Facts of the Case

  • The Petitioner, Sinogas Management PTE Ltd, is a Singapore-based company engaged in operating ships and claimed tax residency in Singapore.
  • It filed its return for AY 2017–18 declaring nil income in India, invoking Article 8 of the India-Singapore DTAA.
  • The assessment under Section 143(3) was completed accepting the Petitioner’s claim.
  • Subsequently, the Commissioner invoked Section 263 and held the assessment to be erroneous and prejudicial to revenue.
  • The matter was remanded, and the Assessing Officer passed a fresh order dated 23.06.2022, taxing the Petitioner’s income and raising demand along with penalty proceedings under Section 270A.
  • However, no draft assessment order under Section 144C was issued before passing the final order.

Issues Involved

  1. Whether failure to issue a draft assessment order under Section 144C(1) to an eligible assessee invalidates the final assessment order?
  2. Whether Section 144C applies to assessment orders passed pursuant to revision under Section 263?
  3. Whether such procedural lapse renders the order void for lack of jurisdiction?

Petitioner’s Arguments

  • The Petitioner qualifies as an “eligible assessee” being a foreign company.
  • Under Section 144C(1), issuance of a draft assessment order is mandatory before passing a final order prejudicial to the assessee.
  • Non-compliance deprived the Petitioner of the right to approach the Dispute Resolution Panel (DRP).
  • The impugned order, demand, and penalty proceedings are illegal and without jurisdiction.
  • Even in remand proceedings under Section 263, the resultant order is still an assessment order u/s 143(3), requiring compliance with Section 144C.

Respondent’s Arguments

  • The impugned order was passed pursuant to directions under Section 263, hence Section 144C should not apply.
  • The scheme of Section 144C is different and should be interpreted teleologically.
  • The Petitioner has an alternate remedy before the Income Tax Appellate Tribunal.
  • Reliance was placed on interpretative principles and judicial precedent to argue limited applicability of Section 144C.

Court Findings / Order

  • The Delhi High Court held that:
    • Section 144C contains a non-obstante clause and prescribes a mandatory procedure.
    • Even in proceedings arising from Section 263, the Assessing Officer must comply with Section 144C.
    • The impugned order qualifies as a fresh assessment order u/s 143(3).
    • Failure to issue a draft assessment order vitiates the entire proceedings.
  • Accordingly:
    • The assessment order dated 23.06.2022,
    • Demand notice, and
    • Penalty proceedings
      were quashed.
  • Matter remanded back to AO to proceed in accordance with law.

Important Clarification

  • Compliance with Section 144C(1) is:
    • Mandatory, not procedural.
    • Applicable even in revisionary proceedings under Section 263.
  • Denial of draft order results in:
    • Loss of right to approach DRP, and
    • Jurisdictional defect, not curable.
  • Alternate remedy does not bar writ jurisdiction where procedural illegality affects jurisdiction.

Sections Involved

  • Section 143(3) – Assessment
  • Section 144C – Draft Assessment & DRP mechanism
  • Section 263 – Revision by Commissioner
  • Section 270A – Penalty for misreporting
  • Section 156 – Demand Notice

Link to download the order -https://delhihighcourt.nic.in/app/showFileJudgment/SVN18102023CW18792023_125745.pdf

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.