Whether final assessment order based on DAO issued with penalty and demand notice valid?
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Whether final assessment order based on DAO issued with penalty and demand notice valid?
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Short note of today's case law for quick reference:
[2024] 119 ITR (Trib) 787 (ITAT[Mum])
[BEFORE THE INCOME-TAX APPELLATE TRIBUNAL — MUMBAI "J" BENCH]
PANASONIC LIFE SOLUTIONS INDIA P. LTD.
(formerly known as Anchor Electricals P. Ltd.)
v.
ASSISTANT COMMISSIONER OF INCOME-TAX
PRASHANT MAHARISHI (Accountant Member)
and RAHUL CHAUDHARY (Judicial Member)
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December 19, 2023.
1) The assessee-company was engaged in the manufacture of electrical components.
2) A reference was made to the Transfer Pricing Officer (TPO) which resulted into an order passed under section 92CA(3).
3) Consequent to that, a draft assessment order (DAO) was passed u/s 143(3) r.w.s 147 and 144C(1)
4) With the DAO, a notice of demand was issued and a SCN u/s 274 r.w.s. 271(1)(c) was also issued.
5) The assessee objected to the penalty notice stating that the penalty notice was issued on the basis of the DAO and the assessee has already filed objections before the DRP.
6) Assessee filed appeal challenging the DAO and penalty proceedings.
7) It was held that in DAO, the Assistant Commissioner had ordered issuance of demand notice and to initiate penalty proceedings u/s 271(1)(c).
8) It was not merely an error but for all practical purposes, the A.O. had passed the final assessment order instead of a DAO.
9) Then final assessment was passed but even prior to that the assessee was directed to pay the tax with DAO.
10) When the assessee informed the A.O. that the penalty was levied on the basis of the DAO, A.O. immediately wrote a letter and intimated to the assessee that notice u/s 274 r.w.s 271(1)(c) was wrongly issued and withdrew it.
11) Therefore, the DAO passed by the A.O. was invalid and the final assessment order passed based on an invalid order was to be quashed.
12) The total income of the assessee shall be the amount of returned income and the amount of income agreed by the assessee in mutual agreement procedure proceedings added thereto.
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2wAn assessment order comprises of computation of income, calculation of tax and order about issuance of notices for various defaults. The AO would be accompanied by a Demand Notice, for the tax payable. Once a Draft Assessment Order was issued, it should be complete with all incidental procedures. This includes issuance of D.N, issue of notices for levying penalties. The notices issued along with the DAO are NOT final notices, but are "draft" notices. That is what was done in this case of Panasonic Life Solutions India P ltd.. Once the AO is marked as Draft, the accompanying notices etc would also be draft. Only after the Assessee submits his objections to the draft AO and final AO is issued or the time allowed under the Law expires, the AO becomes final.
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