TaxTMI 
TaxTMI 
2026 (7) TMI 298
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....rs due to serious jurisdictional error committed by the Assessing Officer ('A.O.' for short). Thus, he submitted, these grounds may be taken up and decided as preliminary issues before going into other grounds. 3. Learned Departmental Representative ('ld. DR' for short) did not express any objection to the aforesaid submissions of the assessee. 4. Accordingly, we proceed to take up and decide the additional grounds referred to by ld. Sr. Counsel at the first instance. Before we advert to the issues raised in the additional grounds, we must observe that the issues raised in the additional grounds are purely legal and jurisdictional issues and can be decided based on facts and materials available on record without requiring fresh investigation into facts. Therefore, we are inclined to admit the additional grounds for adjudication. The additional grounds specifically referred to in course of hearing are as under: Additional ground no.2 (letter dated 23.01.2023) On the facts and in the circumstances of the case and in law, the learned A.O. has erred in passing the draft assessment order under section 147 read with section 144C(1) of the Act dated 28 March 2013 w....
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....ceeding u/s. 147 of the Act for reassessing the escaped income, the AO need not proceed either u/s. 143(3) or section 144 of the Act as reassessment is a self-contained code. However, he submitted, as a practice, many AO's are referring to those provisions in case of reopening of assessment. He submitted, since, this line of argument has not been made in the cases relied upon by the ld. counsel for the assessee, the bench can independently decide the issue even expressing a view contrary to the view expressed in the decisions relied upon. 8. We have patiently and carefully considered rival submissions and perused the materials available on record. We have also applied our mind to the decisions relied upon. At the outset, we must record the factual position relating to the issue in dispute. A reading of the respective draft assessment orders reveals that, though, the AO reopened the assessment u/s. 147 of the Act, however, in the concluding part of the assessment orders, he has very clearly and categorically observed that the assessee is assessed u/s. 144C(1) r.w.s 143(3) of the Act. The assessment orders further reveal that though there is clear mention of issuance of notice u/s....
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....he Apex Court in R. Dalmia v. CIT [1999] 236 ITR 480/102 Taxman 702, came to the conclusion that issuance of notice under Section 143(2) was mandatory. The ITAT has taken into consideration the relevant provisions and has also taken into consideration the judgment of the Apex Court and relying on the said judgments, the ITAT has held that notice under Section 143(2) is mandatory and in the absence of such service, the Assessing Officer cannot proceed to make an inquiry on the return filed in the compliance with the notice issued under section 148. 10. In case of CWT v. HUF of H.H. Late J. M. Scindia (supra), the Hon'ble Jurisdictional High Court, while considering somewhat similar arguments advanced by the Department, as is advanced in the present appeal, has held as under: 4. The question that we are called upon to answer is whether the view taken by the Tribunal flows from the provisions of section 17 read with sections 14 to 16 of the Wealth-tax Act. The relevant provisions, as they then stood, read as under: "17. Wealth escaping assessment (1) If the Assessing Officer has reason to believe that the net wealth chargeable to tax in respect of which any pe....
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....nd after the period of twelve months have expired from the date of filing the return. Section 16(2) reads as under: "Where a return has been made under section 14 or section 15, or in response to a notice under clause (i) of sub-section (4) of this section, the Assessing Officer shall, if he considers it necessary or expedient to ensure that the assessee has not understated the net wealth or has not underpaid the tax in any manner, serve on the assessee a notice requiring him, on a date to be specified therein, either to attend at the office of the Assessing Officer or to produce, or cause to be produced there, any evidence on which the assessee may rely in support of the return: Provided that no notice under this sub-section shall be served on the assessee after the expiry of twelve months from the end of the month in which the return is furnished." 6. Section 16, therefore, requires that if a return has been made under section 14 or 15, if the Assessing Officer considers it necessary or expedient, to ensure that the assessee has not understated the net wealth or has not underpaid the tax in any manner, to serve on the assessee a notice requiring him, on....
