ITAT quashes Final assessment order passed by AO without a draft assessment order against Tally [Read Order]

The Income Tax Appellate Tribunal (ITAT), Bangalore Bench held that the final assessment order passed by AO without a draft assessment order is to be quashed.

The assessee, M/s.Tally Solutions Pvt.Ltd. is a company engaged in providing software development services to its AE. For the assessment year 2007- 2008, the return of income was filed declaring loss of Rs.3,98,49,431. The assessment was completed wherein the Transfer Pricing Adjustment u/s 92CA of Rs.4,60,42,886 was incorporated.

The Dispute Resolution Panel (DRP) confirmed the TP adjustment. On appeal, the ITAT set aside the issue of adjustment under section 92CA of the Income Tax Act to the files of the AO / TPO with a direction to re-do the exercise of determination of Arm’s Length Price (ALP).

The TPO thereafter gave opportunity to the assessee-company for hearing and passed fresh orders by making TP adjustment of Rs.2,39,33,030. The AO passed the final assessment order without passing a draft assessment order.

Aggrieved by final assessment order passed by the Assessing Officer, the assessee preferred an appeal to the first appellate authority. The assessee challenged the issues both on merits and on technical grounds.

It was submitted that the Assessing Officer erred in passing an order without passing a draft assessment order, thereby not complying with the provisions of section 144C of the Income Tax Act.

The CIT(A), by relying on various judicial pronouncements, held that the assessment order passed by the AO, without first passing a draft assessment order, is invalid and quashed the same. Accordingly, the appeal of the assessee was allowed.

Aggrieved by the order of the CIT(A), the Revenue has filed this appeal before the Tribunal. The Departmental Representative relied on the grounds. The learned AR submitted that the legal issue raised is squarely covered in favour of the assessee by the various judicial pronouncements relied on by the CIT(A) in his impugned order.

The coram consists of B.R. Baskaran and George George K in the light of the decision of the Apex court held that the final assessment order which is passed without a draft assessment order depriving the assessee an opportunity of questioning the draft assessment order before the DRP is in contravention of the provisions of section 144C of the Income Tax Act.