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Facts
The assessee, a non-resident individual, did not file returns for AYs 2015-16 & 2016-17. The Assessing Officer initiated reassessment proceedings under Section 148, making significant additions to income and passing final assessment orders on March 30, 2022, without issuing a draft assessment order.
Held
The Tribunal held that as the re-assessment was made after April 1, 2020, the non-resident assessee qualified as an "eligible assessee" under the amended Section 144C(15)(b)(ii), making the issuance of a draft assessment order under Section 144C(1) mandatory. The AO's failure to issue a draft order before passing the final assessment order rendered the entire assessment null and void. Consequently, the Revenue's appeals were dismissed, and the assessee's cross-objections regarding the invalidity of the assessment were allowed.
Key Issues
Whether the assessment orders passed by the Assessing Officer were valid, given that a mandatory draft assessment order under Section 144C(1) was not issued to the non-resident assessee, who qualified as an 'eligible assessee' post-amendment.
Sections Cited
Section 6, Section 69, Section 69C, Section 147, Section 144B, Section 144C(1), Section 144C(15), Section 148, Rule 18(6) of ITAT Rules, Rule 46A of IT Rules 1962
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Income Tax Appellate Tribunal, DELHI
Before: SHRI VIKAS AWASTHY & SHRI NAVEEN CHANDRA
PER NAVEEN CHANDRA, ACCOUNTANT MEMBER:-
The above captioned two separate appeals by the Revenue and cross objections by the assessee are preferred against two separate orders of the NFAC, New Delhi dated 18.07.2023 and 19.07.2023 pertaining to Assessment Years 2015-16& 2016-17 respectively.
Since underlying facts are identical in the captioned appeals, they were heard together and are disposed of by this common order for the sake of convenience and brevity.
Representatives of both the sides were heard at length. Case records carefully perused. Relevant documentary evidence brought on record duly considered in light of Rule 18(6) of the ITAT Rules.
REVENUE’S APPEALS
The solitary issue raised by the Revenue reads as under: & 2849/Del/2023 CO Nos.26 & 27/Del/2024 3 A.Y. 2015-16
“Whether in the facts and circumstances of the case the ld. CIT(A) has erred in deleting the addition of :
(a) Rs. 6,62,376/- as unexplained expenditure u/s 69C and (b) Rs. 2,51,17,505/- as unexplained investment u/s 69 on the basis of additional evidence submitted by the assessee and without calling for any remand report u/r 46A of the IT Rules 1962.”
A.Y. 2016-17
“Whether in the facts and circumstances of the case the ld. CIT(A) has erred in deleting the addition of :
(a) Rs. 12,01,388/- as unexplained expenditure u/s 69C and (b) Rs. 2,79,52,252/- as unexplained investment u/s 69 on the basis of additional evidence submitted by the assessee and without calling for any remand report u/r 46A of the IT Rules 1962.”
CROSS OBJECTIONS OF THE ASSESSEE
There are two grounds raised by the Assessee in its CO which reads as under:
A.Y. 2015-16 & 2849/Del/2023 CO Nos.26 & 27/Del/2024 4 “1. On the facts and in the circumstances of the case and in law, the Learned CIT (A) has erred in confirming the validity of the Assessment order dated 30th March, 2022 passed under section 147 read with Section 144B of the Act wherein the returned income of INR 14,37,07,250 has been assessed at INR 19,75,35,477 by Ld. AO after making the addition of INR 5,38,28,230 which is bad in law and deserved to be deleted as such.
2. On the facts and circumstances of the case and in law, the Learned CIT (A) erred in confirming the action of the Learned AO wherein the Ld. AO had passed the assessment order dated 30-03-2022 under section 147 read with Section 144B of the Act without appreciating the fact that such order was passed by Ld. AO without following the due process and procedure as envisaged under section 144C (1) of the Act, as the Assessee is an eligible assessee, being a non-resident, under section 144C (15) of the Act. Hence the Assessment order dated 30-03-2022 is bad and invalid in law.
3. The Assessee craves leave to add, alter, modify, rectify and amend all or any of the Grounds of cross objections before or at the time of hearing.”
A.Y. 2016-17
“1. On the facts and in the circumstances of the case and in law, the Learned CIT (A) has erred in confirming the validity of the Assessment order dated 30th March, 2022 passed under section 147 read with Section 144B of the Act wherein the returned income of INR 31,74,280 has been assessed at INR 5.35,15,738 by Ld. AO after making the & 2849/Del/2023 CO Nos.26 & 27/Del/2024 5 addition of INR 5,03,41,438 which is bad in law and deserved to be deleted as such.
2. On the facts and circumstances of the case and in law, the Learned CIT (A) erred in confirming the action of the Learned AO wherein the Ld. AO had passed the assessment order dated 30-03-2022 under section 147 read with Section 144B of the Act without appreciating the fact that such order was passed by Ld. AO without following the due process and procedure as envisaged under section 144C (1) of the Act, as the Assessee is an eligible assessee, being a non-resident, under section 144C (15) of the Act. Hence the Assessment order dated 30-03-2022 is bad and invalid in law.
