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2023 (10) TMI 922 - HC - Income TaxRevision u/s 263 - Reference to dispute resolution panel not adhered - procedural compliance of Section 144C(1) flawed mandatory requirement of Section 144C(1) of the Act and pass a draft assessment order not followed - whether the failure to pass a draft assessment order before the final assessment, as required for a foreign company such as the Petitioner, invalidates the impugned order and the ensuing proceedings? - HELD THAT:- The provisions of Section 144C(1) of the Act provides that in case of an ‘eligible assessee’, an AO proposing to pass an assessment order, shall at the first instance, forward a draft assessment order to the assessee, in case they wish to make variations prejudicial to the interest of the assessee. On receipt of the draft assessment order, the eligible assessee has a remedy of filing objections before the DRP. It is undisputed and manifestly clear that no draft assessment order, as envisioned by Section 144C(1) of the Act, was ever framed in the present case. While the CIT exercised the revisionary powers enshrined u/s 263 this action was primarily rooted in the belief that the original assessment was erroneous and potentially detrimental to the revenue’s interests. However, on remand, the AO passed the impugned order, revising the Petitioner’s income, and increased its tax liability. Thus, the impugned order is clearly prejudicial to the interest of the assessee and a draft order should have been made available to the assessee. The mention of ‘schematic and teleological’ method of interpretation underscores the significance of understanding the larger purpose behind a provision, rather than adopting a strictly literal interpretation. It must therefore be ascertained whether bypassing the procedures of Section 144C(1) would align with such an interpretative approach. In our opinion, the answer has to be in the negative. The process outlined in Section 144C(1) of the Act is not discretionary, but mandatory. It must be adhered to even when the assessment order is issued in line with directions from a higher authority. While Respondents argued that the provisions of Section 144C shall not apply to orders issued under Section 263, in our opinion, the exercise of revisionary powers does not dilute the requirement of compliance with Section 144C of the Act. The exception carved out in Section 144C(14A) extends to assessment/ re-assessment orders passed by the AO with the prior approval of the Principal Commissioner or Commissioner, as per Section 144BA(12) of the Act. The nature of proceedings initiated under Section 144BA differs from the ones commenced under Section 263 - Section 144C(14A) does not dispense with the AO’s obligation to intimate a draft order to an eligible assessee, which term includes foreign companies like Petitioner. Respondent No. 1’s omission to pass a draft assessment order is not merely a procedural oversight, but a substantive lapse, which renders the subsequent impugned order devoid of jurisdiction. The question whether the final assessment order stands vitiated for failure to adhere to the mandatory requirement of first passing the draft assessment order in terms of Section 144C(1) of the Act is no longer res integra; there is a long series of decisions where the Court has explained the legal provision/ position. See TURNER INTERNATIONAL INDIA PVT. LTD [2017 (5) TMI 991 - DELHI HIGH COURT], AND NOKIA INDIA PRIVATE LIMITED [2017 (9) TMI 1838 - DELHI HIGH COURT ] We hold that failure by Respondent No. 1 to adhere to the mandatory requirement of Section 144C(1) of the Act and pass a draft assessment order, would result in invalidation of the final assessment order and the consequent demand notice and penalty proceedings.
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