KBC ADVANCED TECHNOLOGIES PVT LTD. vs. ASSISTANT COMISSIONER OF INCOME TAX CIRCLE 15(1)(2)

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WP/3130/2022HC Bombay27 January 2025Author: HON'BLE SHRI JUSTICE M.S. SONAK, HON'BLE SHRI JUSTICE JITENDRA SHANTILAL JAIN6 pages
AI SummaryPartly Allowed

What did the High Court hold?

The Tribunal held that the order dated March 30, 2021, was a draft assessment order and not a final assessment order. This conclusion was based on two key observations. Firstly, the order itself contained Clause 8, which explicitly referred to Section 144C(2) of the Income Tax Act, 1961, and invited the assessee to either accept variations or file objections before the Dispute Resolution Panel (DRP) or the issuing authority within 30 days, stating that if no objection was received, the assessment would be completed on the basis of this draft order. Secondly, the order referenced 'proposed additions' in certain paragraphs, further indicating its preliminary nature. The Tribunal found that the revenue's own affidavit, while attempting to shift blame, virtually admitted that mandatory procedures were not followed. Consequently, the Tribunal held that the revenue was not justified in issuing the impugned demand notice dated March 30, 2021, the penalty order dated March 16, 2022, and the recovery notices dated December 30, 2021, based on a draft assessment order. These notices and orders were quashed and set aside. The Tribunal clarified that while the draft assessment order itself could not be set aside, no tax or penalty demands or recovery could be made based on it.

What were the facts?

The assessee, KBC Advanced Technologies Pvt Ltd, filed a writ petition challenging various orders issued by the revenue, including a penalty order dated March 16, 2022, a penalty notice dated March 30, 2021, an assessment order dated March 30, 2021, a demand notice dated March 30, 2021, and a recovery notice dated December 30, 2021. The assessment year in question is 2017-18. The assessee contended that the order dated March 30, 2021, was merely a draft assessment order and not a final one, and therefore, subsequent demand, penalty, and recovery notices based on it were invalid. The revenue argued that the order dated March 30, 2021, was a final assessment order.

What were the issues?

1. Whether the order dated March 30, 2021, passed by the respondent, is a final assessment order or a draft assessment order, concerning assessment year 2017-18, under Section 144C of the Income Tax Act, 1961? Assessee's Contentions: - The order dated March 30, 2021, is a draft assessment order and not a final assessment order. Consequently, the impugned demand notice, penalty order, and recovery notice issued based on it are invalid. - Alternatively, if the order dated March 30, 2021, is considered a final assessment order, it must be set aside because it was not preceded by a mandatory draft assessment order. Revenue's Contentions: - The order dated March 30, 2021, is a final assessment order. - The impugned demand, penalty, and recovery notices were validly issued based on this final assessment order.

Which sections of the Income-tax Act were involved?

