ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-1(2), KOLKATA, AAYAKAR BHAWAN POORVA vs. MILAN SADHUKHAN, KOLKATA

IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, KOLKATA Before Shri Rajesh Kumar, Accountant Member and Shri Pradip Kumar Choubey, Judicial Member ITA No.187/KOL/2025 Assessment Year: 2018-19 Assistant Commissioner of Income Tax................................................................Appellant Circle-1(2), Kolkata, Shantil palli, 110 Eastern Metropolitan, Bypass, Opposite Ruby, Kasba, Kolkata West Bengal- 700107 [PAN No. AOGPS7035D] Vs. Milan Sadhukhan, ..…………..…………………....…….................................….Respondent Flat No. 8C, Devaloke Heights, 142A Raja S C Mullick Road, Kolkata- 700032 Appearances by: Soumyadeep Roy Choudhary, appeared on behalf of the Appellant. Dheeraj, Sr. DR ,appeared on behalf of the Respondent. Date of concluding the hearing : July 14 , 2026 Date of pronouncing the order :August 21 ,2026 ORDER Per Pradip Kumar Choubey, Judicial Member: This appeal filed by the assessee is directed against the order dated 13.11.2024 of the National Faceless Appeal Centre (NFAC), passed under Section 143(3) of the Assessment Year 2018-19 of the Income-tax Act, 1961 (hereinafter referred to as “the Act”). 2. The brief facts of the case of the assessee is that the assessee filed its original return of income for the captioned assessment year on 13-08-2018 declaring the total income at INR 77,45.410/- and tax payable of INR 24,20,227/-Subsequently, the revised return of income was filed on 29-03-2019 declaring the total income at INR 21.97,830/- and tax payable of INR 4,86,004/-

ITA No.187/Kol/2025 Assessment Year- 2018-19 thereby claiming a refund of INR 19,34,230/- In the revised return of income, the appellant claimed tax treaty relief of INR 55,47,582/- in respect of salary income from employment exercised in UK as per Article 16(1)of India UK treaty. The revised return was processed vide intimation under sec 143(1) of the Act dated 01-10-2019 determining the refund of INR 20,57,089/-which was received on 15-07-2020.The case was selected for scrutiny assessment and notices under sec 143(2) & sec 142(1) of the Act were issued by Ld. AO. The assessee filed responses to the notices issued by Ld. AO from time to time. The Ld. AO concluded the assessment vide order under sec 143(3) of the Act dated 24-06-2021 determining the total income at INR 1,14,25,510/- thereby raising a demand of INR 93,63,973/-. 3. Aggrieved by the said order assessee preferred appeal before the CIT(A) wherein appeal of the assessee has been allowed by observing thus: - The appellant, being a non-resident, argued that the Assessing Officer (AO) should have passed a draft assessment order under Section 144C of the Income Tax Act before finalizing the order. The appellant contended that the failure to do so rendered the final order void and unlawful. Citing various judicial precedents, including decisions from the Madras and Delhi High Courts, the appellant emphasized that the draft order is a mandatory step in the assessment process and its absence invalidates the final order

The appellant's case is squarely covered by section 144C of the Act which provides for the following:

ITA No.187/Kol/2025 Assessment Year- 2018-19 he proposes to make, on or after the 1st day of October 2009, any variation which is prejudicial to the interest of such assessee.

(2) On receipt of the draft order, the eligible assessee shall, within thirty days of the receipt by him of the draft order.-

(a) file his acceptance of the variations to the Assessing Officer or

(b) file his objections, if any, to such variation with,-

(i) the Dispute Resolution Panel; and

(ii) the Assessing Officer

(3) The Assessing Officer shall complete the assessment on the basis of the draft order, if-

(a) the assessee intimates to the Assessing Officer the acceptance of the variation, or

(b) no objections are received within the period specified in sub-section (2)

(15) For the purposes of this section,

(a) "Dispute Resolution Panel" means a collegium comprising of three Principal Commissioners or Commissioners of Income-tax constituted by the Board for this purpose

(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 920A and

(ii) any non-resident not being a company, or any foreign company."

ITA No.187/Kol/2025 Assessment Year- 2018-19 The highlighted portion in the definition of eligible assessee was introduced by the Finance Act, 2020 w.e.f. 1-4-2020. The memorandum to the Finance Bill 2020 states that "This amendment will take effect from 1st April, 2020. Thus, if the AO proposes to make any variation after this date, in case of eligible assessee, which is prejudicial to the interest of the assessee, the above provision shall be applicable. As the assessment order was passed on 24- 06-2021, the assessee qualifies as an eligible assessee for the purpose of section 144C.

