SC Refuses to Rule on Draft Assessment Order Dispute as Statutory Appeal Remedy Exists

ACIT Vs Google Ireland Limited (Supreme Court of India)

The Revenue challenged an order of the Karnataka High Court that had quashed assessment orders dated 24.12.2018 passed under Sections 143(3), 147, 92CA and 144C of the Income Tax Act, 1961 for Assessment Years 2009-10 and 2010-11.

Before the Karnataka High Court, the central issue was whether the impugned orders dated 24.12.2018 were merely Draft Assessment Orders as contemplated under Section 144C of the Income Tax Act or whether they were in fact Final Assessment Orders.

The assessee contended that the orders could not be treated as Draft Assessment Orders. Reliance was placed on the operative portion of the assessment orders, which, while referring to Section 144C and granting an opportunity to file objections before the Dispute Resolution Panel (DRP), also proceeded to conclude the assessment, compute income and tax liability, issue a demand notice under Section 156, and initiate penalty proceedings under Section 274 read with Section 271(1)(c) of the Act.

The assessee further relied upon the Karnataka High Court Division Bench decision in Commissioner of Income-tax (International Taxation) v. Cisco Systems Services B.V., where it had been held that when an assessment order simultaneously computes tax liability, issues a demand notice and initiates penalty proceedings, the order cannot be regarded as a Draft Assessment Order. The Division Bench had observed that any subsequent attempt by the Revenue to characterize such an order as a draft order would amount to an effort to cure an incurable defect.

The Revenue argued before the High Court that the description of the impugned orders as Final Assessment Orders was only a typographical error. However, it could not dispute that the orders contained computation of tax, issuance of demand notices and initiation of penalty proceedings. Nor could it overcome the legal position laid down by the Division Bench in the Cisco Systems Services B.V. decision.

The Karnataka High Court accepted the assessee’s contention and held that the impugned orders could not be treated as Draft Assessment Orders under Section 144C. Following the Division Bench precedent, the Court concluded that the orders were effectively Final Assessment Orders. Consequently, the High Court allowed the writ petitions and quashed the assessment orders dated 24.12.2018.

Aggrieved by the High Court’s decision, the Revenue filed a Special Leave Petition before the Supreme Court.

The Supreme Court noted that the impugned order had been passed by a Single Judge of the Karnataka High Court and that an intra-court appeal was available under Section 4 of the Karnataka High Court Act, 1961. In view of the availability of this statutory appellate remedy, the Supreme Court declined to entertain the Special Leave Petition.

The Court reserved liberty to the Revenue to file an intra-court appeal before the jurisdictional High Court, if so advised. It further clarified that if such an appeal was filed within six weeks, the High Court should consider it on its own merits and in accordance with law.

Importantly, the Supreme Court expressly stated that it had not expressed any opinion on the merits of the dispute regarding the nature or validity of the assessment orders. The Special Leave Petition was therefore dismissed solely on the ground of availability of an alternative appellate remedy, leaving the merits of the controversy open for consideration by the High Court in any future intra-court appeal.

Also Read Karnataka HC Judgment in this case: Income Tax Assessment Orders Set Aside as Revenue Issued Demand Notice Along With Alleged Draft Order

FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER

1. Delay condoned.

2. Having heard learned Senior Counsel appearing for the petitioner – Revenue, we notice that the impugned order is passed by the learned Single Judge against which an intra court appeal is permitted under Section 4 of the Karnataka High Court Act, 1961. In that view of the matter, reserving liberty to the petitioner to file an appeal, if so advised, we dismiss the present Special Leave Petition. We make it clear that in the event of appeal being filed within six weeks from today, the jurisdictional High Court shall examine the said appeal on its own merits and in accordance with law. We make it clear that we have not expressed any opinion on the merits of the case.

3. Pending application(s), if any, shall stand disposed of.