Error of Sending Demand Notice along with Draft Assessment Order couldn’t be Cured u/s 292B: HC

Case Details: CIT (International Taxation) v. Cisco Systems Services B.V. - [2023] 149 taxmann.com 486 (Karnataka)

Judiciary and Counsel Details

• • P.S. Dinesh Kumar & Ramachandra D. Huddar, JJ.
  • K.V. Aravind, Sr. Standing Counsel for the Appellant.
  • Nageshwar Rao, Adv. for the Respondent.

Facts of the Case

Assessee-Company was incorporated and registered in Amsterdam. It had its branch office in India and provided technical advanced professional engineering and consultancy services. For the relevant assessment years, the assessee received a notice of demand under section 156 along with a draft assessment order under section 143(3) passed by the Assistant Commissioner.

Subsequently, the case was taken up for reassessment based on the information collected during the survey and Assessing Officer (AO) passed the final assessment order under section 147 read with section 144C by making certain addition.

High Court Held

On appeal, the Tribunal deleted the additions, and the matter reached Karnataka High Court.

The Court held that assessment is one integrated process involving the assessment of total income and the determination of the tax. In this case, at the stage of passing the draft order, the Assistant Commissioner had assessed the tax, passed a final order, and issued a demand notice.

Section 144C lays down a detailed procedure. Under section 144C(1), the AO is required to forward a draft of the proposed order of assessment to the assessee. Assessee may file its acceptance or objection before the DRP and the AO. The AO shall complete the assessment if the assessee confirms its acceptance or no objections are received within 30 days.

Where the DRP receives any objection from the assessee, it shall issue necessary directions to the Assessing Officer to enable him to complete the assessment after considering the documents/material mentioned in section 144C(6)(a) to (g), which includes the draft order. Before issuing the directions, the DRP may also make such further enquiry by any Income-tax Authority.

Further, upon receipt of the directions from DRP under section 144C(5), the AO shall complete the assessment within the prescribed time limit.

After that, a notice of demand under section 156 may be issued after completion of the assessment under section 144C(13).

It is settled that the demand notice stems from an order of assessment and is enforceable, and it meets the assessee with civil consequences. The argument raised by the AO that the demand notice was not enforced was fallacious and noted only to be rejected. Further, the argument that any mistake or defect shall not invalidate the draft assessment order as per Section 292B and it was a curable defect also rejected.

List of Cases Reviewed

• • Vijay Television (P.) Ltd. v. DRP [2014] 46 taxmann.com 100/225 Taxman 35/369 ITR 113 (Mad.) (para 17)
  • Kalyan Kumar Ray v. CIT [1991] 191 ITR 634 SC (para 20) followed.
  • Cisco Systems Services B.V. v. Dy. CIT (IT) [2022] 136 taxmann.com 354/194 ITD 135 (Bang. – Trib.)
  • Cisco Systems Services B.V. v. Dy. CIT [IT (IT) Appeal No. 961 of 2017, dated 19-1-2022]
  • Cisco Systems Services B.V. v. Dy. CIT (IT) [2022] 136 taxmann.com 118/193 ITD 809 (Bang. – Trib.) (para 23) affirmed.

List of Cases Referred to

• • Vijay Television (P.) Ltd. v. DRP [2014] 46 taxmann.com 100/225 Taxman 35/369 ITR 113 (Mad.) (para 9)
  • Zuari Cement Ltd. v. Asstt. CIT [W.P. No. 5557 of 2012, dated 21-2-2013] (para 19)
  • Kalyan Kumar Ray v. CIT [1991] 191 ITR 634 SC (para 20).