TaxTMI 
TaxTMI 
2024 (12) TMI 495
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....ence and brevity. ITA No. 1303/MUM/2024 2. The grounds of appeal are as under: A) Non-passing Draft Assessment order u/s 144C 1. The Commissioner of Income Tax (Appeal) ("Ld. CIT (A)) has erred in not quashing the final assessment order passed by the Assessing Officer ("AO") without passing the draft assessment order as required u/s 144C of the Act as the appellant is a non-resident and falls under the definition of an "eligible assessee'. On the facts and in circumstances of the case and in law, assessment order passed by the AO is without jurisdiction, bad in law and CIT(A) ought to have quashed the assessment order. B) No incriminating material 2. The Ld. CIT(A) erred in not quashing the assessment order passed by the AO in the absence of any incriminating material for the assessment year under reference which is pre-requisite for issue of notice under section 153A. On the facts and in circumstances of the case and in law, CIT(A) ought to have quashed the assessment order in the absence of any incriminating material for the assessment year under reference. The below grounds are without prejudice to ground No. 1 and 2 C) Re-computing Long Term Capital Gain 3. ....
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....s stated that the Ld. CIT (A) has erred in not quashing the final assessment order passed by the Assessing Officer without passing the draft assessment order as required u/s 144C of the Act as the appellant is a non-resident and falls under the definition of an "eligible assessee". It may be stated here that the appeal was filed with ld.CIT(A) originally on 4.11.2021.Later,vide a Writ petition was filed before the Hon'ble Bombay High Court in April 2022 vide WP No. 1890,1891,1893,2233,2252,2258,2280 and 3483 of 2022.The Hon'ble Court vide order dated 23.10.2023 allowed the assessee to file additional grounds of appeal before the CIT(A).Subsequently, the ld.CIT(A) obtained the comments of the AO as also of the assessee while adjudicating the appeal. He has taken into account parawise comments of the AO made in the Writ petitions as also the contents of the assessee submitted by the assessee in support of this additional ground. The main contentions as made by the assessee before him are reproduced as below: "The appellant has filed the following additional ground of appeal filed pursuant to the order of Hon' High Court of Bombay against the Writ Petition filed by the appellant....
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....s vide assessment orders dated 28.09 2021/30.09.2021 (hereinafter referred to as "the final assessment orders") by making certain additions. Section 144C of the IT Act, provides as under: The Assessing Officer shall, notwithstanding anything to the contrary contained in this Act, in the first instance, forward a draft of the proposed order of assessment (hereafter in this section referred to as the draft order) to the eligible assessee if he proposes to make, on or after the 1st day of October, 2009, any variation which is prejudicial to the interest of such We submit that section 144C(1) makes it very clear that the AO has to "in the first instance" pass a draft assessment order in case there is variation which is prejudicial of the assessee. The term in the first instance" under the said section must be understood as the first step the AO has to do in the series of acts that has to be performed under the said section for an eligible assessee. In the context of section 144C(15) an eligible assessee is a separate class of assessee. In the present case there is no dispute that in the appellant case the AO has made various additions, therefore, the AO was, mandatorily require....
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....ent year in assessing the income of a non-resident. That being so, the final assessment order passed by the Assessing Officer, without at the first instance, forwarding draft assessment order stands vitiated on account of lack of jurisdiction, which is incurable and deserves to be set aside as void ab initio. Your Honour will appreciate that there is no dispute that the appellant is a non- resident. For this, reference is drawn to the final assessment orders for the relevant assessment years wherein the appellant's status is stated as that of 'non-resident'. Hence, the appellant is an eligible assessee' in terms of section 144C of the IT Act [emphasis added] That being so, the AO ought to have in the first instance forward a draft assessment order for the relevant assessment years as there is variation vis-a-vis returned income, which is tabulated hereunder: AY Return income Variation Income after variation 2013-14 1,29,90,190 22,71,08,375 24,00,98,565 2014-15 48,46,20 1,12,08,174 1,61,44,374 2015-16 1,09,95,680 52,58,78,116 53,68,73,796 2016-17 39,12,010 11,79,36,591 12,18,48,601 2017-18 25,23,660 2,82,14,027 3,07,37,687 2018-19 2,60,90,....
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....ment order, communicate it to the assessee, hear his objections and then complete assessment. Admittedly this has not been done and the respondent has passed a final assessment order dt. 23.12.2011 straight away. Therefore, the impugned order of assessment is clearly contrary to S.144C of the Act and is without jurisdiction, null and void. SLP of the department has been dismissed by the Apex Court vide order dated 27.09.2013. Gujarat High Court in the case of C-SAM(INDIA) PVT. LTD (Gujarat HC)- Tax Appeal No. 542 of 2017 held as under: "Sub-section (1) of Section 1440 itself in no uncertain terms provides that the Assessing Officer shall forward a draft order to the eligible assessee, if he proposes to make any variation in the income or loss which prejudicial to the interest of the assessee on or after 01st day of October 2009. The statute was thus clear, permitted no ambiguity and required the procedure to be followed in case of any variation which the Assessing Officer proposed to make after 01.10.2009. Pune Tribunal in the case of Mr. Abrar Fakirmohmmad Shaikh [TS- 615-ITAT-2023(PUN)-TP) held as under. "Therefore, since in this case, admittedly, the assessment proceed....
