DAMANDEEP KAUR,MOHALI vs. ASSISTANT COMMISSIONER OF INCOME TAX (CENTRAL CIRCLE-2), CHANDIGARH, CHANDIGARH

Without prejudice to Ground No. 1, the Ld. CIT(A) erred in dismissing the appeal of the assessee by disregarding various grounds of appeal raised, which are contrary to the facts and circumstances of the case. 3. That the Ld. CIT(A) erred in sustaining the addition of Rs. 3,00,000/-made by the Ld. Assessing Officer on account of "Unexplained Household Expenses" without properly appreciating the facts of the case, specifically: a. That the appellant was present in India only for 117 days during the relevant previous year, as affirmed in the order passed under Section 10(3) of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015. Given that she resided outside India for the majority of the previous year, the household expenses incurred in.India were minimal and duly explained and disclosed during the assessment proceedings, hence, no addition was envisaged in the instant case. b. That the appellant's husband has already been adjudicated before the Hon'ble Settlement Commission under Section 245D(4) of the Act, wherein a comprehensive disclosure of income on account of household expenses for the entire family has been made, and the corresponding taxes stands duly paid, hence, sustaining addition in the case of appellant also, tantamount to double addition (taxation) of same impugned income. 4. That the Ld. CIT(A) erred in sustaining the impugned addition amounting to Rs. 15,33,250/- on account of the alleged difference between salary receipts credited in the bank account and the income declared in the appellant's Income Tax Return (ITR), without appreciating the following: a. That a detailed reconciliation of salary, along with documentary evidence, was submitted by the appellant during the appellate proceedings, which unequivocally proves that the actual salary earned for the year under consideration was fully offered for taxation in her IT b. That the major portion of the difference in salaries pertained to advance salary for the succeeding Assessment Year 2017-18, which was received by the appellant from her employer in Assessment Year 2016-17 and was duly offered to tax in the said succeeding year. c. That the concerns from which the salary was received by the appellant have also been assessed by the same Ld. Assessing Officer, and no adverse inference was drawn in their respective cases. 5. That the Ld. CIT(A) grossly erred in sustaining the impugned addition amounting to Rs. 26,77,331/- on account of credits appearing in the appellant's foreign bank account statement without considering the following crucial facts: a. That during the year under consideration, the appellant was a non-resident, as also affirmed by the order passed under Section 10(3) of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, and as such, these credits were not liable to be taxed in India. b. That in the proceedings under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, all credits appearing in the appellant's bank account were duly explained, and no adverse inference was taken against the appellant in those proceedings.

That the Ld. CIT(A) erred in sustaining the assessment order, which was passed based on a mechanical approval granted by the Ld. Additional Commissioner of Income Taх, Range Central, under Section 153D of the Act, indicating a lack of due application of mind.

A search and seizure action u/s 132(1) was carried out on 03.10.2019 in the Chandigarh Group of Colleges group. The assessee, an individual and trustee in Chandigarh Educational Trust and Shri Guru Ram Dass Educational Society, was covered. Pursuant thereto, notices u/s 153A were issued and assessments were framed making additions on account of alleged household expenditure, difference in salary receipts, credits in foreign bank accounts and investment in overseas property. 4. The ld. CIT(A) partly confirmed the additions for all years. 5. Against the order of the Ld. CIT(A), the assessee is in appeal before us. 6. At the outset, the assessee has raised an additional legal ground challenging the validity of assessments on the ground that the Assessing Officer failed to follow the mandatory procedure laid down u/s 144C of the Act by not issuing a draft assessment order, despite the assessee being an “eligible assessee” within the meaning of section 144C(15)(b), being a non-resident during the respective years. Since this legal ground goes to the root of the juri iction and does not involve fresh investigation of facts, the same is admitted. In the light of above it was submitted that the additional grounds raised by the assessee be admitted . He further relied on NTPC v. CIT (229 ITR 383 SC) to urge that the additional grounds, being purely legal, deserve admission.

Per contra Ld. DR objected to the admissions of the additional grounds. 8. We have considered the rival submissions and perused the material available on record. The assessee has moved additional grounds challenging the validity of the assessment on the ground that the mandatory procedure prescribed under section 144C of the Income-tax Act, 1961, was not followed and no draft order was passed by the Ld. Assessing Officer as per Section 144C(1) of the Act. 8.1 We find merit in the submissions of the Ld. AR that the additional grounds raised are purely legal in nature and go to the root of the matter, involving the very juri iction of the Assessing Officer to assume assessment proceedings. The Hon’ble Supreme Court in NTPC Ltd. v. CIT (229 ITR 383) has held that a pure question of law, which does not require investigation into fresh facts and which goes to the root of the matter, can be raised at any stage of the proceedings, including before the Tribunal. The additional grounds raised by the assessee fall squarely within the ratio laid down by the Hon’ble Apex Court.