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....ing Officer may serve on such person a notice. If on the notice being served the assessee fails to file a return, there is no independent provision in section 17 to make a best judgment assessment like in section 16(5), The language used in fact is that the Assessing Officer may proceed to assess or reassess such net wealth. If the argument of the revenue has to be accepted, it must mean that once section 17 has been invoked and the notice served on the assessee and the assessee either does not furnish the return in the prescribed form, then the Assessing Officer is empowered to proceed to assess or reassess such net wealth and also any other net wealth chargeable to tax in respect of which such person is assessable irrespective of the requirement of section 16(2), under section 17 itself. This submission if accepted must lead which has escaped assessment. In that event, will not the expression "the provisions of the Act shall, so far as may be, apply as if the return were a return required to be fuerishurn under section 14", be defeated. The Assessing Officer may be satisfied with the return deemed to be filed under section 14 and choose not to proceed further. In such a case we s....
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....sessment under section 17. 14. Let us now examine sections 143 and 148 of the provisions of the Income-tax Act. where similar language had been employed. Under section 143(2)(ii), there is a limitation on the Assessing Officer not to issue notice if the period of twelve months had expired. Section 148 of the Income-tax Act had come up for consideration before several High Courts. A learned Bench of the Madras High Court in CIT v. M. Chellappan [2006] 281 ITR 444 had occasion to consider the provision. The Assessing Officer proceeded to reassess under section 147 of the Income-tax Act and completed the assessment without issuing notice under section 143(2) within the time stipulated. The order was confirmed in appeal. The Tribunal had set aside the order on the ground that notice under section 143(2) was not served on the assessee within the stipulated period. The learned Bench of the Madras High Court held that as the notice under section 143(2) was not served within the stipulated period, the procedure under section 143 came to an end and the matter attained finality. Similarly is the judgment of the Gauhati High Court in Smt. Bandana Gogoi v. CIT [2007] 289 ITR 28 which ....
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....y the mandate of the provio to section 16(2) and on failure the order of reassessment will be without jurisdiction and consequently the order of reassessment will have to be set aside. 11. As could be seen from the observations of the Hon'ble Jurisdictional High Court in case of CWT v. HUF of H.H. Late J. M. Scindia (supra), after referring to pari materia provisions contained under the Wealth Tax Act and Income Tax Act in respect of reopening of assessment, had concluded that the requirement of issuance of notice u/s. 16(2) of the Wealth Tax Act, which is akin to section 143(2) of the Act is mandatory in a case of reopening of assessment to assess escaped wealth. Thus, these decisions of Hon'ble Supreme Court and Hon'ble Jurisdictional High Court, which are binding on this bench, in no uncertain terms, hold that issuance of notice u/s. 143(2) of the Act is mandatory in case of reopening of assessment u/s. 147 of the Act or for that matter, section 158BC of the Act or any other reassessment proceedings. Identical view has been expressed by the coordinate bench in case of Board of Control for Cricket in India (BCCI) (supra). Thus, in our humble opinion, the line of ar....
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.... 08.06.2026) 13. In response, ld. DR submitted that the issuance of computation sheet, demand notice and show-cause notice u/s. 274 r.w.s 271(1)(c) of the Act, is through inadvertence and not because the AO has passed the final assessment orders as they do not contain demand and collection register (D2 CR no.). He submitted the defect, if any, in issuing the demand notice, computation sheet, and penalty show cause notice is a curable defect. 14. We have considered rival submissions and perused the materials available on record. We have also applied our mind to the judicial precedents cited before us. Factually, on 28.03.2013, the AO had framed the assessment orders for the impugned assessment year mentioning 'draft assessment order'. The cause title of the assessment orders further demonstrate that they have been passed u/s. 147 r.w.s. 144C(1) of the Act. However, in the concluding part of the draft assessment order in A.Y. 2005-06, the AO has observed as under: ".............. Assessed u/s. 144C(1) r.w.s. 143(3) accordingly. Charge interest u/s. 234A, 234B and 234C, applicable as per the provisions of the IT Act. Give credit for taxes paid. Issue Penalty proceedings....
