice under Section 148, providing copies of sanction and documents, violation of principles of natural justice, communication compliance, determination of Permanent Establishment (PE), taxation on receipts, ad-hoc attribution, addition of business income, granting credit of Tax Deducted at Source (TDS), and levying interest under sections 234A and 234B of the Income Tax Act, 1961.Validity of Final Assessment Order:The appeal was filed against the final assessment order passed by the Assessing Officer (AO) under Section 144 read with Section 147 of the Income Tax Act, 1961. The grounds of appeal raised by the assessee included challenges to the validity and legality of the assessment order, asserting that it was invalid, bad in law, and liable to be quashed.Timeliness of Passing Assessment Order:The draft assessment order in this case was passed on 04.03.2022, and the assessee filed objections after the due date allowed for filing objections before the Dispute Resolution Panel (DRP). The final assessment order was passed on 27.12.2022, contrary to the due date prescribed under Section 144C of the Income Tax Act, rendering the order as void due to being barred by limitation.Jurisdiction of Passing Draft Assessment Order:The assessee contended that the draft assessment order passed under Section 144C read with Section 147 and Section 144 of the Act was invalid, bad in law, and beyond jurisdiction, as Section 144 does not warrant the passing of a draft order, raising concerns regarding the procedural compliance.Validity of Notice under Section 148:The notice under Section 148 of the Act dated 30 March 2021, purportedly delivered at an incorrect and non-existent address, was challenged as invalid, barred by limitation, bad in law, and beyond jurisdiction, due to improper and invalid service to the Appellant, affecting the subsequent assessment/reassessment proceedings.Providing Copies of Sanction and Documents:The Appellant sought the copy of sanction obtained under Section 151 of the Act before initiating the reassessment proceedings and other documents relied upon by the AO in the draft assessment, to enable the Appellant to rebut the same before confirming the proposed addition under consideration, emphasizing the importance of procedural fairness.Violation of Principles of Natural Justice:The addition by the AO and the draft assessment order were alleged to be in gross violation of principles of natural justice, as proper opportunity was purportedly lacking, highlighting the significance of ensuring procedural fairness and due process in assessment proceedings.Communication Compliance and DIN:The communication sent by the AO via email dated 28 February 2022 was challenged as invalid and non-compliant with Circular No. 19/2019, due to the absence of a mandatory Document Identification Number (DIN), underscoring the importance of compliance with communication protocols.Determination of Permanent Establishment (PE) and Taxation on Receipts:The AO's determination that the Appellant has a Permanent Establishment (PE) in India under the India-UK double taxation avoidance agreement (DTAA) was contested, along with the taxation of receipts on account of the sale of software license and allied support services on a net basis, questioning the connection with the alleged PE under the provisions of India-UK DTAA.Ad-hoc Attribution and Addition of Business Income:The AO's ad-hoc attribution of 80% of the receipts from India in the hands of the alleged PE without providing a basis thereof was challenged, along with the addition of INR 18,97,66,675 as business income during the year under consideration, raising concerns regarding the method and basis of such attributions and additions.Granting Credit of TDS and Levying Interest:The AO was criticized for not granting credit of Tax Deducted at Source (TDS) amounting to Rs. 2,89,34,481 in the final assessment order, and for levying interest under sections 234A and 234B of the Act, highlighting discrepancies in the assessment process and the impact on the Appellant's tax liability.Conclusion:The appeal of the assessee was allowed, emphasizing the importance of procedural compliance, timeliness in assessment proceedings, adherence to legal requirements, and the principles of natural justice in ensuring a fair and transparent assessment process.