Section 144C,Section 143(3),Section 143(3A),Section 143(3B),Section 92CA

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
KBC Advanced Technologies Pvt Ltd v Assistant 4-oswp-3130-2022-J-F.docx Amol IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO. 3130 OF 2022 1. KBC Advanced Tech, C – 304, Delphi CHS, Hiranandani Gardens, Powai, Mumbai – 400076 …Petitioner VERSUS 1. Assistant Commissioner of Income-tax Circle 15(1)(2), Mumbai, Room No. 483A, 4th Floor, Aayakar Bhavan, M. K. Road, Mumbai – 400020 2. Additional/Joint/Deputy/Assistant Commissioner of Income-tax/Income-tax Officer, National Faceless Assessment Delhi 3. Union of India, Through the Joint-Secretary & Legal Adviser, Branch Secretariat Department of Legal Affairs, Ministry of Law and Justice, 2nd Floor, Aayakar Bhavan, M.K. Marg, New Marine Lines, Mumbai – 400020 …Respondents __________________________________________________________ APPEARANCES- Mr Manish Kanth, i/b, Mr Atul K Jasani, for the Petitioner. Mr Suresh Kumar, for the Respondent. __________________________________________________________ CORAM : M.S.Sonak & Jitendra Jain, JJ. Page 1 of 6 AMOL PREMNATH JADHAV Digitally signed by AMOL PREMNATH JADHAV Date: 2025.01.28 16:20:04 +0530 CNR No : HCBM020198332022 Uploaded on - 28/01/2025 Downloaded on - 31/10/2026 00:09:19 2025:BHC-OS:1267-DB KBC Advanced Technologies Pvt Ltd v Assistant 4-oswp-3130-2022-J-F.docx DATED : 27 January 2025 ORAL JUDGMENT ( Per MS Sonak J) :- 1. Heard learned Counsel for the parties. 2. Rule. The Rule is made returnable immediately at the request of and with the consent of the learned Counsel for the parties. 3. This Petition concerns assessment year 2017-18. 4. The Petitioner seeks relief in terms of prayer clauses (a) and (b), which read as follows: - “a. issue a Writ of Certiorari or writ in the nature of Certiorari or any other appropriate writ, order or direction under Article 226 of the Constitution of India calling for the records of the Petitioner case and after examining the legality and validity thereof quash and set aside the Impugned Penalty Order dated 16th March 2022, the Impugned Penalty Notice dated 30th March 2021, the Impugned Assessment Order dated 30th March 2021, the Impugned Demand Notice dated 30th March 2021 and, the Impugned Recovery Notice dated 30th December 2021 passed by the Respondent; b. issue a Writ of Mandamus or a writ in the nature of Mandamus or any other appropriate writ, order or direction under Article 226 of the Constitution of India ordering and directing the Respondent by themselves, their subordinate, servants and agents to forthwith (I) withdraw and/or cancel the Impugned Penalty Order dated 16th March 2022, the Impugned Penalty Notice dated 30th March 2021, the Impugned Demand Notice dated 30th March 2021 and, the Impugned Recovery Notice dated 30th December 2021 passed by the Respondent respectively;” 5. Mr Manish Kanth, learned Counsel for the Petitioner, submits that the order dated 30 March 2021 (Exhibit B, pages 50 to 57 of the paper book) is only a draft assessment order Page 2 of 6 Uploaded on - 28/01/2025 Downloaded on - 31/10/2026 00:09:19 KBC Advanced Technologies Pvt Ltd v Assistant 4-oswp-3130-2022-J-F.docx and not a final assessment order. He submits that based on such a draft assessment order, the impugned demand notice dated 30 March 2021, the impugned penalty order dated 16 March 2022, and the consequential recovery notice dated 30 December 2021 could never have been issued. 6. Mr Kanth, in the alternative, submitted that if the order dated 30 March 2021 (Exhibit B) is to be regarded as a final assessment order (which, according to him, it is not), then it must be set aside because it was never preceded by any draft assessment order, which is the requirement under the law. 7. On the above grounds, Mr Kanth submitted that the Rule in this Petition must be made absolute. 8. Mr Suresh Kumar learned Counsel for the Respondent invited our attention to the affidavit in reply filed by Mr Eknath Ganpat Abhang, Deputy Commissioner of Income Tax, Circle-15(1)(2), Mumbai. He focussed on the statements in paragraph 4(iii) and paragraph 5.7(iii) of this affidavit. He submitted that the order dated 30 March 2021 (Exhibit B) was a final assessment order. He submitted that the impugned demand, penalty and recovery notices were based on this final assessment order. Accordingly, he submitted that no reliefs be granted to the Petitioner. 9. The rival contentions now fall for our determination. 10. At the outset, we refer to the order dated 30 March 2021 at Exhibit B pages 50 to 58 of the paper book. Though this order is styled as an ‘assessment order, ’ the record shows that any draft assessment order never preceded this order. Page 3 of 6 Uploaded on - 28/01/2025 Downloaded on - 31/10/2026 00:09:19 KBC Advanced Technologies Pvt Ltd v Assistant 4-oswp-3130-2022-J-F.docx That apart, we refer to Clause 8 of this order, which reads as follows: - “8. As per the provisions of section 144C(2) of the Income Tax Act, 1961, assessee may either accept the variations mentioned in this order or file its objections before DRP and before the undersigned within 30 days from the receipt of this order. If no objection is received within the time, assessment shall be completed on the basis of this draft order.” 11. The circumstance that the order dated 30 March 2021 was never preceded by a draft assessment order coupled with the above-quoted Clause 8 clarifies that the order dated 30 March 2021 was only a draft assessment order. Clause 8 explicitly refers to the provisions of Section 144C(2) of the Income Tax, 1961 and calls upon the assessee to either accept the variations mentioned in the order or to file objections before DRP and before the issuing authority within 30 days of receiving this order. Clause 8 concludes by stating that if no objection is received within time, assessment shall be completed “on the basis of this draft order”. 12. Besides, in paragraphs 3, 4.5 and 5.3.3 of the order dated 30 March 2021, there is a reference to ‘proposed additions’. This is another circumstance showing that the order dated 30 March 2021 is nothing but a draft assessment

