Failure to Pass Draft Assessment Order u/s 144C(1) of Income Tax Act renders Assessment as one without Jurisdiction: Bombay HC [Read Order]

The Bombay High Court observed that failure to pass draft assessment order under Section 144C (1) of the Income Tax Act, 1961 renders assessment as one without jurisdiction.

Petitioner, M/s. CWT India Private Limited, filed its return of income for the respective years and the return of income was processed under Section 143(1) of the Income-tax Act, 1961 (“Act”). Subsequently, the case was selected for scrutiny and statutory notices were issued in both. As there were international transactions, a reference was made by the Assessing Officer (“AO”) to the Transfer Pricing Officer (“TPO”) under Subsection (2) of Section 92CA of the Income Tax Act.

The TPO passed an order under Section 92CA (3) of the Income Tax Act wherein the TPO made certain adjustments to the arms length price. This adjustment was a variation prejudicial to the interest of Petitioner. The AO, on receipt of the order from the TPO, proceeded to issue a final assessment order under Section 143(3) read with Section 92CA and Section 254 of the Income Tax Act.

This order contained additions proposed in the TPO’s order but was passed without passing a draft assessment order under Section 144C (1) of the Income Tax Act. Petitioner has impugned this assessment order in the petitions.

It is Petitioner’s case that Section 144C (1) of the Income Tax Act mandates that the AO shall notwithstanding anything contained to the contrary in the Income Tax Act, in the first instance, forward a draft of the proposed order of assessment called a draft assessment order to the eligible assessee if he proposes to make any variation which is prejudicial to the interest of such assessee. It is not disputed that Petitioner was an eligible assessee.

A Division Bench of Justices Dr NK Ghokale and K R Shriram observed that “It is clear that the AO shall, in the first instance, forward a draft of the proposed order of assessment to the eligible assessee if he proposes to make any variation is prejudicial to the interest of such assessee. Certainly, there is a variation in the assessment order different from what was filed in the return of income and since it is by way of an addition made, the variation is prejudicial to the interest of Petitioner.”

The Court relied on International Air Transport Association v. Deputy Commissioner of Income-tax of the Bombay Court and in the case of Zuari Cement Ltd v ACIT of the Division Bench of the Andhra Pradesh High Court wherein it was held that ‘the failure to pass a draft assessment order under Section 144C(1) of the Income Tax Act would result in rendering the final assessment as one without jurisdiction.

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