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2019 (8) TMI 1415 - AT - Income TaxValidity of the order passed u/s. 143(3) r.w.s 144C - effect of issuance of notice of demand & penalty notice with draft order - HELD THAT:- An overview of section 144C deciphers that a draft order passed under sub-section (1) is only a tentative order which does not fasten any tax liability on the assessee. In case variations to the income in the draft order are accepted by the assessee or no objections are received within 30 days, the AO completes the assessment under section 144C(3) on the basis of draft order and the matter ends. In case the assessee objects to the variations in the income as proposed in the draft order and approaches the DRP, the final assessment order is passed by the AO u/s.144C (13) giving effect to the directions given by the DRP under sub-section (5). In case the assessee seeks to take the route of seeking redressal of its grievances through the channel of the CIT(A), in that case, again the AO has to pass a separate assessment order, which is obviously distinct from the draft order. Thus it follows that, irrespective of the course of action followed by the assessee, whether or not accepting the variation in the draft order or choosing the route of the DRP or the CIT(A), a draft order has to be necessarily followed by an assessment order on the basis of which a notice of demand is issued and it is then that the assessment is said to have come to an end. On going through the precedents in KALYANKUMAR RAY VERSUS CIT [1991 (8) TMI 291 - SUPREME COURT] and AUTO AND METAL ENGINEERS AND OTHERS VERSUS UOI [1997 (4) TMI 11 - SUPREME COURT] , it is manifested that the assessment proceedings come to an end on the issue of notice of demand u/s 156. Once a notice of demand is issued, the AO becomes functus officio in so far as the completion of assessment is concerned. It consequently follows that issue of notice of demand marks the completion of the assessment. As the AO in the instant case issued notice of demand at the stage of the draft order, which, actually ought to have been done at the stage of passing the final order, thereby assigning the finality to the assessment at the stage of draft order itself, we hold that the resultant final assessment order got vitiated in the eyes of law and hence cannot stand. To sum up, we set-aside the assessment order by declaring it to be null and void. Thus, the income offered in the return becomes total income of the assessee.
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