TMI Blog2023 (11) TMI 230X X X X Extracts X X X X X X X X Extracts X X X X ..... dings. Though the ld. DR time and again has stated that the conclusion of the AO speaks for the order as a draft assessment order and there should not be any confusion on that point. In our considered view, the impugned order by the AO has bypassed the relevant sub-section i.e. sub-section (3) and (13) to section 144C of the Act. Whether by by-passing mandatory provisions of the Act can assessment survive? - As decided in Dipak Babaria [ 2015 (8) TMI 775 - SUPREME COURT] if the law requires that a particular thing should be done in a particular manner, it must be done in that way and none other. State cannot ignore the policy intent and procedure contemplated by the statute. We are of the considered opinion that by issuing the demand notice on 28.06.2022 itself the Assessing Officer has bypassed all the mandatory sub-sections of section 144C. DR stated that by participating in the subsequent proceedings, the assessee was well aware that the order passes is merely a draft assessment order and not final assessment order and the assessee cannot blow hot and cold in the same breath - As decided in MR. P. FIRM, MAUR. [ 1964 (10) TMI 13 - SUPREME COURT] Approbate and Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the same has been passed in contravention of section 144C of the Act. 2. That the Ld. AO has grossly erred in law and on the facts in passing the final order dated 28.06.2022 instead of passing the draft order u/s 143(3) r.w.s 144C (1) of the Act, which is evident from the fact that the notice of demand u/s 156 of the Act was issued along with said purported draft order dated 28.06.2022 and the penalty proceedings u/s 271AAB (1A) (b) r.w.s section 274 of the Act were also initiated therein. 2.1 The so-called draft assessment order dated 28.06.2022 passed by the Ld. AO is in contravention of the provisions of section 144C (1) of the Act, and therefore, the subsequent order passed by the Hon'ble DRP-1 u/s 144C (5) of the Act dated 16.03.2023, as well as the impugned order passed by the Ld, AO u/s 143(3) read with section 144C(13) of the Act dated 27.04.20203, are illegal and void. 2.2 The Hon'ble DRP has also erred in law and on the facts in holding that the order passed by the. AO dated 28.06.2022 was a draft order and omission of words like Proposed Initiation of Penalty and Proposed adjustments ete. can at best to be considered to be technical irregula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... round the fact that the Assessing Officer has mentioned Assessed u/s 143(3) r.w.s 144C(13) of the Act and directed to calculate tax and charge interest as per the I.T. Act and further directed to give credit for prepaid taxes. As if this was not enough, he initiated penalty proceedings u/s 271AAB(1A)(b) r.w.s 274 of the Act. 6. Referring to several judicial decisions, the ld. counsel for the assessee vehemently stated that the assessment order so framed by the Assessing Officer, by any stretch of imagination, cannot be called as draft assessment order and, is therefore, in violation of provisions of section 144C of the Act. 7. Strong reliance was placed on the decision of the Hon'ble High Court of Karnataka in the case of CISCO Systems Services BV 293 Taxmann.com 85, Hon'ble High Court of Madras in the case of Vijay Television Pvt Ltd 46 Taxmann.com 113 and Hon'ble High Court of Bombay in the case of SHL (India) Ltd WPL No. 11293 of 2021. 8. The ld. counsel for the assessee also relied on the decision of the Hon'ble High Court of Delhi in the case of Nokia India Pvt ltd, 98 TAxmann.com, Turner International India Pvt Ltd 4260/2015, JCB India Ltd WP(C) 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eafter in this section referred to as the draft order) to the eligible assessee if he proposes to make, on or after the 1st day of October, 2009, any variation in the income or loss returned which is prejudicial to the interest of such assessee. 16. Most relevant clauses pertinent for adjudication of the quarrel reads as under: (3) The Assessing Officer shall complete the assessment on the basis of the draft order, if ( a ) the assessee intimates to the Assessing Officer the acceptance of the variation; or ( b ) no objections are received within the period specified in sub-section (2). (13) Upon receipt of the directions issued under sub-section (5), the Assessing Officer shall, in conformity with the directions, complete, notwithstanding anything to the contrary contained in section 153 51a [or section 153B], the assessment without providing any further opportunity of being heard to the assessee, within one month from the end of the month in which such direction is received. 17. In light of the aforesaid provisions, let us now consider the facts. The impugned order is dated 28.06.2022. Tax Computation Sheet is dated 28.06.2022. Notice of demand is also dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kalyan Kumar Ray Vs. CIT 191 ITR 634. The relevant findings of Hon'ble High Court read as under: 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. Section 144, which also describes the same process, makes no distinction as suggested. It will not, therefore, be correct to read the provision as leaving undefined the process of determination of the net sum payable by the assessee. In our opinion, therefore, learned counsel for the petitioner is right in his sub-mission that the Income-tax Officer has to determine, by an order in writing, not only the total income but also the net sum which will be payable by the assessee for the assessment year in question and that the demand notice under section 156 has to be issued in consequence of such an order. The statute does not, however, require that both the computations (i.e., of the total income as well as of the sum payable) should be done on the same sheet of paper, the sheet that is superscribed assessment order . It does not prescribe any form for the purpose. It will be appreciated that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal was, therefore, right in holding that the assessment in this respect was time-barred. We, therefore, answer the question in the affirmative, i.e., against the Revenue and in favour of the assessee. No order as to costs. 