Assessment Order Invalid Due to Jurisdictional Error: Non-compliance with Section 144C Nullifies Assessment and Imposes Costs.

The court concluded that the Assessing Officer (AO) lacked jurisdiction by issuing a final assessment order without a draft order and without allowing the assessee to object before the Dispute Resolution Panel (DRP), as required by Section 144C of the Income Tax Act. The assessment order was deemed null and void. The appeal was dismissed, confirming the ITAT's order, with costs of Rs. 11,000 imposed on the appellant for non-compliance with mandatory procedures. This underscores the necessity of adhering to statutory procedural requirements.

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Issues Involved:
1. Validity of the remand assessment by the Assessing Officer (AO) under Section 144C of the Income Tax Act, 1961.
2. Jurisdiction and procedural adherence by the AO in passing the final assessment order.
3. Whether the procedural irregularity in not following Section 144C is curable or renders the assessment order void ab initio.

Detailed Analysis:

1. Validity of the Remand Assessment by the AO under Section 144C:
The core issue revolved around the remand assessment conducted by the AO without adhering to the procedures mandated by Section 144C of the Income Tax Act, 1961. The ITAT had directed the AO to decide the matter de novo, implying the need for a fresh hearing as if the original hearing had not taken place. The AO was required to follow the elaborate procedure outlined in Section 144C, including issuing a draft assessment order and providing the assessee an opportunity to object before the Dispute Resolution Panel (DRP).

2. Jurisdiction and Procedural Adherence by the AO:
The AO's failure to issue a draft assessment order and directly passing a final assessment order was a significant procedural lapse. Section 144C envisages a change of forum and complete cessation of the AO's jurisdiction upon the passing of the draft order. The AO is then required to give effect to the DRP's directions or pass an order based on the assessee's acceptance. The ITAT and the High Court both emphasized that the AO must adhere to the procedures mandated by Section 144C, and any deviation from this would render the assessment order null and void.

3. Curability of Procedural Irregularity:
The appellant contended that the failure to follow Section 144C was merely a procedural irregularity. However, the court held that failure to adhere to the mandatory procedure prescribed under Section 144C vitiates the entire proceedings and cannot be treated as a curable defect. This view was supported by precedents from various High Courts and the Supreme Court, which consistently held that non-compliance with Section 144C renders the final assessment order without jurisdiction, null, and void.

Court's Reasoning:
The court reasoned that once the ITAT directed the AO to decide the matter de novo, it necessitated a fresh hearing following the procedures of Section 144C. The expression 'in the first instance' in Section 144C signifies the initial step in a series of actions the AO must undertake, including issuing a draft assessment order and allowing the assessee to object before the DRP. The court emphasized that any deviation from this procedure would invalidate the assessment order.

Conclusion:
The court concluded that the AO wrongfully assumed jurisdiction and passed the final assessment order without issuing a draft assessment order and without giving the respondent/assessee an opportunity to raise objections before the DRP. Consequently, the court dismissed the appeal, confirming the ITAT's order, and imposed costs on the appellant for failing to follow the mandatory legal provisions.

Costs:
The appellant was ordered to pay costs of Rs. 11,000 to the Delhi High Court Legal Services Committee.

This comprehensive analysis highlights the importance of strict adherence to procedural mandates under the Income Tax Act, specifically Section 144C, and underscores the judiciary's role in ensuring compliance with statutory provisions.

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