Hon'ble Madras High Court in the case of GE Oil and Gas India Private Ltd vs ACIT (436 ITR 168) held that passing the draft order in terms of section 144C of the Act is a sine qua non for passing the final assessment order. The relevant excerpts of the decision of Hon'ble High Court are reproduced below:

"The scheme of assessment in terms of Section 144C statutorily requires the officer to pass a draft assessment order at the first instance and put the same to the assessee for its acceptance or for filing of objections before the Dispute Resolution Panel. The language of Section 144C makes this position more than abundantly clear." The appellant also referred to a Supreme Court ruling in the case of Nokia India (P) Ltd. 98 texmann.com 374 (SC) (2018), wherein the Apex court dismissed the revenue's SLP thereby upholding the order of Delhi High Court. The relevant extract is as below:

ITA No.187/Kol/2025 Assessment Year- 2018-19 9. This is also the view of the Gujarat High Court in CIT v. C-Sam (India) (P.) Ltd. [2017] 84 taxmann.com 261.

CIT v. Citi Financial Consumer Finance India Pvt. Ltd٩ OME TAX DEPARTMEN

In the case of Headstrong Services India Pvt. Ltd. (318 CTR 369) it has been held that

"The failure by the AO to adhere to the mandatory requirement of Section 144C(1) of the Act and first pass a draft assessment order would result in invalidation of the final assessment order and the consequent demand notices and penalty proceedings"

In the case of Zuari Cement Ltd. vs. ACIT (WP(C) No. 5557/2012 dated 21-02-2013) (AP) the hon'ble High Court held that the failure to pass a draft assessment order under Section 144C(1) of the Act would result in rendering the final assessment order "without jurisdiction, null and void and unenforceable and hence the demand notice was also set aside. Aforesaid decision was affirmed by Supreme Court by dismissal of Revenue's SLP [CC No. 16694/2013) on 27-09-2013. In light of these legal precedents, I hold that the assessment order passed by

ITA No.187/Kol/2025 Assessment Year- 2018-19 the AO is void due to non-compliance with the mandatory provisions of Section 144C of the Act. Accordingly, Ground No. 2 of the appeal is allowed.

As the assessment order has been held as void, the other grounds of appeal become non- fructuous and are not being adjudicated upon.

In the result, the appeal filed by the assessee is partly allowed.

The Hon’ble CIT(A) erred in holding the assessment order as void ab initio due to procedural lapses, without considering substantive compliance and absence of prejudice to the assessee. 2. CIT(A) incorrectly concluded that failure to issue a draft order under Section 144C invalidated the final assessment order, ignoring the provisions of Section 292B. 3. Procedural irregularities, if any, are curable under Section 292B, as they did not affect the substance of the assessment. 4. The principles of natural justice were not violated, as the assessee was provided adequate opportunities to present their case. 5. CIT(A) wrongly prioritized procedural lapses over substantive compliance, contrary to the principle of “substance over form “ 6. The assessment order shall be restored as valid and in accordance with law. 5. Contrary to that Ld. AR supports the impugned order. The Ld. AR submits that Assessing Officers failed to issue a draft assessment order being mandatory u/s 144C for the non-resident assessee, rendering the final order void.The Ld. AR further submits that no draft order was passed by the AO i.e. in complete violation of Section 144C of the Act and a Ld. CIT(A) has passed order keeping in view the spirit of Section 144C as well as relying on the several decision of the High Court and Supreme Court. 6

ITA No.187/Kol/2025 Assessment Year- 2018-19 6. Upon hearing the submission of the counsel of the respective parties and on perusal of the impugned order we find that assessee is a non-resident, during the assessment year his stay in India was lays down 60 days which is evident from the return of Income filed by the assessee. The tax residential certificate filed by the assessee and the draft u/s 143(3) in which status of assessee being a non-resident has been accepted. It is a fact that AO has passed a final assessment order u/s 143(3) of the Act without following the procedures prescribed in Section 144C as squarely covered by Section 144C of the Act and CIt(A) has reproduced the Section 144(C) in the order, also relied the various decision of the High Court and the Supreme Court. 6.1. Going over the decision passed by the CIT(A) and keeping in view the facts of the case as discussed above, we do not find any infirmity in the impugned order Accordingly, the appeal filed by the Revenue is hereby dismissed. Kolkata, the 21st August , 2026.

Sd/- Sd/- [Rajesh Kumar] [Pradip Kumar Choubey] Accountant Member Judicial Member

DC Dated:. 21.08.2026. Copy of the order forwarded to: 1. Appellant - 2. Respondent - 3. CIT(A)- 4. CIT- 5. CIT(DR)

ITA No.187/Kol/2025 Assessment Year- 2018-19 //True copy// By order Deputy Registrar, Kolkata Benches