2025 (11) TMI 170 - HC - Income Tax

Final tax assessment followed by demand cannot be converted into draft; assessment, demand and corrigendum quashed

HC held that the impugned assessment order was a final assessment, as immediately followed by a demand notice, and the revenue could not thereafter treat ... TP Adjustments - Final assessment order followed immediately by a Demand notice without passing draft assessment - Whether revenue would be entitled to pass the second assessment order after passing the earlier first assessment order followed by a demand notice? - HELD THAT:- Issue is no longer res-integra in the light of the judgment of this Court in the case of Google Ireland Limited. [2025 (6) TMI 2073 - KARNATAKA HIGH COURT] In the instant case, it is an undisputed fact that a bare perusal of the impugned assessment order at Annexure-T will indicate that it is a final assessment order, especially when the same has been followed immediately by a Demand notice which confirms the same as a final assessment order and not draft assessment order as sought to be contended by the respondents. Though the 1st respondent purports to have issued corrigendum informing the petitioner that the earlier assessment order dated 13.12.2019 shall be treated as draft assessment order, the said contention cannot be accepted in view of the demand raised by the respondents immediately upon passing the earlier assessment order. In fact, in Google Ireland's case supra, it was held that after issuing the final assessment order and demand notice, it was not permissible for the respondent-revenue to circumvent the same and issue a corrigendum informing the petitioner to treat the said final assessment order as the draft assessment order and the said contention was negatived by this Court in the aforesaid judgments. The impugned assessment orders, notices, Corrigendum respectively deserves to be quashed. ISSUES PRESENTED AND CONSIDERED 1. Whether a final assessment order followed immediately by a demand notice can subsequently be re-characterised by the revenue as a 'draft assessment order' and be replaced by a fresh final assessment order. 2. Whether issuance of a corrigendum and a subsequent assessment/demand notice after an earlier final assessment and demand can validate reopening or re-assessment proceedings where objections to reopening had not been disposed of and where statutory procedure under Sections 147/148/92CA/143/156 (as referenced) was in issue. ISSUE-WISE DETAILED ANALYSIS Issue 1: Recharacterisation of a final assessment order as a draft and validity of a subsequent final assessment Legal framework: The statutory scheme contemplates passing of assessment orders under Section 143 read with Section 147 of the I.T. Act and issue of demand notices under Section 156. The procedural consequence of a final assessment order followed by demand notice is that the order is operative as a final order. Precedent Treatment: The Court relied on and followed earlier decisions of the High Court (referred to collectively) including the authority in Google Ireland's case, which held that once a final assessment order and demand notice are issued, the revenue cannot subsequently treat that order as a draft by issuing a corrigendum and then issue a fresh final assessment. Interpretation and reasoning: The Court examined the impugned assessment dated 13.12.2019 and the immediately ensuing demand notice and concluded that their sequence and content unambiguously signified a final assessment. A subsequent corrigendum purporting to reclassify that final order as a draft was held to be impermissible because the law and the prior judicial pronouncements forbid the revenue from circumventing the finality of an assessment by retroactive recharacterisation. The Court emphasized the practical and legal effect of an immediate demand notice as reinforcing finality. Ratio vs. Obiter: The holding that a final assessment order followed by an immediate demand notice cannot thereafter be treated as a draft assessment order (and that a corrigendum attempting such recharacterisation is invalid) is ratio decidendi. Reliance on prior High Court authorities is treated as following established ratio rather than mere obiter. Conclusions: The earlier assessment dated 13.12.2019 and the attendant demand notice are final in nature; the corrigendum attempting to treat them as draft and the subsequent fresh final assessment/demand are invalid and liable to be quashed. Issue 2: Validity of subsequent assessment proceedings where objections to reopening were pending and TPO reference was made without informing the assessee Legal framework: Reopening under Section 148/147 requires that reasons recorded be provided when requested and objections to reopening are to be considered; references to Transfer Pricing Officer under Section 92CA engage separate proceedings but do not obviate the need to dispose of objections or to follow fair procedure when reopening assessment. Precedent Treatment: The Court treated relevant authorities as supporting the principle that procedural fairness and the finality of orders matter; prior decisions relied upon indicate that procedural irregularities or attempts to sidestep final orders cannot be remedied by subsequent corrigenda or fresh orders. Interpretation and reasoning: The material showed the assessee requested reasons for reopening and filed objections which were not disposed of before a reference was made to the TPO. The Court noted the respondents proceeded with transfer pricing proceedings and issued notices, including under penalty provisions, while objections to the reasons for reopening remained pending. Although the primary ground for quashing was the recharacterisation of a final assessment as draft, the Court observed that the sequence of actions - proceeding with TPO reference and other notices without disposing of reopening objections and without informing the assessee of the reference - reinforced the impermissibility of the revenue's later attempts to reissue assessment orders. Ratio vs. Obiter: The specific finding that non-disposal of objections and non-notification of the TPO reference corroborate procedural infirmity in the revenue's conduct is supportive reasoning (ratio by implication in this factual matrix) but the principal legal ratio remains the finality principle addressed under Issue 1. Conclusions: The failure to dispose of objections to reopening before proceeding with TPO reference and subsequent notices constitutes relevant procedural infirmity that supports setting aside the subsequent assessment action in the factual context; accordingly, the impugned subsequent orders and notices were quashed along with the corrigendum. Cross-reference and practical consequence The Court expressly referenced and followed the line of authority that declining to permit the revenue to covertly undo a final assessment by issuing a corrigendum and re-assessing is controlling; consequently, all instruments purporting to reclassify or replace the final assessment (the original assessment, the demand notice, the corrigendum, the later assessment and the later demand) were quashed. Disposition On the consolidated grounds above, the Court allowed the petition and quashed the impugned assessment orders, demand notices and corrigendum relied upon by the revenue.