Facts of the Case

The present batch of writ petitions and appeals, including those filed by M/s Microsoft India (R&D) Private Limited, challenged final assessment orders passed by the jurisdictional Assessing Officers pursuant to remand directions issued by the Income Tax Appellate Tribunal.

In several cases, including those involving transfer pricing adjustments, the Assessing Officers proceeded to pass final assessment orders directly after remand, without issuing a draft assessment order as mandated under Section 144C of the Income Tax Act, 1961. These final orders were accompanied by demand notices under Section 156 and penalty initiation notices, despite the assessees qualifying as “eligible assessees” under the Act.

The petitioners also raised issues of limitation, contending that the final assessment orders were passed beyond the statutory time prescribed under Section 153 following remand by the Tribunal.

 Issues Involved

Whether a final assessment order passed pursuant to remand proceedings, without first issuing a draft assessment order under Section 144C of the Income Tax Act, is legally sustainable, and whether such procedural lapses render the assessment orders void ab initio.

 Petitioner’s Arguments

The petitioners contended that Section 144C confers substantive rights upon eligible assessees, including the right to file objections before the Dispute Resolution Panel. Failure to issue a draft assessment order deprives the assessee of this statutory remedy and vitiates the entire assessment proceedings.

It was further argued that the requirement to issue a draft assessment order applies equally to remand proceedings and is not a mere procedural formality. Reliance was placed on binding precedents, including Turner International India Pvt. Ltd. v. DCIT and Headstrong Services India Pvt. Ltd., to submit that any final assessment passed in breach of Section 144C is without jurisdiction. The petitioners also submitted that several assessments were barred by limitation.

 Respondent’s Arguments

The Revenue contended that issuance of a draft assessment order was not required in remand proceedings or that the defect, if any, was curable. It was argued that the Assessing Officer was merely giving effect to the directions of the Tribunal and that no prejudice was caused to the assessees.

In some cases, the respondents asserted that Section 144C was not applicable, or that the assessees did not qualify as “eligible assessees” within the meaning of the Act. The Revenue also opposed the limitation challenge.

 Court Order / Findings

The Delhi High Court held that the mandate of Section 144C is absolute and mandatory wherever applicable, including in remand proceedings. The Court reaffirmed that an eligible assessee cannot be subjected to a final assessment order without first being issued a draft assessment order.

The Court observed that failure to follow the statutory procedure prescribed under Section 144C strikes at the root of jurisdiction and renders the final assessment order, along with consequential demand and penalty notices, invalid in law. Such defects are substantive and cannot be cured by participation of the assessee or by invoking curative provisions.

Relying on earlier judgments, including Turner International India Pvt. Ltd., the Court quashed the impugned final assessment orders passed without compliance with Section 144C. In cases where limitation had expired, the Court held that the assessments were also barred by time.

 Important Clarification

The Court clarified that Section 144C is not a mere procedural safeguard but a statutory protection conferring valuable rights upon eligible assessees. Any deviation from the prescribed procedure, including during remand proceedings, results in lack of jurisdiction. Final assessment orders passed without issuing a draft assessment order are void ab initio and unenforceable, irrespective of whether the assessee participated in the proceedings.

Link to download the order - https://www.mytaxexpert.co.in/uploads/1770194108_MSMICROSOFTINDIARANDDPVT.LTDVsPRINCIPALCOMMISSIONEROFINCOMETAX4ANR..pdf

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