Assessment order under section 144C invalid for bypassing mandatory draft order procedure before final assessment

The ITAT Delhi held that an assessment order passed under section 144C was invalid as the Assessing Officer bypassed mandatory provisions by issuing a final order with demand notice and penalty proceedings instead of first forwarding a draft assessment order to the assessee. The tribunal ruled that section 144C requires the AO to initially forward a draft order, allow the assessee to approach the Dispute Resolution Panel with objections, and only then frame the final assessment. By issuing the demand notice and penalty notices directly on the same date, the AO violated the statutory procedure, rendering all subsequent proceedings non est.

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Issues Involved:

1. Validity of the assessment order u/s 153A r.w.s 144C(13).
2. Procedure under section 144C.
3. Addition of Rs. 8,00,000/- as unexplained expenditure u/s 69C.
4. Disallowance of Rs. 7,42,970/- u/s 36(1)(va) r.w.s 2(24)(x).
5. Adjustment of Rs. 76,395/- as TP adjustment.
6. Initiation of penalty proceedings u/s 270A and 271AAC.
7. Principles of natural justice.

Summary:

Validity of the Assessment Order u/s 153A r.w.s 144C(13):

The assessee challenged the order dated 20.01.2023 framed u/s 153A r.w.s 144C(13) of the Income-tax Act, 1961, arguing it was void ab initio as it violated section 144C. The Tribunal found that the Assessing Officer (AO) issued a final assessment order instead of a draft assessment order, violating section 144C. The AO's actions, including issuing a demand notice and initiating penalty proceedings on 31.03.2022, concluded the proceedings, making subsequent orders non est. The Tribunal relied on various High Court decisions, including CISCO Systems Services BV, Vijay Television Pvt Ltd, and others, to support its conclusion.

Procedure Under Section 144C:

The Tribunal emphasized the mandatory nature of the procedure under section 144C, which requires the AO to forward a draft assessment order to the assessee before finalizing the assessment. The AO's failure to follow this procedure rendered the final assessment order invalid. The Tribunal cited the decision of the Hon'ble High Court of Delhi in the case of JCB India Ltd, which held that failure to issue a draft assessment order results in an incurable illegality not protected by section 292B.

Addition of Rs. 8,00,000/- as Unexplained Expenditure u/s 69C:

The Tribunal did not find it necessary to dwell into this ground as the primary issue regarding the validity of the assessment order was decided in favor of the assessee.

Disallowance of Rs. 7,42,970/- u/s 36(1)(va) r.w.s 2(24)(x):

Similarly, this ground was not addressed in detail due to the primary issue's resolution.

Adjustment of Rs. 76,395/- as TP Adjustment:

This ground was also not elaborated upon following the decision on the primary issue.

Initiation of Penalty Proceedings u/s 270A and 271AAC:

The Tribunal noted that the AO's initiation of penalty proceedings along with the demand notice on 31.03.2022 contributed to the conclusion that the assessment proceedings had ended, rendering subsequent actions invalid.

Principles of Natural Justice:

The Tribunal held that the order passed by the CIT(A) was against the principles of natural justice, supporting the assessee's appeal.

Conclusion:

The Tribunal allowed the appeal, declaring the orders of the DRP and the final assessment order as non est, and did not find it necessary to address other grounds raised in the appeal. The order was pronounced in the open court on 28.03.2024.

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