2022 (4) TMI 1556 - HC - Income Tax

Validity of order u/s 92CA(3) making upward adjustment - Reference to dispute resolution panel u/s 144C - failure to pass a draft assessment order u/s 144C(1) - HELD THAT - Since Respondent No.1 was to give effect to the order passed by the TPO as noted earlier a draft of the proposed order ought to have been served upon petitioner before the final impugned order was passed. In this case there is no dispute that the provisions of Section 144C of the Act read with Section 92CA of the Act was applicable and Section 144C (1) of the Act mandates that the draft assessment order was necessary before the Assessing Officer can proceed to pass the final assessment order. Even in partial remand proceedings from the Tribunal it is averred the Assessing Officer is obliged to pass the draft assessment order under Section 144C(1) of the Act and passing draft assessment order is without jurisdiction. As noted earlier no reply has been filed though respondent had enough time denying these averments. Having perused the petition and also the impugned order it does appear that no draft assessment order has been issued. In the circumstances the impugned order is quashed and set aside.

Summary

Issues:
1. Failure to provide draft assessment order under Section 144C of the Income Tax Act, 1961.

Analysis:
The petitioner challenged an order dated 7th February, 2020, for the assessment year 2006-07, passed by Respondent No.1. The main ground of challenge was the failure to provide the petitioner, an eligible assessee as per Section 144C of the Act, with a draft of the proposed assessment order before making any prejudicial variations to the income or loss returned. The petitioner contended that as per Section 144C(1) of the Act, the Assessing Officer is obligated to forward a draft order to the eligible assessee if proposing variations prejudicial to their interest.

The petitioner argued that they fell under the definition of an eligible assessee as per Clause (b)(i) of Sub Section 15 of Section 144C, which includes any person in whose case the variation arises as a consequence of the order of the Transfer Pricing Officer. The case involved giving effect to an order passed by the Income Tax Appellate Tribunal (ITAT) related to transfer pricing issues. The petitioner claimed that the order was also time-barred under Sub Section 7 of Section 153 of the Act. The absence of a draft assessment order before passing the final impugned order was a crucial point of contention.

Upon hearing both parties, the Respondent No.1's counsel acknowledged the applicability of Section 144C of the Act and admitted that a draft assessment order should have been issued as per Sub Section (1) of Section 144C. The counsel also conceded that failure to issue the draft assessment order before the final assessment order necessitates setting aside the order. The court, after reviewing the petition and the impugned order, noted the absence of a draft assessment order and consequently quashed and set aside the impugned order dated 7th February, 2020, along with all consequential orders.

In conclusion, the petition was disposed of with no order as to costs, highlighting the significance of complying with the procedural requirements under Section 144C of the Income Tax Act, 1961, to safeguard the interests of eligible assessees and ensure a fair assessment process.