ITAT Bangalore Quashes Assessment for Non-Issuance of Draft Order Under Section 144C

ITAT Bangalore Quashes Assessment for Non-Issuance of Draft Order Under Section 144C

Microsoft Research Lab India Pvt. Ltd. challenged the final assessment order dated 23 April 2021, passed under Section 143(3) read with Section 144B for AY 2017-18. The company argued that the order was invalid because the mandatory requirement of issuing a draft assessment order under Section 144C was not complied with. The assessee maintained that no draft order was ever served, and the final assessment was issued straightaway, denying its statutory right to approach the Dispute Resolution Panel (DRP).

The CIT(A) on appeal treated the matter as one concerning transfer pricing adjustments, ultimately setting aside the assessment for limited purposes. The assessee appealed further to the Tribunal.

Main Issue: Whether the final assessment order dated 23 April 2021 is invalid for contravention of Section 144C, owing to the premature passing of the final assessment without waiting for the statutory 30-day period after issuance of the draft assessment order.

ITAT Held: The ITAT held that the final assessment order could not be sustained, as it was passed in clear violation of Section 144C(2)(4). The Bench noted that even assuming the draft order was generated on 15 April 2021, the Assessing Officer was mandatorily required to wait for 30 days to enable the assessee to file objections before the DRP. Passing the final order on 23 April 2021, within just eight days of preparing the draft, frustrated this statutory right and went to the root of the assessment’s validity.

Since the Revenue could not show that the assessee had accepted the draft order or waived its right to object, the Tribunal held the assessment to be void ab initio. Therefore, the final assessment order dated 23 April 2021 was quashed, and all additions and demands flowing from it were deleted. The assessee’s Ground No. 5 was allowed, while the remaining grounds were treated as infructuous because the very foundation of the assessment no longer survived.

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