TaxTMI 
TaxTMI 
2026 (6) TMI 556
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.... and jurisdictional issue, should be admitted. 3. Learned Departmental Representative (DR) submitted, the assessee cannot be permitted to raise a fresh ground before the second Appellate Authority. 4. Having considered rival submissions and perused the materials on record, we are of the view that the issue raised in Additional Ground No. 6 is a purely legal and jurisdictional issue going to the root of the matter, as it affects the validity of the impugned assessment order. Further, the additional ground raised by the assessee can be decided purely based on the facts material available on record without requiring investigation into fresh facts. Therefore, we are inclined to admit Additional Ground No.6 for adjudication. Additional Ground No.6 which is in common in both appeals, reads as under: "6. On the facts and circumstances of the case and in law, the draft assessment order dated March 9, 2016 passed by the learned assessing officer along with the computation sheet and notice of demand under section 156 of the Act is bad in law, as the same has been passed in violation of section 144C of the Act." 5. Briefly, the facts relating to this ground are that the asse....
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....sessee before us that though the Assessing Officer has mentioned in the body of the assessment orders as draft assessment order, however, they are not so as the Assessing Officer has not only computed the income of the assessee, but has also directed for computing the tax liability and issuing notice of demand after calculating interest. Further, he had directed to initiate proceedings for imposition of penalty under section 271(1)(c) of the Act. He submitted, though in the return of income, assessee had claimed refund of prepaid taxes, however, in the computation sheet in both the assessment years, the Assessing Officer had adjusted the prepaid taxes against the tax liability and rejected assessee's claim of refund. Thus, he submitted, the Assessing Officer essentially has bypassed the procedure contained under Section 144C(1) of the Act while passing final assessment orders instead of passing draft assessment orders at the first instance. He submitted, mere mentioning of the word 'draft' in the body of the assessment order and the demand notice would not digress from the fact that the Assessing Officer had indeed passed the final assessment orders as he has taken all steps re....
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....the Act have been issued, but even computation sheets have been attached to the demand notice computing the tax liability at NIL. In both the assessment years, after adjustment of the prepaid tax, which are otherwise claimed refund in the return of income filed by the assessee. In fact, the Assessing Officer had also issued notices under Section 271(1)(c) read with section 274 of the Act for initiation of penalty proceedings. Such action on the part of the Assessing Officer is suggestive of the fact in the garb draft assessment order, the Assessing Officer has essentially passed the final assessment orders. While framing draft assessment order, there is no question of computing the tax liability and issuing demand notice or initiating proceedings for imposition of penalty under section 271(1)(c) of the Act when the assessment has not become final. Thus, the Assessing Officer, in our considered opinion, has not complied with the mandatory provisions of section 144C(1) of the Act. 11. In assessee's own case, in Assessment Years 2006-07 to 2009-10, identical nature of dispute came up for consideration before the coordinate bench. While deciding the issue, the coordinate bench has h....
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....ed computation of total tax payable as per ITNS 150, which was part of the order. The penalty under section 271 (1) (c) is also initiated for the concealment of income in not reporting the receipts. In view of this we do not find any reason to not to follow the decision of the honourable Karnataka High Court wherein the draft assessment order so passed is quashed. Therefore, the additional ground filed by the assessee for assessment year 2006 - 07 in ITA number 3232/M/2018 is allowed and draft assessment order is quashed. 012. For assessment year 2007 - 08 the identical facts exist and assessment order was passed on February 29/02/2016 under section 143 (3) read with section 254 read with section 144C (1) of the income tax act 1961 determining total income of the assessee at Rs. 213,292,618/-. In the last paragraph of the assessment order, the learned assessing officer has held that computation of total tax payable is as per ITNS 150 accompanied and is a part of the order. Further the penalty under section 271 (1) (c) is initiated for furnishing of incorrect particulars of income. The draft assessment order was accompanied by the notice of demand under section 156 of the i....
