Absence Of Draft Assessment Order By AO As Per Sec 144B Of IT Act Is Material Violation Of Prescribed Procedure: Madras HC

While ruling in favour of Devendran Coal International Private Limited (petitioner), by setting aside an assessment order passed by the Income Tax Officer (ITO), the Madras High Court found that the Assessing Unit did not follow the procedure outlined in Section 144B of the Income Tax Act, as they failed to pass a draft assessment order.

The bench of Justice C. Saravanan observed that “In this case, no Draft Assessment Order has been passed by the Assessing Unit as is contemplated under Section 144B of the Income Tax Act, 1961. Thus, there is a material violation of the procedure prescribed under Section 144B of the Income Tax Act, 1961”.

Advocate G. Baskar appeared for the Petitioner, whereas Advocate R.S. Balaji appeared for the Respondent.

The brief facts of the case were that the initial assessment had been completed under Section 143(3) of the Income Tax Act. However, during the COVID-19 pandemic lockdown period, the tax department attempted to reopen the petitioner’s assessment by sending a notice under Section 148. The petitioner's contention was that they had not received the notice, while the Department argued that the notice had been posted on a web portal, shifting the responsibility to the petitioner to respond to it.

After considering the submission, the Bench noted that the impugned order had been passed to prevent the assessment from becoming time-barred under Section 153 of the Income Tax Act.

Finding that the Assessing Unit did not pass a draft assessment order, as required by Section 144B, the Bench pointed that there was a significant violation of the prescribed procedure under Section 144B.

Consequently, the High Court quashed the order passed by the Income Tax officer and remitted the matter back to the Department for issuance of a fresh order, considering the merits and following the proper procedure.

The High Court however instructed that the quashed order should be treated as a draft assessment order/show cause notice, to which the petitioner should have the opportunity to respond.

Cause Title: Devendran Coal International Private Limited v. The Income Tax Officer and Ors.

Click here to read/download the Order