Further, the issue pertains to the validity of the assessment proceedings and the assumption of juri iction by the Assessing Officer, which strikes at the foundation of the assessment order. Once such foundational and juri ictional issues are raised, the same deserve to be adjudicated before proceeding to decide the appeal on merits. Accordingly, the additional ground raised by the Assessee is admitted. 10. During the course of assessment proceedings u/s 153A, the assessee filed her passport and declared that she was a non-resident. The Assessing Officer made a reference to the Joint Director (Investigation) [Black Money] for verification of the residential status. The office of the JDIT (BMA) after independent enquiry and after calling information from the FRRO, recorded categorical findings that the assessee was a Non-Resident for F.Y. 2015-16 to 2019-20. 11. The said findings are contained in the order passed u/s 10(3) of the Black Money (Undisclosed Foreign Income & Assets) Act. The relevant table reproduced by the BMA authority at pages 6 & 7 of its order records year-wise non-resident status. The said the ld has accepted factual finding. CIT(A) in appellate proceedings. It is further noted that the assessee was present in India for only 43 days in F.Y. 2019-20 and for even less in other years. The assessment year and the number of days spent by the assessee in India are available at pages 8 & 9 of the Assessing Officer order, which reads as under:

The assessee in written submissions has contended that once she is accepted as a non-resident, she automatically falls in the definition of “eligible assessee” u/s 144C(15)(b). It was argued that Section 144C uses two independent limbs – one for transfer-pricing cases and one for any non-resident assessee. It was emphasized that the AO having proposed variations prejudicial to the assessee, draft assessment order u/s 144C(1) became mandatory. 13. It was submitted that the failure to issue a draft order renders the assessment void ab initio. The assessee further submitted that Section 144C begins with a non-obstante clause overriding the Act, thus even in search assessments u/s 153A, compliance is mandatory. It was argued that the plea of participation or lack of objection before the AO cannot cure a juri ictional defect and there is no estoppel against statute. The assessee relied upon decisions of Hon’ble Delhi High Court in the case of Sumitomo Corporation, Gynia Holding Ltd. (Del Tribunal), New Burry Oil Company (Del Tribunal), Rolland Enterprises (Del Hon'ble High Court) holding that non-issuance of draft assessment order is not curable u/s 292B and renders assessment null. 14. Per contra the Revenue argued that the assessee originally filed return as resident and therefore AO proceeded accordingly; that Section 144C was intended for transfer-pricing matters; that BMA proceedings are independent and cannot bind AO; that participation cured the defect; and in any case the defect, if any, is cured u/s 292B. 15. We have heard the rival contention of the parties and perused the material available on the record. It is an admitted factual position that the assessee was a Non-Resident for all relevant assessment years, and this fact has been independently verified by FRRO and accepted by the JDIT (BMA) and by the ld. CIT(A). Beside that on page one of assessment order for Ay 2018-19, 2019-20 & 2020-21 Ao mention as under :

Besides the above, the assessee was a Non-Resident within the meaning of Section 6 of the Income-tax Act, 1961 during the Assessment Years under consideration. Section 6 of the Act 1961 as on 01/04/2020 which reads as under:_ Residence in India. 23 6. 24 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) 25[***] (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.

The assessee’s stay in India during each of the relevant financial years was well below the statutory threshold of 182 days. In fact, her stay was exceptionally short in each year, demonstrating that her centre of life, personal residence and economic presence during these years was outside India. The details of stay as independently verified and recorded by the FRRO and the Joint Director (Investigation), Black Money Unit, are summarized hereunder. I. For AY 2016-17 (FY 2015-16), the assessee remained in India for 117 days only. The assessee travelled abroad on multiple occasions, and her cumulative stay outside India was 249 days. Since her physical presence in 12