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....ons to the Assessing Officer; or (b) file his objections, if any, to such variation with,- (1) the Dispute Resolution Panel; and (ii) the Assessing Officer. (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 sub-section (2). (4) The Assessing Officer shall, notwithstanding anything contained in section 153, pass the assessment order under sub-section (3) within one month from the end of the month in which,- (a) the acceptance is received; or (b) the period of filing of objections under sub-section (2) expires. (5) The Dispute Resolution Panel shall, in a case where any objection is received under sub-section (2), issue such directions, as it thinks fit, for the guidance of the Assessing Officer to enable him to complete the assessment. (6) The Dispute Resolution Panel shall issue the directions referred to in sub-section (5), after considering the following, namely:- (a) draft order; ....
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....anel" means a collegium comprising of three 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 (if) any foreign company.. A plain reading of sub-sections 1, 2, 6, 8 and 13 of Section 144-C would clearly spell out the requirement of law. Admittedly in the instant case, in addition to the draft assessment order, there was also a notice of demand and penalty which was enclosed. A plain reading of sub-Section 8 of Section 144-C would further make it amply clear that the demand has to be raised only after the final assessment order is passed, more particularly, for the reason that the dispute resolution panel has got the power to confirm, reduce or enhance the variations proposed in the draft. 14. In the given context, if the draft assessment order is accompanied by a notice of demand and penalty tha itself would force one to reach to the conclusion that though it is termed as draft assessment order, i....
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.... second respondent inasmuch as a final order has been straightaway passed without passing a draft assessment order. "As rightly pointed out by the learned senior counsel for the petitioners, in the order passed on 26-3-2013, the second respondent even raised a demand as also imposed penalty. Such demand has to be raised only after a final order has been passed determining the tax liability. The very fact that the taxable amount has been determined itself would show that it was passed as a final order. In fact, a notice for demand under section 156 of the Act was issued pursuant to such order dated 26-3-2013 of the second respondent. Both the order dated 26-3-2013 and the notice for demand thereof have been served simultaneously on the petitioner. Therefore, not only the assessment is complete, but also a notice dated 28-3-2013 was issued thereon calling upon the petitioner to pay the tax amount as also penalty under section 271 of the Act. Thereafter, the petitioner was given an opportunity of hearing on 12-4-2013. Subsequently, the second respondent realised the mistake in passing a final order instead of a draft assessment order which resulted in issuing a corrigendum on....
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.... the DRP itself has confirmed that the order passed by the AO is a final order and not a draft assessment order. Therefore, it is very clear that what has been issued is not a Draft Assessment Order, as contemplated u/s 144-C of the Income-tax Act, but a final order, as mandated u/s 143(3) of the Act. However, the contention now raised is that the mistake stood corrected by issuance of the corrigendum dated 15-4-2013 and. therefore, for all purposes the assessment order should be treated as final assessment order. Will the corrigendum, which has been issued on 15-4-2013 cure the defect that has crept into the order and, thereby, rectify the mistake committed by the Revenue and enable treatment of the assessment order as a draft assessment order is the point, which requires the determination of this Court. From the above it is unambiguously clear that the Assessing Officer is duty bound to adhere to the mandatory requirement mandated under section 144-C of the Act by first passing a drat assessment order, the failure of which would invalidate the final assessment order and the consequent demand notices and penalty proceedings". 16. Similar view ha....
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....as under: "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. 425/26, 3:32 PM (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 t....
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.... is as per ITNS 150 which accompanies, and is a part of this order. Issue Demand notice & challans accordingly. Issue notice u/s 274 r.w.s. 271(1)(c) of I.T.Act, 1961 separately." 10. The aforesaid observations of the Assessing Officer are common in both the assessment years. In fact, in pursuance to the aforesaid directions, not only demand notices under Section 156 of 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 ....
