Assessment quashed for skipping mandatory Section 144C draft; limitation u/s 153 cannot be judicially extended

HC held that the AO's failure to first issue a draft assessment order under Section 144C, and instead directly passing a final assessment order, violated the mandatory procedure and rendered the assessment a nullity. The Court reaffirmed that Section 144C is obligatory where applicable, and non-compliance invalidates the assessment. Further, HC rejected the revenue's plea to effectively extend the statutory limitation under Section 153, holding that courts cannot enlarge legislatively prescribed time limits absent express statutory authority or an applicable exclusion provision. As no interim order had restrained the AO from completing the assessment, the limitation had expired. The writ petitions were allowed and the assessments quashed.

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Issues Involved:

1. Whether a final assessment order passed without passing a draft assessment order as mandated under Section 144C of the Income Tax Act, 1961, is tenable or not.
2. Whether it is mandatory for the assessing officer to pass a draft assessment order under Section 144C of the Act during remand proceedings.
3. Whether the final assessment order is valid if passed after the expiration of the limitation period prescribed under Section 153 of the Act.
4. Whether the court can remand the matter to the AO to pass a fresh order despite the expiration of the limitation period.

Issue-wise Detailed Analysis:

1. Whether a final assessment order passed without passing a draft assessment order as mandated under Section 144C of the Income Tax Act, 1961, is tenable or not:

The court held that the failure to pass a draft assessment order as mandated under Section 144C of the Act renders the final assessment order invalid. The court referred to numerous decisions, including JCB India Ltd. v. Deputy Commissioner of Income-tax and Another, Turner International India Pvt. Ltd. v. Deputy Commissioner of Income-tax, and Nokia India Private Limited v. Additional Commissioner of Income Tax, which consistently held that non-compliance with the draft order requirement under Section 144C is a violation of mandatory procedures and renders the final assessment order null and void.

2. Whether it is mandatory for the assessing officer to pass a draft assessment order under Section 144C of the Act during remand proceedings:

The court emphasized that Section 144C is a self-contained provision that mandates the passing of a draft assessment order for eligible assessees. The court rejected the contention that the requirement could be bypassed during remand proceedings. The court cited the decision in Headstrong Services India Pvt. Ltd., which clarified that the Assessing Officer must follow the procedure of passing a draft assessment order even in remand proceedings, and failure to do so would invalidate the final assessment order.

3. Whether the final assessment order is valid if passed after the expiration of the limitation period prescribed under Section 153 of the Act:

The court noted that the limitation period for completing the assessment, as prescribed under Section 153, had expired in several cases. The court held that the final assessment orders passed after the expiration of the limitation period are invalid. The court referred to the statutory prescriptions of limitation created by Section 153 and emphasized that the period for completion of the assessment exercise cannot be expanded or enlarged by the court.

4. Whether the court can remand the matter to the AO to pass a fresh order despite the expiration of the limitation period:

The court rejected the contention that it could remand the matter to the AO to pass a fresh order despite the expiration of the limitation period. The court referred to the judgment of the Constitution Bench in Income Tax Officer, A Ward, Sitapur v. Murlidhar Bhagwan Das, which explained that a "finding" or "direction" must be necessary for the disposal of the appeal and cannot be used to extend the period of limitation. The court held that it would be impermissible to expand or enlarge the period prescribed for completion of assessment under Section 153.

Conclusion:

The court allowed the writ petitions and quashed the impugned final orders of assessment and all consequential notices issued pursuant thereto. The court upheld the view taken by the Tribunal in ITA Nos. 52/2023, 451/2024, and 454/2024, and dismissed those appeals. The petitioners were entitled to all consequential reliefs.

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