Failure to Issue Draft Assessment Order is a Violation of Procedure: Madras HC

LI Network

Published on: 25 September 2023 at 12:15 IST

In a verdict favoring Devendran Coal International Private Limited (the petitioner), the Madras High Court has invalidated an assessment order (AO) issued by the Income Tax Officer (ITO), citing the failure of the Assessing Unit to adhere to the procedure outlined in Section 144B of the Income Tax Act.

According to the court, the Assessing Unit neglected to pass a draft assessment order, constituting a material violation of the procedure stipulated in Section 144B of the Income Tax Act, 1961.

The case originated with the completion of the initial assessment under Section 143(3) of the Income Tax Act. However, during the COVID-19 pandemic lockdown, the tax department sought to reopen the petitioner’s assessment by issuing a notice under Section 148.

The petitioner contended that they had not received the notice, while the Department argued that the notice had been posted on a web portal, thereby placing the responsibility on the petitioner to respond.

After reviewing the submissions, the Bench noted that the impugned order was issued to prevent the assessment from exceeding the time limit stipulated in Section 153 of the Income Tax Act.

The Bench observed that the Assessing Unit had not complied with the requirement of passing a draft assessment order, as mandated by Section 144B. This failure constituted a significant violation of the prescribed procedure under Section 144B.

As a result, the High Court annulled the order issued by the Income Tax officer and referred the matter back to the Department for the issuance of a new order, taking into consideration the merits and adhering to the proper procedure.

However, the High Court specified that the revoked order should be treated as a draft assessment order or a show-cause notice, giving the petitioner the opportunity to respond.

Case Title: Devendran Coal International Private Limited v. The Income Tax Officer and Ors.

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