Court quashes assessment order for failure to provide draft order, emphasizing procedural compliance

The court quashed and set aside the impugned assessment order dated 7th February, 2020, for the assessment year 2006-07, due to the failure of Respondent No.1 to provide the petitioner, an eligible assessee, with a draft assessment order as required under Section 144C of the Income Tax Act, 1961. The court emphasized the importance of adhering to procedural requirements to protect the interests of eligible assessees and ensure a fair assessment process.

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Issues:
1. Failure to provide draft assessment order under Section 144C of the Income Tax Act, 1961.

Analysis:
The petitioner challenged an order dated 7th February, 2020, for the assessment year 2006-07, passed by Respondent No.1. The main ground of challenge was the failure to provide the petitioner, an eligible assessee as per Section 144C of the Act, with a draft of the proposed assessment order before making any prejudicial variations to the income or loss returned. The petitioner contended that as per Section 144C(1) of the Act, the Assessing Officer is obligated to forward a draft order to the eligible assessee if proposing variations prejudicial to their interest.

The petitioner argued that they fell under the definition of an eligible assessee as per Clause (b)(i) of Sub Section 15 of Section 144C, which includes any person in whose case the variation arises as a consequence of the order of the Transfer Pricing Officer. The case involved giving effect to an order passed by the Income Tax Appellate Tribunal (ITAT) related to transfer pricing issues. The petitioner claimed that the order was also time-barred under Sub Section 7 of Section 153 of the Act. The absence of a draft assessment order before passing the final impugned order was a crucial point of contention.

Upon hearing both parties, the Respondent No.1's counsel acknowledged the applicability of Section 144C of the Act and admitted that a draft assessment order should have been issued as per Sub Section (1) of Section 144C. The counsel also conceded that failure to issue the draft assessment order before the final assessment order necessitates setting aside the order. The court, after reviewing the petition and the impugned order, noted the absence of a draft assessment order and consequently quashed and set aside the impugned order dated 7th February, 2020, along with all consequential orders.

In conclusion, the petition was disposed of with no order as to costs, highlighting the significance of complying with the procedural requirements under Section 144C of the Income Tax Act, 1961, to safeguard the interests of eligible assessees and ensure a fair assessment process.

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