Income Tax Assessment Orders Set Aside as Revenue Issued Demand Notice Along With Alleged Draft Order

Google Ireland Limited Vs ACIT (Karnataka High Court)

The petitioner challenged assessment orders dated 24.12.2018 passed under Sections 143(3), 147, 92CA, and 144C of the Income Tax Act, 1961, relating to Assessment Years 2009-10 and 2010-11.

The principal issue before the Karnataka High Court was whether the impugned orders were Draft Assessment Orders as required under Section 144C of the Act or Final Assessment Orders.

The petitioner contended that although the orders referred to Section 144C and provided an opportunity to file objections before the Dispute Resolution Panel, the subsequent portion of the orders concluded the assessment, computed income and tax liability, issued a demand notice under Section 156, and initiated penalty proceedings under Section 274 read with Section 271(1)(c). Therefore, the orders could not be treated as draft assessment orders.

The petitioner relied on the Division Bench decision in Commissioner of Income-tax (International Taxation) v. Cisco Systems Services B.V., where it was held that issuance of a final assessment order instead of a draft assessment order constituted an incurable error and that a subsequent attempt to treat such an order as a draft order could not be accepted, particularly when a demand notice and penalty proceedings were initiated simultaneously.

The Revenue argued 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 tax computation, demand, and initiation of penalty proceedings.

Also Read SC Order in this case: SC Refuses to Rule on Draft Assessment Order Dispute as Statutory Appeal Remedy Exists

FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT

The petitioner is aggrieved by the orders dated 24.12.2018 under Section 143(3) read with Section 147, 92CA and 144C of the Income Tax Act, 1961 [for short, ‘the IT Act] and these impugned orders are relevant to the Assessment Years 2009-10 and 2010-11. Mr. Deepak Chopra, the learned counsel for the petitioner, submits that the outcome in these petitions must turn on whether this Court could accept the respondent’s case that the impugned orders dated 24.12.2018 are not Final Assessment Orders but Draft Assessment Orders as required under Section 144C of the IT Act.

2. Mr. Deepak Chopra, to buttress the argument that the impugned orders are indeed Final Assessment Orders and not Draft Assessment Orders, while inviting this Court’s attention to paragraph No.6 of the operative portion of the impugned orders where there is a reference to Section 144C and the opportunity to file objections with the Dispute Resolution Panel, Bengaluru, submits that the impugned orders cannot be treated as Draft Assessment Orders because of the succeeding paragraph where the assessment is concluded computing income and tax while issuing demand notice under Section 156 of the IT Act with the initiation of proceedings under Section 274 read with Section 271(1)(c) thereof.

3. Mr. Deepak Chopra further submits that in very similar circumstances, a Division Bench of this Court in Commissioner of Income-tax (International Taxation) Vs. Cisco Systems Services B.V.¹, has opined that instead of a Draft Assessment Order, the Final Assessment Order is passed and that the subsequent correction is an attempt by the Revenue to gloss over this incurable error. The learned counsel submits that the Division Bench has held that the Revenue’s defense cannot be accepted when there is simultaneous demand and initiation of penal proceedings.

4. Mr. E. I. Sanmathi, the learned standing counsel for the respondent, relying upon the assertions in the Statement of Objections, canvasses to contend that the description of the impugned orders as Final Assessment Orders would only be a typographical error, but the learned counsel cannot controvert the fact that there is a computation of tax with simultaneous initiation for penalty with tax, or the import of law as is declared by the Division Bench. As such, the following:

ORDER

The petitions are allowed and the impugned orders dated 24. 12 .20 18 [Annexure-11 are quashed.

Note:

¹ [2023] 149 taxmann.com486 (Karnataka)