3. The Assessee craves leave to add, alter, modify, rectify and amend all or any of the Grounds of cross objections before or at the time of hearing.”
The brief facts of the case are the assessee was a non-resident individual as per the provision of section 6 of the Act. The assessee did not file his returns for the two AYs involved though he had taxable income. During the year the assessee was employed in Dubai, UAE and the main source of income was salary received from his employer in Dubai, UAF. In addition to the salary, the assessee also earned rental income, interest income on saving/fixed deposits, capital gain on sale of shares and mutual funds in India. & 2849/Del/2023 CO Nos.26 & 27/Del/2024 6 7.On the basis of certain information, the assessing officer issued notice under Section 148 dated 28.03.2021 of the Act to the assessee, in compliance to which the assessee filed his return of income declaring total income of Rs.14,37,07,250/- (for A.Y. 2015-16) and Rs.31,74,280/- (for A.Y. 2016-17). Consequent to the enquiry made by the Assessing Officer, he concluded the assessment and assessed the return of income at Rs.19,75,35,477/- (for A.Y. 2015-16) and Rs.5,35,15,738/- (for A.Y. 2016-17) vide assessment orders dated 30.03.2022.
The assessee filed appeal before the CIT(A) for both the years and the CIT(A) deleted the additions made, however he did not decide the legal ground raised by the assessee. The Revenue and the assessee both are aggrieved and before us.
The issues raised in both the Cross Objections are common and on legal ground regarding validity of the assessment order. As the validity of an order goes to the root of the matter, we decided to adjudicate the same first. & 2849/Del/2023 CO Nos.26 & 27/Del/2024 7
The Learned AR of the assessee vehemently argued that the provision of Section 144C(1) of the Act has not been followed. It is claimed by the Learned AR that the assessee was a non-resident in A.Ys. 2015-16 & 2016-17 and with the amendment brought w.e.f.
01.04.2020 in section 144C(15)of the Act, is covered as an eligible assessee. It is argued that the statute enlarged the scope of eligible assessee to include ‘any non-resident not being a company’ with effect from 01.04.2020. It is stated by the Learned AR that as the process of re-assessment commenced with the issuance of notice under Section 148 of the Act dated 28.03.2021, the assessing officer should have made assessment under section 144C, as the assessee became an ‘eligible assessee’ u/s 144C(15) with the amendment. It is the say of the assessee that as re-assessment was made on 30.03.2022 i.e. after 01.04.2020, the provisions of section 144C is applicable. It is argued by the ld AR that as per the provision of Section 144C(1) of the Act, the assessing officer should have forwarded a draft of the proposed order of assessment to the eligible assessee if he proposes to make any variation which is prejudicial to the interest of such assessee. It is vehemently submitted by the AR that the assessing officer instead of forwarding a draft order first, passed the final order dated 30.03.2022 and issued to the assessee. As there was no draft order forwarded, the & 2849/Del/2023 CO Nos.26 & 27/Del/2024 8 Assessing Officer has committed violation of Section 144C(1) of the Act and, therefore, the assessment made is null and void. It is averred that the Ld. CIT(A) has passed an order on merits and has not decided thislegal issue, which was raised before him. The Ld. Counsel of the assessee has relied upon the following case laws: i) Delhi High Court judgment in the case of Turner International India Pvt. Ltd. vs. DCIT reported in W.P.(C) 4260/2015 dated 17.05.2017. ii)ITAT, Mumbai Bench decision in the case of Marriott International Inc. vs. DCIT reported in 1784/Mum/2020 for A.Y. 2010-11 dated 12.06.2023. iii)Kerala High Court’s judgment in the case of Parameswara Krishna Kaimal reported in WP(C) No.25379 of 2022
Per contra, Learned DR has relied on the orders of the Assessing Officer. The ld DR vehemently argued that the amendment in section 144C(15) to cover ‘non-resident not being a company’ is effective from AY 2020-21 and since this is a case pertaining to AY 2015-16 and 2016- 17, hence the assessee is not covered under the amendment.
We have considered the arguments from both the sides and have carefully perused the materials on record. In order to adjudicate the & 2849/Del/2023 CO Nos.26 & 27/Del/2024 9 issue at hand we reproduce the provisions of the Act. Section 144C(1) as below:
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 first day of October, 2009, any variation which is prejudicial to the interest of such assessee.
The concept of eligible assessee has been given in Section 144C(15)(b)(ii) of the Act, as under: 15 (b) “eligible assessee’ means,- (i) xxx (ii) any non-resident not being a company, or any foreign company.