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....n has also been upheld by High Courts of various Jurisdictions including the Jurisdictional Bombay High Court as well as Mumbai and Pune ITAT, which are stated as under. Bombay High Court decision Recently Bombay High Court in the case of CWT India (P.) Ltd. V. ACIT, Writ Petition Nos. 1784 & 1791 of 2022 held that failure to pass draft assessment order section, 144C(1) of the Act has rendered the assessment as one without jurisdiction and quashed the assessment order. The Hon' Bombay High Court in the matter of SHL (India) (P.) Ltd. v. DCIT, Writ Petition (L) No 11293 OF 2021 held as under. Applying the aforesaid principles to the facts of this case, we are of the view that the failure on the part of the Assessing Officer to follow the procedure under section 144C(1) is not a merely procedural or inadvertent error, but a breach of a mandatory provision. We are also not impressed with the arguments of the Revenue that the Assessing Officer was under pressure of two charges, as there were timelines to adhere to, since the said from time to time have been extended, the most recent one being to 30 September, 2021 The Revenue ought to have appreciated that the requirement und....
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.... to avail of whereas there is no such right available to Petitioner in this case. In fact, Petitioner has lost a substantive right dus to the failure of the Respondents to pass and forward a draft assessment order in the first instance on a variance, prejudicial to the interest of Petitioner in our view, this is clearly a case of jurisdictional error. The final assessment order passed by the Assessing Officer stands vitiated on account of lack of jurisdiction, which is incurable and deserves to be set aside as void ab initio. Other case laws PCIT v. Andrew Telecommunication Private Ltd 423 ITR 503 Exxon Mobil Company (P) Ltd v. DCIT WP No 451 of 2022 International Air Transport Association v DCIT (WP(L) No. 351 of 2016)Dimension Data Asia Pacific Pvt. Ltd v DCIT WP No 921 of 2018 Other High Courts CV. Ramalah v CIT 365 ITR 646/37 (Madras), CIT v. Tumer International India (P) Ltd 82 taxmann.com 125 (Delhi), CIT v. Citi Financial Consumer Finance India (P.) Ltd IT Appeal No. 275 (Delhi) ESPN Star Sports Mauritius S.N.C. ET Companies vs. Union of India 388 ITR 383 (Delhi) CIT v. C-Sam (India) Pvt Ltd Tax Appeal No 542 of 2017 (Gujarat) Nokia India Pvt Ltd v. ACIT WP(C) No 3....
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....ty to raise an objection before the DRP. It is therefore submitted that the final assessment orders for the relevant assessment years should be annulled/cancelled." "11. Vide letter dt. 16.1.2024 to the ld CIT(A), the assessee has further submitted as under:- "A) W.r.t. the additional ground no. 1 ie. Non-passing of draft order, hence, assessment order is bad in law" At the outset, it is mentioned that the Ld. AO has relied upon the Affidavit-in- reply filed before the Hon' High Court of Bombay for all the years, for the sake of easy reference we have reproduced for AY 2013-14 here under: In this connection, kindly find enclosed herewith a copy of the Affidavit-in-Reply re. Para wise Comment for A.Y. 2013-14 filed by the then DCIT(CC)-5(2), Mumbai before the Hon'ble Bombay High court on 16.12.2022 during the appellate proceedings in respect of Wit Petition. The then AO vide the said Affidavit-in-Reply from Para no. 4.7 to 4.10 contested and denied the contention of the assessee with regard to eligible assessee as per the provision of section 144C(15)(b) and requirement of forwarding a draft of the assessment order before passing final assessment order. I request you....
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.... 153A which lays down the procedure in search cases and sec. 144C applicable to all 'eligible assessee's contain non-obstante classes non-obstante clause 5.1.6 It is submitted that the non-obstante in sec 153A excludes specific provisions viz. sec 148, sec. 149, sec. 151 and sec. 153, whereas the non-obstante clause in sec 144C is wider and excludes anything to the contrary contained in the Act. In the circumstances, the provisions of sec. 144C would prevail over sec. 153A of the Act and as the appellant was admittedly a non-resident covered by the definition of an eligible assessee in sec. 144C(15)(b)(ii) when the assessment proceedings under sec. 153A were initiated on 02.02.2021 and completed on 28.09.2021, sec. 144C was the only applicable provision under which the appellant could have been assessed. 6 Comment No 2 of the assessing officer. The amendment to Sec 144C rendering all non-resident individuals as 'eligible assessee with the meaning of the said section has been brought into effect from 01.04.2020 and is not applicable in respect of earlier assessment year. 6.1 Appellant's rebuttal: 6.1.1 It is submitted that the legal position that sec. 144C wo....
