Assessment Order Invalidated for Failure to Issue Draft Order, Assessee's Appeal Allowed

The court held that the Assessing Officer's failure to issue a draft assessment order before finalizing the assessment, despite an accepted Transfer Pricing adjustment, rendered the assessment order invalid. The omission violated jurisdictional requirements under section 144C(1) of the Income-tax Act. The assessee's appeal was allowed, and the Revenue's appeal was dismissed, leading to the setting aside of the assessment order under section 143(3) of the Act.

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Issues:
Cross appeals filed by assessee and Revenue against order of CIT(A)-2, Nashik, dated 13.03.2015 relating to assessment year 2009-10 under section 143(3) r.w.s. 147 of the Income-tax Act, 1961.

Issue 1: Additional Ground of Appeal
The additional ground of appeal raised by the assessee questions the Assessing Officer's failure to follow the mandatory provisions of section 144C of the Act, specifically regarding the absence of a draft assessment order despite an upward TP adjustment made by the Transfer Pricing Officer (TPO) under section 92CA(3) of the Act.

Analysis: The issue revolves around whether the Assessing Officer's failure to issue a draft assessment order, as required by section 144C(1) of the Act, renders the subsequent assessment order illegal. The assessee argued that the omission of the draft order violates jurisdictional requirements, citing relevant legal precedents from the Hon'ble Bombay High Court and Pune Bench of the Tribunal. The contention was admitted for adjudication based on its legal nature.

Issue 2: Draft Assessment Order Requirement
The main issue is whether, upon receiving the TPO's order proposing an upward adjustment, the Assessing Officer was obligated to issue a draft assessment order before finalizing the assessment.

Analysis: Section 144C(1) of the Act mandates the Assessing Officer to forward a draft assessment order to the eligible assessee before making any prejudicial variations in income. The failure to adhere to this procedure was deemed a violation of jurisdictional requirements. The judgment extensively discusses the necessity of a draft order as per the Act's scheme and legal precedents, emphasizing the importance of following due process in assessment proceedings.

Conclusion:
The judgment concluded that the Assessing Officer's failure to pass a draft assessment order before finalizing the assessment, despite the acceptance of the TP adjustment by the assessee, rendered the assessment order without jurisdiction and invalid in law. The decision was based on the legal requirement of issuing a draft order under section 144C(1) of the Act, as highlighted by relevant judicial decisions. The appeal of the assessee was allowed, and that of the Revenue was dismissed, ultimately setting aside the assessment order under section 143(3) of the Act.

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