Once the assessee is held to be a Non-Resident, she falls squarely within the ambit of an “eligible assessee” under Section 144C(15)(b), and therefore, it was contended by the Ld. AR for the assessee that the newly inserted provision will be applicable to the case in hand. 20. At the time of dictation of the matter it came to our notice that relevant provision i.e; Section 144C(15B) was inserted in the statute book w.e.f 01/04/2020 and the year under consideration were A.Y. 2016-17 onwards. In view of the above we fixed the matter for clarification on 12/11/2025. 21. Today both parties appeared before us, and have made submissions. The Ld. AR had filed the written submissions which are taken on record. The Ld. AR has further submitted that the present issue is clearly covered by the Hon’ble 22. Per contra, the DR had submitted that the assessee should not get premium for his mistake / misrepresentation / concealment of the information as the assessee had not submitted at any point of time that the assessee is an NRI. 23. We have heard the rival contention of the parties and perused the material available on the record as recorded hereinabove, the assessee is an NRI which aspect has been accepted by the Assessing Officer in the years mentioned hereinabove and further the Assessing Officer in the black money case has categorically accepted the status of the assessee an NRI. In view of the above there is no doubt that the assessee is an NRI and therefore the argument of the Ld. DR objecting to the status of the assessee is not sustainable. 24. Now coming to the issue whether the issuance of draft assessment order is mandatory and in failure to issue the draft assessment order would lead to quashing of the order passe by the Assessing Officer or not. In this regard it would be appropriate to produce the provision of section 144C which provides as under:

From a conjoint reading of the above legal position and the statutory provisions, it is abundantly clear that the Act contemplates the issuance of a draft assessment order in the case of an "eligible assessee." Once the assessee falls within the definition under Section 144C(15)(b) and the Assessing Officer proposes variations prejudicial to their interest, the procedure prescribed under Section 144C becomes mandatory. The scheme encapsulated in Section 144C is not merely directory but mandatory; Section 144C opens with a non-obstante clause that overrides other provisions of the Act. Consequently, the argument that search assessments under Section 153A are special provisions cannot defeat the express, overriding mandate of Section 144C. The non-issuance of a draft assessment order constitutes a fatal and incurable juri ictional defect. We draw strength from the provisions of Section 144C(2), (3), and (4) of the Act. The statute prescribes a strict outer limit for passing the assessment order. Even if the assessee fails to file objections or explicitly accepts the draft order, the Assessing Officer is bound to pass the final assessment order within the time limit provided by the Act. If the Assessing Officer fails to pass the final order within this statutory period—despite the absence of objections—they are precluded from passing any order thereafter. In the present case, the assessment was framed after 01.04.2020 without adhering to the mandatory DRP mechanism, despite the variations proposed. Since the failure to follow the procedure under Section 144C renders the assessment order non est and void ab initio, and any order passed beyond the statutory limitation is bound to be quashed, the impugned assessment order is legally unsustainable and liable to be set aside. Recently, the Hon’ble Bombay High Court in the case of Barentz India (P.)[2025] 179 taxmann.com 582 (Bombay) Ltd.has held as under: 6. We find that to the provisions of Section 144B(1) and more particularly Sections 144B(1)(xxi) to 144B(1)(xxix), the provisions of Sections 144C have been made applicable. These provisions clearly stipulate that in case of an eligible assessee, a draft assessment order has to be served on the Petitioner to enable the Petitioner to approach the DRP. This, in fact, has not been done in the facts of the present case. In the facts of the present case, a final assessment order has been directly passed by the Faceless Officer without serving a draft assessment order on the Petitioner to enable it to approach the DRP. This is in clear violation not only of the provisions of Section 144C but also of Section 144B(1)(xxi) to (xxix) thereof. Once this is the case, the final assessment order in the above Petition cannot stand and would have to be set aside. 7. In the view that we take, we are supported by the decision of this Court in the case of Danfoss Fluid Power (P.) Ltd. v. Union of India [2025] 179 taxmann.com 283 (Bombay)/Writ Petition No. 10403 of 2025 decided on 29th September 2025). In the facts of Danfoss (supra), a final assessment order was passed without serving the draft assessment order on the Petitioner. This Court held that the same would clearly be in contravention of the provisions set out in Section 144C. In fact, while deciding the case of Danfoss (supra), this Court relied upon another decision of this Court in the case of SHL(India) Pvt. Ltd. v. Deputy Commissioner of IncomeTax [2021] 128 taxmann.com 426 (Bombay)/[2021] 282 Taxman 334/ 438 ITR 317 (Bombay). The relevant portion of Danfoss (supra) reads thus:-

