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2021 (7) TMI 1208 - HC - Income TaxValidity of assessment order - Transfer pricing - Reference to dispute resolution panel u/s 144C - Assessment Order has been passed without the draft Assessment Order - non providing an opportunity to raise objections before the DRP - whether the provisions contained in Section 144C(1) of the IT Act are mandatory or directory ? - whether there has been a mere procedural error on the part of the AO in passing the final Assessment Order without passing a draft Assessment Order, as required under Section 144C(1) of the IT Act or has there been a jurisdictional error, which strikes to the root of the entire proceedings. HELD THAT:- Assessment Order has been passed without the draft Assessment Order as contemplated under Section 144C (1) of the IT Act - AO 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 to the interest of the assessee. This important step has been completely omitted by the Respondent taking away a very necessary right of Petitioner to file objections to the proposed variation with the DRP and the Assessing Officer, which in our view, strikes to the root of the procedure contemplated by Section 144C. Failure on the part of the AO to follow the procedure u/s 144C(1) is not a merely procedural or inadvertent error, but a breach of a mandatory provision. We are also not impressed with the arguments of the Revenue that the AO was under pressure of two charges, as there were timelines to adhere to, since the said timelines from time to time have been extended, the most recent one being to 30th September, 2021. The Revenue ought to have appreciated that the requirement under Section 144C(1) to first pass a draft Assessment Order and to provide a copy thereof to the assessee is a mandatory requirement which gave substantive right to the assessee to object to any variation, that is prejudicial to it. In this case, the order under Section 92CA (3) of the IT Act, proposed to make an adjustment to the arm’s length price considered as Nil by Petitioner and to that extent the said adjustment was evidently prejudicial to the interest of Petitioner. Depriving Petitioner of this valuable right to raise objection before DRP would be denial of substantive rights to the assessee, for which, in 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. 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 incurable illegality. Even the provisions of Section 292B of the IT Act would not protect such an order as Section 292B of the IT Act cannot be read to confer jurisdiction on the Assessing Officer, where none exists.We, therefore, quash and set aside the impugned Assessment Order, Demand Notice and Penalty Notice, - WP allowed.
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