The Mumbai Bench of Income Tax Appellate Tribunal ( ITAT ) has quashed the proceedings against the Marriott International holding that the issue of demand notice along with draft order was bad in law.
The assessee Marriott International Licensing Company, is incorporated in and a tax resident of the Netherland. It was observed that the assessee had entered into License and Royalty Agreement (LRA) with various Indian hotels for granting licence to use various brands such as Marriott, Courtyard and Renaissance brands which was given worldwide to any hotel as per the terms and conditions under LRA.
The assessee filed its return of income declaring total income as nil dated 30.09.2014 and revised its return of income dated 31.03.2016, declaring returned income of Rs. Nil. the assessment order dated 14.02.2017 where the A.O. determined the total income by making various additions.
The assessee challenged the assessment order dated 14.02.2017 on the ground that the A. O’s action in passing the Marriott International Licensing Company BVV vs. DCIT (IT) draft assessment order dated 29.12.2016 along with notice of demand under Section 156 of the Act was passed in violation of section 144C of the Income Tax Act 1961.
Paras Salva on behalf of the assessee submitted that the draft assessment order was sent by the A.O. along with the demand notice and penalty notice, which implied that the A.O. had not followed the mandatory procedures of the Act and could not be considered as a mere procedural irregularity. He further contended that the draft assessment order passed by the A.O. accompanied by notice of demand under Section 156 was in violation of section 144C of the Income Tax Act and the same was bad in law.
Ujjawal Chavhan, on behalf of the revenue submitted that it was a mere procedural irregularity and stated that the demand notice under Section 156 of the Income Tax Act had mentioned that it was only a draft order and not the final demand notice.
The Division Bench of M. Balaganesh, (Accountant Member) And Ms. Kavitha Rajagopal, (Judicial Member) allowed the appeal and declared the assessment order as null and void and the assessment order passed subsequent to the issue of draft assessment order along with the demand notice had been held to be bad in law and not just mere procedural defect.
The Bench also referred to the Atlas Copco (India) Limited case, which held that the issuance of notice of demand at the stage of draft order had brought a finality to the assessment at the stage of the draft order itself and the resultant final assessment was vitiated in law and was unsustainable.
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