In the view that we take, we are supported by a decision of a Division Bench of this court in the case of SHL (INDIA) PVT. LTD. V. DEPUTY COMMISSIONER OF INCOME-TAX AND OTHERS, [2021] 438 ITR 317 (Bom). The relevant portion of this decision reads thus :- "27. Applying the aforesaid principles to the facts of this case, we are of the view that the failure on the part of the Assessing Officer to follow the procedure under Section 144C(1) is not a merely procedural or inadvertent error, but a breach of a mandatory provision. We are also not impressed with the arguments of the Revenue that the Assessing Officer was under pressure of two charges, as there were timelines to adhere to, since the said timelines from time to time have been extended, the most recent one being to September 30, 2021. The Revenue ought to have appreciated that the requirement under Section 144C(1) to first pass a draft Assessment Order and to provide a copy thereof to the assessee is a mandatory requirement which gave substantive right to the assessee to object to any variation, that is prejudicial to it. In this case, the order under Section 92CA(3) of the Income-tax Act, proposed to make an adjustment of Rs.107,454,337/- to the arm's length price considered as Nil by Petitioner and to that extent the said adjustment was evidently prejudicial to the interest of the Petitioner. Depriving Petitioner of this valuable right to raise objection before Dispute Resolution Panel would be denial of substantive rights to the assessee, for which, in our view, the Assessing Officer has no power under the statute, as the provision clearly mandates the Assessing Officer to pass and furnish a draft Assessment Order in the first instance in such a case. The Legislature, in our view, has intended to give an important opportunity to the Petitioner, who is an eligible assessee, which in our view, has been taken away. In our view, failure to follow the procedure under Section 144C(1) would be a juri ictional error and not merely procedural error or a mere irregularity. The Assessment Order has not been passed in accordance with the provisions of Section 144C of the Income-tax Act. This is not an issue, which involves a mistake in the said order, but it involves the power of the Assessing Officer to pass the order. By not following the procedure laid down in Section 144C(1) to pass and furnish a draft Assessment Order to the Petitioner and directly passing a final Assessment Order and without giving the Petitioner an opportunity to raise objections before the Dispute Resolution Panel, there is a complete contravention of Section 144C, the Assessing Officer having wrongly assumed juri iction to straight away pass the final order. This is not a mere irregularity but an incurable illegality. Even the provisions of Section 292B of the Income-tax Act would not protect such an order as Section 292B of the Income- tax Act cannot be read to confer juri iction on the Assessing Officer, where none exists. The Supreme Court decision in the case of ITO v. M. Pirai Choodi; [2011] 334 ITR 262 (SC) referred to in the Revenue's reply is also not applicable to the issue at hand as that was a case where the assessee was not given an opportunity to cross-examine the concerned witness and which assessee also had a statutory appellate remedy which the assessee had failed to avail of, whereas there is no such right available to the Petitioner in this case. In fact, the Petitioner has lost a substantive right due to the failure of the Respondents to pass and forward a draft assessment order in the first instance on 17

As far as the prayer for remand is concerned, we see no reason to remand the matter back to the Assessing Officer. If the Assessing Officer, in law, is entitled to initiate this process again by passing a fresh draft assessment order and serving it upon the Petitioner, they are free to do so if they are entitled to do in law. We have not opined on this aspect of the matter one way or the other.

Similarly, Sumitomo Corporation India (P.) Ltd. [2024] 166 taxmann.com 55 (Delhi) Hon’ble Delhi High Corut has held as under: 11. It becomes pertinent to note that the issue of whether the AO could ignore the requirement of drawing up a draft assessment order and pass a final order and the same being in violation of the procedure contemplated under section 144C appears to have arisen before our Court on previous occasions also. The consistent view which this Court appears to have taken in that respect was that a failure to frame an assessment order in draft would clearly be violative of the mandatory prescriptions of Section 144C and the final order of assessment framed in violation thereof liable to be viewed as a nullity.

This view stands duly expressed in numerous decisions of this Court including those in JCB India Ltd. v. Dy. CIT [2017] 85 taxmann.com 155/251 Taxman 143/398 ITR 189 (Delhi) 2017 SCC OnLine Delhi 10424, Turner International India (P.) Ltd. (supra), Nokia India (P.)Ltd. v. Addl. CIT 2017 SCC Online Delhi 13027, Control Risks India (P.)Ltd. v. Dy. CIT [W.P.(C) No. 5722 of 2017, dated 27-7-2017], Pr. CIT v. CITI Financial Consumer Finance India (P.) Ltd. 2015 SCC Online Delhi 14678 as well as Headstrong Services India (P.) Ltd. (supra).

