Bombay HC Quashes Assessment as Mandatory Draft Assessment Order Was Not Issued

Multiplier Brand Solutions Pvt Ltd. Vs Additional Joint Deputy Assistant Commissioner of Income Tax Officer & Ors (Bombay High Court)

The petitioner challenged the assessment order dated 13.05.2021 on the ground that the respondents had not issued the mandatory draft assessment order required under Section 144B(1)(xvi)(b) of the Income-tax Act, 1961.

In the affidavit in reply affirmed on 02.08.2021, the respondents admitted that no draft assessment order had been issued. They contended that the assessment unit had reported that, since the Risk Unit had not indicated that a show-cause notice or draft assessment order should be issued, the assessment was finalized and served on the petitioner. The respondents further argued that Section 144B(1)(xvi)(b) was not mandatory and that issuance of a draft assessment order fell within the purview of the Risk Unit.

The Bombay High Court observed that it had consistently held the provisions of Section 144B to be mandatory. It noted that under Section 144B(1)(xvi)(b), where any variation prejudicial to the assessee is proposed, a draft assessment order must be issued. Since the respondents had admitted that no draft assessment order was issued, there was non-compliance with the statutory procedure.

The Court further referred to its earlier decisions holding that failure to comply with the procedure prescribed under Section 144B renders the assessment order non est in view of Section 144B(9) of the Act.

Holding that the mandatory procedure under Section 144B had admittedly not been followed, the Court declared the assessment order dated 13.05.2021 to be non est and quashed and set it aside. The consequential demand notice and penalty notice, both dated 13.05.2021, were also quashed and set aside.

The Court clarified that the Revenue was at liberty to take such further steps as advised in accordance with law and that it had expressed no opinion on the merits of the case.

Read SC Judment this in this case: SC Holds Assessment Invalid as Mandatory Draft Assessment Order U/s. 144B Was Not Issued

FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT

1. Petitioner is impugning the assessment order dated 13^th May 2021 on the ground that respondents have not issued the mandatory draft assessment order as required under Section 144B(1)(xvi)(b) of the Income Tax Act, 1961 (the said Act).

2. In the affidavit in reply filed by one Jayshree Thakur affirmed on 2nd August 2021, respondents admit that no draft assessment order has been issued but according to respondents the assessment unit has reported that since the Risk Unit did not indicate that a show cause notice or draft order be issued, the assessment was finalized and sent to petitioner. According to affiant, Section 144B(1)(xvi)(b) is not mandatory and the question of draft assessment order falls within the purview of the Risk Unit.

3. This court has in many orders held that provisions of Section 144B are mandatory. Under Section 144B(1)(xvi)(b), if there is going to be a variation prejudicial to the assessee, a draft assessment order has to be issued. Admittedly it has not been issued.

It has also been held by this court that non compliance with the procedure laid down under Section 144B of the Act would make the assessment order non est in view of the provisions of sub Section 9 of Section 144B of the Act.

4.Since admittedly, there has been non compliance with the mandatory procedure laid down under Section 144B, the assessment order dated 13^th May 2021 is also non est. The order impugned is hereby quashed and set aside. Consequent demand notice and penalty notice both dated 13^th May 2021 are also quashed and set aside.

5. Revenue may take such further steps as advised in accordance with law. We also clarify that we have not made any observations on merits of the case.

6. Petition disposed.