ITAT Jaipur Quashes Non-Resident Reassessment Over Failure to Follow Section 144C

Karan Singh Rathore Vs ITO (ITAT Jaipur)

The appeal was filed by the assessee against the order of the National Faceless Appeal Centre dated 08.08.2025 under Section 250 of the Income Tax Act, 1961. The assessee challenged, among other matters, the validity of the assessment on the ground that he was a non-resident and that the Assessing Officer had failed to follow the mandatory procedure prescribed under Section 144C. The assessee had also challenged additions of ₹13,17,000 under Section 69A relating to cash deposits and ₹15,00,000 under Section 69 relating to investment in immovable property, along with the initiation of proceedings under Section 148.

The assessee submitted that he was a non-resident for AY 2016-17 and had furnished a letter dated 12.01.2024 to the AO, along with his passport for the relevant year and the preceding four years, showing his dates of stay in India. According to the submission, his stay did not satisfy the conditions under Section 6(1)(a) and (c) for being treated as resident. The assessee therefore contended that he was an “eligible assessee” under Section 144C(15)(b)(ii), which includes a non-resident other than a company or foreign company.

Section 144C(1) requires the AO, where a prejudicial variation is proposed in the case of an eligible assessee, to first forward a draft assessment order and provide the assessee an opportunity to approach the Dispute Resolution Panel. The assessee argued that this mandatory procedure was not followed.

The Tribunal noted that the AO himself had recorded in the assessment order that the assessee was a non-resident and that, for this reason, the case had been transferred from the National Faceless Assessment Centre to the jurisdictional Assessing Officer. The AO thereafter issued notice under Section 142(1) seeking, among other details, the computation of income, bank statements, and explanations concerning the purchase of immovable property of ₹65,00,000 and cash deposits of ₹13,17,000.

The Tribunal observed that the assessee’s non-resident status was an admitted fact recorded by the AO after considering the assessee’s response and evidence. It further noted that the Departmental Representative was unable to controvert either the assessee’s non-resident status or the requirement under Section 144C to pass a draft assessment order in such circumstances.

The Tribunal held that Section 144C clearly applied and required the AO to initially pass a draft assessment order under Section 144C(1). Since the AO failed to do so, the assessment order passed under Section 147 was held to be legally unsustainable and was quashed.

Ground Nos. 2 to 2.3 were accordingly allowed. As the assessment itself was quashed, the Tribunal did not adjudicate the remaining grounds concerning the other issues raised by the assessee. The appeal was allowed in the stated terms. The order was pronounced in the open court on 07.07.2026.

FULL TEXT OF THE ORDER OF ITAT JAIPUR

The present appeal has been filed by the assessee against the order passed by the National Faceless Appeal Centre (hereinafter referred to as “Ld. CIT(A)”), dated 08.08.2025u/s 250 of the Income Tax Act, 1961,(hereinafter referred to as “the Act”).

2. The grounds of the appeal raised by the assessee read as under:-

1. On the facts and in the circumstances of the case, ld. CIT(A) has erred in setting aside the assessment and referring the case back to the file of ld.AO for making fresh assessment by exercising power as per proviso to section 251(1) of the Income Tax Act, arbitrarily.

1.2. That, Id. CIT(A) has referred case back to the file of Id.AO solely for the reason that assessment order is passed u/s 147 r.w.s 144 of the Act, even though Id. CIT(A) has clearly observed that “Though, the appellant however has furnished detailed submissions against additions, for consideration of revenue”. Appellant prays that power to refer back a case as per section 251(1) is basically introduced for cases, where Best judgement assessment was made by assessing officer due to non-responsiveness of assessee, whereas in the instant case due compliances were made by assesse as noted by ld.CIT(A) and therefore exercise of power under proviso to section 251(1) is absolutely contrary to the spirit of the legislation and order so passed by ld.CIT(A) deserves to be set aside.

2. On the facts and in the circumstances of the case and in law, Id. CIT(A) grossly erred in confirming the action of ld. AO in completing assessment by treating assessee as “Resident”, even though assessee is “Non resident” and this fact was communicated to ld. CIT(A) as well as ld. AO and wasaccepted beyond doubt. Appellant prays that assessment so framed at incorrect residential status deserves to be held as void ab initio.

2.1 That, ld. CIT(A) further erred in confirming the action of ld. AO assuming jurisdiction in the case of assessee, when it is a fact on record that assessee was “Non resident” during the year under consideration and assessment was to be completed by AO (International Taxation). Appellant prays that order so passed is beyond jurisdiction of Id.AO and deserves to be quashed and consequent additions made deserve to be deleted.

2.2 That Id. CIT(A) also erred in confirming the action of ld. AO in passing the impugned order u/s 147 r.w.s 144 of the Act, instead of following the mandatory procedure prescribed u/s 144C of the Act, despite the appellant being an “eligible assessee” as per section 144C(15). Appellant prays that the failure to issue a draft assessment order andprovide an opportunity to approach the Dispute Resolution Panel renders the assessment order without jurisdiction, bad in law, and liable to be quashed.

