Relief to Microsoft and Others as Delhi HC quashes Income Tax Assessment Order issued w/o Draft Order [Read Order]

In this case, one of the writ petitioners, Microsoft India, had filed its Income Tax Returns ( ITR ) on 30, 2008, for the Assessment Year 2008-2009. The returns filed were selected for scrutiny, and the Transfer Pricing Officer ( TPO ) passed an order recommending an upward adjustment to the total income of the petitioner. Objections were filed before the Dispute Redressal Panel by the petitioner against the additions made under Section 144C(2) of the Income Tax Act, 1961.

The petitioner, who was aggrieved by the above order, approached the tribunal.

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Following the Tribunal’s order, the TPO issued a notice on 09-11-2016 and passed a final order on 31-10- 2018, making an upward adjustment of Rs. 106,07,00,458  under Section 92CA of the Income Tax Act, 1961. Although the AO issued a notice on 20-11-2018 under Section 142(1) of the Income Tax Act, the AO proceeded with a final order on 28-12-2018.

The writ petitioner in the second matter, Telstra India Pvt. Ltd., had filed its ITR on 20-11-2018.

A Section 143(2) notice was issued on 22-09-2019. The course of examination was followed by an intimation under Section 143(1) of the Income Tax Act, 1961, making aggregate disallowances of Rs. 113,88,283. The company approached the Commissioner of Income Tax (Appeals) [CIT(A)].

The CIT(A) deleted the disallowances. Later on, Telstra was notified of a reference to the TPO, which issued a show-cause notice on 03-09-2021. A final assessment order was passed on 18-09-2021. Aggrieved by the above order, the petitioner approached the High Court.

The court was of the observation that there was a failure to draft the assessment order in the draft, and thus it was clearly in violation of the mandate provided under Section 144 C, and the final assessment order passed after that is null or void.

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The bench further observed that it was imperative on the part of the Assessing Office (AO) to frame an order in draft before issuing a final assessment order.

The bench, comprising Justice Yashwant Varma and Justice Ravinder Dudeja, allowed the writ petitions and quashed the impugned final assessment orders.

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