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....ival submissions and perused the material available on record. It is evident that the A.O. had passed a draft assessment order dated 29.12.2016 and had proposed variation to the return filed by the assessee, thereby determining the assessee to be an eligible assessee. It is observed that the A.O. has issued the draft assessment order along with the notice of demand u/s. 156 and also notice u/s. 271(1)(c) of the Act dated 29.12.2016. The moot question here is whether the A.O.'s action in issuing the demand notice along with the draft assessment order is only a procedural defect or it makes the assessment order bad in law, thereby making it null and void. For this proposition, we would like to place our reliance on some of the decisions cited by the assessee which are as follows: Sr. No. Case Law Citation 1 Vijay Television (P.) Ltd. vs. DRP [2014] 46 taxmann.com 100 (Madras) 2 Aker Powergas P. Ltd. vs. DCIT ITA No. 7211/Mum/2017 3 Perfetti Van Melle (India) Pvt. Ltd. vs. ACIT ITA No. 9116/Del/2019 4 DCIT vs. Atlas Copco (India) Limited ITA No. 649/Mum/2013 & 1726/Pun/2014 11. The assessee has relied on the decision of the Hon'ble....
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....t 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 in the income or loss returned which is prejudicial to the interest of such assessee." 12. Most relevant clauses pertinent for adjudication of the quarrel reads as under: 12. Most relevant clauses pertinent for adjudication of the quarrel reads as under: "(3) The Assessing Officer shall complete the assessment on the basis of the draft order, if- (a) the assessee intimates to the Assessing Officer the acceptance of the variation; or (b) no objections are received within the period specified in subsection (2). (13) Upon receipt of the directions issued under sub-section (5), the Assessing Officer shall, in conformity with the directions, complete, notwithstanding anything to the contrary contained in section 153 ^51a[or section 153B ], the assessment without providing any further opportunity of being heard to the assessee, within one month from the end of the month in which such direction is received." 13.....
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....he relevant findings of Hon'ble High Court read as under: " 'Assessment' is one integrated process involving not only the assessment of the total income but also the determination of the tax. The latter is as crucial as the former. The Income tax Officer has to determine, by an order in writing, not only the total income but also the net sum which will be payable by the assessee for the assessment year in question and the demand notice has to be issued under section 156 of the Income tax Act, 1961, in consequence of such an order. The statute does not, however, require that both the computations (i.e., of the total income as well as of the sum payable) should be done on the same sheet of paper, the sheet that is superscribed 'assessment order'. It does not prescribe any form for the purpose. Once the assessment of the total income is complete with indications of the deductions, rebates, reliefs and adjustments available to the assessee, the calculation of the net tax payable is a process which is mostly arithmetical but generally time-consuming. If, therefore, the Income-tax Officer first draws up an order assessing the total income and, indicating the adju....
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....dated 27.12.2019 in as much as it was a draft of proposed order of assessment. The ld. DR further stated that notice of demand mentions proposed\draft notice of demand and referring to the communication with the DCIT, Circle 3(1), Gurgaon, the ld. DR pointed out that even the Assessing Officer has mentioned that no entry has been made in the Demand and Collection Register and order was not uploaded on ITD. 20. Referring to the decision of the Hon'ble High Court of Gujarat in the case of Purshottam Das [supra], the ld. DR stated that the same has to be considered in the light of the decision of the Hon'ble Supreme Court in the case of Sun Engineering Works Pvt Ltd 198 ITR 297 wherein the Hon'ble Supreme Court has held as under: "It is neither desirable nor permissible to pick out a word or a sentence from the judgment of this Court, divorced from the context of the question under consideration and treat it to be the complete 'law' declared by this Court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before this Court. A decision of this Court takes its c....