Analyzing the provisions of statute as above, we are of the considered view that assessee may not have been an eligible assessee during the period of original assessment before 01.04.2020. With the amendment brought in the statute with effect from 01.04.2020 however, the assessee, a non-resident not being a company, certainly fulfilled the criteria for being an eligible assessee as per clause 15(b)(ii) of section 144C as on that date. We say so because the Explanatory note to the amendment in section 144C explains that the & 2849/Del/2023 CO Nos.26 & 27/Del/2024 10 amendment is brought in to “expand the scope of the said section by defining eligible assessee as a non- resident not being a company”. The notes further explains that “this amendment will take effect from 1st April, 2020. Thus, if the AO proposes to make any variations after this date, in case of eligible assessee, which is prejudicial to the interest of the assessee, the above provision shall be applicable.”
In the instant case, we find that the process of re-assessment commenced with the issuance of notice under Section 148 of the Act dated 28.03.2021, when the status of the assessee was that of an ‘eligible assessee’ u/s 144C(15)(b)(ii). This being so, the assessing officer has to mandatorily make assessment under section 144C(1). We are therefore, of the considered opinion that as the re-assessment was made on 30.03.2022 i.e. after 01.04.2020, the provisions of section 144C(1) is applicable and as per the provision of Section 144C (1) of the Act, the assessing officer should have forwarded a draft of the proposed order of assessment to the eligible assessee if he proposed to make any variation which is prejudicial to the interest of such assessee. Since the assessing officer instead of forwarding a draft order first, passed the final order dated 30.03.2022, his final order is vitiated. We therefore hold that as there was no draft order & 2849/Del/2023 CO Nos.26 & 27/Del/2024 11 forwarded, the Assessing Officer has committed violation of Section 144C(1) of the Act and, therefore, the assessment is rendered null and void.
We are fortified in our view by the Delhi High Court judgment in the case of Turner International India Pvt. Ltd. vs. DCIT reported in W.P.(C) 4260/2015 dated 17.05.2017.The operative paragraph of the same is reproduced herein under :
“16. The Court is unable to accept the above submission. The legal position as explained in the above decisions in unambiguous. 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.
17. For the aforementioned reasons, the final assessment orders dated 31st March, 2015 passed by the AO for AYs 2007-08 and 2008- 09, the consequential demand notices issued by the AO and the initiation of penalty proceedings are hereby set aside.
18. The petitions are allowed in the above terms. No order as to costs.”
The Kerala High Court’s judgment in the case of Parameswara Krishna Kaimal reported in WP(C) No.25379 of 2022 also supports the & 2849/Del/2023 CO Nos.26 & 27/Del/2024 12 view taken by us. The relevant paragraph of the same is reproduced herein as under:
“6. I have considered the submissions. Section 144 C is not a substantive provision. It is machinery provision which has been incorporated for the benefit of the assessees including the eligible assessee. The NRI has been included in the definition of "eligible assessee" under Section 144C (15) (b) (ii) w.e.f. 01.04.2020 and, therefore, the assessment proceedings in respect of an NRI undertaken after the said date are to be governed under the provisions of Section 144 C. The objection of the petitioner that the petitioner ought not to have been proceeded under Section 144 C does not have merit. The assessment proceedings have been finalised under Section 144 C which is a machinery provision and in fact beneficial to the assessee. Therefore, I find no substance in the 1st objection raised by the petitioner.”
Our view is also supported by the ITAT, Mumbai Bench decision in the case of Marriott International Inc. vs. DCIT reported in 1784/Mum/2020 for A.Y. 2010-11 dated 12.06.2023. The relevant portion of the same is reproduced as under:
“7. In the instant case, it an undisputed fact that the Assessing Officer has passed the final assessment order on 31/12/2019 without passing draft assessment order. Following the decision of Co-ordinate Bench, on parity of facts and reasons we hold the assessment order & 2849/Del/2023 CO Nos.26 & 27/Del/2024 13 dated 31/12/2019 is invalid. Consequently, assessment order is quashed and the appeal of assessee is allowed.”
In conclusion we hold that as the assessee was an “eligible assessee” being a non-resident not being a company or any foreign company as on the date of issue of notice u/s 148, the Assessing Officer was obligated to pass a draft of the proposed order of the assessment under Section 144C(1) of the Act if he had proposed to make any variation which is prejudicial to the interest of such assessee. The Assessing Officer committed a breach of established and mandatory law by passing a final order for the assessee without giving a draft order. We also find that the Ld. NFAC has not adjudicated on the issue of legal validity of the order and has passed the order on merits though in favour of the assessee. In our considered opinion as the Assessing Officer has failed to adhere to the law, he has walked into the territory where the order made by him would stand as null and void. We hold accordingly. As the legal ground raised by the assessee has been decided in his favour, we are not giving any opinion on the merits of the case. The appeals of the Revenue are thus, dismissed and Cross Objections of the assessee are allowed. & 2849/Del/2023 CO Nos.26 & 27/Del/2024 14
In the result, the appeals of the Revenue in & 2849/DEL/2023 are dismissed and the cross objections of the assessee in CO Nos. 26&27/DEL/2024 are allowed.
The order is pronounced in the open court on. 26.07.2024 in the presence of both the rival representatives.