Failure to Adhere to Mandatory Requirement of Section 144C(1) of Income Tax Act results in Invalidation of Final Assessment Order: Delhi HC [Read Order]

The Delhi High Court recently observed that the failure to adhere to mandatory requirement of Section 144C(1) of the Income Tax Act, 1961 results in invalidation of final assessment order.

The Petitioner, Sinogas Management PTE. Ltd., challenges the order (“impugned order”), issued by Respondent No. 1 – Deputy Commissioner of Income Tax. This order, rendered under Section 143(3) read with Section 263 of the Income Tax Act, 1961 (“the Act”), and the consequent demand and penalty notices flowing from it, are assailed on a jurisdictional ground that the mandate of Section 144C of the Income Tax Act for issuance of draft assessment order, was not followed.

The return of income filed by Petitioner was selected for scrutiny under Section 143(2) of the Income Tax Act and a notice requiring the Petitioner to furnish certain details was also served. A tax residency certificate was also submitted with the response. Petitioner further stated that its income fell within the purview of Article 8 of the India-Singapore Double Taxation Avoidance Agreement (“DTAA”), and thus, the same is taxable only in Singapore.

The Commissioner of Income Tax (“CIT”) issued a notice under Section 263 of the Income Tax Act, proposing to revise the assessment order for AY 2017-18, on the grounds that the Assessing Officer (“AO”) had failed to appreciate various relevant factual and legal aspects before accepting the Petitioner’s computation.

The provisions of Section 144C(1) of the Income Tax 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.

A Division Bench of Chief Justice Satish Chandra Sharma and Justice Sanjeev Narula
observed that “We hold that failure by Respondent No. 1 to adhere to the mandatory requirement of Section 144C(1) of the Income Tax Act and pass a draft assessment order, would result in invalidation of the final assessment order and the consequent demand notice and penalty proceedings.”

To Read the full text of the Order CLICK HERE

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