Process Outlined U/s 144C(1) IT Act Is Not Discretionary But Mandatory: Delhi HC Rules Omission To Pass Draft Assessment Is Substantive Lapse
|While quashing final assessment order passed in consequence of revisionary proceedings holding that the exercise of revisionary powers does not dilute the compliance of Section 144C of the Income Tax Act, 1961, the Delhi High Court ruled that omission to pass a draft assessment order is not merely a procedural oversight, but a substantive lapse, which renders the subsequent order devoid of jurisdiction.
The High Court noted that Section 144C commences with a non-obstante clause and overrides other provisions of the Act wherein it prescribes a special procedure for passing an assessment in case of an eligible Assessee, and remarked that the process outlined in Section 144C(1) of the Act is not discretionary, but mandatory.
The High Court underscored that though the order was passed in remand proceedings to give effect to the directions of the CIT under Section 263, yet it qualifies as a fresh assessment order within the ambit of Section 143(3), and therefore pointed that direct issuance of final assessment order has, unjustly deprived the Assessee of a choice of DRP forum, that the Act rightfully grants.
The Division Bench comprising of Chief Justice Satish Chandra Sharma and Justice Sanjeev Narula observed that “Respondent No. 1 failed to discern the true nature and essence of the impugned order. Although this order was passed in remand proceedings to give effect to the directions of the CIT, issued under Section 263 of the Act, yet it qualifies as a fresh assessment order within the ambit of Section 143(3) of the Act. Given this characterization, it was incumbent upon Respondent No. 1, not just as a matter of procedure, but also as a matter of law, to adhere to the special provisions delineated in Section 144C(1) of the Act. The omission to do so renders the subsequent actions and orders/ notices ensuing from this foundational oversight, as unlawful. Failure to do so renders the order dated 23rd June, 2022 void of jurisdiction. Consequently, the demand and penalty notices issued under Sections 156 and 270A of the Act, respectively, are also bereft of jurisdiction”.
Advocate Ashish Mehta appeared for the Assessee while the Revenue was represented by Advocate Aseem Chawla.
As per the brief facts, the Assessee-Company, tax resident of Singapore, executed a time charter agreement with HPCL for transportation of LPG. For AY 2017-18, Assessee filed return in India declaring Nil income by considering beneficial provisions of Article 8 of India-Singapore DTAA. The Assessee was subject to scrutiny wherein the returned income was accepted. Subsequently, CIT issued notice under Section 263 on the grounds that AO failed to appreciate various relevant factual and legal aspects, and held the assessment order to be flawed and detrimental to Revenue’s interest. Accordingly, the CIT remanded the matter to the AO to tax the income as per the I-T Act consequent to which AO passed the final assessment order.
After considering the submission, the Bench observed that the nature of proceedings initiated under Section 144BA differs from the ones commenced under Section 263 and Section 144C(14A) does not dispense with the AO’s obligation to intimate a draft order to an eligible assessee.
The Bench remarked that omission in passing a draft assessment order has effectively denied the Assessee an opportunity to seek adjudication before the DRP, an avenue to submit additional evidence for a comprehensive adjudication.
The Bench highlighted that it was incumbent upon Revenue not just as a matter of procedure, but also as a matter of law, to adhere to the special provisions delineated in Section 144C(1) and the omission to do so renders the subsequent actions and orders/ notices ensuing from this foundational oversight, as unlawful.
Thus, the High Court held the assessment order as vitiated by law and consequent demand notice and penalty proceedings bereft of jurisdiction.
Accordingly, the High Court remanded the matter to the AO to proceed in terms of Section 263 order passed by the CIT.
Case Name: Sinogas Management Pte Ltd v. Dy CIT and Anr. [Neutral Citation: 2023: DHC:7638-DB]
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