TMI Blog2019 (8) TMI 1415X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the appeal. Such a delay was not condoned by the Hon ble High Court. In further appeal, condoning the delay, the Hon ble Supreme Court in Anil Kumar Nehru vs. ACIT (2018) 103 CCH 0231 ISCC, held that : `It is a matter of record that on the identical issue raised by the appellant in respect of earlier assessment, the appeal is pending before the High Court. In these circumstances, the High Court should not have taken such a technical view of dismissing the appeal in the instant case on the ground of delay, when it has to decide the question of law between the parties in any case in respect of earlier assessment year. For this reason we set aside the order of the High Court; condone the delay for filing the appeal and direct to decide the appeal on merits. 5. Turning to the facts of the instant cases, we find that the assessee has raised a legal ground through these Cross objections, which goes to the root of the matter. It would be seen infra that the said legal issue is squarely covered in the assessee s favour by several orders passed by the Tribunal including those by the Pune Benches. Under these circumstances, we condone the delay and take up the Cro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dit to prepaid taxes, if any and further directing to `Issue notice u/s.274 r.w.s. 271(1)(c) of the I.T. Act, 1961 . A demand notice dated 29-12-2011 was also simultaneously issued, a copy of which has been placed on record by the ld. AR. Then, the AO issued penalty notice u/s.274 r.w.s. 271(1)(c) of the Act, again, on 29-12-2012, whose copy has also been placed on record. Thereafter, the AO passed the final assessment order dated 27-02-2012 u/s.143(3) r.w.s. 144C of the Act determining total income at ₹ 156.73 crore. 8. From the above factual matrix, it is seen that the AO passed the draft order by designating it as the Assessment order u/s 143(3) of the Act on 29-12-2011 and also issued notice of demand u/s.156 along with initiation of the penalty proceedings. Thereafter, he passed the final assessment order again characterizing it as `Assessment order on 27-2-2012. Under such circumstances, the assessee has raised the issue that the final assessment order lacked validity and hence should be quashed as the AO/TPO failed to follow the statutorily prescribed procedure u/s.144C of the Act. 9. Section 144C of the Act wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er sub-section (3) or (13) of section 144C of the Act, determining the tax liability, pursuant to which a notice of demand is issued. 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. 11. The Hon ble Apex Court in Kalyan Kumar Ray (1991) 191 ITR 634 (SC) has held that assessment order involves determination of income and tax. It laid down that: ` 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 for the assessee as the former. Again the Hon ble Summit Court in Auto and Metal Engineers vs. UOI (1998) 229 ITR 399 (SC) has held that the process of assessment involves (i) filing of the return of income under s. 139 or under s. 142 in response to a notice issued under s. 142(1) ; (ii) inquiry by the AO in accordance with the provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctions. During the remand proceedings, a reference was made to the TPO. On receipt of the TPO s order, the AO straightaway passed an order u/s.143(3) r.w.s. 144C(13), which action came to be disapproved by the Hon ble High Court. It, ergo, follows that the statutorily mandated procedure must be adhered to by the authorities, non-observance of which renders the assessment order null and void. 14. Similar issue came up for consideration before the Pune Benches of the Tribunal in Skoda Auto India Ltd. Vs. ACIT . In that case also the AO passed the draft order and simultaneously issued notice of demand and initiated penalty proceedings by issuing notice u/s 274 of the Act. It was thereafter that the final assessment order was passed. The assessee challenged the legality of the final assessment order. Vide its order dated 02-07-2019, the Tribunal in ITA No.714/PUN/2011 has held that the demand got crystallised on passing of the draft order pursuant to issue of demand notice which is contrary to the relevant provision of the Act. Ex Consequenti , the draft order was held to be invalid in law and the consequential assessment order void ab-initio . 15. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tention of the assessee to the effect that the assessment got concluded on the passing of the draft order and hence the final assessment order was a nullity. It is an altogether different matter that the initiation of penalty through the draft order carried some infirmity, but that would not impinge upon the validity of the assessment order. 18. 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. A.Y. 2009-10 : 19. Here also, the assessee has raised the first issue in its Cross objection challenging the validity of the assessment order passed by the AO on the ground that the AO issued notice of demand u/s.156 and also penalty notice along with draft order. 20. For this year, it is observed that the assessee filed return declaring total income at ₹ 128.23 crore. Certain international transactions were reported. The AO made a reference to the TPO for their benchmarking. The TPO proposed transfer pricing adjustment of ₹ 6.33 crore in relation to the international transaction of Indenting Commission; & ..... 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