Facts of the Case

The petitioner, Smart Cube India Private Limited, is an assessee engaged in international transactions and qualified as an “eligible assessee” under Section 144C of the Income Tax Act, 1961. For the relevant assessment years, the assessment proceedings involved transfer pricing adjustments pursuant to an order passed by the Transfer Pricing Officer under Section 92CA.

In the first round of proceedings, a draft assessment order was passed, objections were filed before the Dispute Resolution Panel (DRP), and a final assessment order followed. The matter thereafter reached the Income Tax Appellate Tribunal, which set aside the assessment and remanded the matter to the Assessing Officer and the TPO for fresh consideration.

In the second round of proceedings pursuant to remand, the Assessing Officer directly passed a final assessment order, along with demand and penalty notices, without issuing a draft assessment order under Section 144C.

Aggrieved by the same, the petitioner approached the Delhi High Court by way of writ petitions.

 

Issues Involved

Whether the Assessing Officer could validly pass a final assessment order in the case of an eligible assessee without first issuing a draft assessment order under Section 144C of the Income Tax Act, 1961, particularly in remand proceedings.

 

Petitioner’s Arguments

The petitioner contended that issuance of a draft assessment order under Section 144C is mandatory and not optional in the case of an eligible assessee. It was argued that this statutory requirement applies equally to proceedings conducted pursuant to remand by the ITAT.

The petitioner submitted that bypassing the draft assessment stage deprived it of the statutory right to approach the DRP and amounted to a jurisdictional defect, rendering the final assessment order void. Reliance was placed on binding precedents including Turner International India Pvt. Ltd., Headstrong Services India Pvt. Ltd., and other Delhi High Court judgments consistently holding that non-issuance of a draft assessment order vitiates the assessment.

 

Respondent’s Arguments

The Revenue contended that since the matter was remanded by the ITAT, the Assessing Officer was justified in passing a final assessment order directly. It was argued that the petitioner had participated in the proceedings and no prejudice had been caused. According to the Revenue, the lapse, if any, was procedural and stood cured.

 

Court Order / Findings

The Delhi High Court rejected the submissions of the Revenue and held that:

Section 144C mandates issuance of a draft assessment order in the case of an eligible assessee.

The requirement applies even in remand or set-aside proceedings.

Passing a final assessment order without issuing a draft assessment order amounts to a jurisdictional error, not a mere procedural irregularity.

Participation of the assessee or absence of demonstrated prejudice does not cure the defect.

Such violation strikes at the root of the assessment proceedings and renders the final assessment order unsustainable in law.

 

Final Outcome

The writ petitions were allowed. The Delhi High Court quashed the final assessment orders, consequential demand notices, and penalty proceedings on the ground that they were passed in violation of the mandatory provisions of Section 144C. The assessment was held to be void ab initio.

 Important Clarification

The Court clarified that Section 144C confers substantive statutory rights on eligible assessees and strict compliance is mandatory. Any assessment completed in breach of the draft-final assessment mechanism is invalid in law, irrespective of the stage of proceedings or participation by the assessee.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1770203689_SMARTCUBEINDIAPVTLTDVsJOINTCOMMISSIONEROFINCOMETAX.pdf 

 

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