TaxTMI 
TaxTMI 
2024 (12) TMI 495
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....n up as a lead case for the sake of convenience 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 with....
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....n it. In this ground, the assessee has challenged the action of the AO in passing the assessment order without issuing a draft assessment order. It is 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 f....
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....id not follow the procedure laid down in the said section for the relevant assessment years. Pursuant to search proceedings income has been assessed u/s 153A/ 143(3) for the relevant assessment years 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 o....
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....s date, in case of eligible assessee, which is prejudicial to the interest of the assessee, the above provision shall be applicable It is submitted that the requirement of following the procedure laid down in section 144C has become mandatory to be followed in case of any assessment 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....
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....the Assessing Officer and to the assessee under sub- section (3) thereof. The Assessing Officer accepted the variation submitted by the TPO without giving the petitioner any opportunity to abject to it and passed the impugned assessment order. As this has occurred after 01.10.2009, the cut-off date prescribed in sub-section (1) of S.144C, the Assessing Officer is mandated to first pass a draft assessment 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....
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....ed 07th September, 2017 in WP(C) 3629/2017. In Principal Commissioner of Income Tax-4 vs Headstrong Services India Pvt Ltd 197 DTR 329/318 CTR 369 (Delhi) the Hon'ble Delhi High Court stated that: "The failure by the AO to adhere to the mandatory requirement of Section 144C (1) of the Act and first pass a draft assessment order would result in invalidation of the final assessment order and the consequent demand notices and penalty proceedings. The above position 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 tha....
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....uch an order as section 778 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 ITO v M. Pirai Chori [2012] 20 tarmann.com 733/2011] 334 ITR 262, 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 assesses 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 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 A....
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....eds to be mandatorily followed and is not merely directory. Failure to follow the procedure leads to a jurisdictional error and not merely a procedural error or irregularity, as it was not a case of mistake in the order but beyond the power of the AO to issue an order. Section 292B of the Act cannot save an order passed in breach of the provisions of section 144C of the Act, the same being incurable illegality. Non-issuance of a draft assessment order in case of an eligible assessee' leads to denial of substantive right, as the legislature intends to grant an opportunity 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 h....
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....on 153A overrides section 1440. 5.1.2 It is submitted that assessment proceedings for the relevant assessment year under section 153A of the Act were initiated on 02.02.2021 and the impugned assessment order was passed under sec. 153A on 28.09.2021. The order was passed after the amendment introduced in sec. 144C(15)(b)(i) extending the definition of 'eligible assessee to non-resident individuals effective from 01.04.2020. 5.1.4 As the amended provisions of sec. 144C were in force when the assessment proceedings in the appellant's case were initiated and completed, the impugned assessment of the appellant under sec. 153A of the Act was bad in law. 5.1.5 Both sections, sec. 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 woul....
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....see, which is prejudicial to the interest of the assessee, the above provision shall be applicable. 6.1.2 From the above, it is clear that that the amended provision of section 144C is applicable to any order passed after 01st April, 2020 irrespective of the assessment year involved. 6.1.3 The question whether section 144C is applicable for any order passed after introduction of section irrespective of the assessment year involved is settled by the Hon'ble Andhra Pradesh High Court in the case of Zuari Cement Limited vs. The Assistant Commissioner of Income Tex, Circle-2(1), Tirupathi in Writ Petition No.5557 of 2012 decided on 21.02.2013 (SLP dismissed on 27.09.2013). 6.1.4 The Hon'ble Gujarat High Court in the case of CIT v C-Sam (India) Pvt. Ltd reported in 398 ITR 182 held as under. "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 requ....
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....2020." 5. The ld.CIT(A) has also discussed additional ground of appeal first in paras 12 to 12.17 on pages-22 to 28 of the order. He finally dismissed the ground on following reasoning: 1. The decisions of Hon'ble Bombay and other high courts did not apply to the facts of the case where the assessee did not comply and co-operate at any stage of either search or assessment proceedings. 2. It is stated that section 144C was introduced in the staute as an alternate dispute resolution mechanism and not as an infallible assessment procedure per se. Hence when the question is of alternate remedy one cannot say that the procedure adopted by the AO in the case of total silence and non cooperation by the assessee is fatal to the entire proceedings. He further relied on the decision in the case of State Bank of India v K.Sharma 3 SCC 364 in which Hon'ble Supreme Court observed that Justice means justice 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 tha....
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....um comprising of three Principal Commissioners or Commissioners of Income-tax constituted by the Board for this purpose; (b) "eligible assessee" means,- (i) any person in whose case the variation referred to in sub-section (1) arises as a consequence of the order of the Transfer Pricing Officer passed under sub-section (3) of section 92CA; and (ii) any non-resident not being a company, or any foreign company." 6.2 On mere perusal of the above provisions, it would be clear that the Assessing Officer is required to issue a draft assessment order in respect of an eligible assessee. There are two categories of eligible assessee: (a) In a case where there has been a variation on account, and (b) Any Non-Resident not being a company or any foreign company. 6.3 In the former case, the Assessing Officer is required to adhere to the special procedure prescribed u/s 144C, only in case, where there is variation to the returned income on account of arm"s length price 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....
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....s contained in the statute in this regard. The Ld. DR"s reference to sub-section 16 of the Section 144C is not also not found to be of any significance as the said amendment is applicable from 01.9.2024 on prospective basis. 6.5 The assessee has placed reliance on a catena of judicial decisions which are directly applicable to the grounds in this regard i.e. mandatory nature of the provisions relating to NRI assessee and also that any omission on part of the AO is not curable and the provisions of section 292 B cannot come to the rescue of the Revenue.The jurisdictional High Court cited below clinches the issue in favour of the assessee as it is squarely applicable to the facts of the present case as well. In the case of Hon'ble Bombay High Court inter alia gave the decision as under-SHL(India) P.Ltd vs DCIT(2021) 438 ITR 317(Bom): "In our view, the following principles emerge from the above discussion :- (i) that the procedure prescribed under Section 144C of the IT Act is a mandatory procedure and not directory. (ii) failure to follow the procedure under Section 144C(1) would be a jurisdictional error and not merely procedural error or irregularity. ....
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.... our view, the Assessing Officer has no power under the statute, as the provision clearly mandates the Assessing Officer to pass and furnish a draft Assessment Order in the first instance in such a case. The legislature, in our view, has intended to give an important opportunity to Petitioner, who is an eligible assessee, which in our view, has been taken away. In our view, failure to follow the procedure under Section 144C(1) would be a jurisdictional error and not merely procedural error or a mere irregularity. The Assessment Order has not been passed in accordance with the provisions of Section 144C of the IT Act. This is not an issue, which involves a mistake in the said order, but it involves the power of the Assessing Officer to pass the order. By not following the procedure laid down in Section 144C(1) to pass and furnish a draft Assessment Order to Petitioner and directly passing a final Assessment Order and without giving Petitioner an opportunity to raise objections before the DRP, there is a complete contravention of Section 144C, the Assessing Officer having wrongly assumed jurisdiction to straight away pass the final order. This is not a mere irregularity but an incura....