Non-Forwarding of draft Assessment Order specified u/s 144C(1) of Income Tax Act: ITAT quashed Assessment order [Read Order]

The Delhi bench of Income Tax Appellate Tribunal ( ITAT ) recently quashed assessment order passed under Section 153C of the Income Tax Act, 1961 due to non-filing of draft assessment order specified under Section 144(1) of the Income Tax Act, 1961.

The Assessee Newbury Holding Two Ltd is a non-resident corporate entity, BVI based company incorporated in 1994 owns equipments related to exploration and development of oil fields and lease them to company named “Focus Energy Ltd.” which is deducting tax on lease rent paid to assessee as per the provisions of TDS. 

In the course of the search operation, certain incriminating documents pertaining to the assessee were found and seized. Accordingly, notice u/s 153C was issued on the assessee and assessment has been completed u/s 153C/144 of the Income Tax Act.

It was brought to notice that the assessee is an ‘eligible assessee’ for the purpose of Section 144C(15)(b) o f the Income Tax Act, 1961. However he Assessing Officer has completed the assessment under Section  153C of Income Tax Act without forwarding any draft of the proposed order of assessment to the assessee, which is in divergence to the procedure laid down in the Act

Assessee has taken loan for the business purposes from banks and paid interest and, therefore, the interest paid on loans borrowed is an allowable deduction as it was paid in the course of business of real estate,

Aggrieved by the assessment order assessee file appeal before the CIT(A), who allowed the appeal .Therefore the revenue filed another appeal before the tribunal.

It was observed by the tribunal that it is obligatory on the part of the AO to forward a draft Assessment Order as per the provisions o f Section 144C(1) of the  Income Tax Act.

Further the bench observed that according to the Circular No. 9/2013 dated 19.11.2013 where by the AO is required to forward a draft Assessment Order to the ‘eligible assessee’ if it is proposed to make any variation to the returned income after 1s t October 2009.

Thus, on going through the provisions of Section 144C(1) of the Income Tax Act, 1961 mandating forwarding of a draft Assessment Order, Explanatory notes to the Finance (2) Act, 2009 , Circular No. 05/2010 and Circular No. 09/2013 o f the CBDT , judgments of High Court of Gujarat and the jurisdictional High Court, we hold that the Assessment Orders passed by the Assessing Officer are bad in law.

After reviewing the submissions of both parties the two-member bench of Dr. B. R. R. Kumar, (Accountant Member) and Saktijit Dey, (Vice President) quashed assessment order passed under Section  153C of the Income Tax Act due to non-filing of draft assessment order specified under Section 144(1) of the Income Tax Act.

Amit Goel, CA, Pranav Yadav, Advocate, Nippun Mittal, CA & Ms. Anjali Jain, Advocates appeared for assessee and  Vizay B. Vasanta, Sanjay Kumar appeared for revenue.

To Read the full text of the Order CLICK HERE

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