The decision of Headstrong Services India (P.) Ltd. (supra), while examining the scheme of Section 144C in paragraphs 17 and 18 had held as follows: -

It appears that the respondents in Headstrong India had contended that the expression "in the first instance" as appearing was suggestive of the requirement of framing a draft assessment order being obviated in a situation where the assessment proceedings are to be renewed consequent to a remit by the Tribunal.

This submission came to be rejected with the Court in Headstrong Services India (P.) Ltd. (supra) observing thus:-

Now to accept the appellant's argument would be to permit the Assessing Officer to decide the objections filed by the Assessee -which power has been specifically denied by the statute.

The argument of an obligation to frame a draft assessment order and a failure to abide by that process being a mere irregularity came to be stoutly rejected by the Court in Headstrong Services India (P.) Ltd. (supra) as would be evident from the following observations which came to be rendered: -

In ESPN Star Sports Mauritius S.N.C. ET Compagnie v. Union of India [2016] 388 ITR 383 (Delhi) this court, after discussing the judgments of the Andhra Pradesh High Court, High Court of Bombay as well as the Madras High Court in Vijay Television Pvt. Ltd. v. DRP [2014] 369 ITR 113 (Mad.) has held that failure to pass a draft assessment order under section 144C(1) of the Act would render the final assessment order without juri iction, null and void and unenforceable. The said view was reiterated by this court in Turner International India Pvt. Ltd. v. Dy. CIT [2017] 398 ITR 177 (Delhi) W. P. (C) Nos. 4260 and 4261 of 2015 as well Nokia India Pvt. Ltd. v. Addl. CIT WP (C) No. 3629 of 2017. The relevant portion of the judgment in Turner International India Pvt. Ltd. (supra) is reproduced hereinbelow (page 180 of 398 ITR) :

The Court ultimately opined as follows: -

Keeping in view the aforesaid, this court is of the opinion that no question of law, let alone a substantial question of law, arises in the present appeal.

This court is of the view that till the Income-tax Department ensures that the Assessing Officers follow the mandate of law, in particular, the binding provisions like section 144C and eschew filing of unnecessary appeals rather than in nearly all matters where the Assessing Officer has taken a view against the assessee, the assessments will not achieve finality for a number of years like in the present case where the case of assessment year 2007-08 stands remanded and restored to the file of the Assessing Officer."

We note that the legal position as enunciated by this Court also finds resonance in the decisions rendered by the Madras, Gujarat and Bombay High Courts in the decisions rendered in Vijay Television (P.) Ltd. v. Dispute Resolution Panel [2014] 46 taxmann.com 100/225 Taxman 35/369 ITR 113 (Mad.) 2014 SCC OnLine Mad 12885, CIT v. C-Sam (India) (P.) Ltd. [2017] 84 taxmann.com 261/398 ITR 182 (Guj.) 2017 SCC OnLine Guj 2651 and Pr. CIT v. Andrew Telecommunications (P.) Ltd. 2018 SCC Online Bom 21360 respectively.

Similarly, The Hon’ble Madras High Court in the case of Ahmed Buhari Vs. ACIT, Central Circle 2025(7) TMI 451 have held that issuance of the draft assessment order under section 144C(1) is mandatory and non issuance is not just a procedural lapse and therefore it is not curable. The consistent view of various High Courts is that failure to follow Section 144C procedure is not a procedural irregularity but a juri ictional illegality, not curable u/s 292B. The Hon’ble High Courts have consistently held that where a draft order is not issued, the final assessment is void and liable to be quashed. Participation in assessment proceedings cannot confer validity on a void order; there is no estoppel against statute.

In the present case, the AO admittedly passed final assessment orders u/s 153A without issuing draft assessment orders, despite the assessee being an eligible assessee. Respectfully following the decisions of Hon’ble Bombay High Court in the case of Barentz India (P.)(supra) and the decision of Hon’ble Delhi 29. Accordingly, the assessments passed for A.Ys. 2016-17, 2018-19, 2019-20 and 2020-21 u/s 153A without issuance of draft assessment orders u/s 144C are quashed as being void and without juri iction. 30. In the result, all appeals of the assessee are allowed. Order pronounced in the Open Court 15/12/2025. कृणवȶ सहाय

अपीलाथŎ/ The Appellant 2. ŮȑथŎ/ The Respondent 3. आयकर आयुƅ/ CIT 4. आयकर आयुƅ (अपील)/ The CIT(A) 5. िवभागीय Ůितिनिध, आयकर अपीलीय आिधकरण, चǷीगढ़/ DR, ITAT, CHANDIGARH 6. गाडŊ फाईल/ Guard File