2.3 Without prejudice to above, ld. CIT(A) erred in confirming the action of ld. AO in passing the assessment order in the case of assessee whose address as per assessment order itself is of Thane, Maharashtra and hence assessment order is beyond jurisdiction.

3. On the facts and in the circumstances of the case, the ld. CIT(A) grossly erred in confirming the action of ld. AO in initiating proceedings u/s 148 of the Income Tax Act, 1961, arbitrarily and without fully complying with the provisions of law.

4. On the facts and in the circumstances of the case, the Id. CIT(A) grossly erred in confirming the action of ld. AO in initiating proceedings u/s 148 of the Income Tax Act, 1961 solely on the basis of information received from AIS/ITS details of the department software, according to which assessee had purchased an immovable property of Rs. 65,00,000/- and made cashdeposits of Rs. 13,17,000/- in bank account. Appellant prays that case has been reopened on borrowed satisfaction, which is not in accordance with law.

5. On the facts and in the circumstances of the case, the Id. CIT(A) grossly erred in confirming the action of Id. AO in making an addition of Rs. 13,17,000/- u/s 69A of the Income Tax Act, 1961 on account of cash deposited in bank account, without considering the submission made and evidence adduced before him, arbitrarily.

5.1 That the ld. CIT(A) further erred in confirming the action of Id. AO in ignoring the fact that out of cash deposits of Rs. 13,17,000/-, source of Rs. 5,96,000/- is out of cash received from her sister on various dates and Rs. 3,00,000/- received from his parents which were deposited in assessee’s bank account. Appellant prays that source of cash deposited to the tune of Rs. 8,96,000/- is proved beyond doubt and addition deserves to be deleted outrightly.

6. On the facts and in the circumstances of the case, the ld. CIT(A) grossly erred in confirming the action of Id. AO in making an addition of Rs. 15,00,000/- u/s 69 of the Income Tax Act, 1961 arbitrarily.

6.1 That the Id. CIT(A) further erred in confirming the action of ld. AO in making addition of Rs. 15,00,000/-(i.e. part of investment made in purchase of property), by brushing aside the submissions made and evidencesadduced. Appellant prays that assessee has sold one of it’s residential property for Rs. 11,50,000/- in the year consideration and investment was made from bank account wherein such sale consideration stood credited. As both the sale deed and bank account were furnished before ld.AO, source of investment in immovable property is duly explained and addition made by ld.AO deserves to be deleted.

6.2 That Id. CIT(A) further erred in confirming the action of Id. AO in making addition of investment in property of Rs. 15,00,000/-, whereas Id. AO has already made addition of cash deposits in bank and despite the fact that investment of Rs. 15,00,000/- in purchase was out of sale of other property (Rs. 11,50,000/-) and cash deposits(Rs. 3,50,000/-). Thus AO action is very arbitrary and unjust and therefore this double addition isdeserve to be out rightly deleted.

7. That the appellant craves the right to add, delete, amend or abandon any of the grounds of appeal either before or at the time of hearing of appeal.

3. Taking up first the legal ground raised by the assessee in Ground Nos.2 to 2.3. Ld. Counsel for the assessee argued that in the impugned ground, the assessee has challenged the validity of the assessment framed in the present case, being in violation of the procedure prescribed as per law. He contended that, in the facts of the present case, the assessee was a non-resident and the provisions of Section 144C were applicable for the purposes of framing assessment, as per which, the AO was required to pass first a draft assessment order, provide a copy of the same to the assessee to give him an opportunity of filing objection to the Dispute Resolution Panel, and only after the resolution of the dispute by the DRP, that the AO could have pass the final order in terms of the order of the DRP disposing of the objections filed by the assessee. He drew my attention to the relevant law in this regard, pointing out from Section 144C of the Act, the requirement of passing of the draft assessment order as per Section 144C(1) of the Act as under:-

Reference to dispute resolution panel.

144C. (1) The Assessing Officer shall, notwithstanding anything to the contrary contained in this Act, in the first instance, forward a draft of the proposed order of assessment (hereafter in this section referred to as the draft order) to the eligible assessee if he proposes to make, on or after the 1st day of October, 2009, any variation which is prejudicial to the interest of such assessee.

4. The applicability of the said provision to the assessee in Sub-Section 15 clause (b) defining eligible assessee to include non-resident assessee he pointed out as under:-

(15) For the purposes of this section,—

(b) “eligible assessee” means,—

i. any person in whose case the variation referred to in sub-section (1) arises as a consequence of the order of the Transfer Pricing Officer passed under sub-section (3) of section 92CA; and

ii. any non-resident not being a company, or any foreign company:

5. He thereafter, pointed out that, in the facts of the present case, the assessee had submitted to the AO his letter dated 12.01.2024,that the assessee was a non-resident and had attached copy of his passport for the relevant year and the preceding four years as evidence thereof, reflecting the fact that his stay in India during the impugned year i.e. AY 2016-17 did not exceed 182 days, nor did his stay in the preceding four years exceed 365 days so as to qualify as resident in terms of the provisions of Section 6(1)(a)(c) of the Act. The provisions of Section 6(1)(a)(c) of the Act are reproduced hereunder:-

Residence in India.