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....urt held that the assessing Officer has directed the issuance of demand notice and also initiated penalty proceedings. The honourable High Court also held that a provision of section 292B of the act does not come to the rescue of the revenue. 011. In the present case before us in the draft, assessment order dated 22/3/2016 the assessing officer in the last paragraph has directed 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/-. ....
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....the result, by allowing the additional ground raised by the assessee for all these four years, the draft assessment orders for those years are quashed and appeal of the assessee are allowed." 12. In case of 'Marriott International Licensing Company BVV vs. DCIT, ITA No. 1621/Mum/2021, the Coordinate Bench in order dated 3-2-2023 has held as under: "10. We have heard the rival 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 ....
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....ted 11-8-2020 has held as under: "10. Representatives of both the sides were heard at length. Case records carefully perused and judicial decisions relied upon by both the sides have been carefully considered. 11. Provisions of section 144C read as under: "144C. (1) 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 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: "(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 sub-section (2). (13) Upon receipt of the directions issued under sub-section (5), the Assessing Officer shall, in....
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....otice is an integral part of the assessment order has been answered by the Hon'ble High Court of Gujarat in the case of CIT Vs. Purshottam Das T Patel 209 ITR 52 wherein the Hon'ble High Court has relied on the decision of the Hon'ble Supreme Court in the case of Kalyan Kumar Ray Vs. CIT 191 ITR 634. The 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 ....
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....essment in this respect was time-barred. Page No : 56 We, therefore, answer the question in the affirmative, i.e., against the Revenue and in favour of the assessee. No order as to costs" 19. Through his written submissions dated 07.08.2020, the ld. DR strongly stated that there should be no confusion in relation to the order 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 t....
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....her by by-passing mandatory provisions of the Act can assessment survive? The answer has been given by the Hon'ble Supreme Court in the case of Dipak Babaria 3SCC 502 wherein the Hon'ble Supreme Court has held as under: "If the law requires that a particular thing should be done in a particular manner, it must be done in that 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 ....
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....se of Turner International Pvt Ltd 398 ITR 177 and JCB India Ltd WPC 3399/2016. 33. The ld. DR has also drawn strong support from the provisions of section 292B of the Act stating that the subsequent participation of the assessee would debar the assessee to raise this issue before the appellate authority. The answer to 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 fi....
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....h July 2015 passed in ITA No. 275/2015 (Pr. Commissioner of Income Tax, Delhi-2, New Delhi v. Citi Financial Consumer Finance India Pvt. Ltd.) where it was held: "Section 292B of the Act cannot be read to confer jurisdiction on the AO where none exists. The said Section only protects return of income, assessment, notice, summons 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....
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....h Court held that it was of 'great importance and mandatory'. The following passages of the said decision of Gujarat High Court are relevant for the present purposes: "6. These statutory provisions make it abundantly clear that the procedure laid down under Section 144C of the Act is of great importance and is mandatory. 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....
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...., at best, be a curable defect. According to him the matter must be restored to the AO to pass a draft assessment order and for the Petitioner, thereafter, to pursue the matter before the DRP. 16. The Court is unable to accept the above submission. The legal position as explained in the above decisions in unambiguous. 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." 25. For all of the aforementioned reasons, the Court finds no difficulty in holding that the impugned final assessment orders dated 30th March 2016 passed by the AO for AYs 2006-07, 2007-08 and 2008 -09 are without jurisdiction on account of the failure, by the AO, to first pass a draft assessment order and thereafter, subject to the objections filed before the DRP and the orders of the DRP, to pass the final assessment order. The Court also sets aside the orders of the TPO dated 30th March 2016 issued pursuant to the remand by the ITAT." 34. Considering the facts of the case in totality, in the....