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....way and none other. State cannot ignore the policy intent and procedure contemplated by the statute. 25. In light of the above ratio laid down by the Hon'ble Supreme Court, we are of the considered opinion that by issuing the demand notice on 27.12.2018 itself the Assessing Officer has by passed all the mandatory sub-sections of section 144C of the Act. 26. The ld. DR has placed reliance on the decision of the Co-ordinate Bench in the case of Price Water House Company 117 Taxmann.com 276 in ITA No. 2298/KOL/2016. It is the say of the ld. DR that under similar circumstances, the Tribunal has upheld the assessment order. The ld. DR vehemently stated that by participating in subsequent proceedings, the assessee was well aware that the order dated 27.12.2018 is merely a draft assessment order and not a final assessment order. The ld. DR concluded by saying that the assessee cannot approbate and reprobate. 27. The question whether participation in subsequent proceedings would estop the assessee from challenging the validity of the order dated 27.12.2018 has been answered by the Hon'ble Supreme Court in the case of V Mr. T.P. Firm MUAR in 56 ITR 67....
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....o this has been given by the Hon'ble High Court of Delhi in the case of JCB India Ltd [supra]. The relevant findings read as under: "14. The short question that arises for consideration is whether, after the remand proceedings, the AO could have, without issuing a draft assessment order under Section 144 C of the Act, straightway issued the final assessment order. 15. Mr Syali, learned Senior Counsel for the Assessee, referred to the decision of this Court dated 17th May 2017 passed in W.P. (C) No. 4260/2015 (Turner International India Pvt. Ltd. v. Deputy Commissioner of Income Tax, Circle 25(2), New Delhi) to urge that the AO could not have passed the final assessment order without complying with the mandatory requirement under Section 144C of the Act whereby first a draft order had to be issued in respect of which an objection can be filed by the Assessee before the DRP. The failure to do so, according to Mr. Syali, was not a mere irregularity. He further referred to a decision of the Gujarat High Court dated 31st July 2017 in Tax Appeal No. 542 of 2017 (Commissioner of Income Tax, Vadodara-2 v. C-Sam (India) Pvt. Ltd.) 16. In response, Mr. Sanjay J....
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....ns or other proceedings from any mistake in such return of income, assessment notices, summons or other proceedings, provided the same are in substance and in effect in conformity with the intent of purposes of the Act." 20. The Court further observed that Section 292B of the Act cannot save an order not passed in accordance with the provisions of the Act. As the Court explained, "the issue involved is not about a mistake in the said order but the power of the AO to pass the order." 21. In almost identical facts, in Turner International (supra), this Court held in favour of the Assessee on the ground that it was mandatory for the AO to have passed a draft assessment order under Section 144C of the Act prior to issuing the final assessment order. The following passages from said decision are relevant for the present purposes: "11. The question whether the final assessment order stands vitiated for failure to adhere to the mandatory requirements of first passing draft assessment order in terms of Section 144C(1) of the Act is no longer res intregra. There is a long series of decisions to which reference would be made presently. 12. In Zuari Cement ....
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....ry. Before the Assessing Officer can make variations in the returned income of an eligible assessee, as noted, sub-section (1) of Section 144C lays down the procedure to be followed notwithstanding anything to the contrary contained in the Act. This non-obstante clause thus gives an overriding effect to the procedure 'notwithstanding anything to the contrary contained in the Act'. Sub-section (5) of Section 144C empowers the DRP to issue directions to the Assessing Officer to enable him to complete the assessment. Sub-section (10) of Section 144C makes, such directions binding on the Assessing Officer. As per Sub-Section 144C, the Assessing Officer is required to pass the order of assessment in terms of such directions without any further hearing being granted to the assessee. 7. The procedure laid down under Section 144C of the Act is thus of great importance. When an Assessing Officer proposes to make variations to the returned income declared by an eligible assesses he has to first pass a draft order, provide a copy thereof to the assessee and only thereupon the assessee could exercise his valuable right to raise objections before the DRP on any of the proposed ....