In a significant relief for Indian arms of multinational corporations such as Sumitomo Corp., Microsoft Corp., and JCB, the Delhi High Court has quashed final tax assessment orders that were passed without the issuance of draft assessment orders as envisaged in the Income Tax Act.
Section 144C of the Act says that an assessing officer must issue a draft assessment order before a final assessment can be passed. This provision allows the taxpayer to mull over the assessment order and take corrective measures before a final order is passed.
Citing previous rulings, the high court held that a failure to frame a draft assessment order would clearly be violative of the mandatory prescriptions of Section 144C, and the final order of assessment framed in violation thereof is to be viewed as a nullity.
The court has said that Section 144C erects a special mechanism of assessment in respect of eligible taxpayers in as much as it essentially entails two separate components coming together to form a composite assessment of the taxpayer.
The court said so because under Section 144C, the assessing officer and the transfer pricing officer work in tandem to file an assessment order.
A failure to frame a draft order of assessment not only curtails the right of the assessee to adopt corrective measures, it also deprives it of a salutary right to challenge the draft in terms of the statutory mechanism laid in place.Delhi High Court
Explaining the relevance of Section 144C and stating that an absence to comply with it cannot be termed a mere procedural requirement that would not taint the assessment order, the court said that Section 144C is multi-tiered and comprises of various in-built corrective and revisory components that work together to forge an ultimate order of assessment recognised under the Act.
The court also pointed out the fact that this provision creates a right to challenge a decision at multiple levels, be it before the Dispute Resolution Panel, the Commissioner of Income Tax (Appeals), or the Income Tax Appellate Tribunal. It is, in that sense, a self-contained code for assessment in respect of eligible taxpayers, it said.
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