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....r. "Sub-section (1) of Section 144C itself in no uncertain terms provides that the Assessing Officer shall forward a draft order to the eligible assessee, if he proposes to make any variation in the income or loss which prejudicial to the interest of the assessee on or after 01st day of October 2009. The statute was thus clear, permitted no ambiguity and required the procedure to be followed in case of any variation which the Assessing Officer proposed to make after 01.10.2009." 6.1.5 In the above 2 cases, the respective assessee had challenged the assessments made under sec. 143(3) without following the procedure laid down in sec 144C - The assessment years involved were 2008-09 and 2009-10 respectively prior to the introduction of sec. 144C from 1.10.2009. However, the assessments in both cases were completed after sec. 144C had come into force. The Hon'ble High Courts held that sec. 144C would apply to any order passed after 1.10.2009 irrespective of the concerned assessment year. Similar, view has also been expressed by the Hon'ble Madras High Court in Vijay Television P. Ltd 's case, 369 ITR 113. 6.1.6 Further, this view is supported by the CBDT Circular ....
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....tice to both the parties. The courts must ensure a fair hearing and to ensure that there is no failure of justice. 3. He also relied on the decisions in the cases of Areva T&D India Ltd 294 ITR 233 AND Thakur Hariprasad 32 Taxman 196(AP) in support of the argument that if there are procedural irregularities, the assessment cannot be annulled and could be cured with a direction to afford opportunity of hearing. 4. He also placed reliance on such curable irregularity on Home Finders Housing Ltd sv ITO 404 ITR 66(Mad), which has been upheld by the Hon'ble Supreme Court in 256 Taxman 59. 5. The ld CIT(A) has quoted the provisions of section 292 B of the Act in support of such curable defects. 292B. Return of income, etc., not to be invalid on certain grounds. "- No return of income, assessment, notice, summons or other proceeding, furnished or made or issued or taken or purported to have been furnished or made or issued or taken in pursuance of any of the provisions of this Act shall be invalid or shall be deemed to be invalid merely by reason of any mistake, defect or omission in such return of income, assessment, notice, summons or other proceeding if such return of income, a....
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....ice for international transaction or specific domestic transaction has been proposed by the TPO. We find the above that a Non-Resident is made eligible assessee by Finance Act, 2020 w.e.f. 1.4.2020. Even the CBDT Explanatory Memorandum of Finance Bill, 2020 clarifies the amendment took place w.e.f. 1.4.2020, the Explanatory Memorandum of Finance Bill, 2020 is extracted below :- "Amendment in Dispute Resolution Panel (DRP). Section 144C of the Act provides that in case of certain eligible assessees, viz., foreign companies and any person in whose case transfer pricing adjustments have been made under sub-section (3) of section 92CA of the Act, the Assessing Officer (AO) is required to forward a draft assessment order to the eligible assessee, if he proposes to make any variation in the income or loss returned which is prejudicial to the interest of such assessee. Such eligible assessee with respect to such variation may file his objection to the DRP, a collegium of three Principal Commissioners or Commissioners of Income-tax. DRP has nine months to pass directions which are binding on the AO. It is proposed that the provisions of section 144C of the Act may be suitably amended to:- ....
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.... not directory. (ii) failure to follow the procedure under Section 144C(1) would be a jurisdictional error and not merely procedural error or irregularity. (iii) therefore, Section 292B of the IT Act cannot save an order passed in breach of the provisions of Section 144C(1), the same being an incurable illegality. It is important to note that Section 144C(1) is a non- obstante provision, which requires its compliance irrespective of the other provisions that may be contained in the IT Act. There is no dispute that Petitioner is an eligible assessee and also there is no dispute as to the applicability of Section 144C. It is also not in dispute that the final Assessment Order has been passed without the draft Assessment Order as contemplated under Section 144C (1) of the IT Act. The Assessing Officer ought to have in the first instance forwarded a draft of the proposed order of assessment to Petitioner, as there was a proposed variation prejudicial to the interest of the assessee. This important step has been completely omitted by the Respondent taking away a very necessary right of Petitioner to file objections to the proposed variation with the DRP and the Assessing Officer, ....
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....ssessing Officer having wrongly assumed jurisdiction to straight away pass the final order. This is not a mere irregularity but an incurable illegality. Even the provisions of Section 292B of the IT Act would not protect such an order as Section 292B of the IT Act cannot be read to confer jurisdiction on the Assessing Officer, where none exists. The Supreme Court decision in the case of Income-Tax Offcer Vs. M. Pirai Choodi; [2011] 334 ITR 262 (SC) referred to in the Revenue's reply is also not applicable to the issue at hand as that was a case where the assessee was not given an opportunity to cross-examine the concerned witness and which assessee also had a statutory appellate remedy which the assessee had failed to avail of, whereas there is no such right available to Petitioner in this case. In fact, Petitioner has lost a substantive right due to the failure of the Respondents to pass and forward a draft assessment order in the first instance on a variance, prejudicial to the interest of Petitioner. In our view, this is clearly a case of jurisdictional error. The final assessment order passed by the Assessing Officer stands vitiated on account of lack of jurisdiction, which....