AO cannot revisit his conclusions at the stage of passing the final order

Galaxy Surfactants Limited Vs ACIT (ITAT Mumbai)

Once an Assessing Officer prepares a draft assessment order, that is the end of his domain of powers so far as framing of assessment is concerned- unless of course there are any directions from the Dispute Resolution Panel which are required to be implemented by the Assessing Officer. When Dispute Resolution Panel declines to interfere, the Assessing Officer proceeds to finalize the assessment order on the basis of the draft assessment order only. Similarly, when an assessee does not propose to take the matter to the Dispute Resolution Panel, the Assessing Officer has to proceed to pass the final assessment order “on the basis” of the draft assessment order. There are no further hearings on the issues in assessment in question. The expression used in Section 144C(3) undoubtedly is that “the Assessing Officer shall complete the assessment on the basis of the draft assessment order” but in a situation in which the final assessment drops certain proposed disallowances, can it really be said that the Assessing Officer has completed the assessment on the basis of the draft assessment order- more so when there is no further hearing, no further directions and no occasion for further application of mind. The answer has to be, in our humble understanding, emphatically in negative. When a draft order is finalized by the Assessing Officer, no further hearings take place on the issues raised therein, no directions are received by the Assessing Officer to make any variations from the stand so taken, there is no occasion for making any variations from such a draft assessment order. When the Assessing Officer does not have an obligation to hear the assessee to review the draft orders or any specific powers enabling such a review, it is a natural corollary thereto that the Assessing Officer does not have the discretion, that too in such an unfettered and most opaque manner, to review the draft order nevertheless. The change of heart on the part of the Assessing Officer, howsoever well meaning and justified as it may be, is not permissible at the stage of passing the final assessment order. We disapprove and deprecate the same. The line of reasoning adopted by the learned PCIT was thus indeed correct. As regards the grievance raised by the assessee to the effect that some of the proposed disallowances, on merits, are covered in favour of the assessee, in our considered view, these issues cannot be raised at this stage. Right now the limited question before us is whether an assessment order, contrary to the draft assessment order, could be subjected to revision or not, and, on that point, we uphold the action of the PCIT. Whether these disallowances were covered in favour of the assessee or not is immaterial because it is a conscious decision to keep the matters alive or not, and, in any case, all this was relevant before finalizing the draft assessment order. The remedy against unjust disallowances, on merits, lies in the appellate process and not in review by the Assessing Officer on his own. In our considered view, an Assessing Officer cannot revisit his conclusions at the stage of passing the final order under section 144C(3). In addition to these points, the assessee has also raised several other facets of this controversy in grounds of appeal before us, but arguments of the learned counsel were restricted to these points. We see no legally sustainable merits in the arguments of the learned counsel on these points. The order of the Assessing Officer was thus clearly erroneous as also prejudicial to the interest of the assessee, and the learned PCIT was indeed justified in assuming the powers under section 263 on the facts of this case, and direct the Assessing Officer to pass the assessment order on the basis of draft assessment order issued by the Assessing Officer. No interference is called for.

FULL TEXT OF THE ORDER OF ITAT MUMBAI

1. By way of this appeal, the assessee appellant has challenged correctness of the order dated 16th March 2018, passed by the learned Principal Commissioner of Income Tax under section 263 r.w.s. 143(3) and 144C(4) of the Income Tax Act, 1961, for the assessment year 2011-12.

2. The core issue arising for our adjudication in this case is whether or not the learned PCIT was justified in subjecting an assessment order, passed under section 143(3) r.w.s. 144C(4), for the reason that the disallowances proposed in the draft assessment order have been dropped by the Assessing Officer suo motu and without any interference on those points by the Dispute Resolution Panel.

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