order and not some finalized assessment order.

13.

Mr Suresh Kumar’s submission, based upon the statements in paragraphs 4(iii) and 5.7(iii) can be best answered by transcribing the statements. “4(iii) During the course of scrutiny assessment proceedings, the A.O. observed that the petitioner-assessee entered into specified international transaction and Uploaded on - 28/01/2025 Downloaded on - 31/10/2026 00:09:19

KBC Advanced Technologies Pvt Ltd v Assistant 4-oswp-3130-2022-J-F.docx therefore, made reference to the Transfer Pricing Officer for computing arm’s length price. Also, necessary details were called for and examined by the then A.O. Accordingly, after receipt of order u/s.92CA(3) of the Act dt. 25.01.2021 passed by the T.P.O., the A.O. prepared Draft Assessment Order on 22.03.2023. The same was approved by the Range Head on 23.03.2023. Subsequently, the draft assessment order was sent to Review Unit on 24.03.2023. The Review Unit has approved the draft assessment order on 27.03.2021. The draft assessment order was pending for signature at the Faceless Unit for service through NaFAC. As the Review Unit has approved the Draft Assessment Order on 27.03.2021, the FAO has putup the Final Assessment order for approval on 30.03.2021. The Range Head has approved the same on 30.03.2021. Accordingly, the NaFAC issued Final Assessment Order on 30.03.2021 u/s.143(3) r.w.s. 143(3A) & 143(3B) of the Act determining income of Rs.3,44,67,019/-. Hereto annexed and marked as Exhibit-R-1 is the copy of Order Sheet Notings reflecting the chronological order of events. 5.7(iii) In the case of the Petitioner the mandatory procedure as discussed in above was not followed by the Faceless Assessing Officer (FAO) and instead of passing the Draft assessment order, the FAO has passed Final Assessment Order i.e. order u/s.143(3) r.w.s 143(3A) & 143(3B) of the Act therefore, the consequential Demand Notice, Penalty order and Recovery letter are issued. In this regard, it is to state that the FAO has prepared the Draft Assessment Order, which was pending for signature before the NaFAC. Subsequently, the FAO has passed Final Assessment Order.”

14.

The above statements virtually admit that mandatory procedures were not followed but seek to apportion the blame on the faceless assessing officer. In any event, based on the above statements relied upon by Mr Suresh Kumar, we cannot hold that the order dated 30 March 2021 is the final assessment order and not a draft assessment order.

15.

Based on a draft assessment order, the Respondents were not justified in issuing the impugned demand notice dated 30 March 2021, penalty order dated 16 March 2022, and recovery notices dated 30 December 2021. Accordingly, Uploaded on - 28/01/2025 Downloaded on - 31/10/2026 00:09:19

KBC Advanced Technologies Pvt Ltd v Assistant 4-oswp-3130-2022-J-F.docx all these are liable to be set aside and are hereby quashed and set aside.

16.

Since we have held that the order dated 30 March 2021 was only a draft assessment order, it cannot be set aside. However, based on this draft assessment order, the Respondents could not have made any tax, or penalty demands or sought recovery of tax or penalty.

17.

The Rule is accordingly made absolute in the above terms without any costs order.

18.

All concerned to act on an authenticated copy of this order. (Jitendra Jain, J) (M. S. Sonak, J) Uploaded on - 28/01/2025 Downloaded on - 31/10/2026 00:09:19 Powered by TCPDF (www.tcpdf.org)

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