6. For the purposes of this Act,—

(1) An individual is said to be resident in India in any previous year, if he—

(a) is in India in that year for a period or periods amounting in all to one hundred and eighty-two days or more ; or

(c) having within the four years preceding that year been in India for a period or periods amounting in all to three hundred and sixty-five days or more, is in India for a period or periods amounting in all to sixty days or more in that year.

7. The submissions made by the assessee in his letter to the AO placed before me, at paper book page No.12 to 14 are reproduced hereunder:-

It is to submit that undersigned assesse is non-resident and for the relevant assessment year, assesse was the non-resident as per the Income Tax Act, 1961. We are reproducing here Section 2(30) of Income Tax Act, 1961 and Section 6 for your reference; Section 2(30) “non-resident” means a person who is not a “resident”, and for the purposes of sections 92, 93 and 168, includes a person who is not ordinarily resident within the meaning of clause (6) of section 6;

Residence in India.

6. For the purposes of this Act,-

(1) An individual is said to be resident in India in any previous year, if he-

a. is in India in that year for a period or periods amounting in all to one hundred and eighty-two days or more; or

b. [*]

c. having within the four years preceding that year been in India for a period or periods amounting in all to three hundred and sixty-five days or more, is in India for a period or periods amounting in all to sixty days or more in that year.

In this regard, it is to state that Firstly, assesse was not in India for 182 or more days during the relevant assessment year or financial year 2015-2016 as per clause (a) of sub section (1) of Section 6 of Income Tax Act, 1961. Secondly, assesse was not in India for more than 365 days within the four years preceding that year.

We are attaching here copy of passport of relevant assessment year and preceding four year for your perusal. We are attaching here summarized details for your reference. (Annx. – 2)

So it is to submit that assesse was non-resident for the relevant assessment year.

• That we are attaching herewith the computation of income for the relevant assessment year. It is to submit that undersigned assesse has not the income which is exceeded the maximum amount which isnot chargeable to tax that’s why assesse had not filed its return for the relevant assessment year. (Annx.-3)
• That it is to state that assesse was non-resident and no business income accrued and arise in India. Assesee has no business income in India for the relevant assessment year.

8. Hethereafter, pointed out that the AO admitted to this fact in his assessment order itself noting at para 3 of his order that since the assessee was non-resident the case was transferred from FAC to the Jurisdictional Assessing Officer. Para 3 of the assessment order reads as under:-

3. Further, the case was sent before NeFAC under faceless assessment scheme-2019 but due to the fact that assessee was non-resident, the case was transferred from NeFAC to the jurisdictional assessing officer. Therefore notice u/s 142(1) along with questionnaire issued on 15.12.2023 vide which the last date to furnish the reply was fixed as 01.01.2024to submit the following details:-

1. Computation of income for the FY 2015-16 relevant to AY 2016-17.

2. Nature of business.

3. Details of bank a/cs for the FY 2015-16 relevant to AY 2016-17 along with their bank statements. Also submit the narration of debit and credit entries along with documentary evidences.

4. Copy of P&L a/c, Balance sheet and capital a/c for the period under consideration.

5. During the FY 2015-16 relevant to AY 2016-17, you have purchased immovable property of Rs. 65,00,000/- and also deposited cash of Rs. 13,17,000/-in ICICI Bank a/c. Please explanation along with documentary evidence source of investment in the immovable property of Rs. 65,00,000/- and cash deposit of Rs. 13,17,000/- in bank account. Also furnish copy of sale deed for purchase of immovable property of Rs. 65,00,000/-.

9. He therefore, stated that the assessee admittedly being a non­resident, the AO was required to pass a draft assessment order u/s 144C of the Act, which he had failed to do in the present case and therefore, the order passed u/s 143(3) of the Act was invalidly passed and needed to be quashed.

10. Ld. DR before me, was unable to controvert the fact pointed out by the Ld. Counsel for the assessee that the assessee was admittedly a non-resident nor was she able to controvert the provision of law, requiring the AO to pass a draft order while framing assessment of a non-resident u/s 144C of the Act, which the AO had failed to do.

11. In the light of the above, I have no hesitation in holding that the order passed in the present case u/s 147 of the Act, is not in accordance with law. The fact that the assessee is a non-resident is an admitted fact noted by the AO specifically in his assessment order after considering the reply filed by the assessee explaining his residential status and providing evidence in this regard also. The provision of law contained in Section 144C requiring a draft order to be passed by the AO while framing assessment in the case of a non-resident is clear. The provisions of Section 144C therefore, clearly applied to the facts of the present case requiring the AO to pass a draft assessment order initially u/s 144C(1) of the Act. The AO having failed to do so, the order passed u/s 147 is legally unsustainable and is accordingly quashed.

12. Ground of Appeal Nos.2 to 2.3 raised by the assessee are allowed.

13. Since I have quashed the assessment order passed by the AO, the remaining grounds raised by the assessee were not heard by me and therefore, not being adjudicated upon.

14. In the result, the appeal of the assessee is allowed in above terms.

Order pronounced in the open court on 07.07.2026