HASMUKH DIPCHAND GARDI,MUMBAI vs. ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 5(2), MUMBAI

Q: Which sections of the Income-tax Act were involved?

Section 153A, Section 143(3), Section 144C, Section 35AC, Section 132

ITA 1306/MUM/2024Status: DisposedITAT Mumbai29 November 2024AY 2014-1530 pages

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the issue of non-compliance with Section 144C of the Act is a jurisdictional issue. It noted that the assessee is a non-resident and therefore an 'eligible assessee' as per Section 144C(15). The AO made variations prejudicial to the assessee's interest by making additions, thus mandatorily requiring the issuance of a draft assessment order before the final assessment order. The Tribunal found that the AO failed to follow this mandatory procedure. Relying on various judicial pronouncements, including the decision in the case of CIT vs. Siemens India Ltd. (2008) 297 ITR 277 (Bom), the Tribunal held that the failure to issue a draft assessment order under Section 144C when required renders the assessment order void ab initio. Consequently, the Tribunal quashed the assessment orders passed by the AO for all the assessment years under appeal. As the assessment orders were quashed on jurisdictional grounds, the Tribunal did not delve into the other grounds raised by the assessee concerning incriminating material, LTCG, Section 35AC deduction, cash in hand, rental income, and the DTAA. The operative direction was to quash the assessment orders.

What were the facts?

The assessee, Hasmukh Dipchand Gardi, a non-resident individual residing in the UK and Dubai, filed appeals against orders passed by the Commissioner of Income-tax (Appeals)-53, Mumbai. These orders pertained to assessment years 2013-14 to 2020-21, with assessments made under Section 153A/143(3) of the Income-tax Act, 1961, following search proceedings. The assessee's primary challenge is that the Assessing Officer (AO) failed to issue a draft assessment order as required by Section 144C of the Act, rendering the final assessment orders void. The assessee also raised grounds regarding the absence of incriminating material for issuing a notice under Section 153A, re-computation of long-term capital gains, disallowance of deduction under Section 35AC, ad-hoc addition of cash in hand, and the head under which rental income should be assessed.

What were the issues?

1. Whether the assessment orders passed by the AO are void and bad in law for not issuing a draft assessment order under Section 144C of the Income-tax Act, 1961, as the assessee is a non-resident and falls under the definition of an 'eligible assessee'. The assessee contends that Section 144C(1) mandates the AO to forward a draft order in the first instance when proposing any prejudicial variation, and failure to do so makes the final assessment order void, without jurisdiction, and a nullity. The revenue's contentions are not recorded. 2. Whether the assessment orders passed by the AO are liable to be quashed in the absence of any incriminating material, which is a prerequisite for issuing a notice under Section 153A of the Act. The assessee argues that without incriminating material, the assessment under Section 153A is invalid. The revenue's contentions are not recorded. 3. Whether the Commissioner of Income-tax (Appeals) erred in directing the AO to assess Long-Term Capital Gain at Rs.1,01,48,320/- as against Rs. 70,30,000/- offered by the appellant. The assessee argues that the LTCG should be assessed at the amount offered. The revenue's contentions are not recorded. 4. Whether the Commissioner of Income-tax (Appeals) erred in confirming the disallowance of Rs. 20,00,000/- claimed by the appellant under Section 35AC of the Act. The assessee argues that the deduction should be allowed. The revenue's contentions are not recorded. 5. Whether the ad-hoc addition of Rs. 1,00,000/- made by the Commissioner of Income-tax (Appeals) should be deleted. The assessee argues that the addition is arbitrary and should be deleted. The revenue's contentions are not recorded. 6. Whether the rental income of Rs. 1,30,360/- should be assessed under the head 'Income from House Property' as offered by the appellant, or under 'Income from Other Sources' as directed by the Commissioner of Income-tax (Appeals). The assessee argues for assessment under 'Income from House Property'. The revenue's contentions are not recorded. 7. Whether Article 22 ('Other Income') of the Double Taxation Avoidance Agreement (DTAA) between India and UAE should be applied to determine the country in which the income is taxable, and consequently, if the income should not be taxed in India as it is not expressly dealt with in any other article of the DTAA. The assessee argues for the application of Article 22. The revenue's contentions are not recorded.

Which sections of the Income-tax Act were involved?

Section 153A,Section 143(3),Section 144C,Section 35AC,Section 132

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