Delhi High Court nullifies Income Tax Department's assessment order

Delhi High Court nullifies Income Tax Department's assessment order

Says nothing is considered elementary till the superior courts interpret a section, even when the statue uses clear and explicit language

The Delhi High Court has nullified the final assessment order of the Income Tax Department over its failure to adhere to the mandatory requirement of Section 144C(1) of the Income Tax Act, 1961.

Section 144C(1), inserted in the 1961 Act by a 2009 amendment, stipulates that the Assessing Officer should forward the draft of the proposed assessment order to the eligible assessee if any variation of the income or loss returned on or after 1 October 2009 is proposed to be made to the prejudice of the assesse.

On receiving such a draft, the assesse will have an opportunity to file objections within 30 days of its receipt.

"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," a division bench of the HC comprising Justices Manmohan and Sanjeev Narula said.

The HC judgement came in the Principal Commissioner of Income Tax-4 vs Headstrong Services India Pvt Ltd. The bench held that the provision was a mandatory requirement. Failure to comply with it will invalidate the final assessment order.

The Income Tax Department had filed an appeal in the HC against an order of the Income Tax Appellate Tribunal (ITAT). ITAT had dismissed their revision due to non-compliance of Section 144C(1).

The HC expressed its displeasure with the AO and held that even though the statue used clear and explicit language, nothing is considered as elementary by the Income Tax Department till the superior courts like the High Court or the Supreme Court repeatedly interpreted a section.