23. Though the ld. DR time and again has stated that the conclusion of the Assessing Officer speaks for the order as a draft assessment order and there should not be any confusion on that point. In our considered view, the impugned order by the Assessing Officer has bypassed the relevant sub-section i.e. sub-section (3) and (13) to section 144C of the Act. 24. Whether by by-passing mandatory provisions of the Act can assessment survive? The answer has been given by the Hon ble Supreme Court in the case of Dipak Babaria 3SCC 502 wherein the Hon ble Supreme Court has held as under: If the law requires that a particular thing should be done in a particular manner, it must be done in that way and none other. State cannot ignore the policy intent and procedure contemplated by the statute. 25. In light of the above ratio laid down by the Hon ble Supreme Court, we are of the considered opinion that by issuing the demand notice on 28.06.2022 itself th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder: 14. The short question that arises for consideration is whether, after the remand proceedings, the AO could have, without issuing a draft assessment order under Section 144 C of the Act, straightway issued the final assessment order. 15. Mr Syali, learned Senior Counsel for the Assessee, referred to the decision of this Court dated 17th May 2017 passed in W.P. (C) No. 4260/2015 (Turner International India Pvt. Ltd. v. Deputy Commissioner of Income Tax, Circle 25(2), New Delhi) to urge that the AO could not have passed the final assessment order without complying with the mandatory requirement under Section 144C of the Act whereby first a draft order had to be issued in respect of which an objection can be filed by the Assessee before the DRP. The failure to do so, according to Mr. Syali, was not a mere irregularity. He further referred to a decision of the Gujarat High Court dated 31st July 2017 in Tax Appeal No. 542 of 2017 (Commissioner of Income Tax, Vadodara-2 v. C-Sam (India) Pvt. Ltd.) 16. In response, Mr. Sanjay Jain, learned Additional Solicitor General of India appearing for the Revenue, submitted that there was an efficacious alternative remedy available t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceedings, provided the same are in substance and in effect in conformity with the intent of purposes of the Act. 20. The Court further observed that Section 292B of the Act cannot save an order not passed in accordance with the provisions of the Act. As the Court explained, the issue involved is not about a mistake in the said order but the power of the AO to pass the order. 21. In almost identical facts, in Turner International (supra), this Court held in favour of the Assessee on the ground that it was mandatory for the AO to have passed a draft assessment order under Section 144C of the Act prior to issuing the final assessment order. The following passages from said decision are relevant for the present purposes: 11. The question whether the final assessment order stands vitiated for failure to adhere to the mandatory requirements of first passing draft assessment order in terms of Section 144C(1) W.P.(C) Nos. 3399/2016, 3429/2016 3431/2016 Page 9 of 12 of the Act is no longer res intregra. There is a long series of decisions to which reference would be made presently. 12. In Zuari Cement Ltd. v. ACIT (decision dated 21st February, 2013 in WP(C) No.5557/201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee, as noted, sub-section (1) of Section 144C lays down the procedure to be followed notwithstanding anything to the contrary contained in the Act. This non-obstante clause thus gives an overriding effect to the procedure 'notwithstanding anything to the contrary contained in the Act'. Sub-section (5) of Section 144C empowers the DRP to issue directions to the Assessing Officer to enable him to complete the assessment. Subsection (10) of Section 144C makes, such directions binding on the Assessing Officer. As per Sub-Section 144C, the Assessing Officer is required to pass the order of assessment in terms of such directions without any further hearing being granted to the assessee. 7. The procedure laid down under Section 144C of the Act is thus of great importance. When an Assessing Officer proposes to make variations to the returned income declared by an eligible assesses he has to first pass a draft order, provide a copy thereof to the assessee and only thereupon the assessee could exercise his valuable right to raise objections before the DRP on any of the proposed variations. In addition to giving such opportunity to an assessee, decision of the DRP is made bind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent order would result in invalidation of the final assessment order and the consequent demand notices and penalty proceedings. 25. For all of the aforementioned reasons, the Court finds no difficulty in holding that the impugned final assessment orders dated 30th March 2016 passed by the AO for AYs 2006-07, 2007-08 and 2008 -09 are without jurisdiction on account of the failure, by the AO, to first pass a draft assessment order and thereafter, subject to the objections filed before the DRP and the orders of the DRP, to pass the final assessment order. The Court also sets aside the orders of the TPO dated 30th March 2016 issued pursuant to the remand by the ITAT. 33. The Hon'ble Supreme Court, while dismissing the SLP filed by the Revenue in the case of Nokia India Pvt Ltd has said that : Once there is a clear order of setting aside of an assessment order with the requirement of the Assessing Officer/TPO to undertake fresh exercise of determining the arm s length price, failure to pass draft assessment order would violate the provisions of section 144(1) of the Act. This is not a curable defect in terms of section 292 B of the Act. 34. Considering the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X
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